e20vf

Ciba Specialty Chemicals Holding Inc.
(Exact name of Registrant as specified in its charter)

Klybeckstrasse 141
4002 Basel
Switzerland
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

*Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of
the Securities and Exchange Commission.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by
the annual report, December 31, 2003.

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

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


			Page

Introduction				1

Currency Translation				1

Cautionary Statement Regarding Forward-Looking Statements				1

PART I				2

	Item 1.	Identity of Directors, Senior Management and Advisors (N/A)		2

	Item 2.	Offer Statistics and Expected Timetable (N/A)		2

	Item 3.	Key Information		2

	Item 4.	Information on the Company		9

	Item 5.	Operating and Financial Review and Prospects		28

	Item 6.	Directors, Senior Management and Employees		56

	Item 7.	Major Shareholders and Related Party Transactions		71

	Item 8.	Financial Information		72

	Item 9.	The Offer and Listing		73

	Item 10.	Additional Information		76

	Item 11.	Quantitative and Qualitative Disclosures About Market Risk		81

	Item 12.	Description of Securities Other than Equity Securities (N/A)		81

PART II				82

	Item 13.	Defaults, Dividend Arrearages and Delinquencies		82

	Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		82

	Item 15.	Controls and Procedures		82

	Item 16.	[Reserved]		82

	Item 16A.	Audit Committee Financial Expert		82

	Item 16B.	Code of Ethics		82

	Item 16C.	Principal Accountant Fees and Services		82

	Item 16D.	Exemptions from the Listing Standards for Audit Committees (N/A)		82

PART III				83

	Item 17.	Financial Statements		83

	Item 18.	Financial Statements		83

	Item 19.	Exhibits		83

Signature				85

This Annual Report on Form 20-F relates to the registered shares with a nominal value of 6 Swiss francs per share (the “Shares”) of Ciba Specialty Chemicals Holding Inc., the American Depositary Shares (“ADSs”), each representing one half of one Share, and the American Depositary Receipts (“ADR”) evidencing the ADSs under the Deposit Agreement among the Company, Citibank, N.A. (the “Depositary”), and the registered holders and beneficial owners from time to time of the ADRs.

In this Annual Report, “Company” refers to Ciba Specialty Chemicals Holding Inc. and its consolidated subsidiaries. In certain cases, where indicated or where the context requires it, “Company” refers to Ciba Specialty Chemicals Holding Inc.

The consolidated financial statements and selected consolidated financial data as of December 31, 2003, 2002, 2001, 2000 and 1999, and for each of the years in the five-year period ended December 31, 2003 (the “Consolidated Financial Statements”), included in this Annual Report, have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Statements in this Annual Report with respect to such financial information are based on U.S. GAAP information.

All market share data contained in this Annual Report is based on management’s estimates.

Unless otherwise indicated, all amounts herein are expressed in Swiss francs (“CHF”) or United States dollars (“U.S. dollars”, “dollars”, “USD”, “US$” or “$”). Amounts stated in U.S. dollars, unless otherwise indicated, have been translated from Swiss francs at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2003, which was CHF 1.24 per US$ 1.00. This rate should be used solely for convenience and should not be construed as a representation that the Swiss franc amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all. This rate may differ from the actual rates used in the preparation of the Consolidated Financial Statements of the Company as of December 31, 2003, 2002 and 2001, and for each of the years in the three year period ended December 31, 2003, included in Item 18 of this Annual Report, which are expressed in Swiss francs. Accordingly, U.S. dollar amounts appearing herein may differ from the actual U.S. dollar amounts that were translated into Swiss francs in the preparation of such financial statements.

This Annual Report contains certain forward-looking statements and information with respect to the financial condition, results of operations and business of the Company and certain of the plans, objectives and market position of the Company with respect to these items that are based on beliefs of the Company’s management as well as assumptions made by and information currently available to the Company. In particular, among other statements, certain statements in “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” with regard to trends, revenues, costs, net income, accounting policies, market size, market share, market demands, volumes, prices, margins, research and development, capital expenditures, cash flows, debt levels, patents, outlooks, the effect of technological developments, strategy and management objectives, opinions and beliefs and sufficiency of environmental reserves and insurance arrangements are forward-looking in nature. Such statements reflect the current views of the Company with respect to market conditions and future events and are subject to certain risks, uncertainties and assumptions. Investors are cautioned that all forward-looking statements involve risks and uncertainty as there are certain important factors that could cause actual results, performance or events to differ materially from those anticipated including, but not limited to, the following: the timing and strength of new product offerings, pricing strategies of competitors, introduction of competing products by other companies, lack of acceptance of new products and services by the Company’s targeted customers, changes in the Company’s business strategy, the Company’s ability to continue to receive adequate raw materials from its suppliers on acceptable terms, or at all, or to continue to obtain sufficient financing to meet its liquidity needs, the effects of the Company’s reorganization and restructuring and changes in the political and regulatory framework in which the Company operates or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis and various other factors. All forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, the Company does not assume any obligation to update these forward looking statements. For more information regarding some of these factors, see “Item 3. Key Information – Risk Factors.”

The tables below set forth selected consolidated financial data for the Company for the periods indicated and are qualified by reference to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and the Notes thereto, which are included elsewhere in this Annual Report, and “Item 5. Operating and Financial Review and Prospects”.

The selected consolidated financial data as of December 31, 2003, 2002, 2001, 2000 and 1999, and for each of the years in the five-year period ended December 31, 2003, have been taken or are derived from the audited consolidated financial statements of the Company for the relevant periods. The selected financial data have been prepared in accordance with U.S. GAAP.


	2003			2002			2001			2000			1999

Results of operations
Net sales		6 646			7 085			7 367			7 902			7 244
Operating income		571			788			761			876			632
Income from continuing operations, net of tax^{(1) (4) (5)}		360			406			380			418			238
Income from discontinued operations, net of tax⁽⁵⁾		—			—			—			34			87
Cumulative effect of change in accounting principles, net of tax		(16	)⁽²⁾		—			2	⁽³⁾		—			—
Net income^{(1) (4)}		344			406			382			452			325
Earnings per share, basic and diluted
Continuing operations^{(1) (4)}		5.26			5.92			5.72			6.31			3.58
Discontinued operations⁽⁵⁾		—			—			—			0.50			1.31
Cumulative effect of change in accounting principles		(0.23	)⁽²⁾		—			0.04	⁽³⁾		—			—
Net income per share, basic and diluted^{(1) (4)}		5.03			5.92			5.76			6.81			4.89
Equity per share		62.64			63.16			59.08			56.82			54.74
Dividend per share⁽⁶⁾		—			—			2.00			2.00			2.00
Capital reduction per share⁽⁶⁾		3.00			3.00			1.00			—			—
Weighted average number of shares outstanding
Basic		68 361 123			68 549 964			66 419 147			66 311 879			66 454 357
Diluted		68 361 123			68 575 058			66 419 147			66 311 879			66 462 898
Other data – continuing operations
Net sales development percentage		(6	)%		(4	)%		(7	)%		9	%		9	%
Operating income		571			788			761			876			632
Depreciation and amortization of other intangible assets		366			385			408			406			402
Amortization of goodwill		—			—			61			64			52
Restructuring and special charges		—			—			—			2			—
EBITDA⁽⁹⁾, before restructuring and special charges		937			1 173			1 230			1 348			1 086
EBITDA margin⁽⁹⁾, before restructuring and special charges		14.1	%		16.6	%		16.7	%		17.1	%		15.0	%
Operating income margin		8.6	%		11.1	%		10.3	%		11.1	%		8.7	%
Capital expenditures		233			250			259			249			267
Research and development		281			294			276			293			256
Personnel costs		1 713			1 752			1 796			2 047			1 836
Number of employees at year end (unaudited)		18 658			19 007			19 683			20 306			20 117
Balance sheet data
Current assets		4 939			5 314			4 827			4 797			4 272
Property, plant and equipment, net		2 963			3 196			3 565			3 787			3 914
Total assets		11 098			11 792			11 718			12 105			12 407
Short-term debt		259			1 496			316			371			1 174
Long-term debt		3 187			2 344			3 678			3 859			4 265
Common stock		433			649			721			721			721
Shareholders’ equity		4 245			4 354			3 908			3 754			3 638


	2003			2002			2001			2000			1999

Business segment data⁽⁷⁾
Plastic Additives
Net sales		1 722			1 813			1 834			1 959			1 784
Operating income		178			245			275			319			279
Depreciation and amortization of other intangible assets		94			101			113			104			98
EBITDA		272			346			388			423			377
EBITDA margin		15.8	%		19.1	%		21.1	%		21.6	%		21.1	%
Operating income margin		10.3	%		13.5	%		15.0	%		16.3	%		15.6	%
Coating Effects
Net sales		1 807			1 920			1 944			2 118			1 955
Operating income		300			341			312			371			307
Depreciation and amortization of other intangible assets		97			99			99			104			96
EBITDA		397			440			411			475			403
EBITDA margin		22.0	%		22.9	%		21.1	%		22.4	%		20.6	%
Operating income margin		16.6	%		17.7	%		16.1	%		17.5	%		15.7	%
Water & Paper Treatment
Net sales		1 349			1 409			1 486			1 558			1 408
Operating income		85			98			65			92			50
Depreciation and amortization of other intangible assets		83			88			92			95			101
EBITDA		168			186			157			187			151
EBITDA margin		12.5	%		13.2	%		10.6	%		12.0	%		10.7	%
Operating income margin		6.3	%		7.0	%		4.4	%		5.9	%		3.6	%
Textile Effects
Net sales		1 401			1 544			1 673			1 841			1 683
Operating income		69			142			181			204			116
Depreciation and amortization of other intangible assets		60			66			67			71			63
EBITDA		129			208			248			275			179
EBITDA margin		9.2	%		13.5	%		14.8	%		14.9	%		10.6	%
Operating income margin		4.9	%		9.2	%		10.8	%		11.1	%		6.9	%
Home & Personal Care
Net sales		367			399			430			426			414
Operating income		32			56			67			58			62
Depreciation and amortization of other intangible assets		26			26			28			22			23
EBITDA		58			82			95			80			85
EBITDA margin		15.7	%		20.6	%		22.2	%		18.8	%		20.5	%
Operating income margin		8.8	%		14.0	%		15.7	%		13.5	%		15.0	%
Discontinued operations⁽⁸⁾
Net sales		—			—			—			774			1 729
Operating income		—			—			—			57			131
Gain on sale, net of tax		—			—			—			34			—

(5)		The 2000 income from discontinued operations of CHF 34 million represents the gain on sale of discontinued operations, net of tax for the Company’s Performance Polymers business which was sold on May 31, 2000. This gain includes income from continuing operations, net of taxes, of CHF 37 million and a CHF (3) million loss from the sale of the net assets of the Performance Polymers business. (See footnote (8) below).

(6)		For 2003 the Board of Directors proposes to carry forward the entire retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a dividend. The Board of Directors, however, proposes a cash payment to its shareholders resulting from a capital reduction of CHF 3 per share. The capital reduction is subject to shareholder approval at the Annual General Meeting to be held on February 26, 2004. If approved the capital reduction will take the form of a reduction in the nominal value of each share from CHF 6 per share by CHF 3 per share to CHF 3 per share. The Company expects, subject to various conditions and approval, that the payment of the capital reduction will be made to the shareholders on May 14, 2004. The proposed capital reduction, based on the USD exchange rate of December 31, 2003 is USD 2.42 per share. Based on the USD exchange rate at the payment date of May 23, 2003, the 2002 capital reduction per share was USD 2.32 and at the payment date of June 28, 2002, the 2001 capital reduction per share was USD 0.67. Based on the USD exchange rate at the respective payment dates of the 2001, 2000 and 1999 dividends, the USD equivalent of the dividend per share was USD 1.19, USD 1.23 and USD 1.25, respectively.

(7)		In 2002, the Company implemented SFAS No. 142 “Goodwill and Other Intangible Assets”. As a result of adopting this standard, the Company reclassified certain goodwill and other intangible assets to the segments that were previously reported as corporate items and not allocated to the segments. In addition, the Company reclassified goodwill amortization that was previously allocated to the segments to corporate and reclassified other intangible amortization from corporate to the segments corresponding to the other intangible asset reclassification. Amounts reported for the previous periods have been restated to conform to the 2002 presentation.

(8)		Reflects the results of the Performance Polymers business as a discontinued operation due to its sale on May 31, 2000. The results represent substantially all of the operations of the Performance Polymers division’s business and do not include an allocation of the Company’s interest costs or unallocated corporate general and administrative expenses. For 2000, the results are for the five month period ended May 31, 2000, the date of the divestment. Included in the Performance Polymers results is goodwill amortization of CHF 4 million in 2000 and CHF 10 million in 1999.

(9)		EBITDA, and EBITDA margin derived there from, are non-U.S. GAAP financial measures. See “Item 5. Operating and Financial Review and Prospects — Use of Certain Supplementary Financial Indicators” for further information regarding the use of these measures.

The table below sets forth, for the periods indicated, the average, high, low and period-end Noon Buying Rate for Swiss francs expressed in Swiss francs per U.S. dollar.


Year		Average⁽¹⁾		High		Low		Period End

1999			1.5151		1.5991		1.4163		1.5991
2000			1.6930		1.8250		1.5526		1.6202
2001			1.6893		1.8185		1.5878		1.6598
2002			1.5566		1.7190		1.3833		1.3833
2003			1.3374		1.4181		1.2380		1.2380
Months
2003	January				1.4015		1.3512		1.3683
	February				1.3745		1.3493		1.3557
	March				1.4000		1.3247		1.3538
	April				1.3995		1.3537		1.3545
	May				1.3480		1.2851		1.3022
	June				1.3519		1.2973		1.3519
	July				1.3818		1.3412		1.3736
	August				1.4181		1.3475		1.4005
	September				1.4133		1.3208		1.3208
	October				1.3382		1.3067		1.3382
	November				1.3737		1.2917		1.2917
	December				1.3003		1.2380		1.2380
2004	January (through January 30)				1.2659		1.2190		1.2593

Prospective purchasers and existing holders of the ADSs of the Company should consider carefully all of the information set forth in this Annual Report and, in particular, should evaluate the following risks in connection with an investment in the ADSs. Information contained or incorporated by reference in this Annual Report contains “forward-looking statements” which can be identified by the use of forward-looking terminology such as “believes”, “opinion”, “expects”, “may”, “will”, “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Such statements include, without limitation, the Company’s beliefs about trends in the global economy, in the specialty chemicals industry and its views about the long-term future of the industry and the Company. See “Item 5. Operating and Financial Review and Prospects” and “Item 4. Information on the Company.” No assurance can be given that the future results covered by the forward-looking statements will be achieved. The following matters constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements.

The Company is subject to various changing competitive, economic, political, legal and social conditions, including the following:

As an international business, the Company is exposed to various global economic, political, social and local business risks that may have a material adverse effect on its financial condition and results of operations.

The Company has a small home market for its products and has for many years operated on a global basis. The Company currently has manufacturing facilities in 25 countries and sales organizations in more than 120 countries. This means the Company is faced with different complex legal and regulatory requirements in many jurisdictions. These include tariffs and trade barriers, requirements relating to withholding taxes on remittances and other payments by subsidiaries and different intellectual property regimes. The Company’s international operations also expose it to different local business risks and challenges. The Company’s overall success as a global business depends, in part, upon its ability to succeed in differing economic, social and political conditions. The Company may not continue to succeed in developing and implementing policies and strategies that are effective in each location where it does business.

The Company’s results of operations and financial position also are affected by developments and trends in the world economy. The year 2003 was, for example, characterized by a continuous uncertain economic environment. The expected economic recovery in the United States and the rest of the NAFTA region did not fully occur. European economies, particularly the German, United Kingdom and French economies continued to remain weak. Economic performance in South America softened, compared to 2002, having been affected by the political and economic crises in the region. In the Asia-Pacific region, the Japanese market has not yet recovered from its lows of 1999, remaining sluggish throughout 2003. The China Region continued to grow, with real GDP growth remaining at between 7 to 8 percent. In most of the regions of the world, with the exception of China, the industrial sector growth was below total GDP growth. This was particularly accentuated in the United Kingdom. In the United States consumer demand remained relatively stable, due to significant incentives and rebates in several market sectors, particularly in the automotive sector. The war in Iraq contributed significantly to the uncertainty in the global economic environment in 2003.

The economic conditions in the NAFTA, Europe, and parts of Asia-Pacific, particularly Japan may continue to worsen or not fully recover, which could have a material adverse effect on the Company’s results of operations and financial position. In addition, an adverse development in the political and social stability in the regions where the Company operates, may have a material adverse effect on the Company’s results and financial condition.

The Company currently has operations in more than 120 countries, and its results of operations may be adversely affected by currency fluctuations.

The results of the operations and the financial position of the Company’s subsidiaries outside of Switzerland are reported in the relevant foreign currencies and then translated into Swiss francs at the applicable exchange rates for inclusion in the Company’s Consolidated Financial Statements. The exchange rates between these currencies and the Swiss franc may fluctuate substantially. Because the Company generates a significant percentage of its revenues and a substantially lower percentage of its operating expenses in currencies other than the Swiss franc, fluctuations in the value of the Swiss franc against other currencies have had in the past, and may have in the future, a material effect on the Company’s operating margins as well as its competitive position compared with local producers in affected markets. Currency fluctuations also may significantly affect the comparability of the Company’s results between financial periods. The Company’s results and financial condition are particularly affected by significant changes in the value of the Swiss franc, euro, U.S. dollar, Japanese yen, and British pound relative to each other. For more information, see “Item 5. Operating and Financial Review and Prospects – Currency Trends” in this Annual Report.

Significant competition may force the Company to reduce its product prices which may adversely impact its results of operations.

The Company faces significant competition in the markets in which it operates. Although competition in specialty chemicals is based upon a number of considerations, such as product innovation, product range and quality, relationships with customers, reliability of delivery, technical support and distribution capability, price competition does exist in certain of the Company’s markets due to factors such as industry overcapacity and low-cost local competition. Increased price competition may also occur in certain product areas due to consolidation and globalization among the Company’s customers and competitors and as industry segments mature. As a result of the trends toward global expansion and consolidation by competitors, the Company anticipates that it will continue to face new competitive challenges, continued price competition as well as additional risks inherent in international operations in developing regions.

The Company’s inability to remain technologically innovative and to offer improved products and applications cost-effectively could negatively impact its operating results.

The Company’s operating results depend to a significant extent on its ability to be a low-cost producer of its core products and to continue to introduce new products and applications that offer distinct value in use for its customers. In many of the industry sectors to which the Company sells its products, products are subject to a traditional product life cycle. The Company must devote significant resources to the development of new technologically advanced products and applications, and the Company may not be successful in these efforts at all times.

The cyclicality in the various industries served by the Company may have a material adverse effect on the Company’s business and financial condition.

The Company’s results are affected by cyclicality in various industries served directly or indirectly by the Company, including the automotive, plastics, textiles and clothing, paper, packaging, paint and coating, electronics and construction industries. Such cyclicality in specialty chemicals is, however, less pronounced than in base chemicals. The Company’s results of operations and financial position have in the past been affected adversely, for example, by slow growth in the textile and paper industries, reduced demand in the automotive industry and by declining demand in a number of industries. The cyclical nature of pricing and investment in the specialty chemicals business is likely to continue, and the Company will continue to experience periods of overcapacity, declining prices and lower profit margins. In addition, external factors beyond the Company’s control, such as general economic conditions, competitors’ actions, international events and circumstances and governmental regulation in the United States and in other foreign jurisdictions, can cause volatility in raw material prices and product demand, as well as fluctuations in the Company’s prices, volumes and margins.

The Company depends upon proprietary technologies, and its competitive position may be adversely affected if it fails to protect its intellectual property rights or is subject to claims that it is infringing upon the rights of others.

Proprietary rights are important to the success and competitive position of the Company. If the Company is unable to maintain the relative exclusivity of certain of its products following patent expiration, through manufacturing scale, technical know-how, advanced applications and service expertise, increased competition may result with consequent erosion of profit margins. Actions taken by the Company to protect its proprietary rights may be insufficient to prevent others from developing similar products to those of the Company. In addition, the laws of many foreign countries do not protect the Company’s intellectual property rights to the same extent as the laws of Switzerland, other European countries, the United States and Japan.

The Company has in the past received and may continue to receive in the future communications asserting that certain of its products or their applications infringe on the proprietary rights of others. In the recent past, the Company has experienced a significant increase in intellectual property conflicts, either initiated by the Company or by third parties. In management’s opinion there is no material pending litigation against the Company regarding any intellectual property claim but there could be in the future. Such legal proceedings or claims, with or without merit, and whether initiated by the Company or another party, could subject the Company to costly and time-consuming litigation and divert its research, technical and management personnel from their regular responsibilities. Furthermore, successful legal proceedings or claims against the Company could suspend the development and manufacture of products using the contested invention, or require the Company to pay substantial penalties or royalties.

Any disruption or deterioration in the quality of the raw materials available for the Company’s products may have a material adverse effect on the results of the Company’s operations.

The Company utilizes specialty chemicals and base chemicals as its main raw material in its manufacturing process. Raw material costs represent a significant component of the Company’s cost of goods sold. The prices and availability of these raw materials vary with market conditions and can be highly volatile. As a result of these factors, the Company’s operating margins may decrease if it cannot pass on increased raw material prices to customers, if prices for its products decrease faster than raw material prices or if the price it pays under long-term supply contracts is above the market price.

There have been in the past, and may be in the future, periods of time during which raw material price increases cannot be passed on to customers in whole or in part. Even in periods during which raw material prices decrease the Company may suffer decreasing operating profit margins if raw material price reductions occur at a slower rate than decreases in the selling prices of its products. Historically, the Company typically has not entered into significant hedging arrangements with respect to prices of raw materials but the Company has entered into long-term supply contracts for some raw materials. Any major dislocation in the supply or price of these raw materials or any material difference between the price the Company pays under its supply contracts and market price may have a material adverse effect on its financial condition and results of

operations. Additionally, the Company requires raw materials to be of a satisfactory standard for manufacturing its products. Any deterioration in the quality of the raw materials available to the Company may adversely impact the Company’s ability to manufacture its products to an acceptable standard and may have a material adverse effect on the results of its operations. Even if it could obtain acceptable substitute raw materials, the Company could incur increased expenses in securing the raw materials from an alternative source and suffer reduced profit margins and an adverse impact on its business.

Environmental laws and regulations may expose the Company to liability and result in increased costs.

The Company’s business is subject to stringent environmental laws and regulations in the various countries in which it operates. Such laws and regulations govern, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. As with other companies engaged in similar activities, a risk of environmental liability is inherent in its current and historical activities. See “Item 4. Information on the Company – Environmental Matters” in this Annual Report.

The EU Chemicals Policy, if adopted by the appropriate EU bodies and Member States in its current draft form (as published 29th October) would require all companies to register with defined data requirements, their substances manufactured or imported in the EU at levels above 1 ton per year. Whilst presently, the Company cannot assess the complete impact of the EU Chemicals Policy, it believes that the proposed regulatory system will be highly resource intensive and therefore costly to industry and regulators alike. At present, the exact timing of the legislative process and the resulting definitive regulations cannot be estimated.

The Company’s business may be adversely affected by rigorous health and safety regulation.

Certain of the Company’s products are subject to rigorous health and safety regulations. There is a risk that key raw materials or one of the Company’s products may be recharacterized as or found to have a toxicological or health related impact on the environment or on its customers or employees. Health and safety regulations are continually strengthened and relevant raw materials or products may be banned or the Company may incur increased costs in complying with new requirements.

Liabilities arising from the development, manufacturing and use of the Company’s products may adversely impact the Company’s financial condition.

The Company’s operations are subject to various hazards associated with the production of chemicals, including the use, handling, processing, storage and transportation of hazardous materials. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, and environmental damage, and may result in the suspension of operations and the imposition of civil and criminal liabilities. The Company has been subject to claims of injury from direct exposure to such materials and from indirect exposure when such materials are incorporated into other companies’ products. As a result of past or future operations, there may be additional claims of injury by employees or members of the public due to exposure, or alleged exposure, to such materials. Furthermore, the Company also has exposure to present and future claims with respect to workplace exposure, workers’ compensation and other matters arising from events both prior to and after the date of this Annual Report. The Company cannot predict the actual amount of these liabilities or the timing thereof, if any.

Change of control provisions and limitations on shareholder voting rights may render the Company an unattractive target for any transaction in which the Company’s investors could receive a premium for their Shares or ADSs.

Certain contractual arrangements with Novartis and restrictions on the voting rights of shareholders of the Company may make an acquisition of the Company less likely, and thus may limit any opportunity for the Company’s shareholders to receive a premium for their Shares or ADSs. Similarly, the Company may face adverse tax consequences in foreign jurisdictions if certain material parts of the business are divested. Accelerated vesting provisions and the elimination of restriction periods under one or more employee incentive plans instituted by the Company could result in a significant cost to the Company in the event of a change of control not recommended by the Company’s board of directors.

Additionally, a change in control of the Company or a sale of substantially all the assets of the Company could relieve Novartis of its contractual obligation to indemnify the Company for a portion of specified environmental liabilities arising from prior activities of the predecessor of the Company in the United States.

Pursuant to the Company’s articles of association, no shareholder or group of shareholders of the Company will be recognized in the Company share register as owning the voting rights of more than 2 percent of the Company’s share capital. No shareholder or group of shareholders may represent more than 5 percent, by proxy or otherwise, of the Company’s share capital at a shareholders’ meeting.

Under certain circumstances, the Company may not be permitted to continue to use the name “CIBA”, which could adversely affect its brand name recognition and its results of operations.

Pursuant to an agreement between the Company and Novartis, the Company is permitted to use “Ciba Specialty Chemicals” as part of its registered corporate name, while Novartis may continue to use the name “Ciba” in the Ciba Vision Group and in certain other cases. The Company is entitled to use the “Ciba” trademarks and trade names outside the core business of Novartis (pharma specialties, pharma OTC and generics, eyecare, crop protection, seeds, animal health and nutrition). Novartis remains entitled to continue to use trademarks and trade names containing the term “Ciba” as they were being used at the date of the Spin-off. In addition, Novartis is entitled to use trademarks and tradenames containing the term “Ciba” in the areas for its marketing concept for the “Ciba” line of pharmaceutical products and for products and

services of the Ciba Vision Group. In addition, the Master Spin-off Agreement entered into by the Company and Novartis includes provisions which specify that upon the occurrence of certain change of control events or acquisitive transactions involving the Company or other members of the Company, or in the event any member of the Company begins to compete materially with Novartis’ business as in existence as of the time of the Spin-off, the Company may be required to cease using “Ciba” as a corporate name or to pay Novartis significant liquidated damages for its continued use. The above restrictions could affect the Company’s ability to conduct its business with its present and future customers. Even if the Company is able to establish brand name recognition under a new name, it may incur significant expenses in doing so, which could adversely affect its future results of operations.

The introduction of the euro and the replacement of currencies in which the Company presently conducts business may adversely affect the operations of the Company.

The introduction of the euro in twelve of the fifteen member states of the European Union may continue to have an impact on the Company’s operations. These potential impacts include, but are not limited to, increased cross-border price transparency and tax and legal implications (such as easier harmonization).

The Company’s share price may be highly volatile and subject to sudden and significant drops.

The trading price of the Shares and the ADSs has been, and could in the future continue to be, subject to significant fluctuations in response to variations in the Company’s financial performance, regulatory and business conditions in the specialty chemicals industry, general economic trends and other factors, some of which are unrelated to the operating performance of the Company. For more information on the historical price ranges of the Company’s shares and the ADSs, see “Item 9. The Offer and Listing — Principal Trading Market and Price Range”. From time to time, following periods of volatility in the market price of a company’s securities, securities litigation has been instituted against that company. The institution of any such litigation against the Company could result in substantial costs and a diversion of the Company’s management’s attention and resources, which could materially adversely affect its business, results of operation and financial condition.

The Company’s inability to successfully manage and integrate businesses acquired or its alliances may adversely impact the Company’s results operations and financial condition.

The Company has made and expects to continue to make acquisitions and to enter into alliances from time to time. Acquisitions and alliances present significant challenges and risks relating to the integration of the acquired business into the existing business of the Company. There can be no assurances that the Company will manage the integration of acquisitions and alliances successfully.

If we cannot successfully manage the integration of these acquisitions or alliances on a timely and efficient basis, we may incur higher than expected costs and may not realize all the benefits of these acquisitions or alliances

•		greater than expected costs and management time and effort involved in completing and integrating acquisitions or alliances;

•		potential disruption of our ongoing business and difficulty in maintaining or upgrading our standards, controls, information systems and procedures;

•		our inability to successfully integrate the services, products and personnel of any acquisition into our operations;

•		the potential incurrence of a significant amount of debt and contingent liabilities; and

•		realizing little, if any, return on our investment.

Integration or other acquisition or alliance difficulties could have a material adverse impact on our financial condition and results of operations.

Ciba Specialty Chemicals Holding Inc.’s registered office is located at Klybeckstrasse 141, CH-4002 Basel, Switzerland, telephone +41 61 636 1111.

Ciba Specialty Chemicals Holding Inc. was first registered as a corporation in Switzerland on April 24, 1996, and began to conduct the specialty chemicals business of the former Ciba-Geigy Limited (“Ciba-Geigy”) as of January 1, 1997. Until the merger of Ciba-Geigy and Sandoz Limited (“Sandoz”) into Novartis AG (“Novartis”), as described below, the businesses of the Company were part of Ciba-Geigy. Ciba-Geigy was formed in 1970 through the merger of CIBA Aktiengesellschaft (“CIBA”) and J.R. Geigy AG (“Geigy”), two Basel, Switzerland-based chemicals and pharmaceuticals multinationals.

The Company’s roots go back to 1757 when Geigy, the oldest chemical company in Basel began trading in chemicals and dyes. In 1925, Geigy began research into textile chemicals and in the 1930s turned its attention to agrochemicals. A pharmaceuticals division was formed in 1938.

In 1970, Geigy merged with CIBA, a chemical company founded in 1884 in Basel. CIBA developed its first pharmaceutical products in 1889 and added other products such as textile auxiliaries and finishing products, cosmetics and plastics in the 1920s. It introduced epoxy resins in 1946 and began to manufacture plant protection products in 1954, followed by products for animal health and hygiene in 1959.

In 1996, Ciba-Geigy and Sandoz merged to form Novartis (the “Merger”). As part of the Merger, Ciba-Geigy’s specialty chemicals business was spun off to form Ciba Specialty Chemicals Holding Inc. (the “Spin Off”), which on March 13, 1997, was listed on the Swiss Exchange.

In early 2001, the Company implemented a new organizational structure comprising five reporting segments (“Segments”) focused on specific customer markets. The five Segments are Plastic Additives, Coating Effects, Water & Paper Treatment, Textile Effects and Home & Personal Care. Each Segment is responsible for marketing, research and development, technology, production and sales. The mission of each Segment is to provide the best and most complete service to its customers’ industries and strive for market leadership in its respective area.

While each Segment has a lasting role in providing for a well-balanced portfolio for the Company, they are positioned for growth and higher profitability through different approaches: innovation (Plastic Additives and Coating Effects), cost leadership (Textile Effects) and business growth (Water & Paper Treatment and Home & Personal Care).

In order to optimize the Plastic Additives Segment’s global manufacturing network, the Company acquired, in January 2001, a controlling interest in Musashino-Geigy Co. Ltd. (“Musashino-Geigy”), increasing its holdings from 50 percent to 60 percent. Musashino-Geigy has a facility in Isohara, Japan and produces antioxidants, UV absorbers and blends for plastics.

As part of its focus on core businesses, in March 2001, the Company sold its 50 percent interest in TFL Ledertechnik GmbH & Co. KG, an international chemical company whose products and technical services are geared exclusively to the needs of the leather industry. The net proceeds received of CHF 62 million approximated the carrying value of the investment at the date of sale.

To expand the Coating Effects Segment’s service business and its high value added products offerings, in June 2001, the Company acquired EFKA Additives B.V. (“EFKA”) for a total purchase price of approximately CHF 65 million. EFKA manufactures, markets and distributes additives for the coatings and inks industries.

To expand the flame retardant business of Plastic Additives and its offerings to combine flame retardancy with other effect additives in customized solutions, the Company, in May 2002, purchased Melapur B.V. (“Melapur”) from DSM N.V. for approximately CHF 22 million. Melapur markets and distributes halogen-free melamine-based flame retardants. If the Melapur business reaches certain sales milestones over the next three years, additional purchase consideration of up to CHF 5 million (euro 3.5 million) will be paid to DSM N.V.

In 2003, the Company acquired additional equity interests in Diamond Dye-Chem Limited for approximately CHF 11 million, increasing its holdings to 69 percent. Also in 2003, the Company purchased additional shares in Shanghai Ciba Gao-Ciao Chemical Co. Ltd., for approximately CHF 12 million, increasing its holdings to 75 percent.

Ciba Specialty Chemicals’ aggregate capital expenditures for property, plant and equipment were CHF 233 million in 2003, CHF 250 million in 2002 and CHF 259 million in 2001. In 2003, 2002 and 2001, capital expenditures have been focused primarily on efficiency and safety improvement-related items. Recent projects include investments in new production facilities for stabilizers and pigments, upgrades to water and paper treatment production facilities, and investment in emerging markets, particularly Asia.

Ciba Specialty Chemicals is one of the world’s leading developers and producers of specialty chemicals, which are high value added chemical products used as key components and in a wide variety of consumer and industrial products. The Company operates on a global basis with manufacturing facilities in 23 countries and sales in more than 120 countries.

In 2003, the Company had net sales from continuing operations of CHF 6 646 million, operating income of CHF 571 million and net income of CHF 344 million.

Net sales, by geographic region of the Company for the past three years were as follows:

The Company’s organizational structure consists of five Segments focused on specific customer markets and various Group Service Units focused on providing cost efficient support services to the Segments. To ensure that innovation efforts are successfully shared across Segments, the Company has created a corporate technology office under the leadership of a Chief Technology Officer. All Segments share the support functions provided by the Group Service Units, which include finance and accounting, human resources, communications, information technology (IT) infrastructure, legal and supply chain services.

The Company’s five reporting Segments are Plastic Additives, Coating Effects, Water & Paper Treatment, Textile Effects and Home & Personal Care. These Segments develop, manufacture and market different products, services and solutions. They are managed separately because each Segment has different customer markets and requires different technology and marketing strategies. Each Segment is responsible for its own marketing, research and development, technology, production and sales. The mission of each Segment is to provide the best and most complete service to its customers’ industries and strive for market leadership in its respective area.

Net sales, by Segment, of the Company for each of the past three years were as follows:

Plastic Additives develops, manufactures and markets products and provides services to the plastic and lubricant industries. The Segment’s products are additives, which are ingredients added in small quantities to polymers and lubricants that prevent aging and corrosion and help improve appearance, durability and performance of finished goods such as polyolefins and engineering plastics as well as high-performance motor oils and lubricants. The service business adds value to customers by providing solutions in product applications.

Coating Effects is a leading global manufacturer of organic pigments and the leading supplier of photoinitiators and lightstabilizers to the coatings, graphic arts and electronic industries. The Segment develops, manufactures and markets additives, pigments, as well as additive and pigment concentrates, for the coatings, printing, imaging, electronic, plastics and fibers industries. The end-user markets for its products and services are, among others, the automotive, packaging, publication, electronics, construction, photographic and digital printing industries.

Water & Paper Treatment serves the paper and water treatment industries. The Segment offers products and services to the global paper and board industry focused on increasing mill productivity as well as “effect chemicals” which provides solutions for its customers in order to determine appearance, handling and performance of the paper or board. The Segment also offers products and services used to treat the water streams in industrial and municipal applications and to improve the efficiency of mineral and oil processing as well as soil additives and specialty monomers.

Textile Effects serves the textile industry, offering dyes and chemicals, services and integrated solutions to customers along the whole textile value chain. The Segment’s products include dyes and chemicals for dyeing and printing of almost all textile fibers, optical brighteners and textile finishing products for protection and easy-care. Services offered by the Segment

include color matching via the Internet and technical consultancy regarding textile color and effects management for international brand houses and retailers.

Home & Personal Care is one of the leading global manufacturers of whiteners and a leading supplier of antimicrobials to the personal care market. It develops, manufactures and markets products for home and personal care end-use industries. Among its range of product offerings are whiteners for detergents, hygiene effects for a variety of home and personal care products, UV absorbers for sunscreens and innovative hair dyes.

The Company has established a number of Group Service Units that are responsible for providing cost efficient support services to the Segments. The utilization of these centralized Group Service Units has two primary benefits to the Company: they allow the Segments to fully concentrate on serving their markets and customers and they reduce overall costs as a consequence of increased economies of scale. The functions of the Group Service Units of the Company are described in the following paragraphs.

The Supply Chain Services unit is responsible for distribution of all finished products as well as order processing, warehousing and transportation of products. They are also responsible for managing relationships with the Company’s major transport partners, including negotiation of related service contracts. The Supply Chain Services unit maintains shared order desks on a regional/country level that service all Segments with regards to order taking and order processing, shipping and customer invoicing. The Company, through its Supply Chain Services unit, utilizes a global network of both Company- and third-party-owned warehouses and distribution centers to ensure adequate coverage of the Company’s distribution requirements. Supply Chain Services has completed the integration of the Company’s three supply chains into a single global supply chain and continues working to significantly reduce the number of partners in the transportation area with the ultimate goal to co-operate with one global Lead Logistics Provider.

The Global Infrastructure unit, working with outsourcing partners, has the principal objective of optimizing the Company’s information technology infrastructure including its wide area networks.

The Company in 2003 maintained twelve Business Support Centers that provide finance and accounting services to the regions, instead of using numerous country organizations. The Business Support Centers, using standardized financial systems, provide control, treasury and information management services to the Company for financial and corporate applications. They are responsible for ensuring the accuracy, validity and timeliness of financial reporting. As part of it’s strategy to streamline administrative operations and reduce costs, the Company in 2004 is consolidating the functions of its Central European and Central American Business Support Centers into other existing Business Support Centers, and will therefore maintain ten such centers on an ongoing basis.

Corporate functions such as legal, environmental, communications and human resources are managed through eight Regional Presidents Offices.

Headquarters is responsible for strategy, public reporting, investor relations and corporate governance.

The Company, from time to time, acquires and disposes of participations in entities to help achieve strategic objectives. The Company’s investments in equity affiliates resulted in total income from earnings of equity affiliates of CHF 3 million in 2003, CHF 6 million in 2002 and CHF 8 million in 2001.

The Company invests in equity affiliates to support and supplement the growth of its core business. Some of these investments are made in countries where legislation requires or custom dictates local investor control or participation. The Company holds an active interest in its equity affiliates.

The Company’s most significant investments in equity affiliates as of December 31, 2003 are a 50 percent interest in each of CIMO Compagnie Industrielle de Monthey SA and Daihan Swiss Chemical Corp. CIMO Compagnie Industrielle de Monthey SA is a joint venture with Syngenta that provides infrastructure services and utilities to the partner’s manufacturing facilities in Monthey Switzerland. Daihan Swiss Chemical Corp. is a joint venture with Daihan Color Ind. Co., Ltd., which has a pigments facility in Ulsan, Korea, and makes classical pigments for inks, paints, plastics and synthetic fibers.

In order to optimize the Plastic Additives Segment’s global manufacturing network, the Company acquired, in January 2001, a controlling interest in Musashino-Geigy Co. Ltd., increasing its holding from 50 percent to 60 percent. As a result, beginning in 2001, its operations have been consolidated with those of the Company. Musashino-Geigy has a facility in Isohara, Japan and produces antioxidants, UV absorbers and blends for plastics.

As part of its focus on core businesses, in March 2001, the Company sold its 50 percent interest in TFL Ledertechnik GmbH & Co. KG, an internationally active chemical company whose products and technical services are geared exclusively to the needs of the leather industry. The net proceeds received of CHF 62 million approximated the carrying value of the investment at the date of sale.

The key components of the Company’s strategy to drive profitable growth and to maximize value for its shareholders are to place the customer first, offer leading edge innovation, aim for best-in-class manufacturing, and attract, develop and retain the very best people. Placing the customer first involves utilizing an industry-focused organization that is closely aligned with customers’ industries. A focus on leading edge innovation enables the Company to make everyday products better and makes breakthrough products possible. The Company offers its customers both significant innovation as well as steady improvements by fostering a creative culture and by sharing and leveraging its core competencies. In aiming for best-in-class manufacturing, the Company seeks lowest-cost manufacturing coupled with focused capital expenditures, while maintaining an overriding policy of ‘safety first’. A single, streamlined global supply system supports both manufacturing and customer supply concerns, and increases efficiency across the Company.

The Company competes in the global specialty chemicals market. Its major competitors include BASF, Bayer, Buckman, Clariant, Cognis, Croda, Crompton, Cytec, Degussa, Dow, GE Water Technologies, Great Lakes, Hercules, Johnson Polymer, Lubrizol, Nalco, Rhodia, Rohm & Haas, SNF Floerger and Stockhausen.

Plastic Additives’ products maintain and improve the desirable properties, or suppress the adverse properties, of plastic, oil and lubricant materials and improve the stability of these materials during processing, thereby facilitating or improving the efficiency of industrial processes. In addition, additives can improve quality and provide long-term stability and economical viability of final industrial and consumer products by, for example, protecting products against aging, corrosion or wear.

Plastic Additives’ business has for many years experienced strong growth and profitability resulting from its leadership in the additives markets. The Segment is the leading supplier of stabilizers and stabilizer systems to the plastics industry. In addition, the Segment is a leading supplier of ashless antioxidants and extreme pressure and antiwear agents to the lubricant industry.

Plastic Additives is managed as an integrated global business and primarily focuses on three market segments: (i) Polymer Products, (ii) Base Polymers, and (iii) Process and Lubricant Additives

The additives market is affected by shorter-term economic and industrial cycles experienced by its customers, particularly in the plastics and oil industries, which in turn are dependent on the automotive, construction and packaging industries. Increasing environmental and safety regulations governing the industries of the Company’s customers have also affected the additives market. These regulations have resulted in an increased demand for more innovative products with lower environmental impacts. The Company’s products are developed for sensitive applications, such as use with food and drinking water. These applications are subject to a higher degree of regulatory control. Other regulatory initiatives being introduced in the area of environmental control (for example, the removal of volatile organic chemicals) have led to the reformulation of some products and greater engineering oversight in production by the Company.

The table below sets forth certain historical combined financial information and the percentage contribution to the consolidated Company net sales from continuing operations for Plastic Additives for the years ended December 31, 2003, 2002 and 2001.

Plastic Additives’ products add value to the polymer and lubricant industries. The Segment’s product offerings for the polymer industry include:

•

Polymer Protection products such as antioxidants, processing stabilizers, UV absorbers and hindered amine light stabilizers (HALS);

•

Special Effects such as antifogging agents, antistatic agents, slip agents, antimicrobials, clarifying agents, shelf life extension, flame retardants, optical brighteners and additives for degradable plastics;

•

Products for Polymer Recycling such as antioxidants and light stabilizer systems;

•

Specialized product forms and multi-component product packages, which simplify the incorporation process and improve worker hygiene and resin quality; and

The Segment’s leading product lines in the polymer protection category are Ciba^{^®} IRGANOX^{^®} antioxidants, Ciba^{^®} IRGAFOS^{^®} processing stabilizers, Ciba^{^®} FIBERSTAB^{^®} L phenol-free processing stabilizers, Ciba^{^®} IRGASTAB^{^®} FS phenol-free processing stabilizers, Ciba^{^®} CHIMASSORB^{^®} light stabilizers/UV absorbers, and Ciba^{^®} TINUVIN^{^®} light stabilizers/UV absorbers.

In addition to the Segment’s traditional Ciba^® IRGANOX^® heat stabilizer range, Ciba^® IRGANOX^® HP and Ciba^® IRGANOX^® XP are examples of how additives support the polymer industry with new, innovative products and services. Both the Ciba^® IRGANOX^® HP and Ciba^® IRGANOX^® XP ranges combine HP-136, the Company’s innovative lactone technology, with established high-performance phosphites. Some examples of applications for these products are Ciba^® IRGANOX^® HP, which stabilizes polyurethane foams and protects polyolefin during processing.

The Ciba^® IRGAFOS^® processing stabilizer range ensures efficiency in processing and maintenance of polymer properties across a broad range of processing conditions.

Ciba^® FIBERSTAB^® L & Ciba^® IRGASTAB^® FS phenol-free processing stabilizers systems set a new standard in the processing stabilization of polyolefin fibers with excellent gas-fade resistance. They provide outstanding processing stability to polyolefin fibers while virtually eliminating any gas-fade discoloration that may occur when phenolic systems are used. The systems also provide good long-term thermal stability and enhanced light stability. Ciba^® FIBERSTAB^® L is particularly suited for PP fiber applications such as carpets and hygienic non-wovens.

Ciba^® TINUVIN^® light stabilizers/UV absorbers constitute a complete range of products for providing light stability to polyolefins, engineering plastics, adhesives and elastomers. Examples of new innovative products include Ciba^® TINUVIN ^® 123 S as the preferred solution for demanding polyolefin outdoor applications and Ciba^® TINUVIN^® 1577 as the innovative UV absorber for glazing, thin films and laminates.

Ciba^® POLYAD^® customer-specific blends are multi-component additive packages in easy-to-handle forms.

The Segment’s leading product lines in the special effects additives category are ATMER™ — antifogging agents, Ciba^® IRGASTAT and ATMER™ — antistatic agents, ATMER™ SA — slip agents, Ciba^® IRGAGUARD^TM antimicrobial line, including Ciba^® IRGAGUARD^TM A — antialgae and Ciba^® IRGAGUARD^TM B — antibacterial, and, Ciba^® IRGACLEAR^® F— antifungal antimicrobials, Ciba^® IRGACLEAR^® — clarifying agents, Ciba^® SHELFPLUS^® — shelf life extension, Ciba^® FLAMESTAB^®NOR^TM and, Ciba^® MELAPUR^® — flame retardants, Ciba ^®TINUVIN ^® FR flame retardant / light stabilizer combinations and Ciba^® UVITEX^® optical brighteners.

The Segment is adding to its polymer product offerings by branching out from its core polymer protection and stabilization business to take advantage of new market opportunities in the area of property enhancement. With a new focus on surface modification, the Segment is improving materials with special physical effects, thereby improving surface properties and product performance. A step in this direction has been the expansion of an antistatic and antifogging product range, which modifies surfaces to temper the buildup of static charge or water as fog.

The novel agricultural growth promoter Ciba^®SMARTLIGHT^® RL100 utilizes photo-selective properties of the product to improve crop quality and productivity.

Ciba^®IRGAZONE 997, launched in 2003 for rubber applications, represents a new technology that offers protection against ozone, fatigue and oxygen, with non-staining properties and extraction resistance.

With Ciba^® IRGAMOD^TM 195,a highly effective multifunctional additive for PET was launched. The product optimizes PET manufacturing and delivers improved product properties.

The trend of plastics replacing other materials, such as glass and wood, is expected to continue. This offers the Segment opportunities to further work with customers to develop new applications for the Segments products, for example, in the automotive industry where engineered plastics are replacing traditional materials. In addition, in the area of base polymers the Segment is continuously expanding its services businesses area to provide customers with tailor-made additives blends as part of a market approach that emphasizes customer contact and quick response times.

To cope with the increased temperature stress in modern engine oils, two new high temperature antioxidant systems, Ciba* IRGANOX* L 93 and Ciba^® IRGANOX^® L94 were introduced.

In 2001, Plastic Additives introduced “CIBA EXPERT SERVICES^TM” which enhances the customers’ business performance via the delivery of knowledge-based services. This is accomplished by applying a global services network possessing Plastic Additives’ comprehensive expertise and experience in the plastics industry. “CIBA EXPERT SERVICES^TM” is an innovative business approach drawing on more than 50 years of experience in supporting the Company’s global plastics business. This well recognized know-how and experience is now available on the open market. In 2003, “CIBA EXPERT SERVICES^TM” was further expanded and now offers a comprehensive selection of services which include Color, Educational, Environmental, Regulatory, Safety and Testing Services to the chemical and pharmaceutical industry.

•

Single components for engine oils and industrial lubricants such as antioxidants, extreme pressure/antiwear additives, friction modifiers, corrosion inhibitors and metal deactivators;

In the Process and Lubricant Additives business, the focus is on working with customers to develop additives for lubricants, such as Ciba^® IRGALUBE^® F10, that enhance the performance of engine oils while providing environmental benefits.

Management is of the opinion that products such as additives for plastics recycling and ashless antioxidants for lubricants are becoming more important with increased environmental awareness and regulation.

In 2003, end-user markets such as the packaging industry accounted for approximately 28 percent of the Segment’s sales, the construction industry for 20 percent, the durable goods for 10 percent, the automotive industry for 8 percent, the agricultural industry for 7 percent and the lubricants industries for 10 percent. A number of other smaller end-user markets account for the remaining 17 percent of the Segment’s sales. The top ten customers of the Segment accounted for approximately 33 percent of the Segment’s 2003 sales.

Plastic Additives spends approximately 4 percent of sales each year on research and development activities (CHF 82 million in 2003). The primary objective of these research and development activities is to achieve and maintain a high level of the Segment sales of “innovative products”. Innovative products are defined as patent protected products or products and applications younger than five years. Management is of the opinion that Plastic Additives has a growing product pipeline. The goal is to further improve sales with innovative products and to protect product and application innovations by appropriate patents. Products currently being developed include new classes of light stabilizers, anti-static additives, process stabilizers for plastics, flame retardants and process chemicals for reactive monomers.

Research and development activities focus on new product development as well as process improvements that aim at lowering costs and increasing productivity, speeding time-to-market of new products and improving responsiveness to customers by increased integration of manufacturing processes with the Segment’s distribution network.

Coating Effects develops, manufactures and markets additives, pigments, pigment and additive concentrates for the coatings, printing, imaging, plastics, synthetic fibers, and information storage industries. Coating Effects is a leading global manufacturer of organic pigments and the leading supplier of photoinitiators and lightstabilizers to the coatings, graphic arts and electronic industries.

Coating Effects is managed as an integrated global business and serves five industry-focused markets: (i) coatings, (ii) plastics, (iii) electronic materials, (iv) imaging & inks and (v) masterbatches.

Pigments are insoluble coloring materials used for the coloration of printing inks, paints, plastics and synthetic fibers in products such as automotive paints, transportation coatings, synthetic carpets and upholstery, printed materials and publications, building paints, packaging, cables, flooring, toys, industrial goods and equipment, furniture, consumer goods and electronics.

Additives maintain or improve the desirable properties, or suppress the adverse properties, of materials and improve the stability of these materials during processing, thereby facilitating or improving the efficiency of industrial processes. In addition, additives can improve quality and provide long-term stability and economical viability for the final product by, for example, protecting the product against aging, destruction or wear.

Growth in the global pigments market tends to track Gross Domestic Product (GDP) development. There is a move towards high value pigments and improved additives as customers upgrade their products and the technical performance requirements of the colorants and additives they incorporate in their formulations. Changes in technology in the customer base provide opportunities for new products, for example in the fast changing electronics industry. In recent years, environmental pressure to replace heavy metals such as cadmium and lead has led to an increased demand in organic pigments. The impact of the low volatile organic content (VOC) regulations is that solvent usage is being reduced in the printing ink and coatings industries with alternative technologies, such as UV-curing, powder coatings, high solid paint systems and water-based systems. With the Segment’s current portfolio and innovation projects, the Company believes the Segment is well placed to take advantage of these trends. There also is a need for products which make processing easier and more cost effective for customers, in all the traditional served industries. In particular, there is a focus on ease of product handling, for example, low dusting colorants and additives. The Segment’s range of products includes liquid forms, granules, dispersions and concentrates. As pigment manufacturers have traditionally had strong market positions in particular colors (for example, the Segment has a strength in high performance, opaque red pigments used in automotive paint), color trends can benefit particular producers while negatively affecting others.

The high performance and high value pigments market are characterized by capital-intensive production facilities and demanding standards for high and constant quality. The major applications for these pigments are automotive paints, general industrial paints, decorative paints, plastics and packaging and specialty inks, with competition based mainly upon the technical properties of the products. In contrast, the classical pigments market is characterized by relatively mature products with minimal patent protection and strong competition from low cost manufacturers in emerging countries. The major application for these pigments is printing inks. The dispersions market for organic and inorganic pigments is characterized primarily by the provision of customer-specific solutions and delivery service. The major application for dispersions is the plastics industry and the major applications for inorganic pigments are plastics and industrial paint.

The additives market is affected by shorter-term economic and industrial cycles experienced by its customers, particularly in the coatings industry, which in turn is dependent on the automotive industry. Increasing environmental and safety regulations governing the industries of the Company’s customers also have affected the additives market. These regulations have resulted in an increased demand for more innovative products with lower environmental impacts. The Company’s products are developed for sensitive applications, such as use with food and drinking water. These applications are subject to a higher degree of regulatory control.

The table below sets forth certain historical combined financial information and the percentage contribution to the consolidated Company net sales from continuing operations for Coating Effects for the years ended December 31, 2003, 2002 and 2001.

The Segment’s leading colorant product lines include the high performance pigments, Ciba^® IRGAZIN^®, Ciba^® CINQUASIA^® and Ciba^® CROMOPHTAL^®, used in coatings, inks, plastics and synthetic fibers, the IRGAPHOR^®, functional dye products used for optical information storage (CD-R and DVDR) and Ciba^® IRGALITE^® classical pigments used primarily in printing inks. The Segment also produces pigment dispersions and masterbatches. The Segment’s management is of the opinion that its Diketo-Pyrrolo-Pyrrol (DPP) technology offers distinct advantages to users of its high performance pigments for coatings and plastics. DPP pigments are currently being used in automotive paints and high performance plastics materials. Current environmental pressure on cadmium pigments opens up good growth opportunities for DPP pigments in the plastics industry. The Segment does not believe it has yet fully exploited the benefits of DPP technology in the automotive industry or in other paint, plastics or inks applications.

The Segment’s leading additives products lines include, Ciba^® TINUVIN^® light stabilizers for coatings, inks and photographic applications, Ciba^® IRGACURE^® photoinitiators and photoinitiators blends for ultraviolet curing of coatings, paints, inks and electronic materials and the environmental friendly polymer specialty rheology agents and dispersants for coatings. The Segment also offers stabilizers and process chemicals for photographic and photo-reproduction systems, algaecides for antifouling and dispersion paints. Management is of the opinion that products such as photoinitiators for solvent-free coatings are becoming more important with increased environmental awareness and regulation.

In 2003, Coating Effects supplied pigments and additives to the paint and coatings industries, the printing ink industry, the plastics industry, the synthetic fibers industries and the electronic materials industry. The top ten customers of the Segment accounted for approximately 29 percent of the Segment’s 2003 sales.

In 2003, the end-user markets such as the automotive industry accounted for approximately 22 percent of the Segment’s sales, the imaging and publication industry for 17 percent, the packaging industry for 17 percent, the electronics industry for 14 percent and the construction industry for 12 percent of the Segment’s sales. A number of other smaller end-user markets account for the remaining 18 percent.

Consolidation and globalization have occurred in certain of the customer industries served by the Segment, particularly in the coatings and printing ink industries. The effect of such consolidation and globalization is that pricing pressure is exerted on suppliers.

Coating Effects spends approximately 5 percent of sales each year on research projects (CHF 95 million in 2003). The primary objective of these research and development activities is to achieve and maintain a high level of the Segment sales of “innovative products”. Innovative products are defined as patent protected products or products and applications younger than five years. Pigment products currently being developed by the Segment include high value pigments with a new standard of performance to price ratio (a novel range of polymer soluble dyes), novel granule forms of pigments, solvent-free dispersions, pigments for optical storage and color filters. The Segment is also developing colorants for digital ink jet printing on paper and plastic.

Additive products currently being developed include high performance photoinitiators for coatings, imaging and information storage, new classes of light stabilizers, UV-absorbers, sterically hindered amines for coatings as well as algaecides for antifouling paints. In addition, in response to increasing environmental and safety regulations, Coating Effects is developing various additives for waterborne, powder or radiation curable systems.

Certain patents covering some of the Segment’s important products such as a hindered amine light stabilizer and an algaecide expired in 2001. In addition one of the photoinitiator patents for ink applications expired in 2003. Management is of the opinion that expiration of these patents will only have a limited effect on its result of operations because of the Company’s level of customer service associated with these products and processes. Although patent protection for part of the DPP product range expired in 2003, the Company has newer patents covering more recently launched or yet to be launched products.

Water & Paper Treatment products and services for the paper and board industry increase the speed, run-ability and quality of the paper making process (retention and drainage aids, fixatives), improve the visual appearance, optical properties and printability of the paper (paper whiteners, paper coloration, coating additives and surface modifiers), impart water, oil and grease resistance (barrier effects and sizing), and provide stable images on carbonless and thermal papers.

The products and services offered in in the area of water treatment improve the separation of solids from liquids, purify water and dewater sludge for disposal. In extractive and process technologies, the Segment’s products improve the efficiency of oil processing. The Segment also serves a number of niche markets including soil additives where products improve plant nutrition and soil fertility, and performance intermediates where high purity specialty monomers are supplied by the Segment for various applications (e.g. rubbers and adhesives). Water & Paper Treatment is one of the leading global suppliers to the paper industry and the municipal and industrial waste-water treatment industries and is managed as an integrated global business.

The Water & Paper Treatment market has been affected by increasing environmental and safety regulations, which govern the industries of the Company’s customers. These regulations have resulted in an increased demand for more innovative products with lower environmental impact.

The table below sets forth certain historical combined financial information and the percentage contribution to the consolidated Company net sales from continuing operations for Water & Paper Treatment for the years ended December 31, 2003, 2002 and 2001.

In the paper industry, there is an ongoing demand for more efficient production processes and this is where Ciba’s patented technologies such as the Ciba^® TELIOFORM^TM retention and drainage aid system and Ciba^® PERGAFAST^TM Color Developer for the Color Former market bring value to customer. At the same time consumers are demanding more innovative paper products and here the Company’s range of effect chemicals — whiteners, colors, color formers & barrier effects — allow the Company to be a leading innovator in meeting consumer requirements. The rapid change of technology, the globalization of the customer base and the growing importance of emerging economies are likely to shape the future direction of these markets. Of particular importance are the growing environmental regulations, which are expected to contribute to a growth in chemical demand in excess to that of the paper and board industry.

The Segment develops, produces and sells the following products to the water treatments market segment: Ciba^® ZETAG^TM, Ciba^® MAGNAFLOC^® and Ciba^® MAGNASOL^TM polyacrylamide polymers, organic coagulants, and poly acrylic acid polymers. The main usage of these products is as flocculants for the separation of solid particles from water. The water treatments product range also includes Ciba^® IRGATREAT^TM specialty formulations for the full range of water purification and conditioning applications, dispersants to reduce the viscosity and to increase the performance of inorganic pigments and fillers in water systems, monomers as building blocks used in water treatment, mineral recovery, adhesives, synthetic fibers and antistatic finishes as well as Ciba^® LIBFER^® iron chelate to correct deficiencies in crops grown intensively.

In 2003, Water & Paper Treatment supplied products and services to the paper and board, municipal and industrial waste water treatment industries. The top ten customers of the Segment accounted for approximately 19 percent of the Segment’s 2003 sales.

In 2003, end-user markets such as the paper and board industry accounted for approximately 52 percent, the waste water specialties industry accounted for 19 percent, the extractives and process technologies industry accounted for 12 percent and the agricultural industry accounted for 3 percent, of the Segment’s sales. A number of other smaller end-user markets accounted for the remaining 14 percent of Segment sales.

Water & Paper Treatment spends approximately 2 percent of sales each year on research and development activities (CHF 27 million in 2003). The Segment’s integrated R&D philosophy is aimed at:

•

developing process/production technology to improve the profitability of the acrylic based technologies;

•

expanding/transforming to novel high value added markets by exploiting existing and emerging technologies.

Textile Effects develops, manufactures and markets organic and inorganic synthetic dyes and other chemicals for natural and synthetic fibers, focusing on cellulose, polyester, wool and polyamide and their blends.

Based on 2003 sales, management estimates that the Segment Textile Effects is one of the largest textile effects businesses in the world. The Segment is the world’s second largest manufacturer of textile dyes, the largest manufacturer of dyes for wool, polyamide carpets and automotive fabrics, the second largest manufacturer of reactive dyes and disperse dyes for polyester, and one of the leading suppliers of textile chemicals to the textile industry. Other major product offerings to these industries are whiteners, antimicrobials, UV (ultraviolet) protection products and auxiliaries for textile processing and finishing for the textile industries. The textile chemicals business provides customers with an integrated range of products and services for fabric processing and finishing, including sizing, pretreatment, dyeing and printing auxiliaries, whiteners, comfort and easy care, UV protection, oil and water repellents, flame retardants and coating chemicals.

Demand for textile dyes and chemicals is mainly driven by developments in the textiles markets, such as fashion trends, the level of personal disposable incomes and by environmental regulations. The textile industry continues to shift to Asia, and even within Asia production of textiles is moving from higher wage countries (such as Japan, South Korea and Taiwan) to lower wage countries, particularly those with fast growing internal markets (such as China, India and Vietnam).

The table below sets forth certain historical combined financial information and the percentage contribution to the consolidated Company net sales from continuing operations for Textile Effects for the years ended December 31, 2003, 2002 and 2001.

The Segment’s leading dyestuffs product lines include CIBACRON^® reactive dyes for cellulose, Ciba^® LANASET^® and Ciba^® NEOLAN^® dyes for wool, Ciba^® TECTILON^® acid dyes for carpet and Ciba^® TERASIL^® and Ciba^® TERATOP^® disperse dyes for polyester. In addition, the Segment manufactures vat and direct dyes for cellulose, and cationic dyes for polyacrylonitril. The Segment’s leading textile chemical product lines include Ciba^® UVITEX^® whiteners for textiles, CIBATEX^® UV absorbers for the protection of textiles against ultraviolet radiation; Ciba^®YROVATEX^® flame retardants and Ciba^® ALCOPRINT^® print thickeners. In February 2002, a global cooperation agreement between Ciba and Invista was announced. The agreement enables both companies to share intellectual and technical resources and serve the increasingly sophisticated needs of the consumer for easy care and other effects. It includes Ciba^® OLEOPHOBOL^® fabric protector products for protection against stains as well as access to DuPont’s TEFLON^® brand.

The Segment’s core European markets are experiencing a plateau in demand, however, substantial growth opportunities continue in Eastern Europe, Asia and Latin America.

Textile Effects supplies the clothing/apparel, home furnishing and industrial textile industries (including automotive textiles). In 2003, the top ten customers of the Segment accounted for approximately 8 percent of the Segment’s sales. The customer base of the textile dyes market is highly fragmented. In 2003, the end-user markets of the fibers, carpets, textiles industries accounted approximately for substantially all of the Segment’s sales with the automotive industry accounting for a small percentage. While the clothing/apparel industry is predominant in Asia, the automotive textiles and the carpet industry is focused primarily in North America and Europe.

Textile Effects spends approximately 2 percent of sales each year on research projects (CHF 32 million in 2003). The primary objective of these research and development activities is to achieve and maintain a high level of the Segment sales of “innovative products”. Innovative products are defined as patent protected products or products and applications younger than five years. Textile dyes currently being developed by the Segment include reactive dyes with improved ecological and economical performance, a range of economically and technically superior reactive dyes for printing, a range of wetfast reproducible and economical disperse dyes, metal free dyes for polyamide and wool, replacements for indigo, and sulphur and naphthol dyes. Textile chemicals currently being developed by the Segment include ecologically improved flame retardants, more efficient ultraviolet (UV) absorbers and optical brighteners, economical oil and water repellents, range of improved products for Easy Care and the whole process chemicals range to increase the efficiency and simplify dyeing and printing processes. The Segment’s R&D focus also includes technologies geared towards new effects, such as microencapsulation, application of nanoparticles and use of biotechnological processes.

Home & Personal Care is managed as an integrated global business and develops, manufactures and markets products for two end-use industries: (i) home and fabric care and (ii) personal care. Among its major product offerings into these industries are whiteners for detergents, antimicrobials providing hygiene benefits for home and fabric care and personal care products; UV (ultraviolet) absorbers for fabric and personal care as well as specialty colors for home and personal care products. Based on 2003 sales, management estimates that Home & Personal Care is the leading global manufacturer of whiteners and the leading provider of antimicrobials of hygiene, mainly to the personal care industry. Home & Personal Care is dedicated to the production of high value chemical ingredients for manufacturers of non-durable home and personal care consumer goods.

The table below sets forth certain historical combined financial information and the percentage contribution to the consolidated Company net sales from continuing operations for Home & Personal Care for the years ended December 31, 2003, 2002 and 2001.

The Segment’s leading product lines include Ciba^® TINOPAL^® whiteners for detergents; Ciba^® TINOSORB^® UV absorbers for the protection of skin against ultraviolet radiation; Ciba^® IRGASAN^®, Ciba^® IRGACARE^® and Ciba^® TINOSAN^® antimicrobials providing hygiene benefits in soaps, toothpaste, detergents, and disinfectants; Ciba^® SALCARE^® rheology modifiers and conditioning polymers; Ciba^® TINODERM^® carrier systems for personal care applications; and Ciba^® TINOTEX^TM laundry additives for comfort enhancement.

The Segment’s main product categories and their characteristics can be broadly summarized as follows:

Whiteners are supplied to the detergents industry. In detergents, the demand for whiteners has stagnated in the European, United States and Japanese markets, while the emerging markets of Asia and South America continue to show signs of growth.

Hygiene effects are high value-adding antimicrobial ingredients supplied to the personal care, home and fabric care industries. Main applications include soaps, deodorants, toothpastes, dishwashing liquids, detergents and disinfectants for hospitals and medical purposes. The Segment’s antimicrobial solutions IRGASAN^®, IRGACARE^® and TINOSAN^® continue to be recognized as the industry standard for efficiency, performance and safety by key customers.

Ultraviolet (UV) absorbers are supplied to the fabric, cosmetic and hygiene industries. UV absorbers are used to provide protection to the skin against the harmful effects of ultraviolet A (UVA — long wave-length) and ultraviolet B (UVB — short wave-length) radiation, both of which are identified as high-risk causes of skin cancer. UV absorbers are manufactured for use in a variety of products applied directly to the skin, including sunscreens and lotions and are as well used in detergents. Growth prospects are particularly strong in regions where concern for effective broadband (both UVA and UVB) protection from sunlight is high.

Personal care specialties, such as rheology modifiers, ingredient protectants, colors, moisturizers and carrier systems, enhance the quality of end consumer products in cosmetic and hygiene applications. Rheology modifiers allow customers to produce formulations to the highest standards of quality and consistency. Colorants are used in a range of products including soaps and toothpaste. The Segment also utilizes microscopic nanocolloid technology for the delivery of active ingredients for more direct application of effects. In addition, the Segment researches various natural substances for use in the field of personal care as active ingredients.

In 2003 Home & Personal Care supplied the home and fabric care and the personal care industries. The top ten customers of the Segment accounted for approximately 62 percent of the Segment’s 2003 sales. The home and fabric care market is dominated by a small number of large global customers with strong purchasing power and a desire to form strategic alliances with innovative suppliers.

In 2003, the end-user markets for home and fabric care accounted for the majority of the Segment’s sales, with the cosmetic and hygiene industries accounting for the remainder.

Home & Personal Care spends approximately 8 percent of sales each year on research and development activities (CHF 31 million in 2003). The primary objective of these research and development activities is to achieve and maintain a high level of the Segment’s sales with “innovative products”. Innovative products are defined as patent protected products or products and applications younger than five years. Products recently developed by the Segment include new UV absorbers for sunscreens, a new photobleach agent for laundry detergents, a new class of oxidation catalysts for use in Home & Fabric Care applications and new nanocolloid encapsulated active ingredients for skin care products.

The Company has 60 manufacturing sites in 23 countries in important regions of the world. Currently, 39 of these sites are used primarily for chemical synthesis and the others are used to manufacture formulations that meet customer specific requirements. Europe and North America account for over 80 percent of the fixed asset base of the Company, with nearly 70 percent of the Company’s assets located in Switzerland, the United States, Germany and the United Kingdom. All of the Company’s major manufacturing facilities have qualified for International Organization for Standardization (“ISO”) 9001 or ISO 9002 certification. The Company has also entered into several manufacturing arrangements and participates with shares of up to 50 percent in three non-consolidated joint ventures, all in Asia.

The Company’s production costs, excluding raw materials, amounted to approximately 23 percent of sales in 2003, 23 percent of sales in 2002 and 23 percent in 2001.

In recent years, the Company has achieved significant capacity increases at its facilities, through process and production improvements. For example, through de-bottlenecking, production capacities have been increased for high performance pigments, whiteners and antioxidants and newly developed production processes have increased capacities for hindered amine stabilizers and antimicrobials. The Company’s manufacturing facilities generally operate within a range of sixty to eighty percent of capacity. Management is of the opinion that capacity utilization provides adequate growth potential. However, improved asset utilization is a priority for the Company generally and the Company conducts an ongoing monitoring study of capacity utilization on a cross-segmental basis to improve asset utilization. For example, the Company closed its formulations sites at Mississauga, Canada and at Barberà de Vallès, Spain and moved the respective production activities to other sites in the NAFTA region and in Europe. The Company’s manufacturing strategy is to be a low cost producer, to increase productivity and to concentrate production on higher value-added products. To this end, after a period of considerable investments in new facilities, all Segments plan to focus capital expenditure on capacity, product and process improvements with a total spending of more than CHF 500 million in the next 5 years. For example Textile Effects will spend CHF 15 million to streamline their dyestuff production facilities at Basel.

Plastic Additives is investing in the Hindered Amine Stabilizer area, primarily in the NAFTA region. These projects are expected to be completed in 2004, with a total estimated total cost of approximately CHF 70 million.

Coating Effects invested between 1999 and 2001 approximately CHF 280 million in new manufacturing facilities in the United Kingdom and the United States for granules, DPP and Quinacridone pigments and is investing CHF 30 million in a new production unit for DPP pigments at Monthey, Switzerland. Coating Effects will invest another CHF 10 million to increase their Benzotriazol capacities at McIntosh, USA and Lampertheim, Germany.

Water & Paper Treatment invested, from 1999 to 2001, approximately CHF 80 million in a production site in West Memphis, Arkansas, United States, which allows for backward integration in the field of cationic monomers. During the period from 2002 to 2004, Water & Paper Treatment’s expects to invest more than CHF 40 million to upgrade its production site at Bradford, United Kingdom and West Memphis, Arkansas, United States.

Textile Effects invested approximately CHF 14 million from 1998 to 2000 in a consolidated production joint venture in Thailand and is investing another CHF 7 million to increase the capacity. In addition, Textile Effects has implemented a new Key Manufacturing Base Concept in Panyu, China, which was finished in 2002, at a total cost of approximately CHF 15 million.

Home & Personal Care invested approximately CHF 10 million in Grenzach, Germany and Basel, Switzerland in a production facility for a new UV absorber for skin protection, which was completed in 2002.

The Company is strengthening its position in emerging markets, particularly Asia, by expanding its facilities in these areas. For example, Coating Effects invested CHF 5 million from 2002 to 2003 to increase the capacity for classical pigments at Qingdao, China and Plastic Additives started in 2003 the production of UV absorbers at their Goa site in India.

The Company is not dependent on any single production site. The five largest production sites of the Company are in Basel (Switzerland), Grenzach (Germany), McIntosh (Alabama, United States), Bradford (United Kingdom) and Monthey (Switzerland).

The Company sells its products in more than 120 countries through a global sales network. The sales and marketing functions are decentralized within the Company, with each Segment having its own sales and marketing strategy for its products and services. The organization of these functions varies from Segment to Segment.

Sales in all Segments are generally on a purchase order basis. However, the Company has established longer-term arrangements with certain key customers or where required by customers. Such arrangements generally do not extend beyond one year. Bidding on one to three year supply arrangements has become common in the paper and detergent whiteners markets, with contracts in the paper industry tending to be for longer periods. Such bidding has tended to increase price pressure in these product segments.

All distribution and order processing, warehousing and transportation are centrally managed by the Supply Chain Services unit on behalf of the Segments.

Shared order desks on a regional/country level service all Segments with regards to order taking and processing, shipping and invoicing. A global network of warehouses and distribution centers, both externally and internally operated, ensures adequate coverage of the Company’s distribution requirements. Contracts with major transport partners are negotiated/managed centrally. The strategy is to significantly reduce the number of partners in this field with the ultimate goal to co-operate with one global Lead Logistics Provider for all intercontinental transports.

In 2000, the Company was one of the first chemical companies to offer a comprehensive e-business service to all its customers: mybusiness@cibasc. The site is a secure, user-customized one-stop shop which lets customers place and track orders from all Segments, get access to product and safety information, receive technical support and learn about new applications. mybusiness@cibasc is available in over 10 languages and has over 15 000 active users in 140 countries. In addition, the Company participates in Elemica, a specialized business-to-business exchange that allows the Company, in one step, to link its Enterprise Resource Planning system directly to those of major suppliers and customers, allowing the Company to achieve higher efficiency and reduce supply-chain costs.

The Company is focusing production and process development efforts on better integration of the manufacturing process with the supply chain in order to increase customer responsiveness while at the same time reducing inventories by increasing the volume of products shipped directly from the production facility to the customers.

The Company purchases a large number of raw materials and intermediates from third parties around the world for its manufacturing processes, and strives to optimize the supply chain for each Segment. Raw material costs represent a significant component of the Company’s cost of goods sold. The prices and availability of these raw materials vary with market conditions and can be highly volatile. The Company has limited backward integration and has out-sourced production where economically feasible.

In 2003, the Company experienced a slight overall increase in its cost for raw materials due to significantly higher oil and feedstock prices. The Segments have been able to source more raw materials and intermediates from newly established sources in Asia allowing the Company to stabilize the cost of raw materials. At least for the near future, the Company expects a continuation of this trend and also the opportunity to source more raw materials from new sources. The Company also is adjusting its currency portfolio to mitigate exchange rate fluctuations in 2003.

Although the Segments purchase certain raw materials from single suppliers, management does not believe that the loss of any supplier would have a material adverse effect on the Company’s business or financial condition.

Where appropriate, the Company protects its new products and processes by obtaining patents and registering trademarks in selected regional markets. The Company has over 19 000 granted patents and pending applications world-wide and has trademark protection for approximately 400 product names. The Company continues to experience a constant increase in intellectual property conflicts, either initiated by the Company or by third parties. The Company relies on its know-how and technical expertise in many of its manufacturing processes to develop and maintain its market position. Management is of the opinion that intellectual property rights as a sole measure do not create a sustainable competitive advantage in the specialty chemicals industry. The Company’s ability to extract the maximum value from its patent protected products and processes is dependent upon the Company’s ability to apply its technical expertise in its manufacturing processes to meet customer requirements. In general, the Company historically has not licensed or sold its intangibles to third parties. In addition, separate cash flow streams cannot, in general, be identified with intangible assets separately from the cash flows associated with the related productive assets. The value of internally developed patent and process protection is, therefore, generally inseparable from the Company’s productive assets and processes.

In connection with the Spin-off, Novartis assigned to the Company certain patents relating to the specialty chemicals business. Pursuant to the Master Spin-off Agreement, Novartis also granted the Company a non-exclusive royalty-free worldwide license with respect to (i) certain patents that were originally registered by Ciba-Geigy’s central research department and (ii) those patents remaining with Novartis which the Company was using, or had a specific plan to use, at the effective date of the Spin-off. The Master Spin-off Agreement also provides that Novartis and the Company may enter into other arrangements with respect to certain patents pursuant to which royalties would be payable. Although relative exclusivity can be maintained for certain products following patent expiration through know-how and technical expertise, the expiration of a basic patent can result in intense competition, including from lower cost producers, and erosion of profit margins. Prior to and following expiration of the basic patent for a key product, the Company will generally focus efforts on developing patentable enhancements to the product or new patentable formulations for which the product is used. Management is of the opinion that the loss of patent protection for any particular product or process would not have a material adverse effect on the Company’s results of operation or financial condition.

The Company and Novartis also entered an agreement regarding the use of the name and trademark “Ciba”. Pursuant to such agreement, the Company and its subsidiaries and affiliates may use “Ciba Specialty Chemicals” as part of their registered corporate names, while Novartis may continue to use the name “Ciba” in connection with the Ciba Vision Group and in some other special cases. The Company and its subsidiaries and affiliates are entitled to use the “Ciba” trademarks and trade names outside of the core business of Novartis (defined as pharma specialties, pharma over-the-counter and generics, eyecare, crop protection, seeds, animal health and nutrition). Novartis is entitled to continue to use trademarks and trade names containing the term “Ciba” as they are currently used and to use new and existing trademarks and trade names containing the term “Ciba” to market the “Ciba” line of pharmaceutical products and for products and services of the Ciba Vision Group.

Production and marketing of chemical substances are regulated by national and international laws. Although almost every country has its own legal procedure for registration and import of chemical substances, the most significant to the Company’s business are the laws and regulations in the European Union, the United States and Japan, including the European inventory of existing commercial chemical substances, the European list of notified chemical substances, the United States Toxic Substances Control Act and the chemicals list of the Japanese Ministry of Trade and Industry. Chemicals which are on one or more of the above lists can usually be registered and imported without additional testing in any other country, although additional administrative requirements may exist.

The Company also actively seeks approvals from the United States Food and Drug Administration (“FDA”) for certain specialty chemicals that it produces, principally where the Company’s management is of the opinion that such specialty chemicals will or may be used in the manufacture of products that will come in contact with food. The Company has also worked with certain of its customers in a joint effort to obtain FDA approval of the antimicrobial triclosan, which was obtained. On November 21, 2002, the Company announced that a Food Contact Notification became effective for its Ciba^® IRGAGUARD™ B 5000 silver-based inorganic antimicrobial, allowing its use as an antimicrobial agent in all types of food contact polymers. IRGAGUARD B 5000 is now listed on the U.S. FDA website. In addition, this product is registered for use under the U.S. EPA’s Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) as a material preservative and antimicrobial agent for use in the manufacture of polymer, plastic and textile products to protect the finished article itself.

Novartis and the Company entered into a Master Spin-off Agreement dated December 20, 1996, which governed the separation of the specialty chemicals business from Novartis. In addition, this agreement, together with certain ancillary agreements, established various interim and ongoing relationships between Novartis and the Company.

Pursuant to the Master Spin-off Agreement, Novartis and the Company provide each other with chemical products and intermediates and certain services, such as provision of utilities, waste handling and security at shared production sites. Such products and intermediates are provided at market prices or, in the absence of market prices, at full cost, and such services are provided at the lower of market price or full cost. In addition, pursuant to the Master Spin-off Agreement, the Company and Novartis agreed on the allocation of taxes relating to the transaction and past operations of the businesses. The Company is responsible for taxes relating to the past operations of entities engaged exclusively in the specialty chemicals business and Novartis is responsible for transaction related taxes and taxes relating to the past operations of entities other than those engaged exclusively in the specialty chemicals business.

Pursuant to the Cooperation Agreement Regarding the Use of “Ciba” as Corporate Name and as a Mark, the Company is permitted to use “Ciba Specialty Chemicals” as part of its registered corporate name, while Novartis may continue to use the name “Ciba” in the Ciba Vision Group and in certain other cases. See “Intellectual Property”.

Novartis and the Company have also entered into certain arrangements with respect to the responsibility for environmental liabilities associated with operation of the specialty chemicals business prior to the Spin-off. See “Environmental Matters.”

Management is of the opinion that the Company’s insurance arrangements regarding property, liability and marine are adequate and sufficient.

The following table identifies the Company’s significant subsidiaries, their jurisdiction of incorporation or residence, the Company’s ownership interest in each subsidiary and the principal function of the subsidiary.

Group Holdings in %

Principal Function of Company

Selling

Manufacturing

Research

Service, Finance

AMERICAS

Argentina

Ciba Especialidades Quimicas S.A., Buenos Aires

100

•

Bermuda

Chemical Insurance Company Ltd., Hamilton

100

•

Ciba Specialty Chemicals Eurofinance Ltd., Hamilton

100

•

Ciba Specialty Chemicals International Finance Ltd., Hamilton

100

•

Ciba Specialty Chemicals Investment Ltd., Hamilton

100

•

Brazil

Ciba Especialidades Quimicas Ltda., Sao Paulo

100

•

Canada

Ciba Specialty Chemicals Canada Inc., Mississauga

100

•

Ciba Specialty Chemicals Water Treatments Corp., Mississauga

100

•

Chile

Ciba Especialidades Quimicas Ltd., Santiago de Chile

100

•

Ciba Especialidades Quimicas Conosur S.A., Santiago de Chile

100

•

Colombia

Ciba Especialidades Quimicas S.A., Bogota

100

•

Guatemala

Ciba Especialidades Quimicas, S.A. (ACC), Guatemala

100

•

Mexico

Ciba Especialidades Quimicas Mexico S.A. de C.V., Mexico

100

•

Panama

Ciba Especialidades Quimicas Colon S.A., Colon

100

•

USA

Ciba Specialty Chemicals Corporation, Tarrytown, NY

100

•

ASIA-PACIFIC

Australia

Ciba Specialty Chemicals Pty. Ltd., Thomastown

100

•

Bahrain

Ciba Specialty Chemicals Middle East WLL

100

•

China

Ciba Specialty Chemicals (China) Ltd., Beijing

100

•

Ciba Specialty Chemicals (Hong Kong) Ltd., Hong Kong

100

•

Ciba Specialty Chemicals (Shanghai) Ltd., Shanghai

100

•

Guangdong Ciba Specialty Chemicals Co. Ltd., Panyu, Guangdong

•

Guangzhou Ciba Specialty Chemicals Co. Ltd., Guangzhou

•

Qingdao Ciba Dyes Co. Ltd., Qingdao

•

Qingdao Ciba Pigments Co. Ltd., Qingdao

•

Shanghai Ciba Gao-Qiao Chemical Co. Ltd., Shanghai

•

Shenzhen Ciba Specialty Chemicals Co. Ltd., Shenzhen

•

Xiangtan Chemicals & Pigments Co. Ltd., Xiangtan

•

India

Ciba India Private Ltd., Mumbai

100

•

Ciba Specialty Chemicals (India) Ltd., Mumbai⁽¹⁾

•

Diamond Dye-Chem Limited, Mumbai⁽²⁾

•

Group Holdings in %

Principal Function of Company

Selling

Manufacturing

Research

Service, Finance

ASIA-PACIFIC (continued)

Indonesia

P.T. Ciba Specialty Chemicals Indonesia, Jakarta

•

Japan

Chemipro Fine Chemical Kaisha Ltd., Kobe

•

Ciba Specialty Chemicals K.K., Osaka

100

•

Musashino-Geigy Co. Ltd., Tokyo

•

Nippon Alkyl Phenol Co. Ltd., Tokyo

•

Republic of Korea (South Korea)

Ciba Specialty Chemicals Korea Ltd., Seoul

100

•

Daihan Swiss Chemical Corp., Seoul

•

Doobon Fine Chemical Co., Ltd., Chongwon-kun

•

Malaysia

Ciba Specialty Chemicals (Malaysia) SDN. BHD., Klang

•

New Zealand

Ciba Specialty Chemicals N.Z. Ltd., Auckland

100

•

Singapore

Ciba Specialty Chemicals (Singapore) Pte Ltd., Singapore

100

•

South Africa

Ciba Specialty Chemicals (Pty) Ltd., Spartan

100

•

Taiwan

Ciba Specialty Chemicals (Taiwan) Ltd., Kaohsiung

100

•

Thailand

Ciba Specialty Chemicals (Thailand) Ltd., Bangkok

100

•

Ciba Specialty Chemicals Industries Ltd., Bangkok

•

EUROPE

Austria

Ciba Spezialitaetenchemie GmbH, Hard

100

•

Belgium

Ciba Specialty Chemicals N.V., Groot-Bijgaarden

100

•

Finland

Ciba Specialty Chemicals Finland OY, Helsinki

100

•

France

Ciba Specialites Chimiques SA, Saint Fons

100

•

Ciba Specialty Chemicals Masterbatch SA, Saint Jeoire en Faucigny

100

•

Germany

Ciba Spezialitaetenchemie Grenzach GmbH, Grenzach-Wyhlen

100

•

Ciba Spezialitaetenchemie Holding Deutschland GmbH, Lampertheim

100

•

Ciba Spezialitaetenchemie Lampertheim GmbH, Lampertheim

100

•

Ciba Spezialitaetenchemie Pfersee GmbH, Langweid/Lech

100

•

Greece

Ciba Specialty Chemicals Hellas ABEE, Thessaloniki

100

•

Hungary

Ciba Specialty Chemicals Magyarorszag, Kft., Budapest

100

•

Italy

Ciba Specialty Chemicals S.p.A., Sasso Marconi (Bologna)

100

•

L.A.C. S.p.A., Vanzaghello, Milano

100

•

Magenta Master Fibres, S.r.l., Milano

•

Luxembourg

Ciba Specialty Chemicals Finance Luxembourg S.A.

100

•

Group Holdings in %

Principal Function of Company

Selling

Manufacturing

Research

Service, Finance

EUROPE (continued)

Netherlands

Ciba Specialty Chemicals International Nederland B.V., Maastricht

100

•

Ciba Specialty Chemicals (Maastricht) B.V., Maastricht

100

•

EFKA Additives B.V., Heerenveen

100

•

Ciba Specialty Chemicals Melapur B.V., Heerlen

100

•

Portugal

Ciba Especialidades Quimicas Lda., Porto

100

•

Spain

Ciba Especialidades Quimicas S.L., Barcelona

100

•

Sweden

Ciba Specialty Chemicals Sweden AB, Göteborg

100

•

Switzerland

Ciba Specialites Chimiques Monthey SA, Monthey

100

•

Ciba Spezialitaetenchemie AG, Basel

100

•

Ciba Spezialitaetenchemie Finanz AG, Basel

100

•

Ciba Spezialitaetenchemie International AG, Basel

100

•

Ciba Spezialitaetenchemie Kaisten AG, Kaisten

100

•

Ciba Spezialitaetenchemie Schweizerhalle AG, Muttenz

100

•

Ciba Spezialitaetenchemie Services AG, Basel

100

•

CIMO Compagnie Industrielle de Monthey SA, Monthey

•

Turkey

Ciba Oezel Kimyevi Uerueaenler Sanayi ve Ticaret Ltd., Istanbul

100

•

United Kingdom

Ciba Specialty Chemicals PLC, Macclesfield

100

•

Ciba Specialty Chemicals Investment PLC, Macclesfield

100

•

Ciba Specialty Chemicals Water Treatments Ltd., Bradford

100

•

To enhance the readability of this report and because of being less relevant, the share or quota capitals of Ciba group companies are not indicated herein — with the exception of Ciba Specialty Chemicals (India) Ltd., two publicly listed companies.

The Company owns all of its principal manufacturing facilities and owns substantially all the land on which such facilities are located. In certain cases, infrastructure is either shared with Novartis or with its recent spin-off Syngenta or outsourced to third parties as in some Swiss facilities. The Company also has other properties, including office buildings, research laboratories and warehouses. The principal office buildings are the headquarters in Basel, Switzerland. The principal research and development facilities are located in Basel, Switzerland and Tarrytown, New York, USA.

The following table sets forth the Company’s principal manufacturing facilities by geographic region together with the Segment or Segments that maintain principal responsibility for the management and production at the site and the major product lines that each facility is designed to manufacture.


Location	Size in hectares⁽¹⁾		Major Product Lines

EUROPE
Basel, Switzerland		14	Textile Effects (reactive dyes for cellulose and wool, disperse, vat and acid dyes)
Bradford, United Kingdom		28	Water & Paper Treatment (water treatment and paper chemicals, inks, soil additives, intermediate monomers, rheology modifiers and textile chemicals)
Clayton, United Kingdom		22	Textile Effects (direct, disperse and acid dyes)
			Water & Paper Treatment (specialty chemicals for paper coating)
Grenzach, Germany		52	Home & Personal Care (whiteners, specialty colors, antimicrobials, new businesses, cationic and solvent soluble dyes)
			Coating Effects (high performance pigments)
Grimsby, United Kingdom		19	Water & Paper Treatment (water treatment chemicals)
Heerenveen, Netherlands		2	Coating Effects (defoamers, slip and leveling, high molecular weight dispersants, wetting and dispersing agents)
Huningue, France		12	Coating Effects (high performance pigment preparations, imaging and coating additives)
			Plastic Additives (polymer additives and process and lubricant additives)
Kaisten, Switzerland		59	Plastic Additives (polymer additives)
Lampertheim, Germany		80	Plastic Additives (polymer additives, imaging and coating additives and process and lubricant additives)
Langweid/Lech, Germany		29	Textile Effects (fabric finishing and dyeing and printing auxiliaries)
Maastricht, Netherlands		11	Coating Effects (dispersions and inorganic pigments)
Monthey, Switzerland⁽²⁾		11	Home & Personal Care (whiteners)
			Coating Effects (high performance pigments)
Mortara & Trivolzio, Italy		17	Coating Effects (imaging and coating additives)
Paisley, United Kingdom		17	Coating Effects (classical pigments)
Pontecchio Marconi, Italy		12	Plastic Additives (polymer additives and production of insecticides for a third party)
Saint Fons, France		9	Textile Effects (metal-complex and acid dyes)
Saint Jeoire, France		5	Coating Effects (masterbatches)
Schweizerhalle, Switzerland		1	Coating Effects (polymer additives, Imaging and coating additives)
			Textile Effects (standardization)
AMERICAS
Atotonilquillo, Mexico		43	Textile Effects (disperse, basic and acid dyes, textile chemicals)
			Home & Personal Care (whiteners, photobleach)
Camaçari, Brazil		14	Plastic Additives (polymer additives)
Charlotte, North Carolina USA		6	Textile Effects (dyeing and printing auxiliaries)
Estrada do Colegio, Brazil		4	Home & Personal Care (whiteners, fabric finishing)
McIntosh, Alabama, USA		637	Plastic Additives (polymer additives and imaging and coating additives)
			Home & Personal Care (whiteners)
Newport, Delaware USA		15	Coating Effects (high performance pigments)
Puebla, Mexico		22	Plastic Additives (polymer additives and process and lubricant additives)
St. Gabriel, Louisiana USA		81	Textile Effects (reactive and acid dyes)
Suffolk, Virginia USA		89	Water & Paper Treatment (water treatment chemicals)
West Memphis, Arkansas USA		60	Water & Paper Treatment (water treatment chemicals)


Location	Size in hectares⁽¹⁾		Major Product Lines

ASIA-PACIFIC
Ai-oi, Japan⁽³⁾		—	Plastic Additives (polymer additives and imaging and coating additives)
Ankleshwar, India		2	Home & Personal Care (whiteners)
Candra Sari, Indonesia		5	Textile Effects (textile chemicals)
Chiba, Japan⁽⁴⁾		—	Plastic Additives (polymer additives)
Goa, India		14	Plastic Additives (polymer additives)
Isohara, Japan⁽⁵⁾		8	Plastic Additives (polymer additives)
Kaohsiung, Taiwan		4	Plastic Additives (polymer additives)
Mahachai, Thailand		4	Textile Effects (reactive dyes for cellulose)
Panyu, China⁽⁶⁾		5	Textile Effects (textile chemicals)
Perth, Australia		2	Water & Paper Treatment (water treatment chemicals)
Qingdao, China⁽⁷⁾		1	Coating Effects (classical pigments)
Qingdao, China⁽⁸⁾		1	Textile Effects (wool and disperse dyes)
Shanghai, China⁽⁹⁾		6	Plastic Additives (polymer additives)
Ulsan, South Korea⁽¹⁰⁾		7	Coating Effects (classical pigments)

The Company’s management is of the opinion that its principal manufacturing facilities and other significant properties are in good condition and that they are adequate to meet the Company’s needs. Except as disclosed in this Annual Report, the Company does not currently plan to construct, expand or improve facilities significantly.

Operating in the chemical industry, the Company is subject to stringent environmental, health and safety laws and regulations. It is the Company’s policy to continuously develop and improve the environmental performance of key manufacturing processes through an active program to address environmental matters. In addition to process improvements, the Company uses advanced waste treatment and disposal facilities at all major manufacturing sites that allow the sites to comply with recent laws and regulations applicable to waste streams. In management’s opinion, the Company substantially complies with all such laws.

For outstanding environmental matters that are currently known and estimable by the Company, provisions of approximately CHF 557 million at December 31, 2003 and CHF 614 million at December 31, 2002 have been recorded in the accompanying Consolidated Balance Sheets. The decrease in the provision of CHF 57 million in 2003 compared to 2002 relates to usage of the provisions of CHF 22 million and mainly to foreign currency exchange rate effects of CHF 35 million. The Company’s environmental protection and improvement cash expenditures were approximately CHF 31 million in 2003 (CHF 96 million in 2002), including investments in construction, operations and maintenance and usage of the provision.

In the agreement on the Company’s spin-off from Novartis, Novartis agreed to reimburse the Company 50 percent of United States environmental liabilities arising from past operations of the Company in excess of the agreed reserves. Outside the United States, environmental liabilities are allocated between Novartis and the Company based on the ownership of the site or, if environmental liabilities do not relate to production sites or these are not owned by either entity, according to the polluter pays principle. If causation between the parties cannot be determined, costs are shared equally. The agreement with Novartis is not subject to any time or amount limits but could terminate for certain liabilities in the United States (i) upon a sale of substantially all of the Company’s assets, (ii) upon a change in control of the Company, or (iii) for individual facilities, upon the sale of the facility (unless the Company retains responsibility for any clean-up at such site).

The contractual terms of the sale of the Performance Polymers business stipulate that, in general, the Company will retain responsibility for environmental claims relating to the operations of the Performance Polymers business prior to May 31, 2000, whereby damages for remediation in connection with sites outside the United States shall cover only 80 percent of the respective costs. The responsibility with respect to any non-United States sites covers environmental liabilities incurred within fifteen years from May 31, 2000 and is limited to CHF 75 million. With respect to any such environmental liabilities in the United States, the Company’s obligation to indemnify is unlimited in time or amount. Novartis’ environmental indemnification obligations to the Company described above are not affected by the sale of the Performance Polymers business.

The Company continues to participate in environmental assessments and clean-ups at a number of locations, including operating facilities, previously owned facilities and United States Superfund sites. The Company accrues reserves for all known environmental liabilities for remediation costs when a clean-up program becomes probable and costs can be reasonably estimated. Clean-up of the most significant sites has been or is nearly completed, except as described in the following paragraphs.

At its Toms River, New Jersey remediation site, the Company’s subsidiary in the United States is engaged in a large bio-remediation project which will take eight to ten years to complete. Based on management’s current estimates, the Company’s environmental provisions are adequate to cover the expected costs to complete this remediation plan.

In October 2003, the Company’s subsidiary in the United States received a letter from the New Jersey Department of Environmental Protection (“NJDEP”) seeking to begin discussions on natural resource damage liability issues (“NRDs”) at the Toms River Site for alleged injury to groundwater. The subsidiary is engaged in on-going settlement discussions with the State to see if it can reach a mutually beneficial settlement to avoid litigation. If a mutual agreement cannot be reached and NJDEP decides to initiate litigation, the Company believes that it has significant defenses to these potential NRD claims.

The planning for the total remediation of the waste disposal site in Bonfol, Switzerland, which was closed in 1976, is ongoing. The responsibility for the remediation lies with eight chemical enterprises including among others the Company. The responsible companies cooperate with the governmental authorities to define the necessary measures in view of a final remediation of the site. The planning and remediation effort could require up to fifteen years to complete. In management’s opinion, based on the current remediation plans, the Company’s environmental provisions are adequate to cover the Company’s share of the expected costs to complete the remediation at this site.

In the Basel region, several landfills (Switzerland, France and Germany) contain chemical waste besides other industrial and household wastes. Presently eleven landfills are the subject of investigations carried out with the authorities by the ‘Interessengemeinschaft Deponiesicherheit Regio Basel’, an association of the involved pharmaceutical and chemical enterprises (including the Company). As of December 31, 2003, no remedial actions have been defined or required in a legally binding form.

In management’s opinion, the environmental reserves accrued are sufficient to meet all currently known and estimable environmental claims and contingencies. Because of the nature of the Company’s operations, however, there can be no assurance that significant costs and liabilities from ongoing or past operations will not be incurred in the future. In addition, environmental clean-up periods are protracted in length and environmental costs in future periods are subject to changes in environmental remediation regulations.

See “Item 3. Key Information—Risk Factors—Environmental laws and regulations may expose the Company to liability and result in increased costs”.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion and Analysis) is based on, and should be read in conjunction with Item 3. “Key Information” and the Consolidated Financial Statements and the Notes thereto, which are prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP) and are included elsewhere in this Annual Report. For a definition of certain financial terms used herein, see Glossary of Financial Terms at the end of this Management’s Discussion and Analysis. Except for percentages, share, per share data or exchange rate data and except as otherwise stated, all numbers in tables are in millions of Swiss francs (CHF).


Results of operations		2003			2002

Net sales			6 646			7 085
Gross profit			2 067			2 356
Operating income			571			788
Income from continuing operations			360			406
Cumulative effect of change in accounting principles			(16	)		0
Net income			344			406
Earnings per share, basic and diluted:
	Continuing operations		5.26			5.92
	Cumulative effect of change in accounting principles		(0.23	)		0.00
	Net income per share		5.03			5.92
Other data
Operating income			571			788
Depreciation and amortization			366			385
EBITDA⁽¹⁾			937			1 173
Net cash provided by operating activities			1 033			1 038
Free cash flow⁽¹⁾			728			683
Net debt⁽¹⁾			1 049			1 463
Shareholders’ equity at year-end			4 245			4 354
Dividend per share⁽²⁾			0.00			0.00
Capital reduction per share⁽²⁾			3.00			3.00
Key performance ratios
Net sales development			(6	)%		(4	)%
Net sales development in local currencies			0	%		3	%
Expressed as a percentage of sales:
Gross profit			31.1	%		33.3	%
Operating income			8.6	%		11.1	%
Income from continuing operations			5.4	%		5.7	%
Net income			5.2	%		5.7	%
EBITDA			14.1	%		16.6	%

The global economic environment continued to present the Company with significant challenges during 2003. Strongly competitive conditions in mature markets such as textile dyes and inks were contrasted by excellent growth in electronic materials and personal care specialties, where the Company was able to benefit from its strong portfolio of effects products. A similar contrast was evident on a geographical basis. The difficult economic environment heavily impacted traditional sales territories. In particular, the delayed effect of the second half recovery in the U.S. did not provide the Company with a respective upturn in 2003. The European markets performed slightly better and although sluggish in certain areas were generally stable. Asia, on the other hand, again confirmed its potential as the platform for growth, driven especially by another excellent year in China.

Certain terminology used throughout this Management’s Discussion and Analysis is described in the Glossary of Financial Terms, which can be found at the end of Item 5. “Operating and Financial Review and Prospects”.

Operational review — Sales stable in local currencies despite adverse environment, profitability declines

Net sales at CHF 6 646 million were stable in local currencies. Sales in Swiss francs were again adversely impacted by unfavorable currency developments. Consequently, sales decreased by 6 percent in Swiss francs. Stable sales in local currencies were achieved in spite of a fiercely competitive sales environment, with Asian competitors benefiting from the weak U.S. dollar. The Company was able to defend volumes through effective marketing strategies and continued focus on higher margin specialty applications, and at the same time exploit new and emerging market areas with stronger demand levels.

In response to difficult competitive conditions, the Company continued to prioritize cash flow generation by further reducing receivable levels, and in the fourth quarter, selectively scaling back certain production operations. This was highly effective in reducing inventory levels with significant positive cash flow being generated as a result. However, this had an adverse impact on profit levels due to higher unabsorbed capacity costs arising from the lower volumes produced during this period.

Profitability was heavily impacted by adverse currency developments during the year. With the exception of the euro, the Swiss franc appreciated against most major trading currencies, notably the U.S. dollar, and to a lesser extent the British pound and the Japanese yen. Further, price concessions of 3 percent were necessary to maintain competitive position. Raw material costs were relatively stable in 2003.

The Company continued to focus on efficiency and productivity improvements, ensuring that operating expenses were stable in local currencies supported by further headcount reductions in low-growth regions. The manufacturing infrastructure was successfully realigned in key areas ensuring that the Company remains well positioned to balance future growth potential with production capabilities. In connection with its “Managing for Growth” initiative in 2003, the Company further expanded its presence in China, where an additional 80 positions have been filled in order to support growing activities in the region.

Gross profit in absolute terms declined from CHF 2 356 million in 2002 to CHF 2 067 million in 2003.

Operating income decreased by CHF 217 million to CHF 571 million compared to CHF 788 million in 2002. Operating income margin was also lower in 2003 at 8.6 percent compared to 11.1 percent in 2002.

Income from continuing operations was CHF 360 million or CHF 5.26 per share in 2003, compared to CHF 406 million or CHF 5.92 per share in the prior year. Net income was CHF 344 million or CHF 5.03 per share in 2003 compared to CHF 406 million or CHF 5.92 per share in the prior year.

The Company’s EBITDA and EBITDA margin, respectively, were CHF 937 million and 14.1 percent in 2003 compared to CHF 1 173 million and 16.6 percent in 2002.

Cash flow review — Strong operating cash flow enables further strengthening of balance sheet

The Company continued its trend of generating net cash from operating activities in excess of CHF 1 billion and increased free cash flow by 7 percent over prior year to CHF 728 million by offsetting the impact of lower operating performance described above with a successful program in the fourth quarter to substantially reduce its net current operating assets. Every segment succeeded in reducing its working capital requirements. Overall inventories and receivables were reduced significantly resulting in the ratio of net current operating assets to sales decreasing significantly to 24.7 percent. The ratio of inventories to sales dropped from 20.4 percent in 2002 to 18.5 percent in 2003 and the ratio of receivables to sales dropped from 14.3 percent in 2002 to 14.1 percent in 2003.

Net cash flows used in financing activities totaled CHF 742 million in 2003 as the result of the Company using its cash flows from operations to further strengthen its balance sheet by reducing debt, to pay a high CHF 3 per share distribution to shareholders and to purchase treasury shares under the share buy-back program initiated in 2003. Net debt as of year-end 2003 was lowered by CHF 414 million, or 28 percent, from year-end 2002. During 2003, the Company repaid CHF 1 084 million of long-term debt at its scheduled maturity, which was partially offset by CHF 715 million proceeds from the issuance of EUR 500 million fixed rate unsecured notes maturing 2018.

Throughout 2003, the Company maintained strong liquidity and at year-end 2003 had a sizeable cash position of CHF 2.4 billion, maintaining its flexibility for future acquisitions.

Due to the Company’s strong financial position, the Board of Directors will propose at the Annual General Meeting of shareholders on February 26, 2004, a CHF 3 per share cash payout through a further reduction of the nominal value of Ciba Specialty Chemicals’ shares, matching the capital reduction that occurred in 2003, which amounted to CHF 206 million.

In connection with a share buy-back program initiated in 2003, the Company purchased 1.3 million treasury shares for CHF 117 million. The Board of Directors will propose at the Annual General Meeting of shareholders on February 26, 2004 that these shares be cancelled; this proposal is subject to shareholder approval.

During 2003, the Company settled a tax-related dispute with Novartis that resulted in an additional CHF 39 million of net income from the release of previously established provisions related to the dispute. In addition, the Company capitalized on the recovery in 2003 of the market value of its investment in Hexcel Corporation by selling its remaining Hexcel Corporation shares, which resulted in a CHF 16 million pre-tax gain on sale. The positive income impact of the above two items were partially offset by the recording of an after-tax charge of CHF 16 million for the cumulative effect of the change in accounting that resulted from the adoption in 2003 of a new accounting standard. Each of the above three items are more fully described elsewhere in this Management’s Discussion and Analysis or in the Company’s Consolidated Financial Statements and Notes thereto.

The Consolidated Financial Statements of the Company are sensitive to accounting methods, assumptions and estimates that form the basis of these financial statements and accompanying notes. Critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered in conjunction with reviewing the Company’s financial statements and the discussion in this Management’s Discussion and Analysis.

Note 1 to the Consolidated Financial Statements in this Annual Report describes the significant accounting policies and methods used in the preparation of the Company’s Consolidated Financial Statements. Following are the Company’s critical accounting policies impacted by judgments, assumptions and estimates.

Impairment testing of property, plant and equipment, goodwill and other intangible assets

As discussed in Note 1, Summary of Significant Accounting Policies, in the Company’s Consolidated Financial Statements, the Company periodically evaluates property, plant and equipment, goodwill and other intangible assets for potential impairment. If such assets are considered to be impaired, they are written down to fair value as appropriate.

The impairment review process requires management to make significant estimates and judgments regarding the future cash flows expected to result from the use and, if applicable, the eventual disposition of the respective assets as well as other factors to determine the fair value of the respective assets. The key variables that management must estimate in determining these expected future cash flows and fair values include sales volumes, sales prices, sales growth, production and operating costs, capital expenditures, market conditions, and other economic factors. Significant management judgment is involved in estimating these variables, and such estimates are inherently uncertain; however, the assumptions used are consistent with the Company’s internal planning. Management periodically evaluates and updates the estimates based on the conditions that influence these variables.

The assumptions and conditions for determining impairments of property, plant and equipment, goodwill and other intangible assets, reflect management’s best assumptions and estimates, but these items involve inherent uncertainties as described above, many of which are not under management’s control. As a result, the accounting for such items could result in different estimates or amounts if management used different assumptions or if different conditions occur in future accounting periods.

The measurement of environmental liabilities is based on an evaluation of currently available facts with respect to each individual site and considers factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, the protracted length of the clean-up periods and evolving technologies. Environmental operations and maintenance as well as remediation costs are accrued when environmental assessments and the need for remediation are probable and the costs can be reasonably estimated. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available.

The assumptions and conditions for determining the level of the environmental liabilities reflect management’s best assumptions and estimates, but these items involve inherent uncertainties as described above, many of which are not under management’s control. As a result, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future accounting periods.

For further discussion related to environmental matters, see Note 21 to the Consolidated Financial Statements and Item 4 — Information on the Company — Environmental Matters.

Many of the amounts recognized in the Consolidated Financial Statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including discount rates, expected return on plan assets, rates of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually based on current economic conditions and, if required, also for any changes to the terms and conditions of the pension and postretirement plans. These assumptions can be affected by (i) for the discount rate, changes in rates of return on high-quality fixed income investments currently available in the markets and those expected to be available during the period to maturity of the pension benefits; (ii) for the expected return on plan assets, changes in the pension plans’ strategic asset allocations to various investment types or to long-term return trend rates in the capital markets in which the pension fund’s assets are invested; (iii) for future compensation levels, changes in labor market conditions; and (iv) for health care cost trend rates, the rate of medical cost inflation in the regions of the world where these benefits are offered to the Company’s employees.

The weighted average actuarial assumptions used to compute the Company’s pension and postretirement benefit obligations for 2003 and 2002, as well as the U.S. GAAP requirements for accounting for the differences between actual results that differ from the assumptions used in calculating the annual retirement benefit liabilities and costs, are disclosed in Note 18 to the Consolidated Financial Statements. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement obligations and expenses in future accounting periods.

Deferred tax assets and liabilities are determined using enacted tax rates for temporary differences between the book and tax bases of assets and liabilities, as well as the effects of net operating losses carried forward in certain tax jurisdictions in which the Company operates that may be utilized to offset future taxable income and similar tax credits carried forward that may be utilized to reduce future taxes payable. The Company records valuation allowances on deferred tax assets when appropriate to reflect the expected future tax benefits to be realized. In determining the appropriate valuation allowances, certain judgments are made by management relating to recoverability of deferred tax assets, use of tax loss and tax credit carryforwards, levels of expected future taxable income and available tax planning strategies.

The assumptions involved in making these judgments are updated periodically by management based on current business conditions that affect the Company and overall economic conditions. These management judgments are therefore subject to change based on factors that include, but are not limited to (i) changes in the profitability of the Company’s subsidiaries, as well as for the Company as a whole, (ii) the ability of the Company to successfully execute its tax planning strategies and (iii) the accuracy of the Company’s estimates of the potential effect that changes in tax legislation, in the jurisdictions where the Company operates, may have on the Company’s future taxable profits. Failure by the Company to achieve forecasted taxable income or to execute its tax planning strategies may affect the ultimate realization of certain deferred tax assets. Factors that may affect the Company’s ability to achieve sufficient forecasted taxable income or successfully execute its tax planning strategies include, but are not limited to, increased competition, general economic conditions, a decline in sales or earnings, loss of market share, delays in product availability or changes in tax legislation.

In addition, the Company operates within multiple taxing jurisdictions and is subject to audits in these jurisdictions. These audits can involve complex issues that may require an extended period of time for resolution. In management’s opinion, adequate provisions have been made for any additional taxes that may result from any tax audits of historical periods that are currently ongoing or that may occur.

Net sales in local currencies were similar to those of prior year. In Swiss francs, sales decreased by 6 percent to CHF 6 646 million. Sales development in 2003 compared to 2002 resulted from the following factors:

In local currencies, sales levels at the start of the year recovered from the low levels of late 2002, reflective of more upbeat customer expectations at that time as to the level of economic recovery. However, as economic development continued to be sluggish, this optimism receded and the Company’s sales levels likewise began to recede during the second quarter, ending the year at similar levels to 2002 in local currencies. In Europe, sales levels during the first half of the year were slightly higher than the prior year period in local currencies, but deteriorated in the latter part of the year, ending the year slightly below prior year levels in local currencies. The NAFTA region showed signs of improvement during the first half of the year, with recovery well underway in the U.S. by the end of the year. However, the positive effect of the upturn was not

yet fully reflected throughout all industry sectors, including those served by the Company. Asia continues to be the global growth engine, with excellent performances in most of the region, notably China.

Contributing to the sales decline in Swiss francs was the strengthening of the Swiss franc compared to most major trading currencies, particularly against the U.S. dollar, and to a lesser extent the British pound and Japanese yen, partially offset by the appreciation of the euro. This resulted in a reduction in sales in Swiss francs of 6 percent compared to 2002. The Company continued to experience a difficult competitive environment resulting in price erosion of 3 percent. The negative impact of lower prices, however, was offset by volume/product mix gains of 3 percent.

Sales in Swiss francs increased in most of the major markets in Europe, with the exception of the U. K. and Italy. The performance in Swiss francs was partially attributable to the stronger euro. In local currencies, sales declined in varying degrees across most major markets. In the Americas, sales in the U.S. decreased both in local currency and in Swiss francs. Sales in South America grew in local currencies but declined in Swiss francs. In Asia Pacific, sales increased in local currencies fuelled by the strong result in China. Japan also achieved positive growth in local currency. However, sales in the region overall were lower in Swiss francs.

Gross profit margin in 2003 decreased to 31.1 percent of sales from 33.3 percent in the prior year. Margins were adversely impacted by currency exchange rate developments. Sales volume gains of 3 percent were completely offset by price erosion as the Company faced stiff competition particularly in mature markets. Production expenses were lower in Swiss francs and were stable in local currencies. Higher levels of unabsorbed costs occurred in 2003 that were mainly due to temporary production shutdowns in the fourth quarter, improving cash flow due to lower purchasing activities, but adversely impacting profitability. Raw material costs increased in the early part of the year and peaked in the second quarter; by the end of the year raw material prices decreased and overall were similar to prior year levels.

Selling, general and administrative expenses in Swiss francs decreased by CHF 62 million, from CHF 1 247 million in 2002 to CHF 1 185 million in 2003. In local currencies, these costs remained stable. Selling, general and administrative expenses expressed as a percentage of sales were 17.8 percent in 2003 compared to 17.6 percent in the prior year. Higher costs for pensions and insurance were incurred in 2003. The Company continues to pursue cost containment strategies in the current business climate, ensuring that tight cost controls are in place for day-to-day operational expenditures. Further headcount reductions were made in order to align the Company’s cost structure with its business needs.

Research and development expenses as a percentage of sales remained at 4.2 percent in 2003 as for 2002. In absolute terms, research and development expenses decreased slightly by CHF 13 million to CHF 281 million in 2003 from CHF 294 million in 2002. This was mainly due to currency effects.

The Company has historically invested and plans to continue to invest approximately 4 percent of sales in research and development activities. In addition, pursuant to its commitment to innovation, the Company in 2002 created a Research Fund for high risk/high reward projects, allowing up to CHF 15 million additional research and development expenses annually for such projects.

Operating income and EBITDA adversely affected by lower sales levels and unfavorable currency developments

Operating income fell by CHF 217 million in 2003, and operating income margin deteriorated to 8.6 percent of sales in 2003 from 11.1 percent in the prior year. Contributing to this result was the combined effect of adverse currency development, sales price reductions that were partially offset by volume increases, and a stable cost base achieved through

tight expense control during the year. The strengthening of the Swiss franc against the U.S. dollar, and to a lesser extent, against most other major currencies negatively impacted operating income by approximately CHF 111 million in 2003.

EBITDA decreased to CHF 937 million in 2003 compared to CHF 1 173 million in the prior year, of which approximately CHF 134 million was due to unfavorable currency developments. EBITDA margin decreased to 14.1 percent of sales in 2003 from 16.6 percent in 2002.

Sales decreased to CHF 1 722 million in 2003 or by 5 percent in Swiss francs and increased by 1 percent in local currencies. Sales development in 2003 compared to 2002 resulted from the following factors:

Sales increased slightly in local currencies driven by a solid performance in Polymer products, despite ongoing competitive price pressures as a result of the weak U.S. dollar. Base polymers sales decreased marginally in local currencies with the major market areas generally sluggish. Sales in process and lubricant additives increased slightly in local currencies despite customer inventory reductions affecting sales in the fourth quarter. Sales decreased, however, in Swiss francs. The Segment continues to experience strong price pressures, and price concessions were necessary to maintain the Segment’s competitive position. The Segment was successful, however, in slowing this trend during the second half of 2003.

Geographically, sales in Europe increased in both Swiss francs and in local currencies. Growth was generally positive across the region, driven by a solid performance in Germany in particular. In the Americas, sales levels were below those of prior year both in Swiss francs and in local currencies. In the United States, sales levels did not recover from a slow start, remaining sluggish throughout the year resulting in lower sales levels in local currency. Sales in South America increased in local currencies. In Asia Pacific, sales increased in local currencies but decreased in Swiss francs. The major territories posted strong sales development in local currencies, buoyed by an excellent result in China and continued recovery in Japan where sales levels were also higher in Swiss francs.

Operating income and EBITDA decreased primarily due to lower sales and a strongly adverse currency impact. Operating expenses remained at prior year levels in local currencies and were lower in Swiss francs, although idle capacity costs increased due to both start-ups of additional capacity and temporary plant shutdowns for inventory reduction purposes. These higher idle capacity costs coupled with raw material price increases and adverse sales price development resulted in lower gross profit levels. Selling, general and administration expenses were lower both in Swiss francs and in local currencies. The Segment maintained its investment level in research and development activities at approximately 5 percent of sales.

The Segment was successful in reducing its asset base in 2003. Despite higher sales volumes, inventory levels decreased in both absolute and intensity terms. Receivable levels were also lower in absolute terms but increased slightly in intensity. Payable levels decreased slightly from prior year levels. Capital expenditures were mainly focused on efficiency and improvements programs at production facilities and were well below the level of depreciation. The combined effects of the reduction in net current assets, lower capital investment than depreciation expense and currency effects led to both total assets and invested capital being slightly lower than prior year levels.

Sales decreased to CHF 1 807 million in 2003 or by 6 percent in Swiss francs and were stable in local currencies. Sales development in 2003 compared to 2002 resulted from the following factors:

Sales performance across the Segment was mixed. Positive sales growth in local currencies was achieved in the electronic materials market driven by demand for flat-panel monitors and televisions in the displays sector, in addition to strong growth in the optical information storage market for CD-R products. Sales in the coatings business were higher in local currencies fuelled by solid results in both the transportation and the industrial and decorative coating markets. The Segment continues to leverage its wide range of targeted product applications into the plastics market and delivered positive growth in local currencies despite intense competition. Demand remained weak in the traditional printing inks market, although digital printing products continued to grow strongly in 2003.

Geographically, in Europe sales decreased both in local currencies and in Swiss francs. Sales declines were evident across most major countries with the exception of Germany, where sales were stable in local currency and increased in Swiss francs. In the Americas, sales levels decreased slightly in local currencies and more so in Swiss francs. Sales levels in the U.S. were mainly stagnant and ended the year below prior period levels in local currency. Asia Pacific sales grew in local currencies and decreased slightly in Swiss francs. The positive result in local currencies was fuelled by strong performances in both China and Japan. This was augmented by positive growth levels in local currencies throughout the remainder of the region.

Operating income and EBITDA decreased both in absolute terms and as a percentage of sales, mainly due to lower sales and unfavorable currency development. Production expenses were lower in Swiss francs despite increases in utility costs. Lower raw material and production expenses could not fully offset the effects of sales price declines and adverse currency developments, resulting in gross profit deterioration in both absolute and intensity terms. Selling, general and administrative costs were lower in Swiss francs and were stable in local currencies. Investment in research and development continued at the previous high level of approximately 5 percent of sales.

The Segment maintained its focus on effective management of its operating assets. Inventory levels were below those of the prior year and improved in both absolute and intensity terms. Receivable levels were also lower in both absolute and intensity terms. Payable levels decreased from prior year levels. Capital expenditures were focused primarily on efficiency and productivity programs and were below the level of depreciation. The combination of currency effects, lower investment than annual depreciation in fixed assets and the effective management of current assets led to a reduction in total assets and invested capital.

Sales decreased to CHF 1 349 million in 2003 or by 4 percent in Swiss francs, but increased by 2 percent in local currencies. Sales development in 2003 compared to 2002 resulted from the following factors:

Water Treatment sales increased in local currencies, but were lower in Swiss francs. Solid performances in local currencies were achieved across the Segment’s main market sectors, although the impact of competitive pricing pressure continues to negatively affect sales performance. Sales levels in the paper business overall were below prior year levels in local currencies and in Swiss francs, although good results were achieved in the paper coloration and water management sectors.

Geographically, sales in Europe increased in both Swiss francs and in local currencies. Positive sales development was evident across much of the region with France and the U.K. leading the way, delivering solid growth levels in local currencies. Germany posted a slight increase in Swiss francs helped by the stronger euro. Sales declined in the Americas both in local currencies and in Swiss francs. Sales in the U.S. remained below prior year levels throughout the year both in local currency and in Swiss francs. South America posted sales growth in local currencies, but sales were lower in Swiss francs. Asia Pacific again demonstrated excellent growth levels in local currencies overall, particularly in China and Japan, augmented by robust performances in Africa/Middle East, where sales increased both in local currencies and in Swiss francs.

Operating income and EBITDA decreased both in absolute terms and as a percentage of sales. These decreases were due to sales price reductions and higher raw materials costs that could only be partially offset by lower production costs in Swiss francs, although these increased slightly in local currencies. Positive sales volume gains only partially offset the above negative effects. Selling, general and administrative costs were lower in Swiss francs and slightly lower in local currencies. Investments in research and development remained at the prior year level of approximately 2 percent of sales.

The Segment managed to reduce its asset base below prior year levels. Inventories decreased both in absolute and intensity terms. Receivable also decreased in absolute terms, but increased slightly in intensity terms. Capital expenditures were higher due partially to certain expenditures deferred from prior year. Investments continued to be focused mainly on small-scale debottlenecking and productivity improvement projects. The combination of currency fluctuations, lower investment than annual depreciation in fixed assets and the effective management of current assets led to a reduction in total assets and invested capital.

Sales decreased to CHF 1 401 million in 2003 or by 9 percent in Swiss francs and by 3 percent in local currencies. Sales development in 2003 compared to 2002 resulted from the following factors:

The Segment continued to experience a weak textile dyes market subject to fierce competitive activity from both traditional and non- traditional suppliers. Sales levels were well below prior year both in local currencies and in Swiss francs. Competition in the wool business remains intense. A more encouraging outlook is noted in cellulose exhaust dyes, where demand is growing for the Segment’s newer ranges that offer superior quality and performance to classical commodity products. In the pad and printing dyes sector, gains in the ink jet and printing businesses were offset by lower sales in reactive dyes where market conditions remain sluggish. In the textile chemicals markets, sales levels were higher in local currencies, but were lower in Swiss francs. Continuing the trend of prior year, the Segment again posted a strong result in effects chemicals, where demand for its innovative oil and water repellant products remains strong.

Geographically, sales in Europe were below prior year levels in both Swiss francs and in local currencies. Sales declines were evident across the main European markets, with the exception of Turkey, where sales developed positively both in Swiss francs and in local currency. In the Americas, sales declined in Swiss francs and in local currencies. In the U.S., sales were well below prior year levels in both Swiss francs and in local currency. In the Asia Pacific region, sales increased slightly in local currencies, particularly in the China and South Asia regions, but declined overall in Swiss francs.

Operating income and EBITDA decreased in both absolute terms and as a percentage of sales, reflective of the overall weak sales performance. The Segment successfully realigned certain key components of its productive infrastructure, with the result that operating expenses were below prior year levels in both Swiss francs and, to a lesser extent, local currencies. Selling, general and administrative costs were lower in Swiss francs compared to the prior year, due to the lower cost base achieved primarily from further headcount reductions. Investment in research and development remained stable at approximately 2 percent of sales.

The Segment was successful in reducing its net current operating assets. Inventory levels were significantly lower than prior year levels both in absolute and intensity terms. Receivable levels were also lower in absolute and intensity terms, benefiting from effective credit management. Payable levels decreased from prior year levels partially due to lower purchasing activity in the fourth quarter. Capital expenditures were well below both prior year levels and depreciation expense for the period. The combination of effective management of current assets and lower capital investment than annual depreciation in fixed assets, together with currency fluctuations, resulted in a reduction of total assets and invested capital.

Sales decreased to CHF 367 million in 2003 or by 8 percent in Swiss francs and increased by 1 percent in local currencies. Sales development in 2003 compared to 2002 resulted from the following factors:

Sales in Home & Personal Care increased slightly in local currencies, but were again adversely impacted by the strong Swiss franc, particularly in the first half of the year as a significant proportion of the Segment’s sales are denominated in U.S. dollars. Sales in personal care increased in local currencies and were stable in Swiss francs. Lower sales in hygiene effects were offset by excellent growth in new effects products, especially UV-filters. In the home and fabric care market sector, sales were lower both in local currencies and in Swiss francs.

Geographically, sales in Europe increased both in Swiss francs and in local currencies, driven especially by strong growth in Germany and France. In the Americas, sales decreased slightly in local currencies and were much lower in Swiss francs, as a result of the difficult U.S. market. Central America posted a sales increase in local currencies but sales were lower in Swiss francs. In Asia Pacific, sales increased slightly in local currencies, but declined in Swiss francs.

Operating income and EBITDA, both in absolute terms and as a percentage of sales, were adversely affected by lower sales and unfavorable currency fluctuations. Further decreases in production costs, partially offset by higher idle capacity costs, could not offset the strongly adverse currency impact thereby resulting in lower operating income and EBITDA margins. Selling, general and administrative costs were lower in Swiss francs and increased slightly in local currencies compared to prior year. Investments in research and development activities continued at the high level of approximately 8 percent of sales, indicative of the Segment’s focus on innovation.

The Segment again achieved a reduction in its asset base. Both inventories and receivables decreased slightly in absolute terms but increased in intensity terms. Payable levels decreased slightly. Capital investments were similar to prior year levels, continue to focus primarily on efficiency and productivity programs and were below the level of depreciation expense. The effects of the reduction in net current assets, lower capital investment than annual depreciation in fixed assets, together with currency fluctuations, resulted in a reduction of total assets and invested capital.

The continued emphasis on the management of operational assets led to a reduction in total assets of CHF 714 million, excluding cash and cash equivalents and short-term investments. Approximately 60 percent of this reduction was achieved through continued proactive asset management in areas such as inventories and accounts receivable, and through the continued efforts to focus the Company’s capital expenditures on efficiency and safety improvement related items. Proposed

investments in additional production capacity continue to be carefully evaluated to ensure that sufficient market demand exists to justify the investment. The Company also continues its practice of maintaining total investments in property, plant and equipment at less than the annual depreciation cost.

The remaining asset reduction resulted from the change between December 31, 2002 and 2003 in year-end currency exchange rates, which are used to translate the Company’s various non-Swiss franc denominated balance sheet items located around the world into Swiss francs. In particular, the U.S. dollar depreciated by 13 percent, and the euro appreciated by 7 percent, from year to year against the Swiss franc.

In recent years, the Company’s sources of liquidity have primarily been provided by operations and funds from capital markets. The management of the Company is of the opinion that the funding available to it from these sources will be sufficient to satisfy its working capital and debt service requirements for the foreseeable future.

The international financial markets in 2003 remained volatile. The major trends in the markets, which were the focus of the Company’s treasury management initiatives, included movements in interest rates as well as the continued weakening of the U.S. dollar against the Swiss franc, and during the latter part of the year, the strengthening of the euro against the U.S. dollar.

As a consequence of the slow economic recovery and political instability experienced in 2003, global interest rates fell below 2002 levels reaching a trough at approximately mid-year 2003, before rising slightly from mid-year levels. Through the effective anticipation of market conditions and the use of financial instruments available in the financial markets, the Company was able to further reduce the average cost of its total borrowings from 4.02 percent in 2002 to 3.84 percent in 2003. As a consequence of this interest cost reduction as well as lower overall debt levels, the Company’s net interest cost, which is interest expense less interest income, decreased by CHF 2 million to CHF 108 million in 2003 compared to CHF 110 million in 2002.

During 2003, the U.S. dollar fluctuated against the Swiss franc from a high of approximately CHF 1.42 to a low of approximately CHF 1.24. The Swiss franc balance sheet year-end rate was at CHF 1.25 against the U.S. dollar in 2003 versus CHF 1.43 at the end of 2002. During 2003, the euro fluctuated against the Swiss franc from a high of approximately CHF 1.57 to a low of approximately CHF 1.46. At the end of 2003, the Swiss franc was at a level of CHF 1.56 against the euro versus CHF 1.46 at the end of 2002.

In 2003, other financial expense, net which includes foreign currency exchange gains and losses, net hedging expenses, and losses on financial investments, was CHF 24 million, a decrease of CHF 81 million, compared to CHF 105 million in 2002. Of this decrease, CHF 59 million resulted from the Company’s investment in Hexcel Corporation (“Hexcel”). In 2002, the Company recorded a CHF 38 million expense for the unrealized loss on this investment that was deemed to be other than temporary. In 2003, however, the market value of Hexcel improved significantly and the Company sold its remaining shares in Hexcel, realizing a CHF 16 million gain.

The Company’s policy is to maintain a high degree of flexibility in its funding process by using a broad variety of financial instruments and currencies depending on market conditions. The Company enters into derivative financial instruments in the ordinary course of business to mitigate its exposure to adverse changes in foreign exchange rates and to manage its interest rate exposures. Various risk exposures, arising from existing assets and liabilities, from future transactions in which the Company is firmly committed and from future anticipated transactions, are assessed and managed centrally by the Company’s treasury group based on the Company’s aggregate exposure.

Under the Company’s written hedging policy, treasury management continuously monitors and reports the results of its risk management programs to senior management and may choose to partially or fully hedge exposures. In accordance with its hedging policy, the Company primarily utilizes foreign exchange currency forwards, swaps and options contracts. The Company’s risk management policies do not permit the utilization of financial instruments for speculative or trading purposes. For further information see Note 9 to Consolidated Financial Statements and Item 11 — Quantitative and Qualitative Disclosures About Market Risks.

Throughout 2003, the Company continued to maintain its long-term debt ratings of ‘A’ from Standard & Poor’s and of ‘A2’ from Moody’s. In Management’s opinion, based on the Company’s current financial position, its credit protection ratios are strong for its rating category. Consequently, management believes that the Company will continue to be able to access global capital markets to meet its capital requirements as required.

The Company’s capital requirements are primarily dependent on management’s business plans regarding the levels and timing of capital expenditures and investments. Subject to developments affecting the Company which cannot be predicted or controlled, management, for the next one to two years, intends to maintain the Company’s capital expenditure levels generally in the range of the past three years. The Company is not currently subject to any commitment for capital expenditures that individually is material to the Company.

For further information on capital resources available to the Company, see Notes 12 and 13 to Consolidated Financial Statements.

The Company maintains short-term debt facilities, including commercial paper programs and bank overdraft and credit line facilities to finance its working capital requirements, which are described in Note 12 to the Consolidated Financial Statements.

The Company’s long-term debt in 2003 and 2002 consisted primarily of Euro Medium-Term Notes (EMTN Program), convertible bonds, and straight bonds, which are described in Note 13 to the Consolidated Financial Statements. The current portion of long-term debt totaled CHF 1 million at December 31, 2003 and CHF 1 198 million at December 31, 2002.

The continued generation of cash flows from operations in excess of 1 billion Swiss francs allowed the Company to reduce net debt levels in Swiss franc terms by CHF 414 million in 2003. Short-term debt, excluding the current portion of long-term debt, was reduced by CHF 40 million in 2003. This was achieved through the Company’s ability to finance its working capital needs through cash flows generated from its operating activities.

Long-term debt, including current portion, decreased by a net CHF 354 million as the result of repayments of existing debt that matured during 2003, partially offset by the issuance of new debt during 2003 (see Note 13 to Consolidated Financial Statements).

The Company’s commercial paper and EMTN programs are uncommitted and the availability of future funds there under depends to a large extent on market conditions. The Company may, if and when it is economically advantageous, issue new debt. As of December 31, 2003, the Company had available borrowings under the EMTN Program of approximately CHF 1.8 billion; however it currently has no plans to utilize this program in the future.

The net increase in cash and cash equivalents of CHF 25 million from December 31, 2002 to December 31, 2003 resulted from cash flows provided by or used in the Company’s operating, investing and financing activities.

During 2003, the Company’s focus on operating asset management enabled it to continue to generate cash from operating activities in excess of CHF 1 billion despite having lower net income and depreciation and amortization during 2003 than in 2002. This was accomplished by offsetting the impact of lower operating performance with a successful program in the fourth quarter of 2003 to substantially reduce net current operating assets.

Net cash used in acquisition and divestment activities in 2003 consisted primarily of a CHF 71 million payment for separation costs attributable to the past divestment of the Performance Polymers business. Also included is an aggregate CHF 23 million for the acquisition of additional interests in two equity affiliates in Asia, where the Company is experiencing significant sales growth. These cash outflows were partially offset by proceeds of CHF 21 million from the sale of the Company’s remaining Hexcel shares.

In 2002, the net cash used in acquisition and divestment activities amounted to CHF 116 million. The most significant costs incurred related to additional cash payments for separation cost attributable to the divestment of the Performance Polymers business, which amounted to approximately CHF 69 million. This was lower than the Company’s prior year estimate of cash payments to be made due to delays in the settlement of certain matters between the parties that were out of the direct control of the Company. The remaining CHF 47 million was used primarily for minor strategic business acquisitions, including the acquisition of the flame retardant business of Melapur B.V. from DSM N.V.

For discussion of cash flows from short-term and long-term debt, see the Net Debt section of this Management’s Discussion and Analysis and Notes 12 and 13 to Consolidated Financial Statements.

At the Company’s Annual General Meeting on March 6, 2003, the shareholders approved the Board of Directors’ proposal for a payment to the shareholders in the form of a capital reduction of CHF 3 per share. The capital reduction was in the form of a reduction in the nominal value of each common share from CHF 9 per share to CHF 6 per share. The Company paid the capital reduction on May 23, 2003, which totaled CHF 206 million.

At the Company’s Annual General Meeting on March 22, 2002, the shareholders approved the Board of Directors proposal for an unchanged dividend of CHF 2 per share and an extraordinary payment to the shareholders in the form of a capital reduction of CHF 1 per share. The capital reduction was in the form of a reduction in the nominal value of each common share from CHF 10 per share to CHF 9 per share. The Company paid the dividend on March 27, 2002, which amounted to CHF 134 million and paid the capital reduction on June 28, 2002, which totaled CHF 69 million.

In connection with its share buy-back program initiated in 2003, the Company purchased 1.3 million treasury shares for CHF 117 million. The Board of Directors will propose at the Annual General Meeting of shareholders on February 26, 2004 that these shares be cancelled; this proposal is subject to shareholder approval. For further details, refer to Note 16 to Consolidated Financial Statements.

The Company historically has utilized free cash flow to maintain short-term debt at stable levels, to repay long-term debt according to payment terms or earlier when economically advantageous to the Company, for acquisitions of businesses or treasury shares, and to pay distributions to shareholders.

Free cash flow generation in 2003 remained strong, growing by CHF 45 million over the amount generated in 2002. The Company was able to accomplish this despite the difficult economic environment during 2003 primarily as a result of being able to maintain the consistent level of net cash from operations discussed above combined with having spent in 2003 less on investment-related activities, excluding acquisitions, than in each of the two prior years. Free cash flow generated in 2003 was used for debt repayment and for small strategic acquisitions.

The Company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary course of business. Management believes that these commitments are not in excess of current market prices and reflect normal business operations. The Company had outstanding at December 31, 2003, various long-term obligations that will become due in 2004 and beyond. These various purchase commitments and long-term obligations will have an effect on the Company’s future liquidity and capital resources. The table below shows, by major category of commitment and long-term obligations outstanding as of December 31, 2003, the Company’s current estimate of their annual maturities.

In addition to the long-term obligations and commitments disclosed above, the Company, in the normal course of business, provided guarantees to third parties. The Company estimates that the fair value of these guarantees is not material and does not expect to incur material losses as a result of these guarantees. As of December 31, 2003, the Company has provided guarantees to third parties for indebtedness of others of approximately CHF 17 million, of which CHF 15 million expire in 2004, CHF 1 million expire in 2005 and CHF 1 million expire thereafter (see Note 21 to Consolidated Financial Statements).

The Company reported an effective income tax rate of 17 percent in 2003, a reduction of 10 percent compared to 27 percent reported in 2002. Substantially all of this reduction in the effective tax rate is due to the occurrence in 2003 of a non-recurring event. In their past tax audit of the Company’s operations in Grenzach, Germany, the German tax authorities had made a substantial tax adjustment. In accordance with the Master Spin-off Agreement with Novartis and with Swiss commercial law, management was of the opinion that the total liability owed resulting from this adjustment was the responsibility of Novartis. This opinion was disputed by Novartis and, in 2001, it initiated arbitration proceedings against the Company in relation to this matter. This dispute was settled in 2003, resulting in the release by the Company of CHF 39 million of previously established tax reserves. This event reduced the Company’s effective income tax rate by 9 percent; 10 percent when combined with another reserve release. Consequently, for comparability with 2002, the Company’s effective income tax rate in 2003 without these events would have been 27 percent instead of the 17 percent effective tax rate reported (see Note 14 to Consolidated Financial Statements).


Results of operations	2002			2001⁽¹⁾

Net sales		7 085			7 367
Gross profit		2 356			2 379
Operating income		788			761
Income from continuing operations		406			380
Net income		406			382
Basic and diluted earnings per share:
Income from continuing operations per share		5.92			5.72
Net income per share		5.92			5.76
Other data
Operating income		788			761
Depreciation and amortization of other intangible assets		385			408
Amortization of goodwill		—			61
EBITDA		1 173			1 230
Operating cash flows		1 038			1 054
Operating cash flows, before restructuring payments⁽²⁾		1 050			1 100
Free cash flow⁽³⁾		683			779
Net debt⁽⁴⁾		1 463			2 351
Shareholders’ equity at year-end		4 354			3 908
Dividend per share⁽⁵⁾		—			2.00
Capital reduction per share⁽⁵⁾		3.00			1.00
Results of operations as adjusted, excluding goodwill amortization⁽¹⁾
Operating income		788			822
Income from continuing operations		406			441
Net income		406			443
Basic and diluted earnings per share:
Income from continuing operations per share		5.92			6.64
Net income per share		5.92			6.68
Key performance ratios
Sales development		(4	)%		(7	)%
Sales development in local currencies		3	%		(3	)%
Expressed as a percentage of sales:
Gross profit		33.3	%		32.3	%
Operating income		11.1	%		10.3	%
Income from continuing operations		5.7	%		5.2	%
Net income		5.7	%		5.2	%
EBITDA		16.6	%		16.7	%

The weakening of the global economic environment of the year 2001 continued during 2002. Following slight signs of recovery during the spring, the economic climate noticeably declined towards the end of the year. The U.S. economy showed volatile and mixed economic development. In the second quarter of 2002, economic growth was noticeable but was followed by a significant weakening by the end of the year. European economic development was sluggish, with Germany experiencing an above average decline in growth. In Asia, the China Region remained the global growth engine in 2002.

The volatile sales development indicates a cautious buying pattern of the customers in the Company’s market segments. Towards the end of the year, a slight increase in inventories at the Company’s customers was noticed.

Net sales at CHF 7 085 million increased in local currencies by 3 percent. The Company improved its market position in a difficult environment. Sales in Swiss francs decreased by 4 percent compared to the prior year. Through the Company’s continued focus on global sourcing of raw materials and its position in the chemicals value chain, the Company benefited from a decrease in raw material prices mainly during the first half of the year 2002. The decrease in raw material prices slowed down during the second half of the year and by the end of the year, the Company experienced price increases for some raw materials. In 2002, a higher capacity utilization compared to 2001 also contributed to the increase of the gross profit margin. In absolute terms, gross profit decreased to CHF 2 356 million from CHF 2 379 million in the prior year. This decline is attributable to unfavorable currency fluctuations.

Due to numerous process improvements, normal fluctuation and the completion of restructuring programs that had been previously announced, the number of employees was reduced by 676 full-time equivalents (FTEs) to 19 007 FTEs in 2002, compared to 19 683 FTEs in 2001. The integration of the original three supply chains into one single supply chain progresses according to plan and will be completed in 2003. The rationalization of the Information Technology (IT) support structure was completed during 2002.

While these proactive actions to protect profitability were generally successful in reducing the Company’s cost base in 2002, compared to the previous year, they were unable to fully compensate for unfavorable currency fluctuations. The weakening of most currencies against the Swiss franc, particularly the U.S. dollar, the British pound, the euro and the Japanese yen, had a significant negative effect on the Company’s results.

Effective January 1, 2002, in accordance with new U.S. GAAP accounting rules, the Company no longer amortized goodwill to earnings. As a result of goodwill not being amortized, the Company’s operating income in 2002 was improved by CHF 61 million, as compared to prior year.

Operating income increased by CHF 27 million to CHF 788 million compared to CHF 761 million in the prior year.

Income from continuing operations was CHF 406 million or CHF 5.92 per share in 2002 compared to CHF 380 million or CHF 5.72 per share in the prior year. Net income was CHF 406 million or CHF 5.92 per share in 2002 compared to CHF 382 million or CHF 5.76 per share in the prior year. The Company’s EBITDA and EBITDA margin were CHF 1 173 million and 16.6 percent, respectively, in 2002 compared to CHF 1 230 million and 16.7 percent, respectively, in 2001.

Free cash flow of CHF 683 million further enhances the Company’s financial position

The Company’s continued focus on the generation of cash further strengthened the financial position of the Company. Improved operational performance plays a crucial role in sustaining high cash flows for the Company. In addition, inventory levels and accounts receivable were reduced to 34.7 percent of net sales in 2002, compared to 35.2 percent in 2001.

Capital expenditures remained relatively stable at 2001 levels and continue to be focused on efficiency improvement projects, remaining below the level of annual depreciation. The combination of cash flows generated from operations and effective asset management resulted in free cash flow of CHF 683 million in 2002 compared to CHF 779 million in 2001.

The continuing focus on operational efficiencies, cash flow and portfolio management resulted in a reduction of the Company’s net debt to CHF 1 463 million in 2002, an improvement of CHF 888 million from 2001 levels. The Company’s treasury share transactions, as well as the capital reduction payment made in 2002, are excluded from the Company’s definition of free cash flow. In 2002, the net effect from the sale of the Company’s treasury shares and the capital reduction also contributed to reduction of net debt.

EBITDA interest cover has improved to 10.66 in 2002 from 9.18 in 2001. EBITDA interest cover is calculated as EBITDA (2002: CHF 1 173 million; 2001: CHF 1 230 million) divided by net interest — interest expense less interest income (2002: CHF 110 million; 2001: CHF 134 million).

The Company continues to optimize its business portfolio through selective acquisitions to strengthen its focus on its core businesses and to improve profitability

In order to improve the product range for flame retardants and integrated formulation with effect combinations in the Plastic Additives Segment, the Company purchased Melapur B.V. (Melapur) from DSM N.V. in May 2002. Melapur manufactures and distributes halogen-free flame retardants on melamine basis.

Net sales in local currencies increased by 3 percent. In Swiss francs sales decreased by 4 percent to CHF 7 085 million. Sales development in 2002 compared to 2001 resulted from the following factors:

Sales for the year started off moderately as a result of the continued weak economic environment. Sales in Europe and in the NAFTA region started to improve during the second quarter and weakened slightly towards the end of the year. As a consequence of volatile market conditions and mixed economic development, sales in 2002 showed a rather high oscillation from month to month compared to 2001. Contributing to the sales decline in Swiss francs was the strengthening of the Swiss franc compared to other currencies, particularly against the U.S. dollar, the British pound, the euro and the Japanese yen, resulting in a reduction in sales in Swiss francs of 4 percent compared to 2001. In these difficult economic conditions, the Company experienced sales price erosion of 3 percent but was able to compensated for this by a volume/product mix increase of 6 percent. This emphasizes the overall quality of the Company’s product portfolio and customer partnerships.

Sales in local currencies increased in some of the major markets in Europe, except in the United Kingdom and in France. In Swiss francs, sales declined. In the Americas, sales in local currencies increased in North America and Central America, but decreased in Swiss francs. Sales in South America showed a stronger increase in local currencies than the rest of the Americas, but declined in Swiss francs. In most of the major markets in Asia Pacific, sales increased in local currencies. The China Region and Australia showed increased sales also in Swiss francs. Whereas in the other major markets of the region, sales in Swiss francs declined. In the China Region, sales increased by double digits in local currencies.

Profit margins remained relatively stable and benefited from the Company’s cost reduction programs

The gross profit margin improved to 33.3 percent of sales compared to 32.3 percent in the prior year. The increase in gross profit was achieved through price reductions on raw materials and effective control on other production costs, combined with relatively stable selling prices. In the first half of 2002, raw material prices declined due to the continuation of the Company’s policy to purchase supplies globally through its worldwide organization and its position in the chemical value chain. In the second half of the year, the decline of raw material prices slowed down and prices started to increase for some raw materials towards the end of the year. Process improvements in production with respective staff reductions combined with the increased plant utilization due to higher production output further improved the gross profit margin.

Selling, general and administrative expenses decreased in absolute terms by CHF 11 million to CHF 1 247 million, compared to CHF 1 258 million in 2001. Selling, general and administrative expenses expressed as a percentage of sales were 17.6 percent compared to 17.1 percent in the prior year. The Company’s continuous efforts to streamline its operational structure, the cost initiatives under the Company’s reorganization program “Fit For Growth!” as announced in 2001, process improvements and the completion of previously announced restructuring programs, resulted in a reduction of personnel levels and a decrease in selling, general and administrative expenses that offset most of the negative impacts. The Company had higher variable compensation expenses in 2002 compared to 2001, as compensation levels are partly linked to achieving performance targets, which were only partly met in 2002, and to a lesser extent in 2001. The Company also had in 2001 non-recurring income related to providing third party services to Vantico, a company that was established by the purchaser of the Company’s Performance Polymers business. These service contracts have expired and will not be renewed.

Research and development expenses as a percentage of sales increased to 4.2 percent in 2002 compared to 3.8 percent in 2001. In absolute terms, research and development expenses increased by CHF 18 million to CHF 294 million in 2002 as compared to CHF 276 million in 2001, an increase of 7 percent in Swiss francs or 9 percent in local currencies.

The Company has historically invested and plans to continue to invest approximately 3 to 4 percent of sales in research and development activities. The Company’s research and development program focuses on generating new business and

defending leading market positions by continuous innovation. As part of the reorganization, announced in February 2001, certain research and development activities, mostly focused on innovative new ideas and opportunities, were transferred to a central group managed directly by the Chief Technology Officer. The Company’s research and development strategy is to enter both new and existing markets with innovative formulations and solutions that will satisfy customer needs.

Some examples of new formulations used to enter new markets are soft pigment formulations for both textile printing and textile dyeing. These formulations have superior characteristics as they can be used for printing and bath dyeing. They maintain the soft handle of the textile in the finished product and are environmentally friendly. A further example are new UV absorber systems that are added to laundry detergents, which when applied regularly, increase the sun-protection of a fabric up to a factor of 30.

Innovative product range extensions and customer focused solutions within existing markets include a new compound for optical information storage on recordable Compact Discs (CDs) and Digital Versatile Discs (DVDs) with improved data storage quality, warp free pigments for use in plastics, and new colors for color filters used in color flat-screen displays (LCD-TFT). The Water & Paper Treatment Segment introduced a series of environmentally friendly fluorine chemicals for the paper market, which prevent, for example, food-packaging papers from being stained by fatty content.

In parallel, the Company continues to develop new and improved manufacturing processes, which are cost competitive and meet all environmental, health and safety requirements.

As of January 1, 2002, in accordance with new U.S. GAAP accounting rules, the Company no longer amortizes any goodwill to earnings, but instead is required to review its recoverability through annual impairment testing. Other identifiable intangibles continue to be amortized to earnings over their estimated useful lives. The Company adopted the new accounting rule effective January 1, 2002. Upon adoption of this accounting rule, an initial impairment test of the goodwill as of January 1, 2002 was required. In addition, the Company was required to perform an annual impairment test of goodwill during 2002. The Company tested the recoverability of its goodwill as of January 1, 2002 and as of December 31, 2002, concluding as of each respective date that the book value of goodwill was not impaired. For further information see the Supplemental Information — Change in accounting policy and new accounting standards section below and Note 1 to Consolidated Financial Statements. In 2001, the goodwill amortization expense was CHF 61 million.

The amortization of other intangibles remained relatively constant at CHF 33 million compared to CHF 31 million in 2001. The increase was a result of recent acquisitions during 2002 and acquisitions that occurred at the end of 2001.

Income from earnings of equity affiliates (investments in unconsolidated companies with greater than 20 percent and less than or equal to 50 percent ownership), before income taxes, decreased to CHF 6 million in 2002 from CHF 8 million in 2001. The related income taxes on earnings of equity affiliates are recorded separately in the Company’s provision for income taxes.

The reduction in income from earnings of equity affiliates is primarily due to the sale, in March 2001, of the Company’s 50 percent interest in TFL Ledertechnik GmbH & Co. KG (TFL). The net proceeds received from the sale of the TFL interest approximated the carrying value of the investment at the date of sale.

Operating income and EBITDA adversely affected by lower sales levels and unfavorable currency developments

Operating income increased by CHF 27 million in 2002 and the EBIT margin increased by 0.8 percent points to 11.1 percent of sales. Increased sales in local currencies, favorable raw material prices, process improvements and proactive measures for cost control contributed to these improvements. The strengthening of the Swiss franc against most currencies negatively impacted operating income by approximately CHF 165 million. The amortization of goodwill amounted to CHF 61 million in 2001.

EBITDA declined by CHF 57 million compared to 2001, mainly as a result of the unfavorable currency fluctuation of the Swiss franc against other currencies. In local currencies, EBITDA increased by 10 percent. The EBITDA margin of 16.6 percent in 2002 maintained at the previous year’s level.

Restructuring and special charges, net — prior year programs completed in 2002.

The Company evaluates the performance of its segments’ operating incomes before restructuring and special charges. Accordingly, restructuring and special charges are not included in the segments’ operating results.

The restructuring accrual at January 1, 2002 relates to the 2000 restructuring projects, announced in the second half of 2000. These restructuring programs were completed during 2002 and are described below.

The Company implemented a program (“Fit For Growth!”) in 2001 that aligned the Company’s operational activities with its customers’ industries. This new structure was designed to bring the Company’s businesses closer to its customers and allow for a greater focus on providing not just products, but total integrated solutions. This program resulted in the establishment of five business segments, a Chief Technology Officer at the Executive Committee level and a new, cross-segment Research and Technology Board, which was formed to leverage the Company’s existing technological core competencies and to identify new technology platforms for future growth. The “Fit For Growth!” program was also designed to speed up decision-making by eliminating the former divisional layer, as well as to improve efficiency by harmonizing several support areas. The major initiatives in these efficiency projects are the merging of the existing three supply chains into one coordinated global supply chain system, which is expected to be completed during 2003, the rationalization of Information Technology support structures and infrastructure and the reduction of personnel in the Water & Paper Treatment Segment as part of the strategy to streamline operations, improve profitability and business growth.

During 2002, in connection with the “Fit For Growth!” program initiated in 2001, the Company reduced its headcount by an additional 676 employees. These reductions in the number of employees were achieved through productivity gains realized from the implementation of the new organizational structures introduced in 2001. The reductions were made, for the most part, through attrition and the very limited hiring of new personnel.

In 2001, under the “Fit For Growth!” program, the Company reduced its headcount by 262 full-time equivalents (FTEs) under severance programs. The total cost of these severances was approximately CHF 33 million. The Company also released to income excess restructuring provisions of CHF 8 million and special charges provisions of CHF 25 million that were established in prior years.

The 2000 year programs comprised primarily the restructuring of certain operations of the Water & Paper Treatment segment in the United States (mainly relating to the closure of a manufacturing facility), the reorganization of the Company’s administration functions in Southern Europe and the reduction of personnel, principally at a Plastic Additives and Home & Personal Care manufacturing facility in the United States. Severance costs that were incurred in 2000 related to the reduction of approximately 238 FTEs in the United States and Southern Europe, principally in the administration, sales and marketing functions and, in addition, the manufacturing functions in the United States. These restructuring programs were completed during 2002.

Under all programs reported and through additional initiatives in the last two years, the company reduced its headcount from 20 306 FTEs at end of 2000 by 1 299 employees to 19 007 FTEs at the end of 2002.

The costs and activity associated with the 2000 restructuring programs during 2002 are summarized below:

Sales decreased to CHF 1 813 million in 2002 or by 1 percent in Swiss francs and increased by 6 percent in local currencies. Sales development in 2002 compared to 2001 resulted from the following factors:

Sales increased in local currencies due to strong volume growth, particularly in lubricant additives, while sales in Swiss francs declined slightly. Base polymers and polymer products sales also increased in local currencies, despite the competitive environment and pricing strategies of competitors. In response to these market conditions, sales price reductions were necessary to maintain the Segment’s market position.

Geographically, sales in Europe increased both in local currencies and to a lesser extent in Swiss francs. Sales growth was positive in the majority of the region in local currencies. In the Americas, sales declined in Swiss francs but grew in local currencies, fuelled especially by a favorable second half in the United States. In Asia Pacific, sales levels increased in local currencies, with sales in China being particularly solid. Sales were, however, slightly lower in Swiss francs.

Operating income and EBITDA were adversely affected by lower sales and unfavorable currency fluctuations. Improvements made to the operating cost structure in addition to productivity gains could not fully offset sales price declines. These impacts led to a slight decline in gross profit margin levels. Selling, general and administration costs remained stable at the prior year level, despite a higher level of variable compensation expense in 2002 compared to 2001. This is due to the compensation being partly linked to achieving specified performance targets, which the Segment met in 2002, and to a lesser extent in 2001. The Segment continued its investment in future growth through research and development activities, which were maintained at the level of approximately 5 percent of sales. In addition, during 2002 the Segment completed the acquisition of Melapur B.V., a provider of environmentally friendly, halogen-free flame retardants, strengthening the Segment’s position in this market.

Sales decreased to CHF 1 920 million in 2002 or by 1 percent in Swiss francs but increased by 5 percent in local currencies. Sales development in 2002 compared to 2001 resulted from the following factors:

Sales grew in local currencies due to the strong volume growth, particularly in the coatings, imaging and plastics market sectors, while in Swiss francs sales declined slightly. Continued sales growth of patented products into the automotive industry and the introduction of new and innovative products in the plastic markets, where the Segment is well positioned to meet increasing demand for materials substitutes, also contributed to the sales growth. The global printing ink industry continued to be very challenging in the traditional publication areas, although digital printing products continued to grow strongly. The information storage sector remains a difficult market, whereas growth opportunities have occurred in displays and microelectronics.

Geographically, sales in Europe increased in both Swiss francs and in local currencies. In the Americas, sales levels increased in local currencies, supported by a good second half of 2002 in the United States. Asia Pacific sales increased in local currencies and were marginally lower in Swiss francs.

Operating income and EBITDA increased both in absolute terms and as a percentage of sales, despite being adversely affected by slightly lower sales and unfavorable currency fluctuations. This improvement was primarily due to lower raw material costs, in conjunction with increased capacity utilization and cost savings realized through continued streamlining activities at selected production facilities. These factors contributed to a significant improvement in gross margin levels. Selling, general and administrative costs were slightly higher, primarily due to the higher level of variable compensation expense in 2002 compared to 2001. This is due to the compensation being partly linked to achieving specified performance targets, which the Segment met in 2002, and to a lesser extent in 2001. Investment in research and development continued at the high level of the prior year, being approximately 5 percent of sales.

Sales decreased to CHF 1 409 million in 2002 or by 5 percent in Swiss francs but increased by 1 percent in local currencies. Sales development in 2002 compared to 2001 resulted from the following factors:

Water Treatment sales increased slightly in local currencies, but were lower in Swiss francs. The Segment continues to operate in a difficult economic environment, particularly in the United States where overall demand for its products remains weak. Competitive pricing continues to negatively affect the sales performance. Sales into the paper industry were slightly above prior year levels in local currencies, despite strong competition and the pricing strategies of key competitors. This was achieved, in part, as a result of new product introductions.

Geographically, sales in Europe increased in local currencies and declined marginally in Swiss francs. Performance was mixed in the region. In the Americas, sales decreased in both Swiss francs and in local currencies, driven mainly by the NAFTA region. South America again showed a strong performance in local currencies. Sales in Asia Pacific increased both in Swiss francs and in local currencies with sales in China being particularly solid.

Operating income and EBITDA increased both in absolute terms and as a percentage of sales. This was achieved despite the weak sales development through the successful implementation of right sizing initiatives undertaken to reduce the operating cost base of the Segment by lowering selling, general and administrative costs, idle capacity costs, raw material costs and energy costs. The reduction in selling, general and administrative costs was achieved mainly from lower personnel costs, as a consequence of the completion of the headcount reduction programs, initiated in prior years. Investments in research and development remained stable at approximately 2 percent of sales.

Sales decreased to CHF 1 544 million in 2002 or by 8 percent in Swiss francs and by 2 percent in local currencies. Sales development in 2002 compared to 2001 resulted from the following factors:

The Segment continued to face challenges from weak overall demand in the textile dyes markets. In Europe, there were further textile mill closures. This coupled with the continued low level of activity in the wool sector and intensified competition in the market, contributed to the weak performance. In the textile chemicals markets, however, the Segment was able to increase sales in local currencies compared to the prior year, despite the difficult market conditions. In particular, the Segment posted a strong performance in its offering of effects chemicals, where demand for innovative oil and water repellant products, in conjunction with close customer alliances, continues to result in further market share gains.

Geographically, in Europe, sales were below the prior year in both Swiss francs and in local currencies. Sales declines were experienced across all major European markets. In the Americas, sales declined in Swiss francs and were slightly lower in local

currencies. In the United States, a slight recovery was seen in the second half of the year, although sales remained below prior year levels in both Swiss francs and in local currency. In the Asia Pacific region, sales increased in local currencies, particularly in the China Region and India, but declined in Swiss francs.

Operating income and EBITDA, in both absolute terms and as a percentage of sales were adversely affected by lower sales and unfavorable currency fluctuations. The Segment continued its initiatives to improve productivity and to reduce its cost structures during the year. The cost savings achieved out of these initiatives together with the reduction in raw material costs could not fully compensate for the lower sales levels and, as a consequence, gross profit margins were lower when compared to the prior year. Selling, general and administrative costs were lower compared to the prior year due to the lower cost base achieved, in part from further reductions in the number of employees. Investment in research and development remained stable at approximately 2 percent of sales.

Sales decreased to CHF 399 million in 2002 or by 7 percent in Swiss francs and increased by 1 percent in local currencies. Sales development in 2002 compared to 2001 resulted from the following factors:

Sales in Home & Personal Care remained relatively stable in local currency in comparison to a strong performance last year, but declined significantly in Swiss francs. As a significant proportion of the Segment’s sales are made in the Americas, the strengthening of the Swiss franc against the U.S. dollar and the other currencies in the region negatively affected the Swiss franc sales performance. In the personal care market, sales increased in local currencies as lower sales in hygiene effects were offset by growth new effects, particularly UV-filters and hair dyes. In the home and fabric care market sector, the negative impact of price competition and lower volumes in selected whitener products was offset by growth in new effects products in the areas of protection, colorants and home care specialties, resulting in a stable sales performance compared to the prior year.

Geographically, sales in Europe increased both in Swiss francs and in local currencies, driven by the acceleration of new product launches. Performance among the countries was mixed. In the Americas, sales increased in local currencies but declined in Swiss francs in all major markets in both North and South America. In Asia Pacific, sales declined both in Swiss francs and in local currencies.

Operating income and EBITDA both in absolute terms and as a percentage of sales were adversely affected by lower sales and unfavorable currency fluctuations. Continued tight controls on costs, reductions in raw material costs and operational improvements could not fully compensate for the decline in sales, resulting in a decline in EBIT and EBITDA margins. Selling, general and administrative costs remained relatively stable compared to the prior year. In keeping with the Segment’s long-term commitment to product innovation, investments in research and development activities increased to approximately 8 percent of sales.

The international financial markets in 2002 remained volatile. The major trends in the markets, which were the focus of the Company’s treasury management, included the weakening of the major currencies against the Swiss franc, and during the latter part of the year, the strengthening of the euro against the U.S. dollar, and movements in interest rates.

During 2002, the U.S. dollar fluctuated against the Swiss franc from a high of approximately CHF 1.72 to a low of approximately CHF 1.38. The Swiss franc balance sheet year-end rate was at CHF 1.43 against the U.S. dollar in 2002 versus CHF 1.63 at the end of 2001.

During 2002, the euro fluctuated against the Swiss franc from a high of approximately CHF 1.48 to a low of approximately CHF 1.45. At the end of 2002, the Swiss franc was at a level of CHF 1.46 against the euro versus CHF 1.47 at the end of 2001.

As a consequence of the anticipated economic recovery not being fully realized in the United States and the relatively flat economic growth in Europe, global interest rates fell below 2001 levels. Through the effective anticipation of market conditions and the use of financial instruments available in the financial markets, the Company was able to further reduce the average cost of its total borrowings in 2002 to 4.02 percent, which is below 2001 levels. The Company’s net interest costs decreased by CHF 24 million to CHF 110 million in 2002 compared to CHF 134 million in 2001. This decrease resulted primarily from a reduction in interest rates globally and effective treasury management.

The Company, in accordance with its stated risk management policy, continues to monitor its currency exposures and, where appropriate, enters into transactions to minimize its overall exposures to volatility in the currency markets. The Company selectively executes foreign currency transactions to protect the cash flows of its operating companies against unfavorable foreign currency movements. In 2002, other financial expense, net which includes foreign currency exchange gains and losses, net hedging expenses, and losses on financial investments, is CHF 105 million, an increase of CHF 46 million, compared to the net expense of CHF 59 million in 2001. Included in other financial expense in 2002 is a CHF 43 million loss on certain of the Company’s short-term investments and financial investments in unconsolidated companies, primarily Hexcel Corporation. The Company was required to record these losses since the decline in market values below the Company’s historical cost basis in these financial investments was, in Management’s opinion, no longer deemed temporary. The remainder of the other financial, expense, net, excluding the loss on investments, remained relatively stable compared to the prior year, despite the effects of the strengthening of the Swiss franc against the U.S. dollar and the other major currencies, and the effects of currency exchange losses caused by the devaluation of the Brazilian Real, the Mexican Peso and the Argentinean Peso.

Throughout 2002, the Company continued to maintain its long-term debt ratings of ‘A’ from Standard & Poors and of ‘A2’ from Moody’s. In Management’s opinion, based on the Company’s current financial position, its credit protection ratios are strong for its rating category.

In accordance with its risk management policy for country risk, the Company increased short-term debt due to local funding needs by CHF 22 million. In 2001 short-term debt was reduced by CHF 48 million. When economically feasible, the Company selectively retires portions of its long-term debt. Free cash flow utilized for this purpose amounted to CHF 19 million in 2002 versus CHF 110 million in 2001. The Company’s remaining cash reserves will be utilized in future periods to continue to maintain short-term debt at stable levels, to repay the straight bond debt in May 2003 and the convertible bond debt in July 2003, in accordance with their terms, and to repay of long-term debt when it is economically advantageous to the Company. The Company may, if and when it is economically advantageous, issue new debt either under the EMTN Program or as a Bond issuance as partial funding of the long-term debt amounts that are due in 2003.

As of January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which replaced existing pronouncements and practices for derivatives and hedging activities with a single, integrated accounting framework. Upon adoption of SFAS No. 133, the Company recorded a net transition adjustment gain after taxes of CHF 2 million in net income. The adoption did not have any effect on accumulated other comprehensive income. For further information, see Note 1 to Consolidated Financial Statements.

The Company reported an effective tax rate of 27 percent in 2002, a reduction of 5 percent compared to 32 percent reported in 2001. This reduction in the effective tax rate results, in part, from goodwill not being amortized for financial reporting purposes, in accordance with the Company’s adoption of SFAS No. 142 Goodwill and Other Intangible Assets (see Note 1 to Consolidated Financial Statements), as a considerable portion of the Company’s goodwill is non-deductible for tax purposes. In 2002, the effective tax rate was also impacted by a lower amount of other non-deductible items (see Note 14 to Consolidated Financial Statements).

In 2001, the effective tax rate was impacted by several non-recurring events. The tax rate was negatively impacted by the effect of a tax payment in Italy (the Imposta Sostitutiva) that permitted the future tax deductibility of Prochimica s.r.l.’s goodwill amortization and a tax adjustment. Both of these negative effects were substantially offset by the benefit received from the effect of certain taxable expenses in one of the Company’s subsidiaries that were recognized for income tax purposes but were not recognizable for financial reporting purposes. Excluding the impact of these 2001 non-recurring events, for comparability with the 2002 effective tax rate, the effective tax rate in 2001 would have been 30 percent.

Earnings per share amounts were computed by dividing income from continuing operations, cumulative effects of change in accounting principles and net income, respectively, by the weighted average number of shares outstanding.

During 2003, the Company adopted several new accounting standards that were issued by the Financial Accounting Standards Board (FASB). In addition, the Company will be required to adopt certain other new accounting standards during 2004 that have been issued by the FASB as of December 31, 2003, but were not required to be adopted during 2003. For further information regarding the impact on the Company’s results of operations and financial position from the adoption of the these new FASB standards in 2003 and the potential impact from the adoption of the new FASB standards in 2004, see Note 1 to the Consolidated Financial Statements.

Operating in the chemical industry, the Company is subject to stringent environmental, health and safety laws and regulations. It is the Company’s policy to continuously develop and improve the environmental performance of key manufacturing processes through an active program. In addition to process improvements, the Company uses advanced waste treatment and disposal facilities at all major manufacturing sites that allow the sites to comply with recent laws and regulations applicable to waste streams. Management believes that the Company substantially complies with all such laws. For further information, see Note 21 to Consolidated Financial Statements and Item 4. — Information on the Company — Property, Plant and Equipment; Manufacturing — Environmental Matters.

The key financial indicators used by the Company’s management to monitor overall performance and liquidity, including the performance of reportable segments, as well as to provide incentives for employees to produce high-quality results with a goal of enhancing shareholder value include certain non-U.S. GAAP financial measures. Such non-U.S. GAAP financial measures are derived from financial measures prepared in accordance with U.S. GAAP and include EBITDA, free cash flow and net debt. The way these non-U.S. GAAP financial measures are derived, as well as definitions of other financial terms used in this Management’s Discussion and Analysis, is shown in the Glossary of Financial Terms.

The Company uses EBITDA margin (EBITDA divided by net sales) and free cash flow as two of the three components of its annual incentive compensation program. The third component of the program is net sales growth. Under the Company’s annual incentive compensation program, employees receive annual payments if target net sales growth, EBITDA margin or free cash flow levels are achieved. The combination of these three indicators focuses management and employees on the profitable (EBITDA margin) growth (sales growth) of the Company without the utilization of unnecessary capital (free cash flow). In addition, the Company uses net debt as an indicator of the strength of its capital structure, as well as certain currency adjusted figures that permit it to evaluate its performance from period to period without such comparisons being impacted by the effects of currency exchange rate movements during these periods. For the same reasons, management believes investors may find the non-U.S. GAAP measures useful.

As with any supplementary financial indicator, these supplementary financial indicators should be considered in addition to, not as a substitute for, operating income, net income, cash flows from operating, investing and financing activities, total assets, total debt, operating income margin and other measures of financial performance and liquidity reported in accordance with U.S. GAAP.

As described in the Business Segment Data section of the Consolidated Financial Statements, the Company evaluates the performance of its reportable segments based on operating income as well as EBITDA. EBITDA, and EBITDA margin derived therefrom, provide management with additional quantitative measures of the quality of sales growth as well as the results of past and current actions taken to manage costs.

More importantly, the Company operates in a multinational environment and competes with companies in different countries. In some of these countries, very significant differences in accounting exist with regard to depreciation and amortization, including amortization of goodwill and other intangible assets. The most notable differences occur between companies reporting using U.S. GAAP and those reporting using International Financial Reporting Standards (IFRS). In addition, some companies with which the Company competes calculate and report their depreciation expense based on tax considerations. As a result, it is very difficult to meaningfully compare operating income data of such competitors in other countries with that of the Company. In order to adequately evaluate the Company’s performance in the markets as well as to compare and benchmark performance with that of the Company’s competitors, EBITDA was determined to be a key performance measure because it eliminates the above-described major differences.

The material limitation associated with using EBITDA as a performance measure as compared to net income is that EBITDA provides a measure of the Company’s current performance without consideration of the amount of capital that has been historically invested in order to produce the Company’s results. Management believes it compensates for this limitation by including free cash flow as another of its key financial indicators, as discussed above.

The reconciliation of EBITDA to net income is included in the Business Segment Data section of the Consolidated Financial Statements.

Free cash flow as defined by the Company provides the amount of net cash flow produced that is available for required or discretionary debt principle payments, reinvestment in the Company’s businesses, or the excess of distributions to shareholders over CHF 2 per share and, as such, is limited to being used for this consideration only.

The reconciliation of free cash flow to net cash provided by operating activities is included in the Liquidity and Capital Resources section of this Management’s Discussion and Analysis.

The reconciliation of net debt to the Company’s total debt is included in the Liquidity and Capital Resources section of this Management’s Discussion and Analysis.

The reconciliation of invested capital to total shareholders’ equity is included in the Business Segment Data section of the Consolidated Financial Statements.

Amounts “in local currencies” or “currency adjusted” are determined by adjusting current period amounts reported in Swiss francs, which is the Company’s reporting currency under U.S. GAAP, using prior period exchange rates to remove the effects of fluctuations in foreign currency rates against the Swiss franc that occurred from the prior period to the current period. The exchange rates of principle currencies to the Swiss franc, which form the basis of the Company’s disclosures of currency adjusted figures, are presented in Note 2 to the Consolidated Financial Statements.

Basic Earnings per Share is defined as net income divided by the weighted average number of common shares outstanding during the reporting period.

Cash Flows from Operating Activities is the net cash provided from the principal revenue-producing activities of the business. It excludes financing and investing activities.

Cash Flow Hedges are hedges of the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction.

Commercial Paper are short-term borrowings in the capital markets that are typically due within 30 to 270 days from the date of issuance and are issued by companies with good credit ratings.

Comprehensive Income is the change in equity of the Company during the year from transactions and other events, other than dividends paid, treasury stock and common stock transactions. It includes (i) net income for the year; (ii) the current year’s currency translation adjustment; (iii) the current year’s unrealized gains and losses on available-for-sale securities, net of tax; (iv) the changes in the effective portion of derivative financial instrument’s fair value, net of tax, that qualify and that are designated as cash flow hedges and (v) the change in the minimum pension liability, less the corresponding intangible asset, net of tax.

Convertible Bonds are debt instruments that may be converted into shares based on predefined conditions as stipulated in the debt agreement.

Defined Benefit Pension Plan is a pension plan that provides employees at their date of retirement, a predefined payment. The payment is, depending on the benefit plan, a function of one or more factors such as age, years of service or compensation level of the employee.

Defined Contribution Pension Plan is a pension plan for employees that provides the employees, at the date of their retirement, benefits based on the amount of capital paid-in by the participant or the Company, plus returns earned on the investment of those contributions.

Derivatives, Derivative Financial Instruments are financial contracts or agreements, the value of which is linked to current or future interest rates, exchange rates, prices of securities, or financial or commodity indices. Derivative financial instruments used by the Company include forward exchange contracts, options and interest and currency swaps. The Company uses these instruments to reduce its exposure to adverse fluctuations in interest and exchange rates and other market risks.

Diluted Earnings per Share is similar to basic earnings per share (net income divided by the weighted average number of common shares outstanding) except that it reflects the potential dilution that could occur if dilutive securities, such as stock options and convertible debt, were exercised or converted into common shares or resulted in the issuance of common shares that then shared in the earnings of the Company. Antidilutive effects are not considered.

EBITDA is calculated as operating income plus depreciation and amortization, and is reconciled to net income in the Business Segment Data section of the Consolidated Financial Statements.

Equity per Share is calculated by dividing total shareholders’ equity by the number of outstanding common shares (total common shares issued less treasury shares) at the balance sheet date.

Fair Value Hedges are hedges of the exposure to changes in the fair value of a recognized asset or liability, or an identified portion of such asset or liability, (the hedged item) that is attributable to a particular risk.

Free Cash Flow is cash flows from operating activities from continuing operations before restructuring payments, less net cash from investing activities before sale (acquisition) of businesses, net of cash, less a pro forma dividend of CHF 2 per share.

Goodwill is recognized in an acquisition of a business if the amount of the consideration paid by the Company is in excess of the fair value of the acquired entity’s tangible and identifiable intangible net assets.

A Hedge is an economic relationship between a hedged item and a derivative financial instrument whereby losses or gains are expected to offset each other in whole or in part.

A Hedged Item is specifically identified as either all or a specific portion of a recognized asset, a liability, a forecasted transaction or of an unrecognized firm commitment.

Hedge Effectiveness is the portion of the derivative financial instrument’s change in fair value that offsets the change in the fair value or cash flows of the hedged item.

Hedge Ineffectiveness is the amount by which the derivative financial instrument’s change in fair value does not equal the change in fair value or cash flows of the hedged item.

Intensity is an amount expressed as a percentage of net sales. Intensity of inventories is equal to the inventories divided by net sales. Intensities of accounts receivables and accounts payable are calculated correspondingly.

Invested Capital is calculated as total assets less non-interest bearing current liabilities (i.e. accounts payable, income taxes payable, accruals and other current liabilities, except the current portion of deferred tax liabilities) and less deferred tax assets.

Net Cash Provided by Operating Activities has the same meaning as Cash Flows from Operating Activities.

Net Current Operating Assets is the sum of inventories and accounts receivable less accounts payable.

Net Debt is the sum of short-term debt and long-term debt less cash and cash equivalents and short-term investments.

Net Sales Development percentage is the change in the current period’s net sales in Swiss francs over the previous period’s sales in Swiss francs expressed as a percentage.

Net Sales Development percentage, in local currencies is the change in the current period’s net sales in local currencies over the previous period’s net sales in local currencies expressed as a percentage.

Operating Income Margin is operating income expressed as a percentage of net sales.

Other Intangible Assets are assets (excluding financial assets) that lack physical substance, not including goodwill. They may include, but are not limited to, such assets as trademarks; trade names; patented and unpatented developed technology and know how, trade secrets, including processes and formulations; certain agreements such as licensing, royalty, not-to-compete, supply contracts, operating permits; and customer relationships, lists and contracts.

Numbers in square brackets refer to the Directive on Information Relating to Corporate Governance (“DCG”) of SWX Swiss Exchange

The Board of Directors of Ciba Specialty Chemicals defines the strategic direction and supervises the overall affairs of the Company, while the implementation of strategies and the day-to-day management is vested in the Executive Committee [DCG 3.6]. The Board also reviews the Company’s key plans and objectives, identifies external risks and opportunities, and initiates required activities.

The Members of the Board are elected by the General Meeting of Shareholders for a term of between one and four years; a re-election is possible [DCG 3.4.1]. The Company has a staggered Board [DCG 3.4.1]. For an overview of the individual election terms, see the table on the next page [DCG 3.4.2]. The Chairman of the Board is elected by the Board from its Members. A Board Member may tender his or her resignation during the term of his or her office. The Shareholders’ Meeting may vote to remove a Board Member.

The Board continues to commit itself to maintaining the highest standards of integrity and transparency in its governance of the Company. The Board and Board Committee charters reflect recent developments in corporate governance principles including the Swiss Code of Best Practice and the Sarbanes-Oxley Act of 2002. The Board believes that it is in compliance with well recognized corporate governance standards, in particular with regard to:

•

A Lead Director, having been appointed by the Board, who is entitled to convene on his own and chair meetings of the Board; in addition, the Lead Director chairs the Human Resources and Compensation Committee; based on interviews with other Board Members, he prepares a review of the Chairman of the Board. He also directs meeting modules without the Chairman being present

•

Broad supervisory and reviewing powers being held by the Board that are directly supported by Internal Audit

•

With the exception of the Chairman of the Board, the Board Members being both non-executive directors and independent from the Company

•

Having Board Committees with a majority of non-executive, independent directors

•

Having an Audit Committee exclusively comprised of non-executive and independent directors

•

The provision of continuous and comprehensive information to Board Members including periodic and yearly reports prepared by management on finances, strategies, research and development, production planning and risk management [DCG 3.7].

In 2003, the Board focused on the following key topics besides the overall supervision of the Company’s affairs, the preparation of the annual accounts and the General Meeting of the Shareholders: Group business strategy, research & development strategy, IT strategy, mergers and acquisitions, supply chain and “Managing for Growth” projects, analysis of products and strategy of the Company’s segments, management development and corporate governance.

Four standing Board Committees in the areas of audit, finance, human resources and compensation and nomination provide guidance and support to the full Board:

Mission: Evaluates the independence, objectivity and effectiveness of external and internal auditors, approves and pre-approves auditing and other services to be provided by the external auditors, evaluates business risk assessment, evaluates scope and overall audit plan, assesses the quality of financial accounting and reporting, reviews audit results and monitors compliance with specific laws and regulations governing the preparation and filing of financial statements. In addition, the Audit Committee proposes the nomination of the external auditors to the full Board. The Audit Committee reviews complaints regarding accounting, internal accounting controls or auditing matters. To facilitate the submission of such complaints, the Company has set up webpages both in its intranet (under: “Corporate Governance”) and on its internet site (http://www.cibasc.com/view.asp?id=5923). The Board has determined that the chairman of the Audit Committee, Erwin W. Heri, is the Audit Committee’s financial expert as per the requirements of Item 16A of Form 20-F.

Mission: Develops principles for financial planning, accounting and reporting, disclosure and control, reviews concepts of financial objectives to optimize shareholder value, develops finance policy, is regularly briefed on application/implementation of principles of finance policy, approves financial transactions, investments and acquisitions and supports the preservation and enhancement of the Company’s reputation in the financial markets.

Mission: Develops objectives and principles of human resource policy and internal communication, reviews the management development situation, develops compensation guidelines in line with overall company strategies, is informed about benefit plans for employees, is briefed in applications/implementation of principles of human resource policy and supports the preservation and enhancement of the Company’s reputation in the human resources area. The Human Resources and Compensation Committee assesses the emoluments of the Members of the Board and its Committees and prepares a request to the Board concerning the emoluments and the terms of employment of the CEO and the Members of the Executive Committee [DCG 5.1]. The Lead Director is the chairman of the Human Resources and Compensation Committee.

Mission: Develops the principles for the selection of candidates for election or re-election to the Board by the Annual General Meeting (“AGM”) of Shareholders and prepares a selection of candidates in accordance with these criteria. The Nomination Committee nominates the candidates for the appointments made by the Board. The Chairman of the Board is the chairman of the Nomination Committee.

Members of the Board [DCG 3, 3.1, 3.2, 3.4.2]
The Members of the Board are as follows:

Year

Significant positions and political

Date of

appointed

term

mandates outside the Company

Name

Birth

Nationality

to Board

expires

[DCG 3.2.a/b/c]

Armin Meyer
Chairman and
Chief Executive Officer

July 25,
1949

Swiss

1997

2004

⁽¹⁾

Member of the Board of Directors, Zurich Financial Services, Zurich Member of the Board, CEFIC (European Chemical Industry Council), Brussels
Member Foundation Board IMD — International Institute for Management Development, Lausanne

Kurt Feller
Vice Chairman,
Lead Director

August 31,
1937

Swiss

1999

2007

Chairman of the Board of Directors, Rieter Holding Ltd., Winterthur
Chairman of the Board of Directors, Geberit Ltd., Jona
Member of the Board of Directors, Scintilla Ltd., Solothurn
Member of the Board of Directors, Büro-Fürrer Ltd., Zurich

Erwin W. Heri

March 6,
1954

Swiss

1997

2007

Professor of Finance
Member of the Board of Directors, Hilti Ltd., Schaan
Chairman of the Board of Trustees, Anlagestiftung Winterthur, Winterthur
Member of the Board of Trustees, Publica, Pensionskasse des Bundes, Bern
Chairman of the Board of Directors, OZ Holding AG, Pfäffikon
Chairman of the Board of Directors, OZ Bankers AG, Pfäffikon
Member of the Board of Directors, Losinger AG, Berne

Gertrud Höhler

January 10, 1941

German

1997

2004

⁽¹⁾

Management Consultant
Member of the Board of Directors, Bâloise-Holding, Basel
Member of the Board of Directors, Georg Fischer Ltd., Schaffhausen

Jean-Marie Pierre Lehn

September 30, 1939

French

1997

2006

Professor of Chemistry, Nobel Prize Winner
Member of the Scientific Advisory Board of Aventis, Strasbourg
Member of the Scientific Board of the Novartis Venture Fund, Basel

Peter Littmann

December 21, 1947

German

1997

2006

Chairman and Chief Executive Officer, Brandinsider GmbH, Hamburg
Member of the Board of Directors, Compass Ltd.
(Bata Shoe Company), Toronto
Member of the Advisory Board, Nijenrode University, The Netherlands
Member of the Harvard University Art Museum’s Visiting Committee, Cambridge, Massachusetts

Uli Sigg

April 29,
1946

Swiss

1999

2007

Vice-Chairman of the Board of Directors, Ringier Group
Member of the Advisory Board of China Development Bank, Beijing
Member of the Board, Infront Holding Ltd., Zug
Member of the Board of Medica Holding AG, Rotkreuz
Member of the Supervisory Board of the University of Lucerne, Lucerne

Hans-Ulrich Müller ⁽²⁾
Secretary (not Member of the Board)

June 25,
1941

Swiss

1997

—

Member of the Board of SGCI für Chemische (Schweiz. Gesellschaft Industrie), Zurich

With the exception of Armin Meyer, who is also CEO of Ciba Specialty Chemicals, all other Board Members are both non executive directors and independent from the Company [DCG 3.1.b]. The term “independent” used herein satisfies the criteria of the Swiss Code of Best Practice and of Section 303(A)(6) of the NYSE Listed Company Manual, as approved by the SEC on November 4, 2003. None of the non-executive Members of the Board has ever been a member of the management of the Company or any of its subsidiaries and none of them has or had a substantial business relationship with the Company or any of its subsidiaries in the last four financial years [DCG 3.1.c].

More biographical details of the Board Members are available at the Company’s website (http://www.cibasc.com/bod-cv) [DCG 3.1.a].

There is no cross-involvement among the Board Members and the boards of directors of other listed Swiss companies [DCG 3.3]. There are no service contracts between any Member of the Board and the Company providing for benefits upon termination of employment.

All Board Committees meet four to six times per year, usually immediately before the full Board meets. The duration of such meetings generally is between two and four hours.

The Company’s “Rules Governing the Organization” and Committee charters set out in detail the powers and responsibilities of the Board and its Committees. In order for the Board or any of its Committees to pass resolutions, at least half of its Members must be personally present, which may be deemed satisfied if simultaneous communication is ensured, such as by telephone or video conference. The full Board meets at least 6 times per year.


	Date of			Significant positions and political
Name	birth	Nationality	Function	mandates outside the Company [DCG 4.2]

Armin Meyer	July 25, 1949	Swiss	Chief Executive Officer	Member of the Board of Directors, Zurich Financial Services, Zurich Member of the Board of CEFIC (European Chemical Industry Council), Brussels Member of the Foundation Board IMD — International Institute for Management Development, Lausanne
Michael Jacobi	January 30, 1953	German	Chief Financial Officer	Chairman of the Board of Industrie-Holding, Berne Member of the Board of Phonak Holding, Stäfa Member of the commission and of the committee of Swiss GAAP, FER, Zurich
Brendan Cummins	May 18, 1951	Irish	Executive Vice President International Coordination and Human Resources	None
Martin Riediker	June 28, 1952	Swiss	Chief Technology Officer	Member of the Board, American Chemistry Council, Arlington Member of the Board, CIII Centers for Health Research, North Carolina
Hermann Angerer	December 23, 1947	Swiss	Head Segment Coating Effects	None
Christoph Biedermann	March 19, 1957	Swiss	Head Segment Textile Effects	None
Mark Garrett	May 11, 1962	Australian	Head Segment Water & Paper Treatment	Member of the Board of TEGEWA Industry Association, Frankfurt am Main
Felix Meyer	February 18, 1953	Swiss	Head Segment Plastic Additives	None
Tim Schlange	January 15, 1963	German	Head Segment Home & Personal Care	None

Armin Meyer became Chairman of the Board of Ciba Specialty Chemicals in autumn 2000. Starting January 1, 2001, he in addition took over as Chief Executive Officer. He streamlined the Company structure and shifted priority targets to profitable growth, innovation, highly qualified people as well as cash generation. He has been a Member of the Board of the Company since its spin-off in 1997.

Previously, Armin Meyer was Head of the global Building Technologies Segment of ABB Ltd. As of 1995, he was a member of the Executive Committee of ABB, a global technology Group.

Armin Meyer started his career in 1976 when he joined the former Brown Boveri Ltd. (BBC) as development engineer. In 1980 he became Head of Research and Development for industrial motors and took over as Head of the international business unit for electrical power generators in 1984. Further steps included the presidency of ABB Drives Ltd. as well as of ABB Power Generation Ltd. In 1995, he became Head of the Power Generation Segment. In 1998, he took over as Head of the Building Technologies Segment.

Armin Meyer, born 1949 in Zurich, Switzerland, holds a Ph.D. in electrical engineering from the Swiss Federal Institute of Technology (ETH) in Zurich.

In addition to his responsibilities at ABB, Armin Meyer was also Professor for Electrical Engineering and Drives at ETH, Zurich for twelve years.

Michael Jacobi joined Ciba-Geigy’s finance area in 1978. In 1980, Michael Jacobi moved to Brazil as Corporate Controller and later was appointed Treasurer. In 1986, he moved to the United States where he led the financial department at the Toms River plant in New Jersey. After further management training at Harvard, he returned to the Finance department in Basel in 1987 as Head of Management Accounting. He became Group Controller of Ciba-Geigy in 1990, responsible for the Company’s overall corporate financial accounting and reporting. In 1997, he was appointed Chief Financial Officer for Ciba Specialty Chemicals,

responsible for Treasury, Mergers and Acquisitions, Investor Relations, Control and Information Management. Michael Jacobi serves on the Council of the Foundation for Accounting and Reporting Recommendations and plays a significant role in setting Swiss guidelines for accounting and disclosure. He has a Doctorate in Economics from the University of St. Gallen.

Brendan Cummins was appointed head of International Coordination and Human Resources on December 1, 2001. Brendan Cummins joined Ciba-Geigy in Ireland in 1971 as an Accountancy Student. In 1974, he assumed the position of Planning and Information Manager in Ireland. In 1979, he moved to Ciba-Geigy Singapore as Treasury Head and, in 1981, was appointed Head of Finance and Administration South East Asia. In 1984, he transferred to Hong Kong as Head of Finance and HR North Asia with project responsibility for China. In 1990, he moved to Philippines as Head of Pharmaceutical Division and later that year was appointed in combination Group Company Head. In 1994, he transferred to the U.K. as Head of Finance and HR of Ciba-Geigy Horsham. In 1995, he returned to the Far East as Group Company Head China and, in 1997, assumed the position of Regional President Greater China for Ciba Specialty Chemicals. In 1999, he moved to Basel and was appointed Global Head of Whiteners and, in 2000, he established and headed the Global Business Unit Home & Personal Care. In 2001, he worked for Irish Fertilizer Industries as Managing Director. He has a degree in accounting and is a Fellow of The Institute of Company Accountants.

Martin Riediker was appointed Chief Technology Officer in 2001. Martin Riediker joined Ciba-Geigy in 1982 as a photochemist in central research at Ciba-Geigy in Basel. In 1988, he moved to the United States as Vice President, Research and Development (R&D) for the Polymers Division and was later appointed Vice President and General Manager of the North American Resins Business Unit in 1991. He was named Head of Ciba’s U.S. Polymers Division in 1994. Mr. Riediker was named as Global President of the Consumer Care Division in 1995. He also took direct charge of the Detergents and Cosmetics Business Units. In 1997 he was named Global President of the Consumer Care Division and became a member of the Executive Committee of Ciba Specialty Chemicals. Mr. Riediker has a Doctorate in Chemistry and did Post-Doctoral Studies at Princeton University.

Hermann Angerer was appointed Head of the Coating Effects Segment in 2001. He joined Ciba-Geigy Limited in 1981 as a development chemist in the Additives Division in Basel. In 1985, he assumed the global marketing responsibility for radiation curing additives in the Business Unit Imaging and Coating Additives. In 1990, he was appointed Head of the Business Unit Additives for Lubricants. In 1996, he moved to Japan as Head Additives Division, responsible for the markets in Japan and South Korea. In 1999, he moved to Germany, responsible for the German holding company of Ciba Specialty Chemicals and the Additives Division in the Central Europe region. Mr. Angerer holds a Ph.D. in Chemical Engineering from the Swiss Federal Institute of Technology Zurich.

Christoph Biedermann was appointed Head of the Textile Effects Segment in 2001. From 1982 to 1985, Christoph Biedermann worked for ABB as Project Engineer in Switzerland and Commissioning Engineer in South Africa. From 1986 to 1989, he was Associate and Project Manager at McKinsey in Zurich, Switzerland. In 1990 he joined ABB Drives AG as Manager of High Power Semiconductors. In 1991 he was appointed Manager of Electrical Machines. From 1994 to 1997, he was Manager Business Unit Total Optimization of Processes at ABB Business Area Automation & Drives. In 1997, Christoph Biedermann was appointed President of ABB Industrie AG Switzerland. Since 1999, he has also been a member of the Management Committee ABB Switzerland, responsible for the Segment Automation. Mr. Biedermann holds a Diploma in Electrical Engineering from the Swiss Federal Institute of Technology, Zurich and has an MBA from INSEAD, Fontainebleau, France.

Mark Garrett was appointed Head of the Water & Paper Treatment Segment in 2001. He joined Ciba-Geigy in Australia in 1986 and worked there as Information and Planning Manager. In 1989, he moved to the Swiss headquarters in Basel, working in Finance and as Marketing Center Manager and Business Development Manager. In 1995, he became head of the Business Unit Paper and in 1996 he was appointed Global Head of the Business Segment Whiteners. In 1998, Mark Garrett became Global Head of the Textile Chemicals business unit where he successfully integrated three textile chemical businesses into one business unit that became a worldwide leader in its field. Mark Garrett joined DuPont from Ciba Specialty Chemicals in 2000, initially as Director Corporate Plans before becoming the Global Business Director Tyvek/Typar. He rejoined Ciba in 2001. Mark Garrett holds the following degrees: Bachelor of Arts, Economics, University of Melbourne, Melbourne, and Master of Applied Information Systems, Royal Melbourne Institute of Technology, Melbourne, Australia.

Felix Meyer was appointed Head of the Plastic Additives Segment in 2001. Felix Meyer joined Ciba-Geigy Limited in 1981 as Marketing Specialist for Polymer Additives and was appointed Head of Marketing for Polyolefin Additives in 1984. In 1987, he became Product Manager for Antioxidants, was promoted in 1990 to Head of Business Product Management and then to Head of Strategic Affairs, Additives Division in 1993. From 1994 to 1996 he was responsible for Purchasing and Materials Management and was a member of the Executive Committee of Ciba Additives GmbH in Lampertheim, Germany. In 1996, he assumed responsibility as Global Head of the Polymer Additives business unit and member of the Management Committee Additives Division. Mr. Meyer has a Diploma in Chemical Engineering and a Ph.D. in Physical Chemistry from the Swiss Federal Institute of Technology, Lausanne.

Tim Schlange joined Ciba-Geigy’s Corporate Planning staff in 1992. In 1994, Mr. Schlange assumed a marketing and sales position with Ciba Vision. In 1996, he began as Head of the Market Center Basic Polyolefins in a global marketing role for the Polymer Additives business unit. In 1999, he was appointed Transition Manager for the project management of the divestment of the Performance Polymers Division. In 2000, he headed Strategic Business Development for the Consumer Care Division. Since 2001, he has been Head of the Home & Personal Care Segment. He has a Doctorate in Economics from the University of St. Gallen.

There are no management agreements between the Company or its management bodies and any third parties [DCG 4.3] or other agreements pertaining to which any person referred to above was elected a Member of the Company’s Executive Committee.

So as to promote honest and ethical conduct, legal compliance, prompt internal reporting, accountability, and full, fair, accurate, timely, and understandable disclosure in public reports, the Company relies on its “Code of Conduct” which can be downloaded (http://www.cibasc.com/ view.asp?id=59). In 2003, the Company did not grant any waiver, whether implicit or explicit, from any provision of its Code of Conduct to the CEO, the CFO, or the Group Controller.

In 2003, the non-executive Members of the Board in aggregate received as remuneration, bonuses and other benefits a total of CHF 703 236 [DCG 5.2.1]. In addition, they were granted 7 376 Shares by the Company [DCG 5.4.b] and held a total of 18 243 Shares as at December 31, 2003 (including those allocated in 2003) [DCG 5.5.b].

In addition, these persons were granted the following options by the Company [DCG 5.6.b]:

In 2003, the Company did not grant any options to non-executive Members of the Board.

Executive Member of the Board and Members of the Executive Committee [DCG 5.2.2.a]

In 2003, the executive Member of the Board and the Members of the Company’s Executive Committee in aggregate received as salaries, bonuses and other benefits inclusive of any voluntary Company pension contributions a total of CHF 8 517 857 [DCG 5.2.1]. In addition, they were granted 63 925 Shares by the Company (of which most are restricted) [DCG 5.4.a] and held a total of 122 013 Shares as at December 31, 2003 (including those allocated in 2003) [DCG 5.5.a].

In addition, these persons were granted the following options by the Company [DCG 5.6.a]:

In 2003, the Company did not grant any options to the executive Member of the Board nor to the Members of the Company’s Executive Committee.

In 2003, the Member of the Board with the highest total compensation received as salary, bonus and other benefits inclusive of any voluntary Company pension contributions a total of CHF 2 521 060. In addition, in 2003, this person was allocated 14 098 restricted Shares and 2 931 unrestricted Shares, but no options.

None of the above mentioned persons has received any fees nor any compensation for services rendered to the Company during 2003 other than as disclosed in this report [DCG 5.7], nor have they been extended any loans [DCG 5.8].

In 2003, three former Members of the Executive Committee have received total compensation of CHF 667 536 [DCG 5.3.2.a]. This amount includes contributions in the form of Shares and voluntary Company pension contributions. It also includes the salary paid to former Executive Committee Members who became employees of the Company. In 2003, the Company did not make any payments to former non-executive Members of the Board [DCG 5.3.2.b]. In the reporting period, no Member of the Board nor any Member of the Executive Committee left the Company [DCG 5.2.3].

The Company has not made any share [DCG 5.4], option [DCG 5.6] nor any cash contribution [DCG 5.2] to any Closely Linked Person, i.e. to a third party which is closely linked to Members of the Board or to Members of the Company’s Executive Committee. However, they may have acquired Shares of the Company or options on their own. Also, the Company has not paid any fees [DCG 5.7] to such persons nor has it granted them any loans [DCG 5.8].

Shareholdings of Closely Linked Persons, if any, are included in the figures reported above [DCG 5.5].

Base salaries of the Members of the Board and of the Executive Committee are established according to a comparative analysis of base salaries paid within selected peer groups of international companies. Annual bonuses are based on corporate performance, primarily and over proportionally in relation to free cash flow, and EBITDA, growth and personal objectives, established at the beginning of the year. The allocation of the compensatory elements is discussed in the Human Resources and Compensation Committee that makes its recommendations to the full Board. The latter takes the ultimate decision with respect to such allocation. For a more detailed description of the Share and option based compensation plans, see note 17 to Consolidated Financial Statements.

Membership of the Company’s employees in trade unions varies from country to country, and the Company has entered into various collective bargaining agreements. It is the Company’s practice to renew or replace its various labor arrangements relating to continuing operations as and when they expire and the Company is not aware of any material arrangements whose expiry is pending and which is not expected to be satisfactorily renewed or replaced in a timely manner. The Company has not experienced any material work stoppages or strikes in the past three fiscal years. The Company’s management is of the opinion that relations with the Company’s employees are good.

The Company requires a number of highly skilled technology, chemical and other specialists. The supply of such employees is highly limited, and competition to hire and retain them is consequently increasingly intense. Competition raises the cost of hiring and retaining these employees and increases employee turnover as competitors seek to lure away employees with particularly rare or sought-after skills. The Company is continually seeking to recruit skilled high-technology, chemical and other specialized workers and management is of the opinion that the Company offers compensation, benefits and opportunities for development and advancement which will attract and retain a sufficient number of such employees.

A significant number of the Company’s employees in Europe are represented by trade unions. The Company’s labor relations in Europe have been good and the Company has not experienced any material work stoppages in recent years.

Wages and general working conditions are generally the subject of negotiated collective bargaining agreements. Within the limits established by these agreements, operating companies negotiate directly with unions and other labor organizations representing the Company’s employees. Collective bargaining agreements relating to remuneration typically have a term of one year.

In addition to trade unions, the Company also consults from time to time with various local, national and European work councils. Employees elect the members of work councils. These work councils primarily serve an advisory role. However, under certain circumstances, the Company may be required to consult with one or more of the work councils before proceeding with a course of action. Furthermore, the Company is obligated to apprise the European work councils of activities which affect its workforce in Europe.

The Company’s employees in the Western and Eastern Hemispheres are often represented by trade unions or employed pursuant to other collective bargaining agreements. This includes some of the Company’s United States sites. In Japan, approximately one half of the employees are represented by labor unions. Labor relations in all of these regions have been good and the Company has not experienced any material work stoppages in recent years.

The Company employee’s worldwide totaled 18 658 in 2003, 19 007 in 2002 and 19 683 in 2001. The following table shows the number of employees at the end of December 31, 2003 and 2002.

In 2002, the Company ceased allocating its Group Service Units’ employees to the Segments or to Headquarters for internal management reporting purposes. The December 31, 2001 employee data shown in the table below has been reclassified to conform to the 2002 presentation of the number of employees.

The Company’s organizational structure, Shares, Share capital and shareholders

Ciba Specialty Chemicals Holding Inc. is the ultimate holding company of the Ciba Specialty Chemicals group. Its Shares are listed on the Swiss Exchange, traded on virt-x, and its American Depositary Shares (“ADSs”) trade on the New York Stock Exchange (see Item 9 — The Offer and Listing). As at December 31, 2003, the Company’s market capitalization amounted to CHF 6 485 226 871 (67 766 216 shares at a price of CHF 95.70 each).

The Company’s nominal Share capital amounts to CHF 432 780 702 and is divided in 72 130 117 Shares with a nominal value of CHF 6 each. On June 28, 2002, the nominal value per Share had been reduced from CHF 10 to CHF 9. On May 23, 2003, the nominal value per Share was again reduced, this time to CHF 6 per Share, giving effect to a resolution of the Company’s shareholders taken on March 6, 2003 [DCG 2.1/2.3].

The Board of Directors proposes to the shareholders of the Company to further reduce the Company’s Share capital from CHF 6 per Share to CHF 3 per Share and by making a corresponding cash payment to the Company’s shareholders of CHF 3 per Share. The shareholders will vote on this proposal at the Company’s General Meeting of Shareholders on February 26, 2004. In addition, the Board will propose to the Company’s shareholders to reduce the Company’s share capital by the cancellation of 1 303 500 Shares it acquired over the second trading line in connection with its share buy-back program.

The Company only has one class of Shares and has no bonus certificates [DCG 2.4/2.5]. Each Share is entitled to any dividends proposed by the Board and approved by the shareholders, and has one vote, subject to the limitations set out below. The Shares do not have any preferential rights attached to them. The Company had and has the following ordinary, authorized and conditional capital [DCG 2.2/2.3]:


	Nominal
	value of		Ordinary											Conditional capital for
Date of Articles of Association	Shares		Share capital			Authorized capital				Conditional capital				employee participation

Article in Articles of Association	4 para. 1					4 para. 3				4 para. 4				4 para. 5

						number of		nominal		number of		nominal		number of		nominal
						Shares		value		Shares		value		Shares		value
	(CHF)		(CHF)			(million)		(CHF million)		(million)		(CHF million)		(million)		(CHF million)

April 20, 1998		10		721 301 170			4		40		4		40		2		20
March 22, 2002		9		649 171 053			4		36		4		36		2		18
March 6, 2003		6		432 780 702			4		24		4		24		2		12
Proposal by the Board to AGM 2004		3		212 479 851	⁽¹⁾		4		12		4		12		2		6

In case the shareholders approve the above mentioned Share capital reduction at the Company’s 2004 AGM through a repayment of CHF 3 per Share, the nominal value for ordinary, authorized and conditional capital would be reduced accordingly. For additional information please refer to article 4 of the Company’s Articles of Association, which can be downloaded (http://www.cibasc.com/image.ASP?ID=1704). The German version, which is legally binding, can be downloaded (http://www.cibasc. com/image.ASP?ID=1705). For changes in capital, see also Note 17 to the Consolidated Financial Statements [DCG 2.3].

For information about the Company’s major shareholders see Item7 — Major Shareholder and Related Party Transactions in Annual Report. Updated information can be retrieved from the SWX Swiss Exchange (http://www.swx.com/cgi/issuers/shabSearch?dates=all&from=19980101&to=99991231&byDate=Ordered+by+date&issuer=Ciba+Spezialit%E4&holder=*&lang=en). The Company has no cross holdings [DCG 1.3] nor has it executed any pooling or management agreements [DCG 4.3].

For the Company’s major subsidiaries, including listed companies and group structure, see Item 4 — Information on the Company[DCG 1.1.2 and 1.1.3]. For the description of the operational structure of the Company, see Description of Segment in Business Segment Data [DCG 1.1.1].

No shareholder may be registered as a shareholder with voting rights for more than 2 percent of the Company’s Share capital. A shareholder purchasing more than 2 percent of the Company’s share capital will be recorded in the Company’s Share register for the Shares in excess of 2 percent of the Company’s Share capital as a shareholder without voting rights. The Board or a committee designated by the Board may, however, on a case-by-case basis allow some or all of the excess Shares to be registered with voting rights. In 2003, the Board granted no such exception and currently no shareholder has the benefit of any such exception [DCG 2.6.2]. For purposes of the 2 percent rule, individuals and/or legal entities acting in concert are considered to be one shareholder [DCG 2.6.1].

Nominees may be entered with the right to vote for more than 2 percent of the voting stock if the nominee discloses the names, addresses and number of Shares of those persons for which it holds the Shares [DCG 2.6.3].

For information about the Company’s treasury stock, see Note 16 to the Consolidated Financial Statements and the Consolidated Balance Sheets.

At the Company’s general meeting, no person may vote more than 5 percent of the Company’s stock, with the exception of depositaries, corporate bodies, independent proxies or nominees complying with their duty to disclose the names, addresses and number of Shares of those persons for which it holds the Shares [DCG 6.1.1]. In 2003, the Board granted no exception with regard to voting cap restrictions [DCG 6.1.2]. In addition to those proxies, a shareholder may also be represented by another individual at a general meeting, but this individual is required to be a shareholder of the Company [DCG 6.1.4]. A

resolution on the restriction to vote and on the removal of such a restriction is subject to the approval by two-thirds of the Shares represented at a shareholders’ meeting [DCG 6.1.3].

Any shareholder may demand that an item be put on the agenda of the AGM if he holds Shares representing a nominal value of at least CHF 600 000. If, at the Company’s AGM to be held on February 26, 2004, the shareholders approve the motion of the Board to reduce the nominal value of each Share from CHF 6 to CHF 3, the amount required to have an item put on the agenda will be proposed to be reduced accordingly from CHF 600 000 to CHF 300 000.

A demand to have an item put on the agenda must be made in writing at least 60 days before the AGM [DCG 6.4]. In its third quarter report, the Company published the deadline date (December 29, 2003) for the AGM to be held on February 26, 2004. The record date for participation at the AGM is usually fifteen days before the AGM while persons who have subsequently become shareholders may register their voting rights at the AGM Office if the shareholder can prove that he or she is the owner of the Shares and that these Shares are not being voted otherwise [DCG 6.5]. The Articles do not contain any provision with regard to calling the AGM that differ from the provisions of the Swiss Code of Obligations [DCG 6.3].

There is no provision in the Articles or under Swiss law requiring a presence quorum for the holding of shareholders’ meetings. Resolutions generally require the approval of the “majority” of the shares represented at a shareholders’ meeting (i.e. a simple majority of the shares represented at the shareholders’ meeting, with abstentions having the effect of votes against the resolution). A resolution passed at a shareholders’ meeting with the affirmative vote of at least two-thirds of the shares represented at such meeting is required for [DCG 6.2]:

(iii)

the creation of restrictions on the transferability of registered Shares, or the elimination of transfer restrictions [DCG 2.6.4],

(v)

an increase in the Company’s Share Capital by way of capitalization of reserves (Kapitalerhöhung aus Eigenkapital), against contribution in kind, for the acquisition of assets, or involving the grant of special privileges,

(viii)

the dissolution of the Company other than by liquidation (for example, by way of a merger).

In addition, any provision in the Articles for a greater voting requirement than is prescribed by law or the existing Articles must be adopted in accordance with such greater voting requirements.

The amount of dividends to be paid by the Company to its shareholders depends on general business conditions, the Company’s financial performance and other relevant factors. Under Swiss law, dividends may be paid out only if approved at a shareholders’ meeting. The Board may propose that a dividend be paid out, but cannot itself set the dividend. In practice, the shareholders usually approve the dividend proposal of the Board.

With the exception of the Company’s employee participation programs, the Company had no equity linked debt outstanding since it repaid the USD 687 million convertible bond on July 10, 2003.

The Company’s share and option plans are further described in Note 17 to Consolidated Financial Statements.

If a shareholder acquires securities of a listed Swiss company and thereby exceeds the threshold of 33 1/3 percent of the voting rights, it has to offer to acquire the remaining shares (“mandatory offer obligation”). By shareholders’ resolution, this threshold may be raised to 49 percent (“opting up”). A company may also opt out of the mandatory offer obligation. In its articles of association, the Company has no opting out or opting up provision [DCG 7.1].

All Members of the Company’s Executive Committee have an “employee retention agreement” with the Company which enables them to be involved in a transaction with a third party that considers to take over the Company in a way which does not affect their status as employees [DCG 7.2].

Effective August 6, 2002, Ciba Specialty Chemicals Holding Inc., Basel, replaced its statutory and group auditors, Arthur Andersen AG, Zurich, with Ernst & Young Ltd, Zurich, to implement a resolution taken by its shareholders on March 22, 2002. This resolution was taken in anticipation of Arthur Andersen’s inability to safeguard the Company’s interests [DCG 8.1.1]. According to Swiss law, the auditors are elected by the Company’s shareholders. A respective proposal is made by the Board that bases its proposal upon a recommendation made to it by the Audit Committee. At the Company’s AGM to be held on February 26, 2004, the shareholders will vote on this proposal.

Ernst & Young Ltd’s lead audit partner, Eric Ohlund, who had formerly been with Arthur Andersen AG, has supervised the Company’s audit since 1997 [DCG 8.1.2].

Fees paid by the Company in 2003 and 2002 to the Company’s auditors were as follows [DCG 8.3]:

Audit related work included services in connection with the Company’s EMTN program and the audit of closing balance sheets. Tax services comprised: tax filings, transfer pricing studies, tax advice, including with regard to VAT. Other services included advice related to the Company’s share repurchase program and intended transactions. The Audit Committee has not approved a single service pursuant to the de minimis exception according to paragraph (c)(7)(i)(C) of rule 2-01 of regulation S-X.

The Audit Committee has introduced a policy for the pre-approval of audit and of non-audit services. A copy of this policy can be downloaded (http://www.cibasc.com/investors). In 2003, the Audit Committee received no request for approval of a specific service and granted no specific pre-approval. The Audit Committee is fully briefed on each service received from the Company’s auditors.

The auditors of the Company are present at those Board meetings during which the annual accounts of the Company are discussed and the items and proposals to the AGM of the shareholders of the Company are decided upon. They are also present at one of the Company’s Disclosure Committee meetings and at the meetings of the Audit Committee where audit mandate and audit planning are discussed. Any other participation is as required. In such meetings, the Board and the Audit Committee also assess and discuss the findings of the auditors and evaluate the quality of their services [DCG 8.4].

The Company’s policy is to openly, clearly and regularly inform its stakeholders of all relevant developments. As a primary tool, the Company communicates through its internet site (http://www.cibasc.com) and by email. The Investor Relations homepage (http://www.cibasc.com/investors) contains comprehensive information on the Company, including Corporate Governance, its Code of Conduct and Social Policy.

As the Company is listed on the SWX Swiss Exchange (http://www.swx.com); ticker symbol = CIBN (CIBNE for the share buy-back) and on the New York Stock Exchange (http://www.nyse.com); ticker symbol = CSB, it regularly files news and reports with these exchanges. The reports submitted or filed by the Company with the U.S. stock exchange supervision authority, the Securities and Exchange Commission (“SEC”), can be downloaded (http://www.sec.gov/cgi-bin/srch-edgar?text=ciba+specialty+chemicals+holding).

The Company’s official means of communication is the Swiss Official Gazette of Commerce (http://www.shab.ch), while the invitation to the Company’s annual general meeting is sent to the shareholders by mail as well and is also published in several newspapers in Switzerland.

For publication dates of the Company’s financial reports, please consult the Investor Relations sub-page
(http://www.cibasc.com/view.asp?id=192).

Effective January 1, 2003, the Company adopted the fair value method of accounting as defined in SFAS No. 123 “Accounting for Stock-Based Compensation” as amended, for its stock-based compensation plans. Descriptions of the terms of the Company’s plans are presented in the following paragraphs.

In connection with the capital reduction of CHF 3 per share in 2003 (CHF 1 per share in 2002) (see note 16), the Company, in accordance with the terms of its stock option plans, reduced the exercise price of its outstanding stock options (“the capital reduction repricing”). No compensation expense was recorded as a result of the capital reduction repricings. For the Leveraged Executive Asset Plan, which is described below, the capital reduction repricing was set by the investment bank. All exercise prices disclosed herein have been accordingly adjusted.

LEAP — In connection with the one-time Leveraged Executive Asset Plan (LEAP) established in 1997 for the Company’s then key executives and non-executive Board members (participants), the 288 400 restricted shares of common stock of the Company that were purchased by the participants in 1997 were released to the participants in March 2002. As of December 31, 2003, a total of 1 042 782 share options having an expiration date of March 15, 2005 and that were granted in connection with the LEAP and permit the holder thereof to purchase shares of the Company’s common stock at a price per share of CHF 110 (CHF 107.16 after the capital reduction repricing), remain outstanding. Because the Company, upon establishment of the LEAP in 1997, paid a fee to a major investment bank to assume all of the Company’s obligations to the participants in the LEAP, the Company has no obligation to issue shares of its common stock nor any other obligation to the participants in connection with the LEAP.

As of January 31, 2004, no additional share options have been exercised or returned to the Company, as compared to December 31, 2003.

LTIP — The Company has a Long-Term Incentive Plan (LTIP), which grants options and restricted shares of common stock of the Company to senior management and other key employees and, in 2002 and 2001, to non-executive Board members. For grants of options made to participants other than those in the United States, vesting is at the date of grant and the right to exercise is restricted for three years following the grant date. For grants of options made to participants in the United States, vesting and the right to exercise occur over three years. The options expire either five years or ten years after the date of grant. In 2002 and 2001, no compensation expense was recorded for the options issued under this plan as the options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. In connection with the Company’s adoption in 2003 of SFAS No. 123 as amended, compensation expense of approximately CHF 5 million was recorded comprising of both current year awards and the unvested portion of prior year awards.

The following table summarizes option activity under the LTIP for the three year period ended December 31, 2003, and from January 1, 2004, through January 30, 2004:


	Weighted average		Options
	exercise price		outstanding

Balance at December 31, 2000		121.40		1 299 900
Options granted		108.63		461 444
Options issued on conversion of stock appreciation rights		160.00		60 799
Options canceled/forfeited		112.38		(43 694	)
Balance at December 31, 2001		119.63		1 778 449
Options granted		108.80		481 401
Options exercised		108.99		(32 098	)
Options canceled/forfeited		111.07		(32 413	)
Balance at December 31, 2002		117.53		2 195 339
Options granted		82.60		176 627
Options exercised		0		0
Options canceled/forfeited		105.02		(26 989	)
Options expired		160.00		(264 355	)
Balance at December 31, 2003		109.34		2 080 622
Options granted		0		0
Options exercised		0		0
Options canceled/forfeited		128.88		(3 549	)
Options expired		0		0
Balance at January 30, 2004		109.30		2 077 073

The following table summarizes the status of stock options outstanding and exercisable at January 30, 2004:

In connection with the LTIP 2001, the Company granted 96 729 restricted Shares of common stock, which are restricted for three years from the date of grant, to 639 participants. These restricted shares were granted as part of the payment of the 2000 incentive bonus, which was recorded as compensation expense in 2000. The market value of the common stock at date of grant was CHF 112 per Share.

In connection with the LTIP 2002, the Company granted 85 128 restricted Shares of common stock, which are restricted for three years from the date of grant, to 683 participants. The market value of the common stock at date of grant was CHF 112 per Share. Compensation expense of approximately CHF 10 million has been recognized in 2002 related to the grant of these Shares.

In connection with the LTIP 2003, the Company granted 186 503 restricted Shares of common stock, which are restricted for three years from the date of grant, to 720 participants. The market value of the common stock at date of grant was CHF 85.30 per Share. Compensation expense of approximately CHF 16 million has been recognized in 2003 related to the grant of these Shares.

ESOP — The Company has an Employee Stock Ownership Plan (ESOP) that enables substantially all employees to purchase annually up to 20 Shares of common stock at a price equal to 85 percent of the average market price, defined as the average closing price of the Shares on the Swiss Exchange for 10 trading days prior to the purchase date of the Shares. During 2003, 1 768 employees (2002: 1 660 employees; 2001: 2 279 employees) purchased 32 221 Shares (2002: 29 499 Shares; 2001: 40 069 Shares) for which approximately CHF 2 million (2002: CHF 3 million; 2001: CHF 4 million) was paid to the Company. In 2002 and 2001, no compensation expense was recorded under this plan. In 2003, CHF 0.4 million compensation expense was recorded in connection with the adoption of SFAS No. 123.

In the period from January 1, 2004 through January 30, 2004, no Shares have been purchased under the plan.

MAB — The Company has a “Mitarbeiterbeteiligungsplan” (Employee Investment Plan) which grants annually to most employees in Switzerland (as an enhancement to their pension plan arrangements) the right to purchase 20 Shares (beginning in 2003, 25 shares) of common stock at CHF 15 per Share (so long as the share price is not greater than CHF 200 at which level the Employee Investment Plan price may be adjusted). The rights vest at the grant date and become exercisable at the date of the employees’ retirement or termination. The following table summarizes rights activity under the MAB during 2003, 2002 and 2001:

Compensation expense is recorded in the year the rights are granted and, in 2003, CHF 9 million (2002: CHF 8 million; 2001: CHF 8 million) of compensation expense was recorded under this plan.

PSP — In 2001, the Company established a Performance Share Plan (PSP) for selected senior and key management and non-executive Board Members (participants). In accordance with the PSP, participants are granted rights to receive shares of common stock of the Company if the performance of the Company, defined and measured as Total Shareholder Return (TSR), during the measurement period under the PSP meets or exceeds specified conditions and the Share price of the Company is equal to or higher than the market value of Shares at the beginning of the measurement period. The TSR includes three parameters: (i) the change in the Share price from the close of the first trading day at the beginning of the measurement period to the Share price at the close of the last trading day at the end of the measurement period, expressed as a percentage; (ii) any dividends paid or payable for the measurement period and (iii) any extraordinary returns paid to the shareholders during the measurement period. In 2001, 86 700 rights were granted to 137 participants with a measurement period from January 1, 2001 through December 31, 2003. The Share price as of the beginning of the measurement period was CHF 109.25, the market value of the shares on January 3, 2001. The rights vest ratably over a three year period except when a participant voluntarily terminates employment, in which case all rights are forfeited. Each right is entitled to receive from one Share up to a maximum of four Shares of Company common stock, depending on the Company’s Share price and the Company’s TSR ranking within the benchmark group at the end of the measurement period. As a result of terminations from the plan, a total of 2 627 rights (2002: 1 675 rights, 2001: 1 250 rights) have been returned to the Company. As the conditions of the PSP were not met, no compensation expense was recorded related to the fulfillment of the terms of the plan. In 2003 however, in accordance with the adoption of No. SFAS 123, as amended, the Company recorded CHF 1 million compensation expense for the fair value of the rights that vested during 2003.

As of January 30, 2004, no additional rights have been granted by, or returned to, the Company as compared to December 30, 2003.

Upon a change in control of the Company (defined as 30 percent for LEAP, 33.33 percent other than 1998, which is 50 percent, for LTIP program, and 20 percent for PSP, such percentage, in each case, as being a percentage of total voting power. Additionally, for the PSP in a merger where the Company’s shareholders retain less than 50 percent of total voting power or the Company’s Board does not maintain a majority of the voting rights in the board of the combined company), the vesting and restriction periods for the plans stated above (if still current) will cease to apply and a cash or share payment for the value of the outstanding plans and related taxes and duties will be due to the participants.

At December 31, 2003, the Company had approximately 2.2 million Shares (2002: 2.0 million Shares; 2001: 1.8 million shares) of treasury stock reserved for issuance under the various stock based compensation plans.

For further information see Item 18 — Financial Statements and pages F-1 through F-36.

According to the Share Registrar of the Company and other publicly available information as of January 30, 2004, the following persons in the table below were known by the Company to be the owner of 2 percent or more of the Company’s Shares. These shareholders may use their voting rights up to 2 percent of the common stock.

As of January 30, 2004, according to the Share Register, there were 193 registered holders of ordinary shares in the United States. These ordinary shareholders in the United States collectively held 1 326 221 ordinary shares, or approximately 1.8 percent of the Company’s total issued and outstanding Shares as of that date. Also as of January 30, 2004, there were 266 registered holders of American depositary receipts under an ADR program (including Cede & Co., the DTC’s nominee). Each ADR issued under the program represents one American Depositary Share, which in turn, represents one-half of one share of the common stock of the Company. All these registered ADR holders have addresses in the United States. They collectively held 1 034 988 ADRs, or approximately 0.7 percent of the issued and outstanding ordinary Shares as of such date.

To its knowledge, the Company is not owned or controlled, directly or indirectly, by another corporation, by any government or by any other natural or legal person, severally or jointly.

The Company and its subsidiaries have not entered into any material transactions in the last three years in which any director, officer or any associate of any director or officer of the Company has or had any interest. No director, officer or associate of any director or officer is or was during the last three years indebted to the Company or any of its subsidiaries. For further information see Item 18 — Financial Statements and pages F-1 through F-36.

The Company’s products and services are primarily sold outside of its home market, Switzerland. In 2003, approximately 99 percent of the Company’s sales of products and services produced in Switzerland were exported to other countries.

The Company operates in countries where political, economic, social, and regulatory developments could have a significant impact on its operational activities. The effects of such risks on the Company’s results, which arise during the normal course of business, are not foreseeable and are therefore not included in the accompanying Consolidated Financial Statements of this Annual Report.

In the ordinary course of business, the Company is involved in lawsuits, claims, investigations and proceedings, including product liability, commercial, environmental, and health and safety matters. Although the outcome of any such proceedings cannot be predicted, management is of the opinion that there are no such matters pending which would be likely to have any material adverse effect in relation to its business, financial position or results of operations.

As a result of a dispute over certain agreements with third parties, in the context of the Company’s divestment of the Performance Polymers Business in 2000, some third parties initiated arbitration proceedings against the Company. This dispute has been settled and will not have any material adverse effect on the financial position or results of operations of the Company. In connection with its Toms River, New Jersey site in the United States, the Company was named as a defendant in several actions, most of which were settled by the end of 2002 (see “Item 4. Information on the Company — Environmental Matters” of this Annual Report).

The amount of dividends to be paid by the Company to its shareholders depends on general business conditions, the Company’s financial performance and other relevant factors. The Board has adopted a policy on the proposal of dividends which is to provide shareholders with dividend growth in line with the underlying growth in the earnings of the Company. Under Swiss law, dividends are paid out only if approved at the shareholders’ meeting. The Board may propose that a dividend be paid out, but cannot itself set the dividend. In practice, the shareholders usually approve the dividend proposal of the Board.

At the Company’s Annual General Meeting held on March 22, 2002, the shareholders approved the Board’s proposal to pay a dividend of CHF 2.00 per share, in respect of the fiscal year 2001. The Company paid the dividend on March 27, 2002, which totaled CHF 134 million. At this meeting, the shareholders also approved the Board’s proposal to pay an extraordinary payment to the shareholders in the form of a capital reduction of CHF 1 per share. The capital reduction was in the form of a reduction in the nominal value of each common share from CHF 10 per share by CHF 1 per share to CHF 9 per share. The Company paid the capital reduction on June 28, 2002, which totaled CHF 69 million.

For 2002 the Board of Directors proposed to carry forward the entire retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a dividend. The Board of Directors, however, proposed a cash payment to its shareholders resulting from a capital reduction of CHF 3 per share. The capital reduction found shareholder approval at the Annual General Meeting on March 6, 2003. The capital reduction was effected by a reduction in the nominal value of each share from CHF 9 per share by CHF 3 per share to CHF 6 per share. The Company has made the payment of the capital reduction on May 23, 2003.

For 2003 the Board of Directors proposes to carry forward the entire retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a dividend. The Board of Directors, however, proposes a cash payment to its shareholders resulting from a capital reduction of CHF 3 per Share. The capital reduction is subject to shareholder approval at the Annual General Meeting to be held on February 26, 2003. If approved the capital reduction will take the form of a reduction in the nominal value of each Share from CHF 6 per Share by CHF 3 per Share to CHF 3 per Share. The Company expects, subject to various conditions and approval, that the payment of the capital reduction will be made to the shareholders on May 14, 2004.

For additional information on dividends, see “Item 6 — Directors, Senior Management and Employees” section of this Annual Report.

Except as otherwise disclosed in this Annual Report, no significant change has occurred since the date of the Consolidated Financial Statements included in this Annual Report.

The Shares are listed on the Swiss Exchange and principally traded on London based virt-x, a Recognized Investment Exchange supervised by the Financial Services Authority (FSA) in the U.K. and are also quoted on International Retail Service, the London Stock Exchange’s automated quotation system for non-U.K. equity securities. The prices for Shares as quoted in the official list of the Swiss Exchange are expressed in Swiss francs. As of August 2, 2000, the ADRs, each representing one-half of one ordinary share of the Company’s common stock, have been listed on the New York Stock Exchange.

The information presented in the table below represents, for the periods indicated, (i) the reported high and low closing sales prices quoted in Swiss francs for the Shares on the Swiss Exchange and (ii) the U.S. dollar equivalent of the price per Share based on the Noon Buying Rate on the last trading day of the periods presented. The Shares began trading on the Swiss Exchange on March 13, 1997, at a price of CHF 116.25 per share.


		Price per Share

		High		Low		High		Low

		in CHF				in USD
Annual highs and lows
1999			128.00		103.00		80.05		64.41
2000			122.50		94.25		75.61		58.17
2001			115.75		75.00		69.74		45.19
2002			128.00		89.75		92.53		64.88
2003			101.50		74.75		81.99		60.38
Quarterly highs and lows
2001
	First Quarter		115.75		102.75		66.68		59.19
	Second Quarter		110.25		98.75		61.36		54.96
	Third Quarter		108.75		75.00		67.18		46.33
	Fourth Quarter		112.00		91.35		67.48		55.04
2002
	First Quarter		128.00		103.25		76.25		61.51
	Second Quarter		128.00		113.53		85.79		76.09
	Third Quarter		122.00		89.75		82.67		60.81
	Fourth Quarter		108.75		93.75		78.62		67.77
2003
	First Quarter		101.50		74.75		74.18		55.21
	Second Quarter		94.00		79.85		70.17		60.66
	Third Quarter		98.65		80.25		74.69		58.42
	Fourth Quarter		98.20		84.50		79.32		65.42
Monthly highs and lows
2003
	January		101.50		81.75		74.18		59.75
	February		89.05		84.00		65.69		61.96
	March		92.85		74.75		68.58		55.21
	April		94.00		85.65		69.40		63.23
	May		91.38		79.85		70.17		61.32
	June		91.10		82.00		67.39		60.66
	July		93.25		80.25		67.89		58.42
	August		98.30		89.55		70.19		63.94
	September		98.65		88.55		74.69		67.04
	October		94.00		88.10		70.24		65.83
	November		92.00		84.50		71.22		65.42
	December		98.20		90.65		79.32		73.22
2004
	January (through January 30)		100.50		95.25		79.81		75.64

The information presented in the table below represents, for the periods indicated, the reported high and low closing sales prices quoted in USD on the New York Stock Exchange. The Shares began trading on the New York Stock Exchange on August 2, 2000 at a price of USD 29.50 per ADR.


		Price per ADR⁽¹⁾

		High		Low

		in USD
Annual highs and lows
2000 (from August 2, 2000)			33.25		26.88
2001			35.44		24.00
2002			40.60		30.83
2003			38.75		28.25
Quarterly highs and lows
2001
	First Quarter		35.44		29.81
	Second Quarter		31.50		28.88
	Third Quarter		32.31		24.00
	Fourth Quarter		34.00		26.69
2002
	First Quarter		38.61		31.44
	Second Quarter		40.20		37.31
	Third Quarter		40.60		30.83
	Fourth Quarter		36.75		31.75
2003
	First Quarter		36.60		28.25
	Second Quarter		35.31		30.29
	Third Quarter		35.57		30.05
	Fourth Quarter		38.75		31.50
Monthly highs and lows
2003
	January		36.60		30.15
	February		32.60		30.90
	March		33.25		28.25
	April		34.41		31.76
	May		35.31		30.90
	June		34.35		30.29
	July		33.82		30.05
	August		34.90		32.80
	September		35.57		33.43
	October		35.22		33.20
	November		35.24		31.50
	December		38.75		35.66
2004
	January		40.61		37.86

On January 30, 2004, the last reported sale price was for Shares on the Swiss Exchange CHF 95.30 and for ADRs on the New York Stock Exchange USD 38.30. According to the Share Registrar of the Company, as of December 31, 2003, there were 198 United States resident shareholders holding 1 283 538 Shares, representing approximately 1.8 percent of the issued and outstanding Shares as of such date, and there were 313 registered United States resident holders of American Depositary Receipts holding 1 028 988 ADRs, representing approximately 0.7 percent of the issued and outstanding Shares as of such date.

The information presented in the table below represents, for the periods indicated, the approximate average daily volumes of the Shares traded on the Swiss Exchange:

The information presented in the table below represents, for the periods indicated, the average approximate daily volumes of the ADRs traded on the New York Stock Exchange:

The above information was supplied by the Swiss Exchange via the Swiss Market Feed, Citibank N.A., and Reuters, all of which supply such data to their customers, subscribers and other information providers.

The Swiss Exchange is a private organization comprised of 94 members. As of December 31, 2003, 289 Swiss companies and 130 foreign companies were listed on the Swiss Exchange. Securities traded on the Swiss Exchange include Swiss and foreign bonds, equities, investment funds, rights and warrants.

The aggregate market value of domestic equity securities (free float) listed on the Swiss Exchange as of December 31, 2003, was CHF 746 billion. As of December 31, 2003, the 10 largest companies in terms of market capitalization (free float) represented CHF 593 billion, or approximately 80 percent of the Swiss Exchange’s aggregate market capitalization. Average monthly trading volume during 2003 was CHF 76.1 billion.

With the creation of virt-x in London in 2001, the SWX Group swiftly put in place a securities exchange approved by the UK authorities and based on existing SWX technology. The value-added chain already established in Switzerland was thus extended to cross border trading. The virt-x market is based on an integrated trading, clearing and settlement model, which not only simplifies the process of trading pan-European blue chips but also significantly reduces the costs associated with trading cross border at every stage of the process. The volume of trades in Swiss blue chips has been expanded since virt-x was opened, and the exchange has continued to hold its own in the intensely competitive international market for trading in highly capitalized equity securities. Its market share in Swiss blue chip trading has increased significantly, from 74% in 2001 to 81% at the end of 2002. Participants rate the technology provided by the SWX Swiss Exchange as efficient, reliable and cost-effective.

Set out below is a summary of certain provisions of the Company’s Articles and of the Swiss Code of Obligations relating to the Shares. This description does not purport to be complete and is qualified in its entirety by reference to the Articles, which are an exhibit to this Annual Report, and Swiss law.

Section 2 of the Company’s Articles establishes that the purpose of the Company is the acquisition, holding and disposition of enterprises which are also active in the area of specialty chemicals. The Company may acquire, mortgage, liquidate or sell real estate and intellectual property rights in Switzerland or abroad and finance other companies.

Swiss law does not have a general provision regarding conflicts of interest. However, the Swiss Code of Obligations requires directors and members of senior management to safeguard the interests of the Company and, in this connection, imposes a duty of care and a duty of loyalty on directors and officers. The breach of these provisions may result in personal liability for the directors and officers towards the Company or its shareholders. Swiss law also provides that payments made to a shareholder or a director or any person(s) associated therewith other than at arm’s length must be repaid to the Company if the shareholder, director or associated person(s) has or have acted in bad faith. In addition, the by-laws of the Company provide that the Members of the Board of Directors are required to abstain from voting on matters which relate to their own personal interests or to the interests of legal or natural persons with whom they are associated.

According to Section 25 of the Articles, the Board of Directors can pass resolutions with respect to all matters which are not reserved to the authority of the General Meeting of Shareholders, by law or by the Articles. The power to borrow falls within the competencies of the Board of Directors which has delegated part of this power to the Finance Committee. Exercise of this power does not require shareholder approval. Neither Swiss law nor the Articles restrict in any way the Company’s power to borrow or otherwise raise funds.

Members of the Board retire upon their 68th birthday. The retirement is effective on the date of the next Ordinary Shareholders Meeting. Under special circumstances the Board can make exceptions to this rule. Both Swiss law and the Articles require that the Directors be shareholders of the Company. Ownership of one share is sufficient to satisfy this condition.

For information on the Shares, see also “Item 6 — Directors, Senior Management and Employees” section of this Annual Report.

The transfer of Shares (for as long as they are book-entry Shares) is effected by an entry in the books of a bank or depositary institution following an assignment in writing by the selling shareholder and notification of such assignment to the Company. In the event that the Shares are printed, the transfer is effected by delivery of the endorsed Share certificate. The right to exercise voting rights with regard to the Shares further requires that the name of the purchaser be registered in the share register (Aktienbuch) of the Company. Failing such registration, the purchaser may not vote at shareholders’ meetings.

There are no restrictions on the transfer of Shares. However, no shareholder may be registered as a shareholder with voting rights for more than 2 percent of the Company’s share capital. A shareholder purchasing more than 2 percent of the Company’s share capital will be recorded in the Company’s share register for the Shares in excess of 2 percent of the Company’s share capital as a shareholder without voting rights. The Board or a committee designated by the Board may, however, on a case-by-case basis allow some or all of the excess shares to be registered with voting rights. For purposes of the 2 percent rule, natural persons and/or legal entities acting in concert are considered to be one shareholder.

A purchaser of Shares will be recorded in the Company’s share register if the purchaser discloses its name, citizenship and address and gives a declaration that it has acquired the Shares in its own name and for its own account. The Articles provide that shareholders may register their Shares in the name of a nominee approved by the Company, including Euroclear Bank S.A./NV as operator of the Euroclear System (“Euroclear”), Clearstream Banking, société anonyme (“Clearstream Luxembourg”), and the Depositary, and may exercise their voting rights by giving instructions to such nominee to vote on their behalf. However, the Company has agreed to exempt the Depositary and the custodian and their respective nominees, if any (but no individual Holder or Beneficial Owner of ADSs), from the 2 percent limitation in respect of Deposited Securities held in connection with the ADR facility created by the Deposit Agreement (as defined therein)to the extent that (a) the Depositary requires each Holder who provides voting instructions to the Depositary upon the terms of the Deposit Agreement to certify (the “Voter Certification”) that (i) such Holder does not beneficially own, directly or indirectly, more than 2 percent of the share capital of the Company in the form of Shares or ADSs and (ii) neither such Holder nor any of its affiliates has filed, or is under any obligation to file, a Schedule 13D or 13G under the Exchange Act in respect of the Shares or the ADSs (if any such Holder fails to provide such Voter Certification to the Depositary, the Depositary will disregard any voting instructions received from such Holder unless otherwise instructed by the Company), and (b) the Deposited Securities held in the ADR facility do not exceed the 5 percent limitation.

For information on annual general meetings, see also “Item 6 — Directors, Senior Management and Employees” section of this Annual Report.

Under Swiss law, an annual, ordinary shareholders’ meeting must be held within six months after the end of the Company’s business year. Shareholders’ meetings may be convened by the Board or, if necessary, by the statutory auditors. The Board is further required to convene an extraordinary shareholders’ meeting if so resolved by a shareholders’ meeting or if so requested by holders of Shares holding in aggregate at least 10 percent of the nominal Share capitals of the Company.

The shareholders at a shareholders’ meeting also have the power to vote on amendments to the Articles, to elect the members of the Board and the statutory auditors, to approve the annual report and the annual Company accounts, to set the annual dividend, to grant the Members of the Board and management discharge from liability for matters disclosed to the shareholders’ meeting, and to order an independent investigation into the specific matters proposed to the shareholders’ meeting (Sonderprüfung).

At shareholders’ meetings, shareholders can be represented by proxy but only by another shareholder, a proxy appointed by the Company, an independent representative nominated by the Company or a depositary institution. Proxy may also be given to the legal representative of the shareholder. Subject to certain exceptions set forth in the Articles, no shareholder (or group of shareholders acting in concert) may represent more than 5 percent of the Company’s share capital at any shareholders’ meeting. For purposes of this 5 percent limit, natural persons and/or legal entities acting in concert are considered to be one shareholder. The 5 percent limit does not apply to banks exercising proxies granted by their customers, to shareholders’ representatives acting under statutory rules or to nominees, provided such nominees comply with the disclosure requirement discussed above (see “— Shares and Transfer of Shares”). Votes are taken on a show of hands unless it is resolved at the shareholders’ meeting to have a ballot or such ballot is ordered by the Chairman of the meeting.

According to Swiss Law, each shareholder is entitled to receive the part of the assets of a company remaining after its liquidation which is proportional to its paid in shareholding.

Swiss law limits the number of Shares which the Company may hold or repurchase. The Company and its subsidiaries may repurchase Shares only if (i) the Company has sufficient free reserves to pay the purchase price and (ii) the aggregate nominal value of such Shares does not exceed 10 percent of the nominal Share capital of the Company. Shares held by the Company and its subsidiaries do not have any voting rights. Furthermore, the Company must create a reserve on its balance sheet in the amount of the purchase price of the acquired Shares. Share buy-backs by the Company may be subject to certain adverse tax consequences in Switzerland.

If liabilities exceed assets, the Board of Directors must notify the competent court at the registered office of the Company thereof.

Since all of the Company’s issued and outstanding Shares have been fully paid in, the Company has no further capital calls.

For information on the mandatory bid rule, see “Item 6 — Directors, Senior Management and Employees” section of this Annual Report.

Under Swiss law, any share issue, whether for cash or non-cash consideration, is subject to the prior approval at the shareholders’ meeting. Shareholders of the Company have certain preemptive rights to subscribe for new issues of Shares in proportion to the nominal amount of Shares held. A resolution adopted at a shareholders’ meeting with a two-thirds majority may, however, limit or suspend preemptive rights in certain limited circumstances.

At the 1998 shareholders’ meeting, the shareholders of the Company authorized the Board to issue from time to time up to two million Shares for the purpose of accommodating options and conversion rights granted to the Company’s employees and excluded the subscription rights of the holders of the Shares regarding thereto.

At the same meeting, the shareholders of the Company also authorized the Board to issue from time to time up to four million additional Shares at its discretion and to allot preferential subscription rights relating thereto to third parties in the event that the additional Shares are used by shareholders to takeover a business, in whole or in part, or to participate in or finance such takeover. According to article 651 of the Swiss Code of Obligations, this authorization was only valid for two years. At the Annual General Meeting held on April 13, 2000 and again on March 22, 2002, the shareholders consented to extend this authorization for another two years. The Board proposes to the shareholders another two year extension at the next Annual General Meeting which takes place on February 26, 2004.

In addition to the above, the shareholders also authorized the Board to issue from time to time up to four million additional Shares in connection with the execution of option and conversion rights and to exclude the subscription rights of the holders of Shares regarding thereto.

Notices to shareholders are validly made by publication in the Swiss Official Gazette of Commerce. The Board may designate further means of communication for publishing notices to shareholders.

The Company may be dissolved at any time by a shareholders’ resolution which must be passed by (i) a simple majority of the Shares represented at the meeting if the Company is being dissolved by way of liquidation and (ii) two-thirds of the Shares represented at the meeting if the Company is being dissolved for other reasons (for example, in a merger where the Company is not the surviving entity).

Under Swiss law, any surplus arising out of a liquidation (after settlement of all claims of creditors) is distributed to shareholders in proportion to the paid-up nominal value of Shares held.

Under the applicable provisions of the Swiss Stock Exchange Act, shareholders (and groups of shareholders acting in concert) who own shares or other securities representing more than 5 percent, 10 percent, 20 percent, 33 1/3 percent, 50 percent or 66 2/3 percent of the voting rights of a company incorporated in Switzerland of which at least one class of equity securities is listed on the Swiss Exchange are required to notify the company and the Swiss Exchange of such holdings, whether or not the voting rights can be exercised. Following receipt of such notification, the company is required to inform the public. The same disclosure obligation applies to subsequent reductions in the holding of voting rights below the thresholds described above.

An additional disclosure obligation exists under Swiss corporate law pursuant to which the Company must disclose the identity of all of its shareholders (or related groups of shareholders) who hold more than 2 percent of its voting rights (i.e. shareholders owning shares in excess of the limit set forth in the Articles; see “— Shares and Transfer of Shares”). Disclosure of shareholders owning more than 2 percent but less than 5 percent of the voting rights in the Company must only be made once a year in the notes to the financial statements published in the annual report. See “Item 7. — Major Shareholders and Related Party Transactions” in this Annual Report.

Pursuant to Second Amended and Restated Deposit Agreement (including all exhibits thereto, the “Deposit Agreement”) dated as of August 2, 2000 among the Company, Citibank, N.A., and the registered holders and beneficial owners from time to time of the ADRs of the Company, ADRs evidencing ADSs are issuable by Citibank on behalf of the Company. Each ADS represents the right to receive one-half of one Share deposited under the Deposit Agreement. Shares are deposited to an account maintained by Citibank, N.A., Zürich Branch, as the custodian and agent of the Depositary in Switzerland. Only persons in whose names ADRs are registered on the books of the Depositary are treated by the Depositary and the Company as the absolute owners of such ADRs.

In 1997, the Company set up a Euro Medium Term Notes program under which certain specified subsidiaries of the Company may issue bonds up to an aggregate amount of USD 2 billion. The program documentation, among Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba Specialty Chemicals PLC, Ciba Spezialitätenchemie Holding Deutschland GmbH, the Company and the Dealers named thereon, includes an offering circular, a program agreement, a deed of covenant and a guarantee by the Company, and is updated annually, most recently on March 27, 2003. As of December 31, 2003, approximately CHF 707 million (USD 566 million) of indebtedness was outstanding under the program. The Company currently has no plans to utilize this program in the future.

There are no legislative or other legal provisions currently in force in Switzerland or arising under the Articles restricting the export or import of capital, including, but not limited to, the availability of cash and cash equivalents for use by the Company’s group, or that affect the remittance of dividends, interest or other payments to nonresident holders of securities of the Company. Cash dividends payable in Swiss francs on Shares and ADSs may be officially transferred from Switzerland and converted into any other convertible currency. There are no limitations imposed by Swiss laws or the Company’s Articles on the right of non-Swiss residents to hold or vote the Shares or ADSs, as described above under “Memorandum and Articles of Incorporation (“Articles”).

The following is a summary of the material Swiss tax consequences of the ownership of Shares or ADSs, in particular by United States holders (as defined below; see “— United States Taxation”). The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Shares or ADSs, and prospective investors should consult their professional advisors as to the tax consequences of their purchase, ownership and disposition of Shares and ADSs. In particular, the summary does not address the tax treatment of holders subject to special tax rules, such as banks, insurance companies and dealers in securities, investors liable for alternative minimum tax or

investors who hold Shares or ADSs as part of a straddle or hedging or a conversion transaction, some of which may be subject to special rules. This summary should not be read as extending by implication to matters not specifically discussed herein. Additional rules may apply to holders of 10 percent or more in voting power or value of the Shares and ADSs. With respect to United States holders, this discussion generally applies only to such holders who hold Shares or ADSs as a portfolio investment.

The description of the Swiss and United States tax laws and practices set forth below is based on the statutes, regulations, rulings, judicial decisions and other authorities as in force and as applied in practice on the date of this Annual Report and is subject to changes to those laws and practices, subsequent to that date, which changes could be made on a retroactive basis.

It is assumed for purpose of this summary that a United States holder is entitled to the benefits of the Swiss-American Treaty on Double Taxation (the “Treaty”). A United States holder would generally be eligible for the benefits of the Treaty. However, certain exceptions apply, including (a) United States citizens or residents that do not have a substantial presence, permanent home or habitual abode in the United States, and (b) United States corporations that fail to satisfy the “limitations on benefits” provisions of Article 22 of the Treaty because of the nature of their activities in the United States and the nature of their shareholders.

Dividends paid and similar cash or in kind distributions made by the Company to a holder of Shares or ADSs (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax (the “Withholding Tax”) at a rate of 35 percent. The Withholding Tax must be withheld by the Company from the gross distribution and be paid to the Swiss Federal Tax Administration. The Withholding Tax is refundable in full to a Swiss resident who receives a distribution if such resident is the beneficial owner of the payment and duly reports the gross distribution received on his tax return.

An individual or corporation that is a resident of a country other than Switzerland and that owns or is deemed to own Shares or ADSs will be subject to the 35 percent Withholding Tax. The Withholding Tax, however, is a final charge for non-residents unless, such an individual or corporation could be eligible for a partial exemption or refund of the Withholding Tax if a tax treaty is in effect between such individual’s or corporation’s country of residence and Switzerland. Switzerland has concluded such treaties with the United States, Canada, Japan, all European Union member states and certain other countries.

The Depositary intends to make use of informal procedures under which it will submit a certificate to the Swiss tax authorities in respect of all United States holders who have provided certifications of their entitlement to Treaty benefits. So long as these procedures remain available it generally should be possible for qualifying United States holders to recover on a timely basis Withholding Tax in excess of the 15 percent rate as provided in the Treaty. There can be no assurance that these informal procedures will remain available.

Alternatively, a United States holder that qualifies for Treaty benefits (a “United States resident”) may apply on an individual basis for a refund of the Withholding Tax withheld in excess of the 15 percent Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, 3003 Berne, Switzerland (http://www.estv.admin.ch). The form used for obtaining a refund is Swiss Tax Form 82I for individuals, Form 82C for corporations, Form 82 E for other United States citizens, and Form 829 for Swiss citizens resident in the United States, which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form may be filed no earlier than July 1 or January 1 following the dividend date but no later than December 31 of the third year following the calendar year that includes the dividend date. The form must be accompanied by evidence of the deduction of Withholding Tax withheld at the source.

The sale of Shares may be subject to a Swiss securities transfer stamp duty of 0.15 percent calculated on the sale proceeds if it occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act.

A non-resident holder of Swiss shares will not be liable for any Swiss taxes other than the Withholding Tax described above and the Swiss Securities transfer stamp duty if the transfer occurs through or with a Swiss securities dealer. If, however, the Shares can be attributed to a permanent establishment or fixed place of business maintained by such person within Switzerland, the Shares may be subject to Swiss taxes generally.

The following is a general summary of certain United States federal income tax consequences of the purchase, ownership, and disposition of Shares and ADSs. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Shares or ADSs, and prospective investors should consult their professional advisors as to the tax consequences of their purchase, ownership and disposition of Shares and ADSs.

For purposes of this discussion, a “United States holder” means any individual, citizen or resident of the United States for United States federal income tax purposes, corporations created or organized under the laws of the United States or any state thereof or the District of Columbia, or estates or trusts which are residents in the United States for United States federal income tax purposes, in each case who:

•

is not also resident of, or ordinarily resident in Switzerland for Swiss tax purposes;

•

is not engaged in a trade or business in Switzerland through a permanent establishment; and

•

does not own, directly, indirectly or by attribution, 10 percent or more of the Shares (by vote or value).

This summary is of a general nature only and does not discuss all aspects of United States and Swiss taxation that may be relevant to a particular investor. This summary deals only with Shares and ADSs held as capital assets and does not address special classes of purchasers, such as dealers in securities, United States holders whose functional currency is not the U.S. dollar and certain United States holders (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions and persons subject to the alternative minimum tax) who may be subject to special rules. In particular, the following summary does not address the adverse tax treatment of United States holders who own, directly, or by attribution, one or more of the Company’s outstanding classes of voting stock in the event that the Company were to be classified as a “Controlled Foreign Corporation” for United States federal income tax purposes. The Company was not classified as a Controlled Foreign Corporation at December 31, 2003. There can, however, be no assurance that it will not be a Controlled Foreign Corporation in the future.

Owners of ADSs are advised to consult their own tax advisors with respect to the United States federal, state and local tax consequences, of the ownership of ADSs and Shares applicable to their particular tax situations.

For purposes of tax treaties and United States tax laws, United States holders will be treated as the owners of the Shares represented by ADSs.

The gross amount of any dividends received with respect to the ADSs or Shares (including amounts withheld in respect of the Withholding Tax) generally will be subject to United States federal income taxation as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations. For this purpose, a “dividend” will include any distribution paid by the Company with respect to the ADSs or Shares, as the case may be, but only to the extent such distribution is not in excess of the Company’s current and accumulated earnings and profits as defined for United States federal income tax purposes. Any distribution that exceeds the Company’s earnings and profits will be treated as a nontaxable return of capital to the extent of the United States holder’s tax basis in the ADSs or Shares and thereafter as capital gain. Dividends paid in Swiss francs will be includable in the income of United States holders in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt by the holder, or in the case of Shares held in ADS form, by the Depositary. If dividends paid in Swiss francs are converted into U.S. dollars on the date of receipt, holders generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

Subject to generally applicable limitations under United States tax law, the non-recoverable portion of the Withholding Tax (at the 15 percent rate as provided in the Treaty) will be treated as a foreign income tax that is eligible for credit against a holder’s United States federal income tax liability or, at the holder’s election, may be deducted in computing taxable income.

United States residents that receive a Treaty refund may be required to recognize foreign currency gain or loss to the extent the amount of the refund (in U.S. dollars) received by the United States resident differs from the U.S. dollar equivalent of the Treaty refund on the date the dividends were received by the United States resident or (in the case of ADSs) the Depositary.

Gains realized by a United States holder on the sale or other disposition of ADSs or Shares generally will be subject to United States federal income taxation as capital gain, and generally will be treated as United States source income. A United States holder will recognize capital gain or loss on the disposition of ADSs or Shares equal to the difference between the amount realized upon the disposition and the United States holder’s tax basis in the ADSs or Shares. Such capital gain will be long-term capital gain if the ADSs or Shares were held for more than one year. Deposits and withdrawals of Shares in exchange for ADSs will not result in the realization of gain or loss for United States federal income tax purposes.

Dividends paid on ADSs or Shares to a United States person are generally subject to information reporting and may be subject to backup withholding at the rate of 30 percent for payments made in 2003 and 2004, unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.

Dividends paid on ADSs or Shares to a holder that is not a United States person are generally exempt from information reporting and backup withholding under current law. However, such a holder may be required to provide a certification to ensure such exemption.

The following documents referred to herein can be obtained from the Company at its registered office at Klybeckstrasse 141, 4002 Basel, Switzerland.

Market risk due to fluctuating foreign currency exchange rates and interest rates

As a result of its global operating and financial activities, the Company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The Company actively manages the resulting exposure through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. In accordance with the written policies of the Company, such instruments are used only as risk management tools and not for speculative or trading purposes. The Company’s written policy with respect to the use of risk management tools has not changed since 1997.

The Company collects global cash flow information on a monthly basis and, based on these cash flows, prepares a consolidated exposure forecast by currency and determines to what extent these consolidated currency exposures will be hedged. Foreign currency forwards and swaps as well as options may be used to reduce the Company’s exposure that results from the market risk arising from the fluctuation of foreign currency exchange rates. To reduce the cost of such activities, the Company may sell covered options. Potential losses, if any, on these sold options would be substantially offset by gains on the underlying transactions that are hedged. The Company’s primary net foreign currency market exposures include the U.S. dollar, the euro, the British pound and the Japanese yen. In 2003, the Company’s hedging activities have to a large extent focused on the U.S. dollar. However, hedging activities on the other major currencies as well as on selected minor currencies have also been undertaken.

The fair value of foreign currency exchange contracts is sensitive to changes in foreign currency exchange rates. As of December 31, 2003, a 10 percent appreciation in foreign currency exchange rates against the Swiss franc, with all other variables held constant, would have resulted in a decrease in the fair value of the Company’s financial instruments of CHF 81 million. Conversely, a 10 percent depreciation in these currencies would have resulted in an increase in the fair value of the Company’s financial instruments of CHF 93 million as of December 31, 2003. As the impact of offsetting changes in the fair value of the underlying positions is not included in the sensitivity model, these results are not indicative of an increase or decrease in the Company’s actual exposure to foreign currency exchange risk. Consistent with the nature of the economic hedge of such foreign currency exchange contracts, such unrealized gains or losses would be compensated by the corresponding decreases or increases of the underlying transaction being hedged. The fair value of foreign currency forwards and swaps is calculated by separating the two components and applying the forward rate and the balance sheet rate as well as a discount factor. The discount factor is composed of the respective yield curves as well as the number of days until maturity. The fair value of options is calculated by applying the Black-Scholes model.

The Company is exposed to market risks due to fluctuating interest rates primarily through its borrowing activities and less so through its investments. The Company utilizes borrowings denominated in Swiss francs and in foreign currencies to fund its working capital and investment needs. The majority of short-term borrowings are in foreign currencies and floating interest rate instruments whereas the majority of long-term borrowings are in fixed interest rate instruments. The Company manages its ratio of fixed to floating interest rate instruments with the objective of achieving a mix which is appropriate both in terms of risk and cost. To manage this mix effectively, the Company, selectively, enters into interest rate swaps and forward rate agreements, in which it agrees to exchange various combinations of fixed and variable interest rates based on agreed-upon nominal amounts.

There is inherent roll-over risk for borrowings as they mature and are renewed at current market rates. Based on the short-term and long-term debt balance outstanding at December 31, 2003, a hypothetical one percentage point increase in interest rates for a one-year period would have reduced net income by CHF 14 million. The assumption is that the floating rate debt would be impacted by this hypothetical one percentage point increase but not fixed rate agreements.

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

Based on management’s evaluation (with the participation of the Chief Executive Officer and Chief Financial Officer), the Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2003, the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to provide reasonable assurance that information required to be disclosed in this Annual Report on Form 20-F is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Since the last evaluation by the Company of the Company’s internal controls there have not been any significant changes in the internal controls, or in factors that could significantly affect the internal controls.

For information related to the Audit Committee Financial Expert see “Item 6, Directors, Senior Management and Employees”

For information related the Company’s Code of Ethics see “Item 6, Directors, Senior Management and Employees”

For information related to the Audit Committee Financial Expert see “Item 6, Directors, Senior Management and Employees”. For information with regard to pre-approval procedures and fees paid to the auditor, please see “Auditors” in Item 6.

The Company is furnishing financial statements pursuant to the instructions of Item 18 of Form 20-F.

(a) The following consolidated financial statements, together with the auditors’ reports of Ernst & Young Ltd and Arthur Andersen AG, are filed as part of this Annual Report:


Index to Consolidated Financial Statements		Page

Report of Independent Auditors — Ernst & Young Ltd.		F-2
Independent Auditors’ Report — Arthur Andersen AG		F-3
Consolidated Statements of Income for the Years ended December 31, 2003, 2002 and 2001		F-4
Consolidated Balance Sheets at December 31, 2003 and 2002		F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 2003, 2002 and 2001		F-6
Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2003, 2002 and 2001		F-7
Business Segment Data		F-8
Geographic Data		F-11
Notes to Consolidated Financial Statements		F-12

All schedules are omitted because they are not applicable or because the required information is contained in the Consolidated Financial Statements or Notes thereto.


+1.1		Articles of Association of Ciba Specialty Chemicals Holding Inc. dated March 22, 2002.
**1.2		Specimen share certificate of Ciba Specialty Chemicals Holding Inc.
* 2.1		Second Amended and Restated Deposit Agreement dated as of August 2, 2000, between Ciba Specialty Chemicals Holding Inc., Citibank, N.A., and the additional parties named therein.
* 2.2		Form of American Depositary Receipt of Ciba Specialty Chemicals Holding Inc.
4.1		EMTN Programme Agreement in respect of a USD 2 billion Euro Medium Term Note Programme dated March 27, 2003, among Ciba Specialty Chemicals PLC, Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba Spezialitätenchemie Holding Deutschland GmbH, Ciba Specialty Chemicals Holding Inc., Credit Suisse First Boston (Europe) Limited and the additional parties named therein.
4.2		EMTN Deed of Covenant in respect of a USD 2 billion Euro Medium Term Note Programme dated March 27, 2003, by each of Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba Specialty Chemicals PLC, Ciba Spezialitätenchemie Holding Deutschland GmbH, Ciba Specialty Chemicals Holding Inc., in favor of the account holders of Clearstream Banking, société anonyme and the additional beneficiaries named therein.
4.3		EMTN Deed of Guarantee in respect of a USD 2 billion Euro Medium Term Note Programme dated March 27, 2003, by Ciba Specialty Chemicals Holding Inc.
4.4		EMTN Agency Agreement in respect of a USD 2 billion Euro Medium Term Note Programme dated March 27, 2003, among Ciba Specialty Chemicals PLC, Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals Eurofinance Ltd., Ciba Spezialitätenchemie Holding Deutschland GmbH, Ciba Specialty Chemicals Holding Inc., The JP Morgan Chase Bank and J.P. Morgan Bank Luxembourg S.A. The total amount of long-term debt securities of the Company or of its subsidiaries authorized under any other instrument does not exceed 10 percent of the total assets of the Company on a consolidated basis. The Company hereby agrees to furnish to the Commission, upon its request, a copy of any instruments


		defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
**4.8		Master Spin-off Agreement dated December 20, 1996, between Novartis AG and Ciba Specialty Chemicals Holding Inc.
**4.9		Transaction Agreement re: Sale of the Performance Polymers division to Morgan Grenfell Private Equity dated December 14, 1999, by and between Ciba Specialty Chemicals Holding Inc. and Avanti N03.
8.1		List of Certain Subsidiaries.
10.1		Consent of Ernst & Young Ltd.
12.1		Certification Pursuant to Rule 13a-14(A)/15d-14(A)
12.2		Certification Pursuant to Rule 13a-14(A)/15d-14(A)
13.1		Certification Pursuant to 18 U.S.C. Section 1350

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, Ciba Specialty Chemicals Holding Inc. certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

To the Board of Directors and Shareholders of Ciba Specialty Chemicals Holding Inc.

We have audited the accompanying consolidated balance sheets of Ciba Specialty Chemicals Holding Inc. (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, appearing on pages F-4 to F-36 of this Annual Report. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Ciba Specialty Chemicals Holding Inc. for the year ended December 31, 2001, were audited by other auditors who have ceased operations as a foreign associated firm of the Securities and Exchange Commission Practice Section of the American Institute of Certified Public Accountants and whose report dated January 18, 2002 expressed an unqualified opinion on those statements.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ciba Specialty Chemicals Holding Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company adopted Financial Accounting Standards Board Interpretation No. 46 “Consolidation of Variable Interest Entities” and changed its method of accounting for stock-based employee compensation respectively.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets. As discussed above, the financial statements of Ciba Specialty Chemicals Holding Inc. as of December 31, 2001, and for the year ended December 31, 2001, were audited by other auditors who have ceased operations as a foreign associated firm of the Securities and Exchange Commission Practice Section of the American Institute of Certified Public Accountants. As described in Note 1, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, “Goodwill and Other Intangible Assets,” “which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 1 with respect to 2001 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, deferred credits related to an excess over cost, equity method goodwill, and changes in amortization periods for intangible assets that will continue to be amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, the disclosures for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

We have audited the accompanying consolidated balance sheets of Ciba Specialty Chemicals Holding Inc. (a Swiss corporation) and subsidiaries (the Company) as of December 31, 2001, and the related consolidated statements of income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2001, appearing on pages F-3 to F-34 of this Annual Report. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ciba Specialty Chemicals Holding Inc. and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN AG


/s/ Eric G. Ohlund		/s/ Patrick Fawer

Eric G. Ohlund		Patrick Fawer

Consolidated statements of income
(in millions of Swiss francs, except share and per share data)


Year ended December 31,	Notes		2003			2002			2001⁽ⁱ⁾

Net sales				6 646			7 085			7 367
Cost of goods sold				4 579			4 729			4 988
Gross profit				2 067			2 356			2 379
Selling, general and administrative				1 185			1 247			1 258
Research and development				281			294			276
Amortization of goodwill⁽ⁱ⁾		1		0			0			61
Amortization of other intangible assets		8		33			33			31
Income from earnings of equity affiliates		9		(3	)		(6	)		(8	)
Operating income				571			788			761
Interest expense				(142	)		(159	)		(203	)
Interest income				34			49			69
Other financial expense, net				(24	)		(105	)		(59	)
Income from continuing operations before income taxes and minority interest				439			573			568
Provision for income taxes		14		74			154			178
Income from continuing operations before minority interest				365			419			390
Minority interest				5			13			10
Income from continuing operations⁽ⁱⁱ⁾				360			406			380
Cumulative effect of change in accounting principles, net of tax		1		(16	)		0			2
Net income⁽ⁱⁱ⁾				344			406			382
Earnings per share, basic and diluted		19
Continuing operations⁽ⁱⁱ⁾				5.26			5.92			5.72
Cumulative effect of change in accounting principles				(0.23	)		0.00			0.04
Net income per share⁽ⁱⁱ⁾				5.03			5.92			5.76
Weighted average shares outstanding
Basic				68 361 123			68 549 964			66 419 147
Diluted				68 361 123			68 575 058			66 419 147

Consolidated balance sheets
(in millions of Swiss francs, except share and per share data)


December 31,	Notes		2003			2002

Assets
Current assets
Cash and cash equivalents				2 386			2 361
Short-term investments				11			16
Accounts receivable, net		4		940			1 014
Inventories		5		1 231			1 446
Prepaid and other current assets				371			477
Total current assets				4 939			5 314
Property, plant and equipment, net		6		2 963			3 196
Goodwill		1,7		1 358			1 382
Other intangible assets, net		8		647			694
Financial investments		9		147			172
Other assets		10		1 044			1 034
Total assets				11 098			11 792
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable				528			549
Short-term debt		12		259			1 496
Income taxes payable				152			108
Accruals and other current liabilities		11		841			942
Total current liabilities				1 780			3 095
Long-term debt		13		3 187			2 344
Deferred income taxes		14		407			386
Other liabilities		15		1 417			1 537
Total liabilities				6 791			7 362
Minority interest				62			76
Shareholders’ equity		16
Common stock⁽ⁱ⁾				433			649
Additional paid-in capital				4 210			4 186
Retained earnings				541			198
Accumulated other comprehensive income (loss)				(493	)		(360	)
Treasury stock, at cost⁽ⁱⁱ⁾				(446	)		(319	)
Total shareholders’ equity				4 245			4 354
Total liabilities and shareholders’ equity				11 098			11 792


Year ended December 31,	2003			2002			2001

Cash flows from operating activities
Net income		344			406			382
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		366			385			469
Deferred income taxes		24			50			87
Restructuring payments		0			(12	)		(46	)
Loss (gain) on sale/disposal of assets, net		(7	)		2			(5	)
Realized (gain) loss on available-for-sale securities		(12	)		38			0
Minority interest and other non-cash items, net		16			161			71
Changes in operating assets and liabilities:
Short-term investments		5			25			27
Accounts receivable, net		56			4			53
Inventories		173			(11	)		117
Accounts payable		(9	)		90			(33	)
Other operating assets and liabilities		77			(100	)		(68	)
Net cash provided by operating activities		1 033			1 038			1 054
Cash flows from investing activities
Capital expenditures		(233	)		(250	)		(259	)
Proceeds from sale of assets		67			22			34
Sale (acquisition) of businesses, net of cash⁽ⁱ⁾		(71	)		(116	)		(144	)
Loans and other long-term assets		(2	)		(5	)		35
Net cash used in investing activities		(239	)		(349	)		(334	)
Cash flows from financing activities
Increase (decrease) in short-term debt, net		(25	)		22			(48	)
Proceeds from long-term debt		715			1			6
Repayments of long-term debt		(1 084	)		(19	)		(110	)
Dividends paid		0			(134	)		(132	)
Capital reduction paid		(206	)		(69	)		0
Treasury stock transactions		(142	)		344			9
Other		0			(1	)		0
Net cash provided by (used in) financing activities		(742	)		144			(275	)
Effect of exchange rate changes on cash and cash equivalents		(27	)		(74	)		(22	)
Net increase in cash and cash equivalents		25			759			423
Cash and cash equivalents, beginning of year		2 361			1 602			1 179
Cash and cash equivalents, end of year		2 386			2 361			1 602
Supplemental cash flow information
Cash paid for interest		(103	)		(177	)		(204	)
Cash paid for income taxes		(60	)		(90	)		(49	)

Consolidated statements of shareholders’ equity
(in millions of Swiss francs, except share and per share data)


												Accumulated			Treasury			Treasury
						Additional						other			stock:			stock:
			Common			paid-in			Retained			comprehensive			unreserved			reserved
	Notes		stock			capital			earnings			income (loss)			shares			shares			Total

Balance at December 31, 2000				721			3 955			(324	)		(116	)		(72	)		(410	)		3 754
Net income										382												382
Currency translation adjustments													(83	)								(83	)
Unrealized loss on available-for-sale securities, net of tax of CHF 14													(23	)								(23	)
Minimum pension liability adjustment, net of tax of CHF 12		18											(19	)								(19	)
Comprehensive income(loss)										382			(125	)								257
Cash dividends declared and paid⁽ⁱ⁾										(132	)											(132	)
Treasury stock transactions		16					(4	)								6			19			21
Other							6						1			1						8
Balance at December 31, 2001				721			3 957			(74	)		(240	)		(65	)		(391	)		3 908
Net income										406												406
Currency translation adjustments													(86	)								(86	)
Realization of previously unrealized loss on available-for-sale securities, net of tax of CHF 16		9											28									28
Unrealized loss on available-for-sale securities, net of tax of CHF 2													(5	)								(5	)
Unrealized gain on cash flow hedges, net of tax of CHF 1													1									1
Minimum pension liability adjustment, net of tax of CHF 37		18											(58	)								(58	)
Comprehensive income(loss)										406			(120	)								286
Cash dividends declared and paid⁽ⁱ⁾										(134	)											(134	)
Capital reduction paid⁽ⁱⁱ⁾				(72	)		3															(69	)
Treasury stock transactions		16					216									(13	)		150			353
Other							10															10
Balance at December 31, 2002				649			4 186			198			(360	)		(78	)		(241	)		4 354
Net income										344												344
Currency translation adjustments													(131	)								(131	)
Realization of previously unrealized gain on available-for-sale securities, net of tax of CHF 4		9											(4	)								(4	)
Unrealized gain on available-for-sale securities, net of tax of CHF 4													5									5
Minimum pension liability adjustment, net of tax of CHF 1		18											(2	)								(2	)
Other													(1	)								(1	)
Comprehensive income (loss)										344			(133	)								211
Capital reduction paid⁽ⁱⁱ⁾				(216	)		10															(206	)
Treasury stock transactions		16					3									11			(138	)		(124	)
Other							11			(1	)											10
Balance at December 31, 2003				433			4 210			541			(493	)		(67	)		(379	)		4 245


							Water &						Home &
	Plastic			Coating			Paper			Textile			Personal
	Additives			Effects			Treatment			Effects			Care			Corporate			Consolidated

2003
Net sales		1 722			1 807			1 349			1 401			367			—			6 646
EBITDA⁽ⁱ⁾		272			397			168			129			58			(87	)		937
Depreciation & amortization		94			97			83			60			26			6			366
Operating income⁽ⁱ⁾		178			300			85			69			32			(93	)		571
Interest expense																	(142	)		(142	)
Interest income																	34			34
Other financial expense, net																	(24	)		(24	)
Provision for income taxes																	74			74
Minority interest																	5			5
Cumulative effect of change in accounting principles, net of tax																	(16	)		(16	)
Net income																				344
EBITDA margin⁽ⁱⁱ⁾		15.8	%		22.0	%		12.5	%		9.2	%		15.7	%		—			14.1	%
Operating income margin		10.3	%		16.6	%		6.3	%		4.9	%		8.8	%		—			8.6	%
Research and development expenditures		82			95			27			32			31			14			281
Capital expenditures		59			79			42			29			18			6			233

2002
Net sales		1 813			1 920			1 409			1 544			399			—			7 085
EBITDA⁽ⁱ⁾		346			440			186			208			82			(89	)		1 173
Depreciation & amortization		101			99			88			66			26			5			385
Operating income⁽ⁱ⁾		245			341			98			142			56			(94	)		788
Interest expense																	(159	)		(159	)
Interest income																	49			49
Other financial expense, net																	(105	)		(105	)
Provision for income taxes																	154			154
Minority interest																	13			13
Net income																				406
EBITDA margin⁽ⁱⁱ⁾		19.1	%		22.9	%		13.2	%		13.5	%		20.6	%		—			16.6	%
Operating income margin		13.5	%		17.7	%		7.0	%		9.2	%		14.0	%		—			11.1	%
Research and development expenditures		81			100			29			36			30			18			294
Capital expenditures		86			74			35			34			18			3			250


							Water &						Home &
	Plastic			Coating			Paper			Textile			Personal						Amortization of
	Additives			Effects			Treatment			Effects			Care			Corporate			Goodwill			Consolidated

2001
Net sales		1 834			1 944			1 486			1 673			430			—						7 367
EBITDA⁽ⁱ⁾		388			411			157			248			95			(69	)					1 230
Depreciation & amortization		113			99			92			67			28			9			61			469
Operating income⁽ⁱ⁾		275			312			65			181			67			(78	)		(61	)		761
Interest expense																	(203	)					(203	)
Interest income																	69						69
Other financial expense, net																	(59	)					(59	)
Provision for income taxes																	178						178
Minority interest																	10						10
Cumulative effect of change in accounting principles, net of tax																	2						2
Net income																							382
EBITDA margin⁽ⁱⁱ⁾		21.1	%		21.1	%		10.6	%		14.8	%		22.2	%		—						16.7	%
Operating income margin		15.0	%		16.1	%		4.4	%		10.8	%		15.7	%		—						10.3	%
Research and development expenditures		73			96			34			39			24			10						276
Capital expenditures		80			66			52			32			25			4						259


Net assets	2003			2002

Plastic Additives		1 127			1 236
Coating Effects		1 773			1 834
Water & Paper Treatment		2 271			2 429
Textile Effects		1 115			1 291
Home & Personal Care		281			294
Shared operating net assets not allocated to segments⁽ⁱⁱⁱ⁾		(79	)		(8	)
Non-operating net assets^(iv)		2 852			2 874
Invested capital^(v)		9 340			9 950
Items not included in invested capital		(5 095	)		(5 596	)
Total shareholders’ equity (total net assets)		4 245			4 354

Components of items not included in invested capital
Net deferred tax liabilities		(170	)		(143	)
Short-term debt		(259	)		(1 496	)
Long-term debt		(3 187	)		(2 344	)
Other liabilities		(1 417	)		(1 537	)
Minority interest		(62	)		(76	)
Total items not included in invested capital		(5 095	)		(5 596	)

Total assets
Plastic Additives		1 378			1 493
Coating Effects		2 020			2 107
Water & Paper Treatment		2 460			2 606
Textile Effects		1 304			1 495
Home & Personal Care		337			356
Shared operating assets not allocated to segments⁽ⁱⁱⁱ⁾		290			426
Non-operating assets^(iv)		3 309			3 309
Total assets		11 098			11 792

Business segment data
(in millions of Swiss francs, except share and per share data)

The Company is organized into five reporting segments: Plastic Additives, Coating Effects, Water & Paper Treatment, Textile Effects and Home & Personal Care. The Company’s reporting segments develop, manufacture and market different products, services and solutions. They are managed separately because each segment has different customer markets and requires different technology and marketing strategies. The same accounting policies are consistently applied to reportable segments across the Company and all segments generate revenue in the same manner. Reported sales reflect only sales to third parties. Intersegment sales are not material.

The Company evaluates the performance of its reportable segments based on operating income as well as EBITDA, which for the Company’s Segments is calculated as operating income plus depreciation and amortization. Operating income includes all operating items relating to the segments and excludes items that principally apply to the Company as a whole. EBITDA and EBITDA margin together provide management with additional quantitative measures of the quality of sales growth as well as the results of past and current actions taken to manage costs. In addition, as the Company operates in a multinational environment and competes with companies in different countries, the use of EBITDA as a performance measure provides improved comparability of the reportable segments’ results with those of their competitors, many of which report their results using International Financial Reporting Standards (IFRS) and therefore employ significantly different methods of depreciation and amortization, including amortization of goodwill and other intangible assets. Management is therefore of the opinion that these financial indicators are an important measure of comparative operating performance for the businesses of the Company.

EBITDA, EBITDA margin and invested capital are non-United States Generally Accepted Accounting Principles (“U.S. GAAP”) supplementary financial indicators. As with any supplementary financial indicator these supplementary financial indicators should be considered in addition to, not as a substitute for, operating income, net income, cash flow from operating activities, total assets, operating income margin and other measures of financial performance and liquidity reported in accordance with U.S. GAAP. The Company derives EBITDA, EBITDA margin and invested capital from financial measures prepared in accordance with U.S. GAAP.

In 2002, the Company implemented Statement of Financial Accounting Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets” (see Notes 1 and 7). As a result of adopting this standard, the Company reclassified certain goodwill and intangible assets to the segments that were previously reported as corporate items and not allocated to the segments. In addition, the Company reclassified the 2001 goodwill amortization that was previously allocated to the segments to corporate and reclassified intangible amortization from corporate to the segments corresponding to the intangible asset reclassification. The amounts reported for 2001 have been reclassified to conform to the 2003 and 2002 presentation.

The segment Plastic Additives develops, manufactures and markets products and provides services to the plastic and lubricant industries. The Segment’s products are additives, which are ingredients added in small quantities to polymers and lubricants that prevent aging and corrosion and help improve appearance, durability and performance of finished goods such as polyolefins and engineering plastics as well as high-performance motor oils and lubricants. The service business adds value to customers by providing solutions in product applications.

The segment Coating Effects is a leading global manufacturer of organic pigments and the leading supplier of photoinitiators and lightstabilizers to the coatings, graphic arts and electronic industries. The Segment develops, manufactures and markets additives, pigments, as well as additive and pigment concentrates, for the coatings, printing, imaging, electronic, plastics and fibers industries. The end-user markets for its products and services are, among others, the automotive, packaging, publication, electronics, construction, photographic and digital printing industries.

The segment Water & Paper Treatment serves the paper and water treatment industries. The Segment offers products and services to the global paper and board industry focused on increasing mill productivity as well as ‘effect chemicals’ which provides solutions for its customers in order to determine appearance, handling and performance of the paper or board. The Segment also offers products and services used to treat the water streams in industrial and municipal applications and to improve the efficiency of mineral and oil processing as well as soil additives and specialty monomers.

The segment Textile Effects serves the textile industry, offering dyes and chemicals, services and integrated solutions to customers along the whole textile value chain. The Segment’s products include dyes and chemicals for dyeing and printing of almost all textile fibers, optical brighteners and textile finishing products for protection and easy-care. Services offered by the Segment include color matching via the Internet and technical consultancy regarding textile color and effects management for international brand houses and retailers.

The segment Home & Personal Care is one of the leading global manufacturers of whiteners and a leading supplier of antimicrobials to the personal care market. It develops, manufactures and markets products for home and personal care end-use industries. Among its broad product offerings are whiteners for detergents, hygiene effects for a variety of home and personal care products, UV absorbers for sunscreens and innovative hair dyes.


Net Sales to Customers	2003		2002		2001

Europe
Germany		584		567		572
United Kingdom		293		334		373
Italy		340		343		351
France		304		298		311
Rest of European Union		846		841		846
Switzerland		99		86		75
Rest of Europe		265		252		227
Total Europe		2 731		2 721		2 755
Americas
United States of America		1 415		1 703		1 819
Canada		199		223		243
Central America		167		209		227
South America		285		324		365
Total Americas		2 066		2 459		2 654
Asia-Pacific
Japan		381		384		431
Region China		440		439		424
Rest of Asia		627		677		686
Australia and New Zealand		159		155		154
Africa and Middle East		242		250		263
Total Asia-Pacific		1 849		1 905		1 958
Total net sales to customers		6 646		7 085		7 367


Long-Lived Assets	2003		2002

Europe
Germany		378		361
United Kingdom		519		561
Italy		176		165
France		134		128
Rest of European Union		87		82
Switzerland		588		614
Rest of Europe		2		2
Total Europe		1 884		1 913
Americas
United States of America		743		869
Canada		3		3
Central America		94		123
South America		18		17
Total Americas		858		1 012
Asia-Pacific
Japan		23		42
Region China		132		157
Rest of Asia		40		46
Australia and New Zealand		19		18
Africa and Middle East		7		8
Total Asia-Pacific		221		271
Total long-lived assets		2 963		3 196

Long-lived assets represent property, plant and equipment, net and are shown by the location of the assets.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

Ciba Specialty Chemicals Holding Inc. and its consolidated subsidiaries (the “Company”) is a global leader in the discovery and manufacture of innovative specialty chemicals that provide color, performance and care for plastics, coatings, textile, paper, home and personal care and other products. The Company’s products and services are also used to provide clean water and to treat water streams in industrial and municipal applications.

The accompanying consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). The assets, liabilities and results of operations of entities in which the Company has a controlling financial interest have been consolidated. Investments in which the Company exercises significant influence (generally 20-50 percent ownership interest), but does not control, are accounted for under the equity method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results ultimately may differ from those estimates.

The Company’s financial statements are prepared in millions of Swiss francs (CHF million). For most operations outside Switzerland, where the functional currency is the local currency, income, expense and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at period-end exchange rates. The translation adjustments are included as a component of accumulated other comprehensive income in shareholders’ equity. The financial statements of subsidiaries that operate in economic environments that are highly inflationary maintain financial information for reporting purposes in U.S. dollars or Swiss francs and include gains and losses from translation in income. For foreign currency transactions, changes in exchange rates that arise between transaction, reporting and settlement dates result in both realized and unrealized exchange gains and losses. These amounts are included in net income for the period.

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Short-term investments consist of securities that are traded in highly liquid markets. Because they are held for the purpose of investing liquid funds and are readily convertible to cash, they are classified as trading securities and are carried at fair value. Gains and losses are recorded as a component of financial income/expense in the Consolidated Statements of Income.

Accounts receivable are recorded at their net realizable value after deducting an allowance for doubtful accounts. Such deductions reflect either specific cases or estimates based on historical incurred losses. This also includes an allowance for country specific transfer risks.

The Company values its inventories at the lower of cost, determined principally on a first-in, first-out (FIFO) method, or market. Costs include all costs of production, including applicable portions of plant overhead. Allowances are made for obsolete and slow-moving inventory.

Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets ranging from approximately 20 to 50 years for buildings, 10 to 20 years for machinery and equipment, and 3 to 10 years for office furniture and fixtures and other equipment. The Company assesses its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. In such cases, if the sum of the asset’s expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the asset’s carrying amount over its fair value.

Property, plant and equipment acquired through finance lease arrangements are recorded as assets at the lesser of the present value of the minimum future lease payments or their fair value at the date of acquisition and depreciated over the useful life of the asset or, if the lease does not provide for the transfer of ownership of the assets to the Company, the lease term if it is shorter than the useful life of the asset. The corresponding obligation is recorded as a liability in the Consolidated Balance Sheets.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

Change in accounting policy — In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets”. The Company adopted SFAS No. 142 effective January 1, 2002. An initial impairment test of goodwill was required to be performed as of January 1, 2002. The Company completed the initial impairment test and determined that its reported goodwill was not impaired.

SFAS No. 142 requires that goodwill acquired in a business combination be capitalized at acquisition cost, no longer be amortized to earnings, and be annually evaluated at the reporting unit level for impairment using a two-step impairment test. In the first step, the book value of the reporting unit’s assets, including goodwill and other intangibles, and liabilities (the “net assets”) is compared to the fair value of the reporting unit. If the fair value of the reporting unit exceeds the book value of its net assets, goodwill is deemed not impaired and the second step is not required. If, however, the fair value of the reporting unit is less than the book value of its net assets, the second step is required to measure the amount of impairment loss, if any.

In the second step, the current fair value of the reporting unit is allocated to all of its tangible assets, other intangible assets (including unrecognized intangible assets but excluding goodwill) and liabilities (the “assets and liabilities”). This fair value allocation to the assets and liabilities is made as if the reporting unit had been acquired as of the impairment testing date in a business combination and the fair value of the reporting unit was the price that would have been paid to acquire the reporting unit. The excess, if any, of the total current fair value of the reporting unit over the sum of the individual fair values assigned to its assets and liabilities is considered to be the current implied goodwill value of the reporting unit. If the book value of the reporting unit’s goodwill exceeds this implied goodwill value, that excess is an impairment loss, which is recorded as a component of operating income in the Consolidated Statements of Income. If the book value of the reporting unit’s goodwill is less than the implied goodwill value, goodwill is not impaired.

During 2003 and 2002, the Company completed the annual impairment test of goodwill and determined that its reported goodwill is not impaired.

In 2001, goodwill acquired on or before June 30, 2001 was amortized on a straight-line basis over the estimated periods to be benefited, which ranged from 5 to 33 years. Goodwill acquired after June 30, 2001 was not amortized. In 2001, prior to the adoption of SFAS No. 142, goodwill was assessed for impairment whenever events or changes in circumstances indicated that the book value might not be recoverable. If the sum of the expected future undiscounted cash flows was less than the book value of the goodwill, a loss would have been recognized for the difference between the fair value and the book value of the goodwill.

The following is a reconciliation of previously reported financial information to the adjusted basis amounts excluding goodwill amortization, which is no longer required under SFAS No. 142:

In accordance with SFAS No. 142, purchased identifiable intangible assets (“other intangible assets”) are capitalized at acquisition cost. Other intangible assets with finite lives are amortized on a straight-line basis over the estimated periods that such assets are expected to contribute to the cash flows of the Company (5 to 33 years). Other intangible assets with indefinite lives are not amortized.

The Company assesses other intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Other intangible assets with indefinite lives are reviewed at least annually for impairment, or on an interim basis if certain circumstances are present. For all other intangible assets that are tested for impairment, if the sum of the asset’s expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the asset’s carrying amount over its fair value.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

Financial investments comprise primarily investments in equity affiliates that are not controlled by the Company and investments in unconsolidated companies (less than 20 percent ownership and not otherwise controlled by the Company).

The investments in unconsolidated companies are accounted for as available-for-sale securities and are recorded at fair value unless no quoted market price exists for such investments, in which case they are accounted for under the cost method. For investments accounted for at fair value, unrealized gains and losses thereon, net of tax, are included as a component of shareholders’ equity in “accumulated other comprehensive income (loss)”. The Company uses the specific identification method to determine the cost base of financial investments related to sales or reclassifications from other comprehensive income to earnings. For financial investments where the Company deems a loss in value to be other than temporary, such loss is recorded in the Consolidated Statement of Income.

Change in accounting policy — Effective January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended, which replaced existing pronouncements and practices for derivatives and hedging activities with a single, integrated accounting framework. This statement, as amended, expands the previous accounting definition of derivatives to include embedded derivatives and many commodity contracts. Upon adoption of this statement, as amended, the Company, in 2001, recorded a net transition adjustment gain after taxes of CHF 2 million in net income. The adoption did not have any effect on accumulated other comprehensive income.

For derivative financial instruments designated and that qualify as fair value hedges, changes in the fair values of the derivative financial instrument and the hedged item are recognized currently in earnings. The changes in fair value of the hedged item are recorded as adjustments to its carrying amount on the balance sheet. If the derivative financial instrument in a subsequent period is no longer designated or no longer qualifies as a fair value hedge, then the changes in fair value of the hedged item are not recognized in income. The previous changes in fair value that had been recorded as adjustments to the carrying amount of the hedged item are generally amortized to earnings as the hedged item affects earnings.

For derivative financial instruments designated and that qualify as cash flow hedges, changes in the effective portion of the derivative financial instrument’s fair value are recorded in accumulated other comprehensive income in the balance sheet until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of the derivative financial instrument is immediately recognized in the income statement as a component of financial income/expense. If the hedged item is a forecasted transaction that later is not expected to or will not occur, then the derivative financial instrument no longer qualifies as a cash flow hedge. As a result, fair value changes that were previously recorded in accumulated other comprehensive income are immediately recognized in earnings as a component of financial income/expense. In all other instances, when a derivative financial instrument ceases to be designated or to qualify as a cash flow hedge, the previously recorded changes in fair value remain in accumulated other comprehensive income until the hedged item affects earnings.

For derivative financial instruments that are not designated or that do not qualify as accounting hedges, the changes in the fair value of the derivative financial instruments are recognized currently in income as a component of financial income/expense.

Revenue is recognized upon shipment of goods to customers. Provisions for discounts and rebates to customers, product returns and other adjustments are provided for in the same period the related sales are recorded.

The provision for income taxes has been determined using the asset and liability approach and consists of income taxes currently paid or payable to taxing authorities in the jurisdictions in which the Company operates plus the change in deferred taxes for the current year. Deferred taxes represent the estimated future tax consequences of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a future tax benefit will not be realized.

Provision has also been made for taxes that would be levied upon the remittance to the parent company of currently unremitted earnings of foreign operations. However, no such provision is made for unremitted earnings of foreign operations that are intended to be reinvested indefinitely or that can be remitted substantially free of tax. The provision for income taxes also includes income taxes from earnings of equity affiliates.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

estimated liability is not discounted. Actual costs to be incurred at identified sites in future periods may vary from the estimates given the inherent uncertainties in evaluating environmental exposures.

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities, such as stock options and convertible debt, were exercised or converted into common shares or resulted in the issuance of common shares that then shared in the earnings of the Company.

Effective January 1, 2003, the Company adopted the fair value method of accounting for stock option plans as defined in SFAS No. 123 “Accounting for Stock-Based Compensation” as amended. As a consequence, employee stock option grants and other stock based compensation plans are recorded as expense over the vesting period of the award based on their fair values at the date the stock based compensation is granted. In December 2002 the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment to FASB Statement No. 123” that allows companies adopting the fair value method under SFAS No. 123 to choose from three alternative transition methods. The Company elected to adopt the modified prospective method that recognizes stock-based compensation expense from January 1, 2003 as if the fair value based accounting method had been used to account for all outstanding unvested employee awards granted, modified or settled in prior years.

In 2002 and prior years, the Company applied the disclosure-only provisions of SFAS No. 123 in accounting for its stock-based compensation plans that permitted the application of the intrinsic value method, as defined in Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees” and related interpretations. Under APB Opinion No. 25, the Company recognized no compensation expense related to certain stock based compensation plans, as certain stock options have been granted at a price equal to the market price on the day of the grant and the discount offered under its employee share ownership plan was at a discount rate permitted without requiring compensation costs to be recorded.

The pro forma net income and earnings per share for 2003, 2002 and 2001 have been determined as if the Company had used the fair value method of accounting for its stock option based compensation plans for all years presented. The pro forma amounts presented below reflect the portion of the estimated fair value of awards granted in 2003, 2002 and 2001, based on the vesting or service period over which the awards are earned.

In 2003, the FASB issued Interpretation No. 46, as revised (“FIN No. 46”) “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51”. FIN No. 46 introduces a variable interests model to determine control and consolidation of variable interest entities (“VIE”). A VIE is an entity that, by design, lacks sufficient equity or is structured such that the decision-making ability of its equity holders is limited. FIN No. 46 generally requires consolidation of a VIE by its primary beneficiary. A VIE’s primary beneficiary is the enterprise that, as a result of its interest in the VIE, absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both. FIN No. 46 applies to those entities that are considered to be special purpose entities under previously existing U.S. GAAP for financial statement reporting periods ending after December 15, 2003, or may optionally be selectively applied to individual VIEs effective July 1, 2003. For all remaining entities that are subject to FIN No. 46, the interpretation applies for financial statement reporting periods ending after March 15, 2004.

The Company participates in a leasing arrangement with a trust that is a VIE where the Company is the primary beneficiary. The trust was previously appropriately not consolidated consistent with then existing requirements. The leasing arrangement was entered into in 1995 by Ciba-Geigy, a predecessor of the Company and has been accounted for as an operating lease. The trust was created to issue debt and interest-bearing equity to fund the acquisition of land and construction of a facility

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

thereon that it leased to the Company. The Company has not modified the leasing arrangement since its inception and currently utilizes the facility in its business operations. The lease provides the Company the option to purchase the facility in 2005 for a termination value of CHF 91 million (USD 68 million), which the trust would use to repay its debt. Should the Company choose not to purchase the facility, it will be liable for any shortfall between the market value of the facility and the termination value. Conversely, any excess market value of the facility above the termination value would be retained by the Company.

The Company applied the provisions of FIN No. 46 to the trust effective July 1, 2003 resulting in the consolidation of the trust in the Company’s consolidated financial statements and the recording of a charge to net income of CHF 16 million (CHF 26 million pre-tax less CHF 10 million income taxes) for the cumulative effect of the change in accounting principle. The Company’s consolidated balance sheet as of December 31, 2003 includes fixed assets, net of accumulated depreciation, totaling CHF 60 million that are pledged as collateral on the obligations of the trust.

The Company is not involved with any other entities in which it has ownership or other financial interests and that it currently does not consolidate, that are considered to be VIEs under FIN No. 46. Therefore, except as described above, the adoption of FIN No. 46 is not expected to have a material effect on the Company’s results of operations or financial position.

In December 2003, the FASB issued SFAS No. 132 (revised 2003),“Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The Company elected to fully adopt the revised standard in 2003 (see Note 18).

Certain other existing authoritative pronouncements have been amended to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company does not expect the adoption of any of these amendments to have a material effect on the results of its operations and financial position.

Beginning in 2002, minority interest is no longer reported as a component of “financial expense, net” and is reported separately on the Consolidated Statements of Income. On the Consolidated Balance Sheets, minority interest is no longer classified with liabilities, but rather presented as a separate line after total liabilities and before shareholders’ equity. Reclassifications have been made to the 2001 Consolidated Statement of Income to conform to the 2003 and 2002 presentations.

Certain other minor reclassifications to the 2002 financial statements and related footnotes amounts have been made to conform to the 2003 presentation.

In May 2002, the Company purchased Melapur B.V. (“Melapur”) from DSM N.V. for CHF 22 million (EUR 15 million). Melapur is a provider of halogen-free melamine-based flame retardants. The business acquired expands the range of flame retardants of the Plastic Additives Segment. The purchase terms provide that if the Melapur business achieves certain sales growth percentages during any of the three calendar years after 2001, additional purchase consideration of up to CHF 5.4 million (EUR 3.5 million) would be paid to the sellers. The 2002 sales growth percentage was not achieved, therefore no additional purchase consideration was payable for 2002. The 2003 sales growth percentage was achieved, therefore CHF 1.9 million (EUR 1.2 million) additional purchase consideration is payable for 2003 and has been accrued. The maximum additional purchase consideration that would be payable should the business achieve the target sales growth percentage for 2004 is CHF 1.9 million (EUR 1.2 million). The other intangible assets acquired are being amortized over a weighted average useful life of 12 years. The results of operations for Melapur have been included in the Company’s statement of income from the date of acquisition.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

In June 2001, the Company completed the acquisition of EFKA Additives B.V. (“EFKA”), a manufacturer of additives for the coatings and inks industries, for a total purchase price of approximately CHF 65 million. The acquisition was accounted for under the purchase method of accounting with the resulting intangibles being amortized over a weighted average of 11 years. The results of operations for EFKA have been included in the Company’s statement of income from the date of acquisition. The business acquired will expand the service element and the high added value products for the Coating Effects Segment.

In March 2001, the Company sold its 50 percent interest in TFL Ledertechnik GmbH & Co. KG for net proceeds of CHF 62 million. The net proceeds received approximated the carrying value of the investment at the date of sale.

Work in process and finished goods are shown after deducting allowances for obsolete, slow-moving and lower of cost or market adjustments of CHF 50 million as of December 31, 2003 and CHF 58 million as of December 31, 2002.

Changes in the components of property, plant and equipment and accumulated depreciation for the years ended December 31, 2003 and 2002 were as follows:


							Machinery
							and			Construction
	Land			Buildings			equipment			in progress			Total			Total
	2003			2003			2003			2003			2003			2002

Cost at January 1,		114			1 844			5 585			157			7 700			8 042
Additions		0			3			38			192			233			250
Retirements/disposals		(22	)		(28	)		(101	)		(6	)		(157	)		(101	)
Changes in consolidation scope⁽ⁱ⁾		10			70			10			0			90			1
Currency adjustments		(2	)		(52	)		(158	)		(1	)		(213	)		(466	)
Other		(1	)		18			73			(190	)		(100	)		(26	)
Cost at December 31,		99			1 855			5 447			152			7 553			7 700
Accumulated depreciation at January 1,					(907	)		(3 597	)					(4 504	)		(4 477	)
Depreciation					(53	)		(280	)					(333	)		(352	)
Accumulated depreciation on retirements/disposals					15			83						98			78
Changes in consolidation scope⁽ⁱ⁾					(13	)		(8	)					(21	)		0
Currency adjustments					14			77						91			234
Other					5			74						79			13
Accumulated depreciation at December 31,					(939	)		(3 651	)					(4 590	)		(4 504	)
Net book value at December 31,		99			916			1 796			152			2963			3196

The insurance value of the property, plant and equipment was approximately CHF 10 485 million at December 31, 2003 and CHF 10 325 million at December 31, 2002.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

Changes in the carrying amount of goodwill by Segment from December 31, 2002 to December 31, 2003 were as follows:

Goodwill as of December 31, 2001 was reclassified to Segments in connection with the adoption of SFAS No. 142 effective January 1, 2002 as follows:

Changes in the carrying amount of goodwill by Segment from December 31, 2001 to December 31, 2002 were as follows:

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The intangible asset related to the minimum pension liability is not subject to amortization. For the remaining other intangible assets, 2003 amortization amounted to CHF 33 million (2002: CHF 33 million and 2001: CHF 31 million). Based on the other intangible assets values at December 31, 2003, the estimated future annual other intangible assets amortization expense is expected to be as follows: 2004: CHF 34 million, 2005: CHF 33 million, 2006: CHF 33 million, 2007: CHF 32 million, 2008: CHF 32 million, 2009 and thereafter CHF 473 million.

The fair value of financial investments and instruments is the price at which one party would assume the rights and duties of another party. Fair values of financial investments and instruments have been determined with reference to available market information at the balance sheet date and, when such information is not readily available, using valuation methodologies as described below. Considering the variability of their value-determining factors, the fair values used for financial reporting purposes might differ from the amounts that the Company would realize if assets were sold under current market conditions.

Financial assets and liabilities with book values approximating fair market value due to their short-term nature include cash and cash equivalents, accounts receivable, accounts payable and short-term debt.

The fair value of short-term investments is estimated using quoted market prices.

The fair value of publicly traded long-term debt is estimated using quoted market prices. The fair value of other long-term debt is estimated by discounting future cash flows using interest rates currently available for similar debt with similar terms, credit ratings and remaining maturities. The book value and fair value of the Company’s long-term debt is as follows.

The fair value of financial investments for which quoted market prices are available are based on such market prices. Financial investments for which quoted market prices do not exist and where it is not practical to estimate fair value are reflected at their book value. Investments in unconsolidated companies are reported at fair value with the unrealized gains and losses reported in accumulated other comprehensive income. For investments accounted for using the equity method,

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

the Company originally records these at cost and subsequently adjusts the carrying amount to reflect its share of earnings less any dividends received. Quoted market prices are not available for investments in equity affiliates.

At December 31, 2003, the cumulative unrealized loss before tax on investments in unconsolidated companies, which is recorded in accumulated other comprehensive income, was CHF 1 million (December 31, 2002: no gain or loss and December, 31, 2001: CHF 37 million loss). These unrealized losses were the result of market weakness in the industry segments in which these companies participate. In 2002, the decline in the market values below the Company’s cost basis in its financial investments in unconsolidated companies, primarily the Company’s investment in Hexcel Corporation, was in management’s opinion no longer deemed to be temporary. As a result, a loss was realized in the Consolidated Statement of Income for 2002 of CHF 38 million (CHF 23 million, net of tax). In 2003, the Company sold its investment in Hexcel Corporation for net proceeds of CHF 21 million and realized a gain on the sale of CHF 16 million, which is included in the Consolidated Statement of Income for 2003.

The most significant of the Company’s investments in equity affiliates are Compagnie Industrielle de Monthey SA (50 percent) and Daihan Swiss Chemical Corp. (50 percent), both of which have maintained the same level of investment in 2003, 2002 and 2001. In March 2001, the Company sold its 50 percent investment in TFL Ledertechnik GmbH & Co. KG (see Note 3). Effective January 1, 2001, the Company acquired a controlling interest in Musashino-Geigy Co. Ltd increasing its holdings from 50 percent to 60 percent.

The following table presents as of December 31, 2003, 2002 and 2001, summarized financial information on a 100 percent basis for investments in companies accounted for as investments in equity affiliates.

The income from earnings of equity affiliates of CHF 3 million (CHF 6 million in 2002 and CHF 8 million in 2001) are shown before taxes as a separate line item in the operating income section of the Consolidated Statements of Income. The related income tax provision of CHF 1 million (CHF 2 million in 2002 and CHF 3 million in 2001) is included in the Company’s provision for income taxes.

The Company enters into derivative financial instruments in the ordinary course of business to mitigate its exposure to adverse changes in foreign exchange rates and to manage its interest rate exposures. Various risk exposures, arising from existing assets and liabilities, from future transactions in which the Company is firmly committed and from future anticipated transactions, are assessed and managed centrally by the Company’s treasury function based on the Company’s aggregate exposure. Under the Company’s written hedging policy, treasury management continuously monitors and reports the results of its risk management programs to senior management and may choose to partially or fully hedge exposures. The Company’s risk management policies do not permit the utilization of financial instruments for speculative or trading purposes.

The Company has procedures to monitor the credit exposure amounts and manages exposure to counter-party credit risk through specific minimum credit standards and diversification of counter-parties. The counter-parties to financial instruments generally are financial institutions with a minimum ‘A’ credit rating or its equivalent and with significant experience with such instruments.

A substantial portion of the Company’s cash flows is denominated in foreign currencies. The Company collects global expected cash flow information on a monthly basis and, based on these cash flows, prepares a consolidated exposure forecast by currency and determines to what extent these consolidated currency exposures will be hedged. To hedge the balance sheet and income exposure associated with diminution in value of foreign currency cash flows (principally U.S.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

dollars, euro, British pounds, Australian dollars and Japanese yen), the Company primarily utilizes foreign currency forwards and swaps as well as options, which generally expire within twelve months. In order to lower the overall hedging costs, the Company may issue derivatives on existing or future positions.

Generally, the Company does not designate foreign exchange contracts as accounting hedges. For specific anticipated transactions, the Company may designate the foreign exchange contract as a cash flow hedge. For specific firm purchase or sale commitments or for recognized foreign currency denominated assets and liabilities, the Company may designate the foreign exchange contract as a fair value hedge.

The Company is exposed to market risks due to fluctuating interest rates primarily through its borrowing activities and to a lesser extent through its investments. The Company issues debt using the most efficient capital markets and products to fund its working capital and investment needs, which can result in a currency or interest rate mismatch with the underlying assets. Most short-term borrowings are in foreign currencies and floating interest rate instruments, whereas the majority of long-term borrowings are in fixed interest rate instruments. The Company manages its ratio of fixed to floating interest rate with financial instruments and the objective of achieving a mix that is appropriate both in terms of risk and cost. To manage this mix effectively, the Company selectively enters into interest rate swaps and forward rate agreements, in which it agrees to exchange various combinations of fixed and variable interest rates based on agreed-upon nominal amounts.

Interest rate swaps that qualify and are designated as a hedge against the change in the fair value of the Company’s fixed-rate debt obligations are recorded as fair value hedges. Interest rate swaps and forward rate agreements that qualify and are designated as a hedge against the variability of cash flows associated with Company’s variable-rate long-term debt are recorded as cash flow hedges.

In 2003, there was no hedge ineffectiveness for the Company’s fair value hedges. Gains resulting from hedge ineffectiveness of fair value hedges of CHF 1 million for 2002 and CHF 6 million for 2001 were recorded in ‘other financial expenses, net’, in the consolidated statements of income.

The Company has entered into natural gas forward contracts that are designated as cash flow hedges of price risk related to a portion of the Company’s forecasted natural gas purchases in the United States. The Company used natural gas forward contracts to minimize its exposure to increases in natural gas prices in 2003, 2002 and 2001. At December 31, 2003, the Company had open forward contracts with maturity dates ranging from January 2004 to March 2004.

At December 31, 2003, the fair value of open natural gas forward contracts was an unrealized gain of CHF 1.2 million, before taxes (2002: CHF 1.7 million; 2001: CHF 0 million) recorded in other comprehensive income. If this amount were to be realized, all of it would be reclassified into cost of goods sold during the next twelve months. During 2003, both realized gains and losses recorded in cost of goods sold and hedge ineffectiveness were not significant.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The Company’s principle commercial paper programs are in the United States and provide for short-term borrowings up to USD 1 000 million. At December 31, 2003 and 2002, no amounts were outstanding under these programs in the United States.

On January 24, 2003, the Company entered into a multicurrency revolving loan facility agreement that provides for borrowings in USD up to CHF 200 million equivalent as back-up support for the Company’s commercial paper program in the United States, and aggregate borrowings in multiple currencies up to CHF 500 million. A commitment fee of 45 percent of the applicable margin per annum, currently at 0.1125 percent, is paid on the unused portion of the facility. The loans bear interest at an interest rate of LIBOR plus 25 basis points, subject to adjustment on a sliding scale, in the range of LIBOR plus 22.5 to 42.5 basis points, depending on the Company’s debt rating. The facility expires on January 23, 2006. As of December 31, 2003, there were no borrowings outstanding under this facility.

The weighted average interest rate for short-term debt (excluding the current portion of long-term debt) calculated at December 31, 2003 was 3.7 percent and at December 31, 2002 was 4.9 percent. Unused short-term credit lines totaled CHF 601 million at December 31, 2003 and CHF 753 million at December 31, 2002.

Bonds and Euro Medium-Term Notes

2003

2002

CHF 1 000

3.25% Straight Bonds, principal due 2008

1 060

1 065

EUR 500

4.875% Unsecured Notes, principal due 2018

777

CHF 300

3.25% Straight Bonds, principal due 2009

303

303

USD 178

U.S. pollution control and industrial development bonds, principal due

between 2008 and 2028 (weighted average interest rate of 2.76%)

224

256

Total Bonds

2 364

1 624

USD 175

6.125% Euro Medium-Term Note, principal due 2003

247

EUR 114⁽ⁱ⁾

4.875% Euro Medium-Term Note, principal due 2005

178

168

GBP 243

6.50% Euro Medium-Term Note, principal due 2013

529

544

Total Euro Medium-Term Notes

707

959

Total Bonds and Euro Medium-Term Notes

3 071

2 583

The Company maintains a Euro Medium-Term Note program, under which the Company may issue up to USD 2 000 million multicurrency unsecured, unsubordinated notes with a minimum maturity of one month at fixed, floating or indexed interest rates.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

In May 2003, the Company repaid USD 175 million, 6.125 percent Euro Medium-Term Notes at their scheduled maturity date. In July 2003, the Company repaid all convertible bonds at their scheduled maturity date. None of the bonds had been converted into the Company’s common stock.

In June 2003, the Company issued EUR 500 million of unsecured notes (the “Notes”). The Notes mature June 2018, bear interest at a fixed rate of 4.875 percent, and had an issue price of 99.922 percent. The net proceeds from the issuance of these notes totaled CHF 738 million.

The annual maturities of long-term debt outstanding at December 31, 2003 are as follows: 2004 CHF 1 million; 2005 CHF 264 million; 2006 CHF 1 million; 2007 CHF 2 million; 2008 CHF 1 210 million; 2009 and thereafter CHF 1 656 million.

Income from continuing operations before income taxes and minority interest consists of the following:

The provision for income taxes in 2003, 2002 and 2001 from continuing operations consists of the following:

The Company is incorporated in Switzerland, but operates in numerous countries with differing tax laws and rates. Consequently, substantial portions of the Company’s income before income taxes and provision for income taxes are generated outside of Switzerland. The Company’s expected tax rate consists of the weighted average rate applicable in the countries in which the Company operates. The main factors causing the effective tax rate to differ from the expected tax rate are:

“Non-deductible items” include the tax effect of amortization of other intangible assets in 2003 and 2002, and in 2001 additionally the effect of amortization of goodwill.

“Income taxed at reduced rates” includes the tax effect of certain financing-related subsidiaries of the Company that operate in countries having low tax rates.

“Changes in valuation allowance” are primarily the result of not recognizing the full benefit from loss carryforwards in certain tax jurisdictions as their realization was not certain.

In 2003, “Other” includes: (10) percent for the release of previously established reserves, mostly the reserve released due to the settlement of a dispute between Novartis and the Company (see Note 21); (4) percent for the effect of tax deductions in

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

certain of the Company’s subsidiaries that were not recognized for financial reporting purposes; (2) percent for other adjustments; offset by 6 percent for taxes not based on profit such as franchise taxes and tax risk accruals.

In 2002, “Other” includes approximately 4 percent for tax adjustments, offset by (4) percent reflecting the effect of certain taxable expenses in certain of the Company’s subsidiaries that were not recognized for financial reporting purposes.

In 2001, “Other” includes approximately 3 percent for the effect of a tax payment in Italy (the “Imposta Sostitutiva”) that permitted the future tax deductibility of Prochimica s.r.l.’s goodwill amortization, 3 percent for tax adjustments, offset by (4) percent reflecting the effect of certain taxable expenses in one of the Company’s subsidiaries that was not recognized for financial reporting purposes.

The significant components of activities that gave rise to deferred tax assets and liabilities on the balance sheet at December 31, 2003 and 2002, were as follows:


Deferred tax assets	2003			2002

Pensions and other employee compensation		120			120
Inventory		21			32
Restructuring and special charges		10			26
Environmental reserves		164			186
Tax loss carryforwards		152			181
Other		74			34
Gross deferred tax assets		541			579
Valuation allowance		(121	)		(131	)
Net deferred tax assets		420			448
Deferred tax liabilities
Property, plant and equipment		(391	)		(398	)
Other		(199	)		(193	)
Gross deferred tax liabilities		(590	)		(591	)
Net deferred tax liabilities		(170	)		(143	)
Included in
Prepaid and other current assets		132			144
Other assets		173			183
Accruals and other current liabilities		(68	)		(84	)
Deferred income taxes		(407	)		(386	)
Net deferred tax liabilities		(170	)		(143	)

In management’s opinion, the majority of deferred tax assets will be realized because of the depletion of certain significant tax deductions and anticipated future taxable income resulting from the Company’s operations. Valuation allowances have been established for certain tax loss carryforwards and certain long-term deferred tax assets of the Company.

For tax return purposes, the Company has available tax loss carryforwards of approximately CHF 425 million, of which CHF 41 million will expire in the next five years and CHF 285 million will expire between five and twenty years. The remaining carryforwards do not expire.

At December 31, 2003, unremitted earnings of subsidiaries outside of Switzerland of approximately CHF 300 million were deemed to be permanently invested. Therefore, no deferred tax liability has been recognized for taxes that might be incurred if such earnings were remitted to Switzerland.

The environmental remediation and compliance accrual, including the current portion, decreased by CHF 57 million (2002: CHF 134 million) as a result of a CHF 22 million (2002: CHF 82 million) usage of the accrual in 2003 (see Note 21) and a CHF 35 million (2002: CHF 52 million) reduction related mainly to currency effects.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

On April 20, 1998, the Company’s shareholders approved the creation of authorized and conditional capital of the Company. The approval allows for the issuance of a maximum of 10 million registered shares with a par value of CHF 6 per share (2002: 9 CHF per share; 2001: 10 CHF per share). After a re-approval by the shareholders due to requirements of Swiss law, another 4 million shares may also be issued until March 22, 2004 without any restriction.

At the Company’s Annual General Meeting on March 6, 2003, the shareholders voted in favor of a proposal made by the Board of Directors not to pay a dividend in 2003 (2002: CHF 134 million paid on March 27, 2002). The shareholders approved an extraordinary payment to the shareholders in the form of a capital reduction of CHF 3 per share. The capital reduction was in the form of a reduction in the nominal value of each common share from CHF 9 per share to CHF 6 per share. The capital reduction payment was made on May 23, 2003, totaling CHF 206 million (2002: CHF 69 million paid on June 28, 2002).

According to the Swiss Code of Obligations, the Company may under certain conditions, as defined, acquire up to 10 percent of its own shares. The Company sold 1 202 797 shares in 2003 (4 970 437 shares in 2002 and 1 929 453 shares in 2001) of previously acquired treasury stock at market prices. In addition, in 2003, the Company purchased 2 374 611 shares of treasury stock (2002: 2 174 577 shares of treasury stock and 1 855 966 in 2001) at market prices. At December 31, 2003, the Company held 4 363 901 of treasury shares (2002: 3 192 087 treasury shares).

The Company designated a total of 3 496 234 shares in 2003 (1 978 567 shares in 2002 and 5 278 224 shares in 2001) of its treasury stock as reserved shares primarily for satisfaction of future share requirements under its various outstanding employee stock option plans, and also in 2003, for possible future cancellation under the Company’s share buyback program. The remaining 867 667 shares in 2003 (1 213 520 shares in 2002 and 709 723 shares in 2001) of treasury stock have been designated as unreserved shares.

The after-tax components of accumulated other comprehensive income (loss) are as follows:

There was no deferred tax effect on the unrealized gains/(losses) on available-for-sale securities in either 2003 or in 2002. There was no deferred tax effect on cash flow hedges in 2003, (in 2002 a tax expense of CHF 1 million). The deferred tax effect on the minimum pension liability adjustment is a deferred tax benefit of CHF 50 million in 2003 (2002: CHF 49 million). The currency translation adjustment is not adjusted for income taxes as it relates primarily to indefinite investments in non-Swiss subsidiaries.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The following table summarizes option activity under the LTIP during 2003, 2002 and 2001:


	Weighted average		Options
	exercise price		outstanding

Balance at December 31, 2000		121.40		1 299 900
Options granted		108.63		461 444
Options issued on conversion of stock appreciation rights		160.00		60 799
Options canceled/forfeited		112.38		(43 694	)
Balance at December 31, 2001		119.63		1 778 449
Options granted		108.80		481 401
Options exercised		108.99		(32 098	)
Options canceled/forfeited		111.07		(32 413	)
Balance at December 31, 2002		117.53		2 195 339
Options granted		82.60		176 627
Options exercised		0		0
Options canceled/forfeited		105.02		(26 989	)
Options expired		160.00		(264 355	)
Balance at December 31, 2003		109.34		2 080 622

The following table summarizes the status of stock options outstanding and exercisable at December 31, 2003:

In connection with the LTIP 2001, the Company granted 96 729 restricted shares of common stock, which are restricted for three years from the date of grant, to 639 participants. These restricted shares were granted as part of the payment of the 2000 incentive bonus, which was recorded as compensation expense in 2000. The market value of the common stock at date of grant was CHF 112 per share.

In connection with the LTIP 2002, the Company granted 85 128 restricted shares of common stock, which are restricted for three years from the date of grant, to 683 participants. The market value of the common stock at date of grant was CHF 112 per share. Compensation expense of approximately CHF 10 million has been recognized in 2002 related to the grant of these shares.

In connection with the LTIP 2003, the Company granted 186 503 restricted shares of common stock, which are restricted for three years from the date of grant, to 720 participants. The market value of the common stock at date of grant was CHF 85.30 per share. Compensation expense of approximately CHF 16 million has been recognized in 2003 related to the grant of these shares.

ESOP — The Company has an Employee Stock Ownership Plan (ESOP) that enables substantially all employees to purchase annually up to 20 shares of common stock at a price equal to 85 percent of the average market price, defined as the average closing price of the shares on the Swiss Exchange for 10 trading days prior to the purchase date of the shares. During 2003, 1 768 employees (2002: 1 660 employees; 2001: 2 279 employees) purchased 32 221 shares (2002: 29 499 shares; 2001:

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

40 069 shares) for which approximately CHF 2 million (2002: CHF 3 million; 2001: CHF 4 million) was paid to the Company. In 2002 and 2001, no compensation expense was recorded under this plan. In 2003, CHF 0.4 million compensation expense was recorded in connection with the adoption of SFAS No. 123.

MAB — The Company has a “Mitarbeiterbeteiligungsplan” (Employee Investment Plan) which grants annually to most employees in Switzerland (as an enhancement to their pension plan arrangements) the right to purchase 20 shares (beginning in 2003, 25 shares) of common stock at CHF 15 per share (so long as the share price is not greater than CHF 200 at which level the Employee Investment Plan price may be adjusted). The rights vest at the grant date and become exercisable at the date of the employees’ retirement or termination. The following table summarizes rights activity under the MAB during 2003, 2002 and 2001:

Compensation expense is recorded in the year the rights are granted and, in 2003, CHF 9 million (2002: CHF 8 million; 2001: CHF 8 million) of compensation expense was recorded under this plan.

PSP — In 2001,the Company established a Performance Share Plan (PSP) for selected senior and key management and non-executive Board members (participants). In accordance with the PSP, participants are granted rights to receive shares of common stock of the Company if the performance of the Company, defined and measured as Total Shareholder Return (TSR), during the measurement period under the PSP meets or exceeds specified conditions and the share price of the Company is equal to or higher than the market value of shares at the beginning of the measurement period. The TSR includes three parameters: (i) the change in the share price from the close of the first trading day at the beginning of the measurement period to the share price at the close of the last trading day at the end of the measurement period, expressed as a percentage; (ii) any dividends paid or payable for the measurement period and (iii) any extraordinary returns paid to the shareholders during the measurement period. In 2001, 86 700 rights were granted to 137 participants with a measurement period from January 1, 2001 through December 31, 2003. The share price as of the beginning of the measurement period was CHF 109.25, the market value of the shares on January 3, 2001. The rights vest ratably over a three year period except when a participant voluntarily terminates employment, in which case all rights are forfeited. Each right is entitled to receive from one share up to a maximum of four shares of Company common stock, depending on the Company’s share price and the Company’s TSR ranking within the benchmark group at the end of the measurement period. As a result of terminations from the plan, a total of 2 627 rights (2002: 1 675 rights, 2001: 1 250 rights) have been returned to the Company. As the conditions of the PSP were not met, no compensation expense was recorded related to the fulfillment of the terms of the plan. In 2003 however, in accordance with the adoption of No. SFAS 123, as amended, the Company recorded CHF 1 million compensation expense for the fair value of the rights that vested during 2003.

Upon a change in control of the Company (defined as 30 percent for LEAP, 33.33 percent other than 1998, which is 50 percent, for LTIP program, and 20 percent for PSP, such percentage, in each case, as being a percentage of total voting power. Additionally, for the PSP in a merger where the Company’s shareholders retain less than 50 percent of total voting power or the Company’s board of directors does not maintain a majority of the voting rights in the board of the combined company), the vesting and restriction periods for the plans stated above (if still current) will cease to apply and a cash or share payment for the value of the outstanding plans and related taxes and duties will be due to the participants.

At December 31, 2003, the Company had approximately 2.2 million shares (2002: 2.0 million shares; 2001: 1.8 million shares) of treasury stock reserved for issuance under the various stock based compensation plans.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The Company used the Black-Scholes model to value the stock options granted. The weighted-average assumptions used to estimate the fair value of the options included in the pro forma amounts are as follows:

The Company sponsors pension and other postretirement benefits in accordance with the applicable laws and customs in the countries in which the Company operates. The Company has both contributory and non-contributory defined contribution and defined benefit pension plans.

In countries in which employees are covered by defined contribution plans, employer contributions charged to income from continuing operations were CHF 14 million in 2003, CHF 16 million in 2002 and CHF 19 million in 2001.

Benefits to participants in the Company’s defined benefit pension plans are generally based on employees’ years of service, levels of compensation or stated amounts for each year of service.

The majority of the defined benefit pension plans are funded, whereby contributions made by the Company and plan participants are invested, and the resulting assets necessary to fund future benefit obligations are held by independent trustees for the benefit of plan participants. Accordingly, the assets acquired and maintained by these plans are not included in the Company’s consolidated balance sheets. These plans are referred to as funded plans in this note.

In certain countries in which the Company operates, principally Germany, local practice is that pension plans are not funded. In accordance with this practice, the Company does not fund these plans. The Company charges income from continuing operations for benefits earned in each period with a corresponding increase in pension liability. Benefit payments made each period to retirees are charged against this liability. These plans are referred to as unfunded plans in this note.

Each year, the projected benefit obligation (PBO), which is the present value of projected future benefits payable to current plan participants allowing for estimated future employee compensation increases, is calculated for each plan. The measurement date for the Company’s pension plans that make up the majority of plan assets and benefit obligations is December 31st for each year presented.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The following table provides a reconciliation from beginning of year to end of year of the changes in PBO and the changes in the fair value of plan assets, as well as the PBO funded status of the plans. The PBO funded status consists of the excess (deficit) of the fair value of plan assets over (under) PBO.


	2003									2002

	Funded			Unfunded						Funded			Unfunded
	plans			plans			All plans			plans			plans			All plans

Change in benefit obligation (PBO)
PBO, beginning of year		2 984			473			3 457			3 092			440			3 532
Service cost		76			8			84			87			8			95
Interest cost		143			28			171			154			28			182
Participant contributions		22			0			22			22			0			22
Actuarial (gain) loss		62			11			73			(146	)		32			(114	)
Plan amendments		(1	)		0			(1	)		7			(4	)		3
Benefits paid		(149	)		(25	)		(174	)		(145	)		(26	)		(171	)
Foreign currency translation		(76	)		29			(47	)		(100	)		(2	)		(102	)
Other		49			1			50			13			(3	)		10
PBO, end of year		3 110			525			3 635			2 984			473			3 457
Change in plan assets
Fair value of plan assets, beginning of year		2 789			0			2 789			3 292			0			3 292
Actual return on plan assets		240			—			240			(384	)		—			(384	)
Employer contributions		46			25			71			77			27			104
Participant contributions		22			0			22			22			0			22
Benefits paid		(149	)		(25	)		(174	)		(145	)		(26	)		(171	)
Foreign currency translation		(58	)		0			(58	)		(77	)		0			(77	)
Other		46			0			46			4			(1	)		3
Fair value of plan assets, end of year		2 936			0			2 936			2 789			0			2 789
PBO funded status		(174	)		(525	)		(699	)		(195	)		(473	)		(668	)

For both years presented, substantially all of the Company’s funded pension plans had PBO in excess of plan assets.

Accumulated benefit obligation (ABO) status of defined benefit pension plans

Accumulated benefit obligation (ABO) is less than PBO because ABO excludes assumptions as to future increases in employee compensation when calculating the present value of the future benefit obligation.

The table below shows the ABO status at December 31, 2003 and 2002 of the Company’s funded pension plans separated between those having plan assets that are greater than or equal to ABO (fully-funded) and those having plan assets that are less than ABO (under-funded):

For funded plans with ABO in excess of the fair value of plan assets, SFAS No. 87 requires that the Company record on its consolidated balance sheets a minimum pension liability amount such that the Company’s net pension liability is at least equal to the amount of the under-funded ABO. Net pension liability is the excess of pension liabilities over prepaid pension assets, on the Company’s balance sheet.

When recording a minimum pension liability, SFAS No. 87 requires the Company to record a corresponding intangible asset equal to the amount of any unrecognized prior service cost, with the remainder, if any, charged to other comprehensive income in shareholder’s equity. Therefore, the recording of this additional minimum pension liability has no impact on the Company’s income from operations.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The following table shows the components of the additional minimum pension liability as of December 31, 2003 and 2002 for those plans where such a liability was required to be recorded, mainly in the United States; together with a reconciliation to the ABO status of all of the Company’s under-funded pensions plans:

For the Company’s unfunded plans, the accrued pension liability exceeds the amount of existing unfunded ABO, therefore no additional minimum pension liability is required. The table below shows the ABO and related liabilities recorded at December 31, 2003 and 2002 for the Company’s unfunded defined benefit pension plans:

For each of its defined benefit pension plans, the Company records a pension-related asset (liability) initially based upon the excess (deficit) of the fair value of plan assets over (under) PBO. However, as required under SFAS No. 87, differences that result from using expected rather than actual rates of return on plan assets, as well as differences that result from the evolution assumed to occur from period to period in the calculation of PBO versus actual evolution, represent gains (losses) that are not given immediate recognition in the Company’s consolidated statements of income or consolidated balance sheets. Instead, this accumulated unrecognized gain (loss) amount is amortized if it meets certain criteria; that is, where the unrecognized net gain or loss exceeds 10 percent of the greater of the fair value of plan assets or PBO, the excess is required to be amortized to future income over the average remaining service life of active employee participants.

In addition, where the Company amends pension plans resulting in changes to future benefits based on participants prior service, any change in PBO resulting there from is not required to be immediately charged to income from continuing operations. Rather, such increases in pension obligations are amortized over the average remaining service life of active employees.

Accordingly, the following table shows the components of the Company’s net pension asset (liability) and the reconciliation of these amounts to the PBO as of December 31, 2003 and 2002:


	2003									2002

	Funded			Unfunded						Funded			Unfunded
	plans			plans			All plans			plans			plans			All plans

Prepaid benefit cost⁽¹⁾		740			—			740			700			—			700
Accrued benefit liability⁽¹⁾		(132	)		(500	)		(632	)		(142	)		(463	)		(605	)
Minimum pension liability - intangible asset		10			—			10			19			—			19
Accumulated other comprehensive income, pre tax		129			—			129			126			—			126
Currency adjustments⁽²⁾		(22	)		—			(22	)		(9	)		—			(9	)
Net pension asset (liability) on consolidated balance sheets		725			(500	)		225			694			(463	)		231
Unrecognized net gain (loss)		(882	)		(27	)		(909	)		(877	)		(13	)		(890	)
Unrecognized prior service cost		(17	)		2			(15	)		(12	)		3			(9	)
PBO funded status		(174	)		(525	)		(699	)		(195	)		(473	)		(668	)

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The components of net pension expense for the Company’s defined benefit pension plans during the years ended December 31, 2003, 2002 and 2001 were:

The weighted average key actuarial assumptions used to determine the Company’s pension benefit obligations were as follows:

The weighted average key actuarial assumptions used to determine the Company’s net periodic benefit cost were as follows:

The determination of the overall expected long-term rate of return on plan assets for the Company’s funded plans is based on the following parameters: long-term expected inflation rates, long-term inflation-adjusted interest rates, and long-term risk premium of equity investments above risk free rates of return. In addition, long-term historical rates of return adjusted, where appropriate, to reflect more recent developments, are used.

The Company’s investment policies and strategies for plan assets held by its funded defined benefit pension plans are directed toward the overriding target of achieving, on a long-term basis, the necessary return on plan assets to meet benefit obligations as they become payable. Factors included in the Company’s investment strategy for plan assets include achievement of consistent year-over-year results, effective risk management based on the level of each plan’s funding status, and effective plan cash flow management. Further, the Company’s plan investment policies generally exclude direct investments in the Company’s equity or debt securities.

For the Company’s funded defined benefit pension plans, the weighted average actual plan asset allocation percentages as of December 31, 2003 and 2002, and the range of weighted average target plan asset allocation percentages in effect as of December 31, 2003, are as follows:

At December 31, 2003, the Company’s pension plans did not own any Company common stock. Plan assets at December 31, 2002 included 86 211 shares of Company common stock with a market value of approximately CHF 8 million representing 0.3 percent of total plan assets.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The following table shows the undiscounted benefit amounts expected to be paid for each of the next five successive fiscal years and for the aggregate next five years thereafter:

The amount expected to be contributed by the Company to it’s various pension plans during 2004 is CHF 128 million.

These plans principally provide for postretirement healthcare benefits for eligible employees in the United States, and are not funded by the Company. The following table shows the components of the amounts charged to income from operations in 2003, 2002 and 2001 related to other postretirement benefits:

The measurement date for the Company’s other postretirement benefit plans that make up the majority of benefit obligations is December 31st for both years presented. The following table provides a reconciliation of the changes in the benefit obligation, the funded status of the plans and the amounts recognized on the consolidated balance sheets as of December 31, 2003 and 2002:

The weighted average discount rate used in the key actuarial assumptions to compute the other postretirement benefit obligation was 6.4 percent in 2003 (2002: 6.9 percent).

The weighted average healthcare cost trend rate is 9 percent for 2003 and is assumed to decrease to an ultimate trend rate of 5.0 percent in 2010. A one percent annual increase in the assumed healthcare cost trend rate would increase the 2003 accumulated postretirement benefit obligation by approximately CHF 4 million and the annual postretirement benefit cost by CHF 0.3 million. A one percent annual decrease in the assumed healthcare cost trend rate would decrease the 2003 accumulated postretirement benefit obligation by approximately CHF 3 million and the annual postretirement benefit cost by approximately CHF 0.2 million.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The Company expects its contributions to other postretirement plans in 2004 to be approximately CHF 5 million. The following table shows the undiscounted amounts expected to be paid from the Company’s other postretirement plans for each of the next five successive fiscal years and for the aggregate five years thereafter:

In 2003, 2002 and 2001, there was no difference between basic and diluted earnings per share for income from continuing operations. In 2003 the basic weighted average number of shares outstanding were 68 361 123 (2002: 68 549 964 and 2001: 66 419 147) and the diluted weighted average number of shares outstanding were 68 361 123 (2002: 68 575 058 and 2001: 66 419 147).

The calculation of diluted earnings per share assumes (i) that the 1.25 percent convertible bonds, issued in July 1998 and repaid in July 2003, were converted at the beginning of the year in 2003, 2002 and 2001, with related interest and common shares adjusted accordingly, and (ii) that the weighted average shares outstanding were increased by shares issuable upon exercise of the granted employee stock options, less shares which could have been purchased by the Company with the related proceeds receivable from the exercise of the stock options. Either of these two items are not considered in calculating diluted earnings per share if their effect would be antidilutive, that is, diluted earnings per share would be higher than basic earnings per share.

In 2002, the difference of 25 094 in the weighted average number of shares outstanding was due to the inclusion of the dilutive effect of previously granted stock options with exercise prices between CHF 107.09 and CHF 111.09, as their exercise prices were less than the average market price of the Company’s shares for 2002. In 2003 and 2001, the calculation of diluted earnings per share did not include any stock options as their inclusion would have been antidilutive. For purposes of calculating basic and diluted earnings per share in 2003, 2002 and 2001 there was no required adjustment to the reported income from continuing operations or net income.

For the years ended December 31, 2003, 2002 and 2001, the calculation of diluted earnings per share excluded the assumed conversion of these bonds as their inclusion would have been antidilutive. The calculation of diluted earnings per share in 2003 excluded 2 092 090 stock options outstanding with exercise prices between CHF 82.60 and CHF 179.30, in 2002 excluded 878 036 stock options outstanding with exercise prices between CHF 112.09 and CHF 181.70, and in 2001 excluded 1 768 952 stock options outstanding with exercise prices between CHF 108 and CHF 183, as their inclusion would have been antidilutive.

Investments in affiliates of CHF 137 million in 2003 and CHF 147 million in 2002 are included in financial investments and are described in Note 9.

Loans receivable from equity affiliates of CHF 10 million in 2003 and CHF 10 million in 2002 are included in other assets. Included is a loan to Compagnie Industrielle de Monthey SA, of CHF 10 million in 2003 and 2002, which bears interest at 1 percent in 2003 (2002: 2 percent).

The Company had payables and accrued expenses to equity affiliates of CHF 9 million in 2003 and CHF 12 million in 2002.

The Company leases certain facilities under operating leases. The future minimum lease commitments required under fixed term leases are: 2004 CHF 39 million; 2005 CHF 23 million; 2006 CHF 10 million; 2007 CHF 6 million; 2008 CHF 4 million; 2009 and thereafter CHF 4 million. Rental expense amounted to CHF 64 million in 2003, CHF 67 million in 2002 and CHF 74 million in 2001.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

The Company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary course of business. In the aggregate, these commitments are not in excess of current market prices and reflect normal business operations.

In addition to the leasing arrangement described in Note 1 that was consolidated in connection with the adoption of FIN No. 46, the Company has the option to purchase another leased facility for CHF 26 million (USD 21 million). The Company utilizes this facility in its business operations. Under the terms of the lease, the Company will be liable for the shortfall between the market value of the facility and the settlement value at the lease termination date, which has been extended to 2004 from its original 2003 date. During 2003, the Company recorded a charge of CHF 6 million to income from operations for the estimated amount of this shortfall.

In the normal course of business, the Company has provided guarantees to third parties. The Company estimates that the fair value of these guarantees is not material and does not expect to incur losses as a result of these guarantees. As of December 31, 2003, the Company has provided guarantees to third parties for indebtedness of others of approximately CHF 17 million of which CHF 15 million expire in 2004, CHF 1 million expire in 2005 and CHF 1 million expire in 2009 and thereafter.

In connection with past divestments of businesses, the Company has issued certain indemnifications to the purchasers of those businesses related to the past actions of the Company in the area of compliance with environmental and tax regulations. At December 31, 2003 the Company had issued CHF 34 million of environmental indemnifications that decrease to CHF 24 million in 2008 and which expire in 2009. In addition, the Company has outstanding environmental indemnifications that were issued to the purchaser of its Performance Polymers business, which was sold in May 2000. These environmental indemnifications are further discussed in the ‘Environmental Matters’ section below. The Company has issued certain tax indemnifications in connection with divestments of businesses and in connection with certain debt financing arrangements of the Company, that are unlimited in amount and, in certain instances, in time. As of December 31, 2003, the Company has recorded a liability related to the environmental indemnifications in the amount of CHF 12 million (2002: CHF 13 million) and for the tax indemnifications a liability has been recorded in the amount of CHF 1 million (2002: CHF 1 million).

The Company operates in countries where political, economic, social, legal and regulatory developments can have an impact on the operational activities. The effects of such risks on the Company’s results, which arise during the normal course of business, are not foreseeable and are therefore not included in the accompanying financial statements.

In the ordinary course of business, the Company is involved in lawsuits, claims, investigations and proceedings, including product liability, intellectual property, commercial, environmental, and health and safety matters. Although the outcome of any legal proceedings cannot be predicted with certainty, management is of the opinion that there are no such matters pending which would be likely to have any material adverse effect in relation to its business, financial position or results of operations.

As a result of a dispute over an agreement with a third party, in the context of the Company’s divestment of the Performance Polymers Business in 2000, Vantico International SA (now owned by the Huntsman Group) has initiated arbitration proceedings against the Company. Although the outcome cannot be predicted with certainty, management is of the opinion that this matter will not have any material adverse effect on the financial position or results of operations of the Company.

In connection with its Toms River, New Jersey site in the United States, the Company’s subsidiary in the United States received a claim from the New Jersey Department of Environmental Protection for alleged natural resource damages (see “Environmental Matters” below). In connection with certain polyacrylamide products, the Company’s subsidiary in the United States has been named as one of the defendants in two class action lawsuits in West Virginia (see “Litigation Matters” below).

In their past tax audit of the Company’s operations in Grenzach, Germany, the German tax authorities had made a substantial tax adjustment. In accordance with the Master Spin-off Agreement with Novartis and with Swiss commercial law, management was of the opinion that the total liability owed resulting from this adjustment was the responsibility of Novartis. This opinion was disputed by Novartis and, in 2001, it initiated arbitration proceedings against the Company in relation to this matter. This dispute was settled in 2003, resulting in the release by the Company of CHF 39 million of previously established tax reserves.

Notes to consolidated financial statements
(in millions of Swiss francs, except share and per share data)

Two class action lawsuits have been filed against Company’s subsidiary in the United States and other chemical suppliers in two separate state courts in West Virginia relating to the sales of certain products to coal preparation plants. In both cases, plaintiffs claim, on behalf of a class of all workers in coal preparation plants, that these workers are entitled to medical monitoring for exposure to residual acrylamide from the use of polyacrylamide products supplied by the defendants.

Based on knowledge and use of acrylamide in its own manufacturing operations for several years, the Company does not believe that these claims have merit. However, if any liability were found, there most likely would be a sharing of the liability among many of the defendants, although it is too soon to assess what share any defendant would have of that liability, if any. Finally, the Company has sufficient insurance coverage for these claims to prevent them from having a material adverse effect on its financial position or results of operations.

In 2001, the Company implemented a program (“Fit For Growth!”) that aligned the Company’s operational activities with its customers’ industries. This new structure was designed to bring the Company’s businesses closer to its customers and allows for a greater focus on providing not just products, but total integrated solutions. This program resulted in the establishment of five business segments, a Chief Technology Officer at the Executive Committee level and a new, cross-segment Research and Technology Board, which was formed to leverage the Company’s existing technological core competencies and to identify new technology platforms for future growth. The “Fit for Growth!” program was also designed to speed up decision-making by eliminating the former divisional layer, as well as to improve efficiency by harmonizing several support areas. The major initiatives in these efficiency projects are the merging of the existing three supply chains into one coordinated global supply chain system, the rationalization of Information Technology support structures and infrastructure and the reduction of personnel in the Water & Paper Treatment Segment as part of the strategy to streamline operations, improve profitability and grow the business.

In 2001, under the “Fit For Growth!” program, the Company eliminated 262 full-time equivalents (“FTEs”) under severance programs. The total cost of these severances was approximately CHF 33 million. The Company also released to income excess restructuring provisions of CHF 8 million and special charges provisions of CHF 25 million that were established in prior years.

F-36 EX-4.1 3 u47015exv4w1.txt EXHIBIT 4.1 CONFORMED COPY PROGRAM AGREEMENT IN RESPECT OF U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM (AMENDED AND RESTATED) DATED 27TH MARCH, 2003 CIBA SPECIALTY CHEMICALS PLC CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. AS ISSUERS AND CIBA SPECIALTY CHEMICALS HOLDING INC. AS GUARANTOR AND CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED DEUTSCHE BANK AG LONDON GOLDMAN SACHS INTERNATIONAL J.P. MORGAN SECURITIES LTD. UBS LIMITED AS DEALERS (LETTERHEAD) CONTENTS

PROGRAM AGREEMENT in respect of a EURO MEDIUM TERM NOTE PROGRAM THIS AGREEMENT is made on 27th March, 2003 BETWEEN: (1) CIBA SPECIALTY CHEMICALS CORPORATION of 560 White Plains Road, Tarrytown, New York 10591-9005, United States (CSC US); (2) CIBA SPECIALTY CHEMICALS PLC of Hulley Road, Macclesfield, Cheshire SK10 2NX, England (CSC UK); (3) CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH of Chemiestrasse, D- 68623 Lampertheim, Germany (CSC GERMANY); (4) CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. of Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda (CSC BERMUDA); (5) CIBA SPECIALTY CHEMICALS HOLDING INC. of Klybeckstrasse 141, CH-4002 Basle, Switzerland (the GUARANTOR); (6) CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED of One Cabot Square, London E14 4QJ; (7) DEUTSCHE BANK AG LONDON of Winchester House, 1 Great Winchester Street, EC2N 2DB; (8) GOLDMAN SACHS INTERNATIONAL of Peterborough Court, 133 Fleet Street, London EC4A 2BB; (9) J.P. MORGAN SECURITIES LTD. of 125 London Wall, London EC2Y 5AJ; and (10) UBS LIMITED, (UBS) of 1 Finsbury Avenue, London EC2M 2PP. IT IS HEREBY AGREED as follows: WHEREAS: (A) CSC US, CSC UK, CSC Germany, CSC Bermuda, the Guarantor, UBS AG, acting through its business group UBS Warburg and the Dealers (except for UBS) entered into an amended and restated program agreement dated 27th March, 2002 (the PRINCIPAL PROGRAM AGREEMENT) in respect of a U.S.$2,000,000,000 Euro Medium Term Note Program of CSC US, CSC UK, CSC Germany and CSC Bermuda unconditionally and irrevocably guaranteed by the Guarantor. (B) With effect from 10th March, 2003, UBS AG, acting through its business group UBS Warburg has transferred its role as dealer and arranger under this Program to UBS (formerly named UBS Warburg Ltd.). 1 (C) This Agreement amends and restates the Principal Program Agreement. Any Notes issued under the Program on or after the date hereof shall be issued pursuant to this Agreement. This does not affect any Notes issued under the Program prior to the date of this Agreement. 1. DEFINITIONS AND INTERPRETATION 1.1 For the purposes of this Agreement, except where the context requires otherwise: AGENCY AGREEMENT means the amended and restated agreement of even date herewith between the Issuers, the Guarantor, the Agent (as defined below) and the other Paying Agents (as defined therein) under which the Agent is appointed as issuing agent, principal paying agent and agent bank for the purposes of the Program; AGENT means JPMorgan Chase Bank as Agent under the Agency Agreement and any successor agent appointed by the Issuers and the Guarantor in accordance with the Agency Agreement; AGREEMENT DATE means, in respect of any Note, the date on which agreement is reached for the issue of such Note as contemplated in Clause 2 which, in the case of Notes issued on a syndicated basis or otherwise in relation to which a Subscription Agreement is entered into, shall be the date upon which the relevant Subscription Agreement is signed by or on behalf of all the parties; ARRANGER means each of UBS and any company appointed to the position of arranger for the Program or in respect of a particular issue of Notes under the Program and references in this Agreement to the ARRANGERS shall be references to the relevant Arranger; CLEARSTREAM, LUXEMBOURG means Clearstream Banking, societe anonyme; CONFIRMATION LETTER means: (a) in respect of the appointment of a third party as a Dealer for the duration of the Program, the Confirmation Letter substantially in the form set out in Part 2 of Appendix 3 hereto; and (b) in respect of the appointment of a third party as a Dealer for a particular issue of Notes under the Program, the Confirmation Letter substantially in the form set out in Appendix 4 hereto; DEALER means each of Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG London, Goldman Sachs International, J.P. Morgan Securities Ltd., UBS, and any New Dealer and excludes any entity whose appointment has been terminated pursuant to Clause 10 and notice of termination of whose appointment has been given to the Agent by the Issuers and the Guarantor, and references in this Agreement to the RELEVANT DEALER shall, in relation to any Note, be references to the Dealer or Dealers with whom the relevant Issuer has agreed the issue and purchase of such Note; DEALER ACCESSION LETTER means: (a) in respect of the appointment of a third party as a Dealer for the duration of the Program, the Dealer Accession Letter substantially in the form of Part 1 of Appendix 3 hereto; and 2 (b) in respect of the appointment of a third party as a Dealer for one or more particular issue(s) of Notes under the Program, the Dealer Accession Letter substantially in the form set out in Part 3 of Appendix 3 hereto; DEED OF COVENANT means the deed poll of even date herewith, substantially in the form set out in Appendix 7 hereto, executed as a deed by each Issuer in favour of certain accountholders with relevant clearing systems; DEED OF GUARANTEE means the deed of guarantee of even date herewith executed by the Guarantor under which the Guarantor irrevocably guarantees the obligations of the Issuers in relation to the Program; EUROCLEAR means Euroclear Bank S.A./N.V. as operator of the Euroclear System, or any successor to the business thereof; FSMA means the Financial Services and Markets Act 2000; INITIAL DOCUMENTATION LIST means the list of documents set out in Appendix 1 to this Agreement; ISSUER means any of CSC US, CSC UK, CSC Germany or CSC Bermuda in its capacity as an issuer of Notes, and references in this Agreement to the RELEVANT ISSUER shall, in relation to any issue of Notes, be references to the Issuer which is, or is intended to be, the issuer of such Notes; LEAD MANAGER means, in relation to any Tranche of Notes, the person defined as the Lead Manager in the applicable Subscription Agreement or, when only one Dealer signs such Subscription Agreement, such Dealer; LISTING AGENT means, in relation to Notes which are, or are to be: (a) listed on the Luxembourg Stock Exchange, Dexia Banque Internationale a Luxembourg S.A. or such other listing agent as the Issuers and the Guarantor may from time to time appoint for the purposes of liaising with the Luxembourg Stock Exchange; and (b) listed on a Stock Exchange other than the Luxembourg Stock Exchange, such listing agent as the Issuers and the Guarantor may from time to time appoint for the purposes of liaising with such Stock Exchange; LISTING RULES means, in the case of Notes which are, or are to be, listed on a Stock Exchange (including the Luxembourg Stock Exchange), the listing rules and regulations for the time being in force for such Stock Exchange; MOODY'S means Moody's Investors Service, Inc., or any successor to the rating agency business thereof; NEW DEALER means any entity appointed as an additional Dealer for the duration of the Program or for a particular issue of Notes in accordance with Clause 11; NOTE means a note issued or to be issued by an Issuer pursuant to this Agreement, which Note may be represented by a Global Note or be in definitive form; 3 OFFERING CIRCULAR means, subject to Clause 5.2, the Offering Circular relating to the Program as revised, supplemented, amended or updated from time to time, including in relation to each Tranche of Notes, the Pricing Supplement relating to such Tranche and such other documents as are from time to time incorporated therein by reference except that for the purpose of Clause 4.2 in respect of the Agreement Date and the Issue Date, the Offering Circular means the Offering Circular as at the Agreement Date but not including any subsequent revision, supplement or amendment thereto; PRICING SUPPLEMENT means the pricing supplement issued in relation to each Tranche of Notes (substantially in the form of Annexe C to the Procedures Memorandum) as a supplement to the Offering Circular and giving details of that Tranche; PROCEDURES MEMORANDUM means the Operating and Administrative Procedures Memorandum dated 27th March, 2002 as amended or varied from time to time (in respect of any Tranche) by agreement between the relevant Issuer, the Guarantor and the relevant Dealer with the approval in writing of the Agent; PROGRAM means the Euro Medium Term Note Program established by this Agreement; RELEVANT PARTY means the Arranger, each Dealer (and for the purposes of Clause 8.3 each Issuer and the Guarantor), each of their respective affiliates and each person who controls them (within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act) and each of their respective directors, officers, employees and agents; SECURITIES ACT means the Securities Act of 1933, as amended, of the United States of America; STANDARD & POOR'S means Standard & Poor's Ratings Service, a division of the McGraw-Hill Companies Inc., or any successor to the rating agency business thereof; STOCK EXCHANGE means the Luxembourg Stock Exchange or any other or further stock exchange(s) on which any Notes may from time to time be listed or admitted to trading, and references in this Agreement to the RELEVANT STOCK EXCHANGE shall, in relation to any Notes, be references to the Stock Exchange on which such Notes are from time to time, or are intended to be, listed or admitted to trading; and SUBSCRIPTION AGREEMENT means an agreement (by whatever name called) in or subsequently in the form set out in Appendix 6 hereto or in such other form as may be agreed in writing between the relevant Issuer, the Guarantor and the Lead Manager which agreement shall be supplemental to this Agreement. 1.2 Terms and expressions defined in the Agency Agreement, the Conditions and the Pricing Supplement applicable to any Notes and not otherwise defined in this Agreement shall have the same meanings in this Agreement, except where the context otherwise requires. 1.3 In this Agreement, clause headings are inserted for convenience and ease of reference only and shall not affect the interpretation of this Agreement. 1.4 All references in this Agreement to the provisions of any statute shall be deemed to be references to that statute as from time to time modified, extended, amended or re-enacted. 1.5 All references in this Agreement to an agreement, instrument or other document (including this Agreement, the Agency Agreement, the Deed of Covenant, the Deed of Guarantee, any Series of Notes and any Conditions appertaining thereto) shall be construed as a reference to 4 that agreement, instrument or document as the same may be amended, modified, varied, supplemented or novated from time to time including, but without prejudice to the generality of the foregoing, this Agreement as supplemented by any Subscription Agreement. 1.6 Words denoting the singular number only shall include the plural number also and vice versa; words denoting the masculine gender only shall include the feminine gender also; and words denoting persons only shall include firms and corporations and vice versa. 1.7 Any reference herein to EUROCLEAR and/or CLEARSTREAM, LUXEMBOURG shall, wherever the context so permits, be deemed to include reference to any additional or alternative clearance system approved by the relevant Issuer, the Guarantor and the Agent. 2. AGREEMENTS TO ISSUE AND PURCHASE NOTES 2.1 Subject to the terms and conditions of this Agreement, any Issuer and the Guarantor may from time to time agree with any Dealer to issue, and any Dealer may agree to purchase, Notes. 2.2 On each occasion upon which an Issuer, the Guarantor and any Dealer agree on the terms of the issue and purchase of one or more Notes by such Dealer: (a) the relevant Issuer shall cause such Notes (which shall be initially represented by a Temporary Global Note) to be issued and delivered to a common depositary for Euroclear and Clearstream, Luxembourg so that the securities account(s) of such Dealer with Euroclear and/or with Clearstream, Luxembourg (as specified by such Dealer) is/are credited with such Notes on the agreed Issue Date, as described in the Procedures Memorandum; and (b) the relevant Dealer shall, subject to such Notes being so credited, cause the net purchase moneys for such Notes to be paid in the relevant currency by transfer of funds to the relevant cash account(s) of the Agent with Euroclear and/or Clearstream, Luxembourg or (in the case of syndicated issues) the relevant account of the relevant Issuer so that such payment is credited to such account(s) for value on the agreed Issue Date, as described in the Procedures Memorandum. 2.3 Unless otherwise agreed, the procedures which the parties must apply for the purposes of subclause 2.2 are set out in the Procedures Memorandum. Unless otherwise agreed between the relevant Issuer and the relevant Dealers, where more than one Dealer has agreed with the relevant Issuer to purchase a particular issue of Notes pursuant to this Clause, the obligations of such Dealers so to purchase the Notes shall be joint and several. 2.4 Where the relevant Issuer and the Guarantor agree with two or more Dealers to issue, and such Dealers agree to purchase, Notes on a syndicated basis, the relevant Issuer and the Guarantor shall enter into a Subscription Agreement with such Dealers. The Issuer and the Guarantor may also enter into a Subscription Agreement with one Dealer only. For the avoidance of doubt, the Agreement Date in respect of any such issue shall be the date on which the Subscription Agreement is signed by or on behalf of all the parties to it. 2.5 Each issue of Notes denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements. 5 3. CONDITIONS OF ISSUE; UPDATING 3.1 FIRST ISSUE The Arrangers shall circulate to each Dealer all of the documents and confirmations described in the Initial Documentation List immediately after those documents and confirmations have been given to the Arrangers by each Issuer and the Guarantor. Before any Issuer and the Guarantor reach their first agreement with any Dealer for the issue and purchase of Notes, that Dealer shall have received, and found satisfactory, in its reasonable opinion, all of the documents and confirmations described in the Initial Documentation List. 3.2 EACH ISSUE The obligations of a Dealer under any agreement for the issue and purchase of Notes made pursuant to Clause 2 are conditional upon: (a) there having been, as at the proposed Issue Date, no adverse change in the condition (financial or otherwise) of the relevant Issuer and the Guarantor (as the case may be) which is material in the context of the issue and offering of the Notes from that set forth in the Offering Circular on the relevant Agreement Date, nor the occurrence of any event making untrue or incorrect to an extent which is material as aforesaid any of the warranties contained in Clause 4; (b) there being no outstanding breach of any of the obligations of either the relevant Issuer or (as the case may be) the Guarantor under this Agreement, the Notes, the Agency Agreement, the Deed of Covenant or the Deed of Guarantee which has not been waived by the relevant Dealer on or prior to the proposed Issue Date; (c) subject to Clause 12, the aggregate nominal amount of the Notes to be issued, when added to the aggregate nominal amount of all Notes outstanding (as defined in the Agency Agreement) on the proposed Issue Date, not exceeding U.S.$2,000,000,000 or its equivalent in other currencies as determined pursuant to subclause 3.5; (d) in the case of Notes which are intended to be listed, the relevant Stock Exchange having agreed to list such Notes; (e) no meeting of the holders of Notes (or any of them) issued by the relevant Issuer (to consider matters which might in the reasonable opinion of the relevant Dealer be considered to have a material adverse effect on the issue of the Notes) having been duly convened but not yet held or, if held but adjourned, the adjourned meeting having not been held and neither the relevant Issuer nor the Guarantor being aware of any circumstances which are likely to lead to the convening of such a meeting; (f) there having been, between the Agreement Date and the Issue Date for such Notes, no such change in national or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the opinion of the relevant Dealer (after consultation with the relevant Issuer and the Guarantor if practicable), be likely to prejudice materially the success of the offer, sale or distribution by such Dealer of the Notes proposed to be issued; (g) the forms of the Pricing Supplement, the Temporary Global Note, the Permanent Global Note and/or the Definitive Notes in relation to the relevant Tranche and the relevant settlement procedures, having been agreed by the relevant Issuer, the Guarantor, the relevant Dealer and the Agent; 6 (h) the relevant currency being generally accepted for settlement by Euroclear and Clearstream, Luxembourg; and (i) any calculations or determinations which are required by the relevant Conditions prior to the Issue Date having been duly made. 3.3 WAIVER Any Dealer, on behalf of itself only (or, in relation to a syndicated issue, the Lead Manager on behalf of itself and the other Managers) may by notice in writing to the relevant Issuer and the Guarantor waive any of the conditions precedent contained in subclauses 3.1 and 3.2 (save for the condition precedent contained in subclause 3.2(c)) in so far as they relate to an issue of Notes to that Dealer. 3.4 UPDATING OF LEGAL OPINIONS Before the first issue of Notes occurring after the end of each annual period commencing on the date hereof and on such other occasions as a Dealer so requests in relation either to any Issuer or the Guarantor or both (on the basis of reasonable grounds), the Issuers and/or the Guarantor will procure that a further legal opinion in such form and with such content as the Dealers may reasonably require is delivered, at the expense of the Issuers (as to which each of the Issuers shall have joint and several responsibility as between itself and the Guarantor to the Dealers). If at, or prior to, the time of any agreement to issue and purchase Notes under Clause 2 such request is given in writing with respect to the Notes to be issued, the receipt of such opinion in a form satisfactory to the relevant Dealer shall be a further condition precedent to the issue of those Notes to the relevant Dealer. 3.5 DETERMINATION OF AMOUNTS OUTSTANDING For the purposes of subclause 3.2(c): (a) the U.S. dollar equivalent of Notes denominated in a currency other than U.S. dollars shall be determined, at the discretion of the Issuer, either as of the Agreement Date for such Notes or on the preceding day on which commercial banks and foreign exchange markets are open for general business in London, in each case on the basis of the spot rate for the sale of U.S. dollars against the purchase of the relevant currency in the London foreign exchange market quoted by any leading bank selected by the relevant Issuer or the Guarantor on the relevant day of calculation; (b) the U.S. dollar equivalent of Dual Currency Notes and Indexed Notes shall be calculated in the manner specified above by reference to the original nominal amount of such Notes; (c) the U.S. dollar equivalent of Zero Coupon Notes and other Notes issued at a discount or premium shall be calculated in the manner specified above by reference to the net proceeds received by the relevant Issuer for the particular issue; and (d) the U.S. dollar equivalent of Partly Paid Notes shall be the nominal amount regardless of the amount of purchase moneys paid. 4. REPRESENTATIONS AND WARRANTIES 4.1 As at the date of this Agreement each of the Issuers and the Guarantor (each Issuer severally as to itself and the Guarantor jointly and severally with the relevant Issuer as to the relevant 7 Issuer and severally as to itself) warrant to and agree with the Dealers and each of them as follows: (a) that the Offering Circular contains all information with regard to the Issuers, the Guarantor and the Notes which is material in the context of the Program and the issue and offering of Notes thereunder, that the information contained in the Offering Circular with respect to the Issuers, the Guarantor and the Notes is true and accurate in all material respects and is not misleading in any material respect, that the opinions and intentions expressed therein with respect to the Issuers, the Guarantor and the Notes are honestly held, that there are no other facts with respect to the Issuers, the Guarantor and the Notes the omission of which would make the Offering Circular as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect and that each of the Issuers and the Guarantor have made all reasonable enquiries to ascertain all facts material for the purposes aforesaid, provided that the warranty and agreement in this paragraph 4.1(a) shall not extend to information in the Offering Circular under the heading "Subscription and Sale"; (b) that, except as otherwise indicated in the Offering Circular, there has been no adverse change in the financial position or results of operations of the Guarantor and its consolidated subsidiaries taken as a whole which is material in the context of the issue and offering of any Notes to be issued under the Program since the date as at which the last published audited consolidated accounts of the Guarantor were prepared; (c) that each of the Issuers and the Guarantor is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and that the creation of Notes under the Program, their offering on the terms and subject to the conditions contained herein, the execution and issue by the relevant Issuer of, and compliance by the relevant Issuer with the terms of, the Notes, the Receipts and the Coupons and the execution and delivery by or on behalf of each Issuer of, and compliance by each Issuer with the terms of, this Agreement, the Deed of Covenant and the Agency Agreement and the execution and delivery by or on behalf of the Guarantor, and compliance by the Guarantor with the terms of, the Deed of Guarantee: (i) are in accordance with the provisions of the laws of the jurisdiction of the relevant company and with the constitutional documents of the relevant company; (ii) do not infringe the terms of, or constitute a default under, any trust deed, agreement or other instrument or obligation to which any of the Issuers or the Guarantor is a party or by which it is bound; and (iii) have been duly authorised by each of the Issuers and/or the Guarantor (as the case may be), so that Notes issued under the Program, the Receipts, the Coupons and the aforesaid agreements constitute, or upon due authentication and issue or delivery will constitute, valid and legally binding obligations of the relevant Issuer and/or the Guarantor (as the case may be) in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, fraudulent transfer, moratorium and other similar laws affecting creditors' rights generally from time to time in effect, 8 and to general principles of equity, regardless of whether considered in a proceeding in law or at equity); (d) that no condition, omission, event or act has occurred which would (or, with the giving of notice and/or the lapse of time would) constitute an Event of Default; (e) that, except as disclosed in the Offering Circular, none of the Issuers or the Guarantor is engaged (whether as defendant or otherwise) in, nor has any of the Issuers or the Guarantor knowledge of the existence of, or any threat of, any legal, arbitration, administrative or other proceedings the result of which might have a material adverse effect on the financial position or operations of any of the Issuers or the Guarantor in the context of the issue of Notes under the Program; (f) that all consents, approvals, authorisations, orders and clearances of all regulatory authorities required by the Issuers or the Guarantor under the laws of Germany, the United States of America, Switzerland, the Grand Duchy of Luxembourg and the United Kingdom (as the case may be) for or in connection with the creation and offering of Notes under the Program, the execution and issue of, and compliance by each Issuer and the Guarantor with the terms of, Notes issued under the Program (including any Global Note), the Receipts and the Coupons and the execution and delivery of, and compliance with the terms of, this Agreement, the Agency Agreement, the Deed of Covenant and the Deed of Guarantee have been obtained and are in full force and effect and that the Issuers and the Guarantor have complied with all legal and other requirements necessary to ensure that, upon due authentication and issue in the manner aforesaid, Notes issued under the Program, the Receipts and the Coupons will represent valid and legally binding obligations of the relevant Issuer and the Guarantor, payable (as regards the Notes, any Global Note, the Receipts and the Coupons) in accordance with their terms, that this Agreement, the Agency Agreement, the Deed of Covenant and the Deed of Guarantee constitute valid and legally binding obligations of the Issuers and/or the Guarantor (as the case may be) in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, fraudulent transfer, moratorium and other similar laws affecting creditors' rights generally from time to time in effect, and to general principles of equity, regardless of whether considered in a proceeding in law or at equity) and that on issuance, due payment of the principal and interest (including any additional amounts payable under the Conditions of the Notes) in respect of Notes issued under the Program and compliance by the Issuers and/or the Guarantor with their terms and with the terms of this Agreement, the Agency Agreement, the Deed of Covenant and the Deed of Guarantee will not infringe any existing such laws or the terms of any such consent, approval, authorisation, order or clearance; (g) that the net proceeds from the issue of the Notes will be used outside Switzerland; (h) that none of the Issuers, the Guarantor nor any affiliate (as defined in Rule 405 under the Securities Act) nor any persons (other than the Dealers, any of their respective affiliates or any person acting on behalf of any of the foregoing) acting on behalf of any of them has engaged or will engage in any directed selling efforts (as defined in Regulation S under the Securities Act) with respect to the Notes, and the Issuers, the Guarantor and any affiliate and all persons (other than the Dealers, any of their respective affiliates or any person acting on behalf of any of the foregoing) acting on behalf of any of them with respect to the Notes have complied and will comply with the offering restrictions requirements of Regulation S under the Securities Act with respect thereto; and 9 (i) that in relation to each Tranche of Notes for which a Dealer is named as a Stabilising Manager in the applicable Pricing Supplement, it has not issued and will not issue, without the prior written consent of that Dealer, any press or other public announcement referring to the proposed issue of Notes unless the announcement adequately discloses that stabilising action may take place in relation to the Notes to be issued. 4.2 With regard to each issue of Notes under the Program, the relevant Issuer and the Guarantor shall be deemed to repeat the warranties and agreements contained in subclause 4.1 as at the Agreement Date for such Notes (any agreement on such Agreement Date being deemed to have been made on the basis of, and in reliance on, such warranties and agreements) and as at the Issue Date of such Notes. 4.3 The Issuers and the Guarantor shall be deemed to repeat the representations and warranties contained in subclause 4.1(a) on each date on which the Offering Circular is revised, supplemented or amended. The Issuers and the Guarantor shall be deemed to repeat the representations and warranties contained in subclause 4.1 on each date on which the aggregate nominal amount of the Program is increased in accordance with Clause 12. 4.4 The warranties and agreements contained in this Clause 4 shall continue in full force and effect notwithstanding any investigation by or on behalf of the Dealers or completion of the subscription and issue of any Notes. 5. UNDERTAKINGS OF THE ISSUERS AND THE GUARANTOR 5.1 NOTIFICATION OF MATERIAL DEVELOPMENTS Each Issuer and the Guarantor shall, prior to the time of an agreement under Clause 2 (or, if such party becomes aware of the occurrence thereof after such time but prior to the completion of the distribution by the Dealers of the relevant Notes, promptly upon becoming aware of the occurrence thereof), notify each Dealer of: (a) any Event of Default or any condition, event or act in relation to itself of which it is aware which, with the giving of notice and/or the lapse of time (after the issue of any Notes) would constitute an Event of Default or any breach of the representations and warranties or undertakings contained in this Agreement, the Agency Agreement, the Deed of Covenant, the Deed of Guarantee or any of them; and (b) any development affecting such Issuer or the Guarantor or their respective businesses of which it is aware which, in the reasonable opinion of such Issuer or the Guarantor (as the case may be), is material in the context of the Program or any issue of Notes thereunder. If, following the time of an agreement under Clause 2 and before the issue of the relevant Notes, the relevant Issuer or the Guarantor becomes aware that the conditions specified in Clause 3.2 will not be satisfied in relation to that issue, the relevant Issuer or the Guarantor (if applicable), as the case may be, shall forthwith notify the relevant Dealer to that effect giving full details thereof. In such circumstances, the relevant Dealer shall be entitled (but not bound) by written notice to the relevant Issuer and the Guarantor to be released and discharged from its obligations under the agreement reached under Clause 2. Without prejudice to the generality of the foregoing, each Issuer and the Guarantor shall from time to time promptly furnish to each Dealer such information relating to such Issuer and/or the Guarantor (as the case may be) as such Dealer may reasonably request, provided that such information is relevant in the context of the Program or an issue of Notes thereunder. 10 5.2 UPDATING OF OFFERING CIRCULAR Following the publication of the Guarantor's audited financial information for the year ended 31st December, 2003, and at the end of each annual period thereafter and in the event of a change in the condition of any or all of the Issuers or the Guarantor which is material in the context of the Program or the issue of the Notes thereunder, the Issuers and the Guarantor shall update or amend the Offering Circular (following consultation with the Arrangers on behalf of the Dealers) by the publication of a supplement thereto, in a form approved by the Dealers, in the light of such change in condition. The Offering Circular shall, as specified therein, be deemed to incorporate by reference therein the most recently published annual accounts (if any) of each Issuer and the Guarantor and the most recently published annual report of the Guarantor from time to time. Upon any new financial statements being incorporated in the Offering Circular as aforesaid or upon the publication of a revised Offering Circular or a supplement to the Offering Circular, the Issuers or the Guarantor (as the case may be) shall promptly supply to each Dealer and the Agent such number of copies of such financial statements, revised Offering Circular or supplement as each Dealer or the Agent (as the case may be) may reasonably request. Until a Dealer receives such financial statements, revised Offering Circular or supplement, the definition of OFFERING CIRCULAR in Clause 1.1 shall, in relation to such Dealer, mean the Offering Circular prior to the publication of such financial statements, revised Offering Circular or supplement. 5.3 LISTING The Issuers and the Guarantor shall cause an initial application to be made for Notes issued under the Program to be listed on the Luxembourg Stock Exchange or on such other Stock Exchange as the Issuers, the Guarantor and the Arrangers may agree. In connection with such application in respect of any Series of Notes which is intended to be so listed, the relevant Issuer and the Guarantor (if applicable) shall endeavour to obtain the listing as promptly as reasonably practicable and the relevant Issuer and the Guarantor (if applicable) shall make reasonable endeavours to furnish any and all documents, instruments, information and undertakings that may be necessary or advisable in order to obtain and maintain the listing. If, after the preparation of the Offering Circular for submission to the relevant Stock Exchange and before whichever is the later of the Issue Date of any Notes and the date on which listing becomes effective: (a) there is a significant change which is material in the context of the Notes affecting any matter contained in the Offering Circular whose inclusion was required by the relevant Stock Exchange; or (b) a significant new matter arises which is material in the context of the Notes and the inclusion of information in respect of which would have been so required if it had arisen when the Offering Circular was prepared, the relevant Issuer and the Guarantor shall give to the Listing Agent and to each Dealer full information about the change or matter and shall publish such supplementary listing particulars (in a form approved by the Listing Agent) as may be required by the relevant Stock Exchange, and shall otherwise comply with the Listing Rules in that regard. Each Issuer and the Guarantor shall comply with any undertakings given by it from time to time to the relevant Stock Exchange(s) in connection with any Notes listed on such Stock Exchange(s) or the listing thereof and, without prejudice to the generality of the foregoing, shall furnish or procure to be furnished to the relevant Stock Exchange(s) all such information 11 as the relevant Stock Exchange(s) may require in connection with the listing on such Stock Exchange(s) of any Notes. If any Notes cease to be listed on the relevant Stock Exchange, the relevant Issuer and the Guarantor shall endeavour promptly to list such Notes on a stock exchange to be agreed between the Issuers, the Guarantor and the relevant Dealers. 5.4 AGENCY AGREEMENT, DEED OF COVENANT AND DEED OF GUARANTEE Each Issuer and the Guarantor undertakes that it will not: (a) without prior consultation with the Dealers terminate the Agency Agreement, the Deed of Covenant or the Deed of Guarantee or effect or permit to become effective any amendment to the Agency Agreement, the Deed of Covenant or the Deed of Guarantee which, in the case of an amendment, would or might adversely affect the interests of any Dealer or of any holder of Notes issued before the date of such amendment; or (b) without prior consultation with the Dealers appoint a different Agent or paying agent(s) under the Agency Agreement, and each Issuer and the Guarantor will promptly notify each of the Dealers of any termination of, or amendment to, the Agency Agreement, the Deed of Covenant or the Deed of Guarantee and of any change in the Agent or paying agent(s) under the Agency Agreement. 5.5 LAWFUL COMPLIANCE Each Issuer and the Guarantor will at all times ensure that all necessary action is taken and all necessary conditions are fulfilled (including, without limitation, the obtaining of all necessary consents) so that it may lawfully comply with its obligations under the Notes, this Agreement, the Agency Agreement, the Deed of Covenant and the Deed of Guarantee and, further, so that it may comply with any applicable laws, regulations and guidance from time to time promulgated by any governmental and regulatory authorities relevant in the context of the issue of Notes under the Program. 5.6 AUTHORISED REPRESENTATIVE Each Issuer and the Guarantor will notify the Dealers immediately in writing if any of the persons named in the list referred to in paragraph 3 of the Initial Documentation List ceases to be authorised to take action on behalf of such Issuer and the Guarantor or if any additional person becomes so authorised together, in the case of an additional authorised person, with evidence satisfactory to the Dealers that such person has been so authorised. 5.7 AUDITORS' COMFORT LETTERS Each Issuer and the Guarantor will at the time of the preparation of the initial Offering Circular and thereafter upon each occasion when the same may be amended or updated, whether by means of information incorporated by reference or otherwise (insofar as such amendment or up-dating concerns or contains financial information about any of the Issuers or the Guarantor), at the expense of the Issuers and the Guarantor (as to which each of the Issuers will have joint and several responsibility as between itself and the Guarantor) and at other times whenever so requested by the Dealers or any of them (on the basis of reasonable grounds) deliver to the relevant Dealer a comfort letter or comfort letters from independent 12 auditors of the Issuers (or any of them) and the Guarantor in such form and with such content as the relevant Dealer may reasonably request. 5.8 NO OTHER ISSUES During the period commencing on an Agreement Date in respect of any Notes and ending on the Issue Date with respect to those Notes, none of the Issuers or the Guarantor will, without prior consultation with the relevant Dealer, issue or agree to issue any other listed notes, bonds or other securities of whatsoever nature (other than Notes to be issued under the Program) where such notes, bonds or other securities would have the same maturity and currency as the Notes to be issued on the relevant Issue Date. 5.9 INFORMATION ON NOTEHOLDERS' MEETINGS Each Issuer or the Guarantor will, at the same time as it is despatched, furnish the Dealers with a copy of every notice of a meeting of the holders of the Notes (or any of them) which is despatched at the instigation of the relevant Issuer or the Guarantor (as the case may be) and will notify the Dealers immediately after it becomes aware that a meeting of the holders of the Notes (or any of them) has been convened by holders of the Notes. 5.10 RATING Each Issuer (failing whom the Guarantor) undertakes promptly to notify the Dealers of any change in the rating given by Standard & Poor's, Moody's or such other rating agency as notified to the Dealers for any of the Notes to be issued under the Program by it, or upon it becoming aware that such rating is listed on "Creditwatch" or other similar publication of formal review by the relevant rating agency. 5.11 Commercial Paper In respect of any Tranche of Notes which have a maturity of less than one year, the Issuer will issue such Notes only if the following conditions apply (or the Notes can otherwise be issued without contravention of Section 19 of the FSMA): (a) the relevant Dealer covenants in the terms set out in paragraph 2(b) of Appendix 2; and (b) the redemption value of each Note is not less than L100,000 (or an amount of equivalent value denominated wholly or partly in a currency other than sterling), and no part of any Note may be transferred unless the redemption value of that part is not less than L100,000 (or such an equivalent amount). 6. INDEMNITY 6.1 Without prejudice to the other rights or remedies of the Dealers, each Issuer (severally as to itself) and the Guarantor (jointly and severally with the relevant Issuer and severally as to itself) undertakes to the Arranger and each Dealer that if that Arranger or Dealer or any Relevant Party relating to that Arranger or Dealer incurs any liability, damages, cost, loss or expense (including, without limitation, legal fees, costs and expenses) (a LOSS) arising out of, in connection with, or based on: (a) any failure by the relevant Issuer to issue on the agreed Issue Date any Notes which a Dealer has agreed to purchase (unless such failure is as a result of the failure by the relevant Dealer to pay the aggregate purchase price for such Notes); or 13 (b) any actual or alleged breach of the representations, warranties and undertakings contained in, or made or deemed to be made by the relevant Issuer and/or the Guarantor under, this Agreement (any such allegation being made by a person other than a Relevant Party); or (c) any untrue or misleading (or allegedly untrue or misleading) statement, which is material (or allegedly material) in the context of the Program and the issue and offering of Notes by such Issuer thereunder, in, or any material omission (or alleged omission) from, the Offering Circular or any part thereof (any such allegation being made by a person other than a Relevant Party). the relevant Issuer or, as the case may be, the Guarantor shall (subject as provided in subclause 6.2) pay to that Arranger or Dealer on demand an amount equal to such Loss. No Arranger or Dealer shall have any duty or obligation, whether as fiduciary or trustee for any Relevant Party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause 6.1. 6.2 If any action, proceeding, claim or demand shall be brought or asserted against any Relevant Party in respect of which an indemnity is to be sought against another party under Clause 6.1 (the INDEMNIFYING PERSON), the Relevant Party shall promptly notify the Indemnifying Person in writing, and the Indemnifying Person shall have the option in the name of the Relevant Party to assume the defence thereof, including the employment of legal advisers approved by the Relevant Party (which approval shall not be unreasonably withheld or delayed) subject to the payment by the Indemnifying Person of all fees and expenses relating thereto provided that such legal advisers shall not, save with the consent of the Relevant Party (which consent shall not be unreasonably withheld or delayed), also be legal advisers to the Indemnifying Person and provided further that if the defendants in any such action, proceeding, claim or demand include the Relevant Party and the Relevant Party shall have reasonably concluded that there may be legal defences available to the Relevant Party which are different from or additional to those available to the Indemnifying Person and in the event that the Indemnifying Person does not wish to assume, or is prevented from assuming, such different or additional legal defences on behalf of the Relevant Party, the Relevant Party shall have the right, at the expense of the Indemnifying Person, to select separate legal advisers to assume such legal defences and otherwise to participate in the defence of such action, proceeding, claim or demand on behalf of the Relevant Party. Upon receipt of notice from the Indemnifying Person of its election so to assume the defence of any such action, proceeding, claim or demand and approval by the Relevant Party as aforesaid of legal advisers, the Indemnifying Person will not be liable to any Relevant Party for any fees or expenses subsequently incurred by such Relevant Party in connection with the defence thereof unless: (a) the Relevant Party shall have employed legal advisers in connection with the assumption of legal defences in accordance with the proviso to the preceding paragraph; or (b) the Indemnifying Person shall not have employed legal advisers, or taken other measures, approved by or on behalf of the Relevant Party to represent such Relevant Party within a reasonable time after notice has been received by the Indemnifying Person of commencement of the action or proceedings or the making of any claim or demand; or 14 (c) the Indemnifying Person has authorised the employment of separate legal advisers by the Indemnifying Person, in which case the Indemnifying Person will reimburse the Relevant Party all such reasonable fees and expenses. Each Relevant Party undertakes not to compromise or settle any such action, proceedings, claim or demand effected without the written consent of the Indemnifying Person. Each Indemnifying Person undertakes not to compromise or settle any such action, proceedings, claims or demands effected without the written consent of the Relevant Party (consent is not to be unreasonably withheld or delayed). If any such action, proceeding, claim or demand shall be settled with the authority and written consent of the Indemnifying Person or if there be a final judgment for the plaintiff in relation thereto in respect of which the Relevant Party is entitled to indemnification hereunder, the Indemnifying Person agrees to indemnify and hold harmless the Relevant Party from and against any loss or liability by reason of such settlement or judgment (other than any fees and expenses incurred in circumstances where the Indemnifying Person is not to be liable therefor under the preceding paragraph). 7. AUTHORITY TO DISTRIBUTE DOCUMENTS Subject to Clause 8 below, each Issuer and the Guarantor hereby authorises each of the Dealers on behalf of each Issuer and the Guarantor to provide copies of the Offering Circular and such additional written information as the relevant Issuer or the Guarantor shall, in writing, provide to and authorise the Dealers so to use to actual and potential purchasers of Notes. 8. DEALERS' UNDERTAKINGS 8.1 Each Dealer agrees to comply with the restrictions and agreements set out in Appendix 2 hereto. 8.2 Each Dealer acknowledges that: (a) none of the Issuers nor the Guarantor has authorised it to give any information or make any representation in connection with any offering, issue, subscription or sale of any Notes other than those contained in the Offering Circular or the information approved in writing and provided by such Issuer or the Guarantor pursuant to Clause 7; (b) it will not circulate any version of the Offering Circular other than the latest version of the Offering Circular published by such Issuer and made available to such Dealer from time to time; and (c) it shall promptly cease use or distribution of the Offering Circular or any additional written information provided for in Clause 7 upon receipt of notice from any Issuer or the Guarantor that the Offering Circular or such information requires updating or correction. 8.3 Each Dealer undertakes with each of the Issuers, the Guarantor and the other Dealers to indemnify, defend and hold harmless the Relevant Party against any losses, liabilities, claims, charges, actions and demands, and any reasonable out-of-pocket costs and expenses which the Relevant Party may incur or which may be made against the Relevant Party arising out of, or in connection with: 15 (a) the making by such Dealer of any unauthorised representation or the giving by it of any information which is not contained in the Offering Circular or otherwise authorised in accordance with Clause 7; or (b) any failure by such Dealer to observe any of the restrictions or agreements contained in Appendix 2 hereto. 8.4 If any claim, demand or action is brought against any such Relevant Party in respect of which indemnity may be sought from a Dealer pursuant to Clause 8.3, the provisions of Clause 6.2 shall apply, mutatis mutandis, in relation thereto. 9. FEES, EXPENSES AND STAMP DUTIES 9.1 Each Issuer (severally as to itself and the Notes issued by itself) and the Guarantor (jointly and severally with the relevant Issuer and severally as to itself) undertake that they shall: (a) pay to each Dealer all commissions from time to time agreed in connection with the sale of any Notes to that Dealer (and any value added or other similar tax thereon); and (b) pay (together with any value added tax or other similar tax thereon): (i) the fees and expenses of their legal advisers and auditors; and (ii) the cost of listing and maintaining the listing of any Notes to be issued by such Issuer under the Program which are to be listed on a Stock Exchange; 9.2 Each Issuer (severally as to itself and the Notes issued by itself) and the Guarantor (jointly and severally with the relevant Issuer and severally as to itself) undertake that they shall: (a) pay (together with any value added tax or other similar tax thereon): (i) the fees and expenses payable to the Agent and any paying agents; (ii) all expenses (other than those of the Agent, any paying agent or the Dealers) in connection with the issue, authentication, packaging and initial delivery of Notes and the preparation of Global Notes, this Agreement, the Agency Agreement, the Deed of Guarantee and the preparation and printing of Notes, the Offering Circular and any amendments or supplements thereto (including the updating of any legal opinions issued pursuant to Clause 3.4 and of any auditors' comfort letters issued pursuant to Clause 5.7); and (iii) the cost of any publicity agreed in writing by any Issuer or the Guarantor in connection with the Program or any issue of any Notes of such Issuer; (b) pay to UBS such amount as is separately agreed in relation to the fees and disbursements of the legal advisers appointed to represent the Dealers (including any value added tax or other similar tax thereon) in connection with the negotiation, preparation, execution and delivery of this Agreement, the Agency Agreement, the Deed of Covenant, the Deed of Guarantee and any documents referred to in any of them and any other documents required in connection with the creation of the Program; and 16 (c) pay promptly, and in any event before any penalty becomes payable, any stamp, documentary, registration or similar duty or tax (including any stamp duty reserve tax) payable in Germany, the United States of America, the United Kingdom, Switzerland or the Grand Duchy of Luxembourg in connection with the entry into, performance, enforcement or admissibility in evidence of this Agreement, any communication pursuant hereto, the Agency Agreement, the Deed of Covenant, the Deed of Guarantee or any Note and shall indemnify each Dealer against any liability with respect to or resulting from any delay in paying or omission to pay any such duty or tax. 10. TERMINATION OF APPOINTMENT OF DEALERS The Issuers, the Guarantor or (as to itself) a Dealer may terminate the arrangements described in this Agreement by giving not less than 30 days' written notice to the other parties hereto. The Issuers or the Guarantor may terminate the appointment of a Dealer or Dealers by giving not less than 30 days' written notice to such Dealer or Dealers (with a copy promptly thereafter to all the other Dealers and the Agent). Termination shall not affect any rights or obligations (including but not limited to those arising under Clause 6, 8 or 9) which have accrued at the time of termination or which accrue thereafter in relation to any act or omission or alleged act or omission which occurred prior to such time. 11. APPOINTMENT OF NEW DEALERS 11.1 Nothing in this Agreement shall prevent the Issuers or the Guarantor from appointing one or more New Dealers for the duration of the Program or, with regard to a particular issue of Notes, the relevant Issuer and the Guarantor (if applicable) from appointing one or more New Dealers for the purposes of that issue, in either case upon the terms of this Agreement and provided that, unless such appointment is effected pursuant to a Subscription Agreement: (a) any New Dealer shall have first delivered to the Issuers and the Guarantor a Dealer Accession Letter; and (b) the Issuers and the Guarantor shall have delivered to such New Dealer a Confirmation Letter. Upon receipt of the relevant Confirmation Letter or execution of the relevant Subscription Agreement, as the case may be, each such New Dealer shall, subject to the terms of the relevant Dealer Accession Letter and the relevant Confirmation Letter or the relevant Subscription Agreement, as the case may be, become a party to this Agreement, vested with all authority, rights, powers, duties and obligations of a Dealer as if originally named as a Dealer hereunder provided that, except in the case of the appointment of a New Dealer for the duration of the Program, following the issue of the Notes of the relevant Tranche, the relevant New Dealer shall have no further such authority, rights, powers, duties or obligations except such as may have accrued or been incurred prior to or in connection with the issue of such Notes. 11.2 The Issuers and/or the Guarantor shall promptly notify the Agent and the other Dealers of any appointment of a New Dealer for the duration of the Program by supplying to such parties a copy of any Dealer Accession Letter and Confirmation Letter. No such notice shall be required to be given in the case of an appointment of a New Dealer for a particular issue of Notes. 17 12. INCREASE IN THE AGGREGATE NOMINAL AMOUNT OF THE PROGRAM 12.1 From time to time the Issuers and the Guarantor may wish to increase the aggregate nominal amount of the Notes that may be issued under the Program. In such circumstances, the Issuers and the Guarantor may request such an increase (subject as set out in subclause 12.2) by delivering to the Listing Agent and the Dealers the letter substantially in the form set out in Appendix 5 hereto. Unless notice to the contrary is received by the Issuers or the Guarantor no later than 10 days after notice was given to the Dealers and the Listing Agent, each such Dealer and the Listing Agent will be deemed to have given its consent to the increase in the nominal amount of the Program, whereupon all references in this Agreement and the Procedures Memorandum to a Euro Medium Term Note Program of a certain nominal amount, shall be and shall be deemed to be references to a Euro Medium Term Note Program of the increased nominal amount. 12.2 Notwithstanding subclause 12.1, the right of the Issuers and the Guarantor to increase the aggregate nominal amount of the Program shall be subject to each Dealer having received and found satisfactory all the documents and confirmations described in the Initial Documentation List (with such changes as may be relevant, with reference to the circumstances at the time of the proposed increase as are agreed between the Issuers, the Guarantor and the Dealers), and the delivery of any further conditions precedent that any of the Dealers may reasonably require, including, without limitation, the production of a supplementary Offering Circular by the Issuers and the Guarantor and any further or other documents required by the relevant Stock Exchange(s) for the purpose of listing the Notes to be issued under the Program on the relevant Stock Exchange(s). The Arrangers shall circulate to the Dealers all the documents and confirmations described in the Initial Documentation List and any further conditions precedent so required. Any Dealer must notify the Arrangers, the Issuers and the Guarantor within 10 business days of receipt if it considers, in its reasonable opinion, such documents, confirmations and, if applicable, such further conditions precedent to be unsatisfactory. 13. STATUS OF THE ARRANGERS 13.1 Each of the Dealers agrees that each Arranger has only acted in an administrative capacity to facilitate the establishment and/or maintenance of the Program and has no responsibility to it for (a) the adequacy, accuracy, completeness or reasonableness of any representation, warranty, undertaking, agreement, statement or information in the Offering Circular, any Pricing Supplement, this Agreement or any information provided in connection with the Program or (b) the nature and suitability of it of all legal, tax and accounting matters and all documentation in connection with the Program or any Tranche. 13.2 The Arrangers shall have only those duties, obligations and responsibilities expressly specified in this Agreement. 14. COUNTERPARTS This Agreement may be signed in any number of counterparts, all of which taken together shall constitute one and the same instrument. 15. COMMUNICATIONS 15.1 All communications shall be by fax or letter delivered by hand or (but only where specifically provided in the Procedures Memorandum) by telephone. Each communication shall be made to the relevant party at the fax number or address or telephone number and, in the case of a communication by fax or letter, marked for the attention of, or (in the case of a communication by telephone) made to, the person(s) from time to time specified in writing by 18 that party to the other for the purpose. The initial telephone number, fax number and address of, and person(s) so specified by, each party are set out on the signature pages hereof. 15.2 A communication shall be deemed received (if by fax) when an acknowledgement of receipt is received, (if by telephone) when made or (if by letter) when delivered, in each case in the manner required by this clause. Every communication shall be irrevocable save in respect of any manifest error therein. 16. BENEFIT OF AGREEMENT 16.1 This Agreement shall be binding upon and shall inure for the benefit of each Issuer, the Guarantor and each Dealer and their respective successors and permitted assigns. 16.2 The Dealers may assign or transfer their rights or obligations under this Agreement with the prior written consent of the Issuers and the Guarantor (except for an assignment and/or transfer of all of a Dealer's rights and obligations under this Agreement by operation of law resulting directly from a merger by, or sale of all or substantially of all the assets of, such Dealer). If the Dealers assign their rights or transfer their obligations as provided in this clause, the relevant assignee or transferee shall be treated as if it were a party to this Agreement with effect from the date on which such assignment or transfer takes effect; provided that any transfer shall only become effective when the Issuers and the Guarantor have received an undertaking from the transferee to be bound by this Agreement and to perform the obligations transferred to it (in form and substance reasonably satisfactory to the Issuers and the Guarantor). 17. CURRENCY INDEMNITY If, under any applicable law and whether pursuant to a judgment being made or registered against any Issuer and/or (as the case may be) the Guarantor or in the liquidation, insolvency or analogous process of the relevant Issuer and/or (as the case may be) the Guarantor or for any other reason, any payment under or in connection with this Agreement is made or falls to be satisfied in a currency (the OTHER CURRENCY) other than that in which the relevant payment is expressed to be due (the REQUIRED CURRENCY) under this Agreement, then, to the extent that the payment (when converted into the required currency at the rate of exchange on the date of payment or, if it is not practicable for the relevant Dealer to purchase the required currency with the other currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so) actually received by the relevant Dealer falls short of the amount each due under the terms of this Agreement, the relevant Issuer and the Guarantor each undertakes that it shall, as a separate and independent obligation, indemnify and hold harmless each Dealer against the amount of such shortfall. For the purpose of this clause RATE OF EXCHANGE means the rate at which the relevant Dealer is able on the London foreign exchange market on the relevant date to purchase the required currency with the other currency and shall take into account any premium and other reasonable costs of exchange. The Dealers understand and agree that in the event that the required currency is replaced by the Euro after the date hereof, the Euro will not be considered an "other currency" for the purposes of this Clause 17. 18. CALCULATION AGENT 18.1 In the case of any Series of Notes which require the appointment of a Calculation Agent the Agent shall act as Calculation Agent, unless (a) the relevant Issuer or the Guarantor appoints another person as Calculation Agent with the approval of the relevant Dealer or (in the case of a syndicated 19 issue) the Lead Manager or (b) the relevant Dealer or (in the case of a syndicated issue) the Lead Manager requests the relevant Issuer to appoint such Dealer or Lead Manager, or a person nominated by such Dealer or Lead Manager (a NOMINEE), as Calculation Agent. 18.2 Should such an appointment be made by the relevant Issuer or Guarantor (with such approval) or such a request be made to the relevant Issuer and agreed to by the relevant Issuer and the Guarantor, the appointment of that other person, Dealer, Lead Manager or Nominee shall be automatic upon the issue of the relevant Series of Notes, and shall, except as agreed, be on the terms set out in the Calculation Agency Agreement attached as Appendix 1 to the Agency Agreement, and no further action shall be required to effect the appointment of such Dealer, other person, Lead Manager or Nominee as Calculation Agent in relation to that Series of Notes. The name of the other person, Dealer, Lead Manager or Nominee so appointed will be entered in the relevant Pricing Supplement. 19. STABILISATION 19.1 In connection with the distribution of any Tranche of Notes, the Dealer (if any) designated as stabilising manager in the applicable Pricing Supplement may over-allot or effect transactions which support the market price of Notes of the Series of which such Tranche forms a part at a level higher than that which might otherwise prevail, but in doing so such Dealer shall act as principal and not as agent of the relevant Issuer or the Guarantor. Such stabilising, if commenced, may be discontinued at any time. Any loss resulting from over-allotment and stabilisation shall be borne, and any net profit arising therefrom shall be retained, by the stabilising manager for its own account. Such stabilising shall be done in accordance with the applicable laws. 19.2 The Issuer confirms that it has been informed of the existence of the informational guidance published by the Financial Services Authority in relation to stabilisation. 20. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. 21. GOVERNING LAW AND JURISDICTION 21.1 This Agreement and every agreement for the issue and purchase of Notes as referred to in Clause 2 shall be governed by, and construed in accordance with, the laws of England. 21.2 Each party to this Agreement hereby irrevocably agrees for the exclusive benefit of the other parties to this Agreement that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of or in connection with this Agreement may be brought in such courts. Each party to this Agreement hereby irrevocably waives any objection which it may have to the laying of the venue of any Proceedings in any such courts and any claim that any such Proceedings have been brought in an inconvenient forum and hereby further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon such party and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained herein shall limit any right to take Proceedings against any party to this Agreement in any other court of competent jurisdiction (outside the Contracting States as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982), nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not 20 (subject to the laws of the relevant jurisdictions). Each of CSC US, CSC Germany, CSC Bermuda and the Guarantor hereby appoints CSC UK as its agent for service of process and agrees that, in the event of ceasing so to act or ceasing to be registered in England, it will appoint another person as its agent for service of process in England in respect of any Proceedings. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. 21 APPENDIX 1 INITIAL DOCUMENTATION LIST 1. A certified copy of: (a) the Certificate of Incorporation of CSC US; (b) the Memorandum and Articles of Association of CSC UK; (c) the Articles of Association of CSC Germany; (d) the Memorandum of Association and Bye-Laws of CSC Bermuda; and (e) the Articles of Incorporation of the Guarantor, unless these have not changed since the date they were last provided to the Dealers. 2. A certified copy of all resolutions and other authorisations required to be passed or given, and evidence of any other action required to be taken, on behalf of each Issuer and the Guarantor, as applicable: (a) to approve this Agreement, the Agency Agreement, the Deed of Covenant, the creation of the Program, the issue of Notes under the Program and the execution of the Deed of Guarantee by the Guarantor; (b) to authorise appropriate persons to execute each of this Agreement, the Agency Agreement, the Deed of Covenant, the Deed of Guarantee and Notes issued under the Program and to take any other action in connection therewith; and (c) to authorise appropriate persons to enter into agreements with any Dealer on behalf of each Issuer and the Guarantor to issue Notes in accordance with Clause 2 of this Agreement. 3. A certified list of the names, titles and specimen signatures of the persons authorised on behalf of each Issuer and the Guarantor in accordance with paragraph 2(c) above unless these have not changed since the date they were last provided to the Dealers. 4. Certified copies of any other governmental or other consents required for each Issuer and the Guarantor to issue Notes under the Program, for the Guarantor to guarantee Notes issued under the Program, for each Issuer and the Guarantor (as the case may be) to execute and deliver this Agreement, the Deed of Covenant and the Agency Agreement and for each Issuer and the Guarantor to fulfil its respective obligations under this Agreement, the Agency Agreement, the Deed of Covenant and the Notes. 5. Confirmation that master Global Notes (from which copies may be made for each Tranche), duly executed by a person or persons authorised to take action on behalf of the relevant Issuer as specified in paragraph 2(b) above, have been delivered to the Agent. 6. Legal opinions addressed to each of the Dealers dated on or after the date of this Agreement, in such form and with such content as the Dealers may reasonably require, from: (a) Freshfields Bruckhaus Deringer, legal advisers to CSC Germany as to German law; 22 (b) Cravath, Swaine & Moore, legal advisers to CSC US as to U.S. law; (c) Conyers Dill & Pearman, legal advisers to CSC Bermuda as to Bermudan law; (d) Homburger, legal advisers to the Guarantor as to Swiss law; and (e) Allen & Overy, legal advisers to the Dealers as to English law. 7. A conformed copy of the Agency Agreement and the Deed of Guarantee and confirmation that an executed copy of each such document has been delivered to the Paying Agents and the Common Depositary for Euroclear and Clearstream, Luxembourg. 8. A conformed copy of the Deed of Covenant and confirmation that an executed copy of such deed has been delivered to the Agent and the Common Depositary for Euroclear and Clearstream, Luxembourg. 9. A printed final version of the Offering Circular. 10. Confirmation from the Listing Agent that the Luxembourg Stock Exchange will list Notes to be issued under the Program. 11. A comfort letter from the independent auditors of each Issuer and the Guarantor, in such form and with such content as the Dealers may reasonably request. 12. Confirmation that the Program has been rated A by Standard & Poor's and A2 by Moody's. 23 APPENDIX 2 SELLING RESTRICTIONS 1. UNITED STATES 1.1 The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the SECURITIES ACT), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Each Dealer represents and agrees that it and any of its affiliates and any person acting on its or their behalf have offered and sold any Notes, and will offer and sell any Notes (i) as part of their distribution at any time and (ii) otherwise until 40 days after the completion of the distribution of all Notes of the Tranche of which such Notes are a part, as determined and notified by the Agent to such Dealer, as provided below, only in accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, each Dealer, its affiliates and any persons acting on its or their behalf have not engaged and will not engage in any directed selling efforts with respect to the Notes, and have complied and will comply with the offering restrictions requirement of Regulation S. Each Dealer who has purchased Notes of a Tranche hereunder (or in the case of a sale of a Tranche of Notes issued to or through more than one Dealer, each of such Dealers as to the Notes of such Tranche purchased by or through it) shall determine and certify to the Agent the completion of the distribution of the Notes of such Tranche. On the basis of such certification or certifications, the Agent agrees to notify such Dealer or Dealers of the end of the distribution compliance period with respect to such Tranche. Each Dealer also agrees that, at or prior to confirmation of sale of Notes, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes from it or any of its affiliates or any person acting on its or their behalf during the distribution compliance period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Securities as determined and notified by the Agent for the Securities to [name of Dealer(s)], except in either case in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S." Terms used in this subclause 1.1 have the meanings given to them by Regulation S. 1.2 In addition: (a) except to the extent permitted under U.S. Treas. Reg. Section 1.163-5(c)(2)(i)(D) (the D RULES), each Dealer (a) represents that it has not offered or sold, and agrees that during the restricted period it will not offer or sell, Notes in bearer form to a person who is within the United States or its possessions or to a United States person, and (b) represents that it has not delivered and agrees that it will not deliver within the United States or its possessions definitive Notes in bearer form that are sold during the restricted period; (b) each Dealer represents that it has and agrees that throughout the restricted period it will have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Notes in bearer form are aware that such 24 Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules; (c) if it is a United States person, each Dealer represents that it is acquiring the Notes for purposes of resale in connection with their original issuance and if it retains Notes in bearer form for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg. Section 1.163-5(c)(2)(i)(D)(6); and (d) with respect to each affiliate that acquires Notes from a Dealer for the purpose of offering or selling such Notes during the restricted period, such Dealer repeats and confirms the representations and agreements contained in subclauses (a), (b) and (c) on such affiliate's behalf. Terms used in this subclause 1.2 have the meanings given to them by the U.S. Internal Revenue Code and regulations thereunder, including the D Rules. 1.3 Each Dealer represents that it has not entered and agrees that it will not enter into any contractual arrangement with respect to the distribution or delivery of Notes, so as to cause any person to become a "distributor" within the meaning of Regulation S or the D Rules except with their affiliates or with the prior written consent of the relevant Issuer and the Guarantor (in which case such Dealer will obtain for the benefit of the Issuer and the Guarantor the agreement of such person to the representations and agreements contained in subclauses 1.1 and 1.2 above). 1.4 Each issue of Indexed Notes and Dual Currency Notes shall be subject to such additional U.S. selling restrictions as the relevant Issuer and the relevant Dealer or Dealers shall agree as a term of the issue and purchase of such Notes, which additional selling restrictions shall be set out in the Pricing Supplement. Each Dealer agrees that it shall offer, sell and deliver such Notes only in compliance with such additional U.S. selling restrictions. 2. UNITED KINGDOM Each Dealer represents and agrees that: (a) in relation to Notes which have a maturity of one year or more, it has not offered or sold and, prior to the expiry of the period of six months from the Issue Date of such Notes, will not offer or sell to persons in the United Kingdom any Notes except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 (as amended); (b) in relation to any Notes which have a maturity of less than one year, (a) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer; 25 (c) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the relevant Issuer or the Guarantor; and (d) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom. 3. JAPAN The Notes have not been and will not be registered under the Securities and Exchange Law of Japan (the SECURITIES AND EXCHANGE LAW) and each Dealer agrees that it will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with the Securities and Exchange Law and any other applicable laws and regulations of Japan. 4. FRANCE Each of the Dealers, the Issuer and the Guarantor represents and agrees that, in connection with their initial distribution, it has not offered or sold and will not offer or sell, directly or indirectly, Notes to the public in the Republic of France, and has not distributed or caused to be distributed and will not distribute or cause to be distributed to the public in the Republic of France, the Offering Circular or any other offering material relating to the Notes, and that such offers, sales and distributions have been and shall only be made in France to qualified investors (investisseurs qualifies) acting for their own account as defined in, and in accordance with, Article L.411-1 and L.411-2 of the Code Monetaire et Financier and decret no. 98-880 dated 1st October, 1998. 5. BERMUDA Each Dealer represents and agrees that it will not offer or sell Notes other than to persons whose ordinary activities involve them in acquiring holding, managing or disposing of investments (whether as principal or agent) for the purposes of their businesses, or otherwise in circumstances which do not constitute an offer to the public, unless a prospectus is filed with the Registrar of Companies in Bermuda in accordance with Part III of the Companies Act 1981 (as amended) of Bermuda and that it has complied and will comply with all applicable provisions of the Companies Act, 1981 (as amended) of Bermuda with respect to anything done by it in relation to the Notes in, from or otherwise involving Bermuda. 6. GERMANY Each Dealer represents and agrees that Notes have not been and will not be offered, sold, promoted or advertised by it in the Federal Republic of Germany other than in compliance with the German Securities Selling Prospectus Act (Wertpapier-Verkaufsprospektgesetz) of 13th December, 1990, as amended, or any other laws applicable in the Federal Republic of Germany governing the issue, offering and sale of securities. 26 7. THE NETHERLANDS Each Dealer represents and agrees that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer to sell in The Netherlands any Notes with a denomination of less than E50,000 (or its foreign currency equivalent) other than to persons who trade or invest in securities in the conduct of a profession or business (which include banks, stockbrokers, insurance companies, pension funds, other institutional investors and finance companies and treasury departments of large enterprises) unless one of the other exemptions from or exceptions to the prohibition contained in article 3 of the Dutch Securities Transactions Supervision Act 1995 ("Wet toezicht effectenverkeer 1995") is applicable and the conditions attached to such exemption or exception are complied with. 8. GENERAL Each Dealer will (to the best of its knowledge and belief) comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes the Offering Circular and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and none of the Issuers, the Guarantor nor any other Dealer shall have responsibility therefor. None of the Issuers, the Guarantor nor any of the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale. With regard to each Tranche, the relevant Dealer will be required to comply with such other additional restrictions as the relevant Issuer, the Guarantor and the relevant Dealer shall agree and as shall be set out in the applicable Pricing Supplement. 27 APPENDIX 3 DEALER ACCESSION PART 1 FORM OF DEALER ACCESSION LETTER - PROGRAM [Date] To: CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (the "Issuers") and: CIBA SPECIALTY CHEMICALS HOLDING INC. (the "Guarantor") Attention: Dear Sirs, CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM We refer to the amended and restated Program agreement dated 27th March, 2003 entered into in respect of the above Euro Medium Term Note Program (the PROGRAM) and made between the Issuers, the Guarantor and the Dealers party thereto (which agreement, as amended from time to time, is herein referred to as the PROGRAM AGREEMENT). CONDITIONS PRECEDENT We confirm that we are in receipt of the documents referenced below: (a) a copy of the Program Agreement; (b) a copy of the current version all documents referred to in Appendix 1 of the Program Agreement; and have found them to our satisfaction or (in the case of documents referred to in (b) above) have waived production of such documents. For the purposes of the Program Agreement our Notice Details are as follows: (insert name, address, telephone, telex (+ answerback) and attention). In consideration of appointment by the Issuers and the Guarantor of us as a Dealer under the Program Agreement we hereby undertake, for the benefit of each of the Issuers, the Guarantor and the other Dealers, that we will perform and comply with all the duties and obligations expressed to be assumed by a Dealer under the Program Agreement. 28 This letter is governed by, and shall be construed in accordance with, English law. Yours faithfully, [Name of New Dealer] cc: JPMorgan Chase Bank (Agent) [names of Dealers at the date of accession] 29 PART 2 FORM OF CONFIRMATION LETTER - PROGRAM [Date] To: [Name and address of new Dealer] Dear Sirs, CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM We refer to the amended and restated Program Agreement dated 27th March, 2003 (such agreement, as amended from time to time, the PROGRAM AGREEMENT) entered into in respect to the above Euro Medium Term Note Program and hereby acknowledge receipt of your Dealer Accession Letter to us dated [ ]. We hereby confirm that, with effect from the date hereof, you shall become a party to the Program Agreement in accordance with Clause 11 of the Program Agreement. Yours faithfully, For and on behalf of CIBA SPECIALTY CHEMICALS CORPORATION By: For and on behalf of CIBA SPECIALTY CHEMICALS PLC By: For and on behalf of CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH By: For and on behalf of CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. By: 30 For and on behalf of CIBA SPECIALTY CHEMICALS HOLDING INC. By: By: cc: JPMorgan Chase Bank (Agent) [names of other Dealers at the date of accession] 31 PART 3 FORM OF DEALER ACCESSION LETTER - NOTE ISSUE [DATE] To: CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (the ISSUERS) and: CIBA SPECIALTY CHEMICALS HOLDING INC. (the GUARANTOR) Attention: Dear Sirs, CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM We refer to the amended and restated Program Agreement dated 27th March, 2003 entered into in respect of the above Euro Medium Term Note Program (the PROGRAM) and made between the Issuers, the Guarantor and the Dealers party thereto (which agreement, as amended from time to time, is herein referred to as the PROGRAM AGREEMENT). Conditions Precedent We confirm that we are in receipt of the documents referenced below: (a) a copy of the Program Agreement; (b) a copy of current versions of all documents referred to in Appendix 1 of the Program Agreement; and have found them to our satisfaction or (in the case of documents referred to in (b) above) have waived production of such documents. For the purposes of the Program Agreement our Notice Details are as follows: (insert name, address, telephone, telex (+ answerback) and attention). In consideration of appointment by the Issuers and the Guarantor of us as a Dealer in respect of the issue of [ ] Notes due [ ] (the ISSUE) under the Program Agreement we hereby undertake, for the benefit of each of the Issuers, the Guarantor and each of the other Dealers that in relation to the Issue we will perform and comply with all the duties and obligations expressed to be assumed by a Dealer under the Program Agreement. 32 This letter is governed by, and shall be construed in accordance with, English law. Yours faithfully, [Name of New Dealer] By: cc: JPMorgan Chase Bank (Agent) [names of Dealers at the date of accession] 33 APPENDIX 4 FORM OF CONFIRMATION LETTER - NOTE ISSUE [Date] To: [Name and address of new Dealer] Dear Sirs, CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM We refer to the amended and restated Program Agreement dated 27th March, 2003 (such Agreement, as amended from time to time, the PROGRAM AGREEMENT) entered into in respect to the above Euro Medium Term Note Program and hereby acknowledge receipt of your Dealer Accession Letter to us dated [ ]. We hereby confirm that, with effect from the date hereof in respect of the issue of [ ] Notes due [ ] (the ISSUE), you shall become a party to the Program Agreement in accordance with Clause 11 of the Program Agreement. Yours faithfully, CIBA SPECIALTY CHEMICALS CORPORATION By: CIBA SPECIALTY CHEMICALS PLC By: CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH By: CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. By: 34 CIBA SPECIALTY CHEMICALS HOLDING INC. By: By: cc: JPMorgan Chase Bank (Agent) [names of Dealers at the date of accession] 35 APPENDIX 5 LETTER REGARDING INCREASE IN THE NOMINAL AMOUNT OF THE PROGRAM [Date] To: The Dealers and the Listing Agent (as those expressions are defined in the amended and restated Program Agreement dated 27th March, 2003 as amended from time to time, (the PROGRAM AGREEMENT)) Dear Sirs, CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPECIALTY CHEMICALS PLC CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM We hereby request, pursuant to Clause 12 of the Program Agreement, that the aggregate nominal amount of the above Program be increased to U.S.$[ ] on and from [insert date]. We would like to draw your attention to such Clause 12, under which, should you fail to object in accordance with the provisions set out in that clause, this increase shall (subject as set out below) take effect on and from [insert date], whereupon all references in the Program Agreement, the Agency Agreement, the Deed of Covenant and the Deed of Guarantee will be deemed amended accordingly. We understand that this increase is subject to the satisfaction of the conditions set out in Clause 12 of the Program Agreement. Terms used in this letter have the meanings given to them in the Program Agreement. Yours faithfully, For and on behalf of CIBA SPECIALTY CHEMICALS CORPORATION By: For and on behalf of CIBA SPECIALTY CHEMICALS PLC By: For and on behalf of CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH 36 By: For and on behalf of CIBA SPECIALTY CHEMICALS EUROFINANCE PLC By: For and on behalf of CIBA SPECIALTY CHEMICALS HOLDING INC. By: By: cc: UBS (for distribution to the existing Dealers). JPMorgan Chase Bank (Agent) 37 APPENDIX 6 FORM OF SUBSCRIPTION AGREEMENT [CURRENCY AND AMOUNT] [CIBA SPECIALTY CHEMICALS CORPORATION] [CIBA SPECIALTY CHEMICALS PLC] [CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH] [CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [DESCRIPTION OF NOTES] UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY CIBA SPECIALTY CHEMICALS HOLDING INC. [DATE] To: [ ] (the MANAGERS) c/o [ ] (the LEAD MANAGER) Dear Sirs, [CIBA SPECIALTY CHEMICALS CORPORATION] [CIBA SPECIALTY CHEMICALS PLC] [CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH] [CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] (the ISSUER) proposes to issue [CURRENCY AND AMOUNT] [DESCRIPTION OF NOTES] (the NOTES) unconditionally and irrevocably guaranteed by CIBA SPECIALTY CHEMICALS HOLDING INC. (the GUARANTOR) pursuant to its U.S.$2,000,000,000 Euro Medium Term Note Program. The terms of the issue shall be as set out in the form of Pricing Supplement attached to this Agreement as Annex 1. This Agreement is supplemental to the amended and restated Program Agreement (such agreement, as amended from time to time, the PROGRAM AGREEMENT) dated 27th March, 2003 made between CIBA SPECIALTY CHEMICALS CORPORATION, CIBA SPECIALTY CHEMICALS PLC, CIBA SPECIALITY CHEMICALS EUROFINANCE LTD. and CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH (together the ISSUERS), the Guarantor and the Dealers party thereto. All terms with initial capitals used herein without definition have the meanings given to them in the Program Agreement. We wish to record the arrangements agreed between us in relation to the issue: 1. *[Conditions Precedent - -------- * Delete this paragraph for a Dealer-only syndicate. 38 This Agreement appoints each Manager which is not a party to the Program Agreement (each a NEW DEALER) as a Dealer under the Program Agreement for the purposes of the issue of the Notes. The Lead Manager confirms that it is in receipt of the documents referenced below: (a) a copy of the Program Agreement; (b) a copy of all documents referred to in Appendix 1 of the Program Agreement; and (c) a copy of the Agency Agreement; and has confirmed with (each of) the New Dealer(s) that it/they has/have found them to be satisfactory or (in the case of the documents referred to in (ii)) has/have waived such production. For the purposes of the Program Agreement the details of the Lead Manager for service of notices are as follows: (insert name, address, telephone, telex (# answerback) and attention). In consideration of the Issuer and the Guarantor appointing the New Dealer(s) as (a) Dealer(s) in respect of the Notes under the Program Agreement, each/the New Dealer hereby undertakes, for the benefit of each of the Issuers, the Guarantor and the other Dealers, that, in relation to the issue of the Notes, it will perform and comply with all the duties and obligations expressed to be assumed by a Dealer under the Program Agreement, a copy of which it acknowledges it has received from the Lead Manager.] The Issuer hereby confirms that [each] [the] New Dealer shall be vested with all authority, rights, powers, duties and obligations of a Dealer in relation to the issue of Notes as if originally named as a Dealer under the Program Agreement provided that following the issue of the Temporary Global Note in respect of the Notes [each] [the] New Dealer shall have no further such authority, rights, powers, duties and obligations except such as may have accrued or been incurred prior to, or in connection with, the issue of such Temporary Global Note and the Notes represented thereby. 2. Subject to the terms and conditions of the Program Agreement and this Agreement the Issuer hereby agrees to issue the Notes, the Guarantor hereby agrees to guarantee the Notes and the Managers jointly and severally agree to purchase the Notes at a subscription price of [ ] per cent. of the principal amount of the Notes (the SUBSCRIPTION PRICE), being the issue price of [ ] per cent. less a selling commission of [ ] per cent. of such principal amount and a management and underwriting fee of [ ] per cent. of such principal amount. 3. The net purchase money in respect of the Notes, namely the sum of [ ] (representing the Subscription Price, less the amount payable in respect of the Managers' expenses specified in Clause 4 hereof) will be paid by the Lead Manager on behalf of the Managers to the Issuer at [ ] hours (London time) on [ ], or at such other time and/or date as the Issuer and the Lead Manager on behalf of the Managers may agree (the CLOSING DATE) against delivery to a common depositary for Clearstream, Luxembourg and Euroclear Bank S.A./N.V. as operator of the Euroclear System, or any successor to the business thereof of a temporary global note representing the Notes, in the manner contemplated in the Program Agreement. 4. The Issuer or, failing the Issuer, the Guarantor shall bear and pay all costs and expenses incurred in or in connection with the printing of the Notes, this Agreement and the Pricing Supplement prepared in connection with the issue of the Notes, the listing of the Notes on the [ ] Stock Exchange and making initial delivery of the Notes. In addition, the Issuer or, 39 failing the Issuer, the Guarantor agrees to pay to the Lead Manager [ ] in respect of reasonable legal, travelling, telex, facsimile, telephone, postage and costs of any publicity agreed in writing by the Issuer or the Guarantor incurred and to be incurred by the Managers in connection with the preparation and management of the issue and distribution of the Notes which sum may be deducted from the Subscription Price as provided in Clause 3 hereof. 5. The obligation of the Managers to purchase the Notes is conditional upon: (a) the conditions set out in subclause 3.2 (other than that set out in subclause 3.2(f)) of the Program Agreement being satisfied as of the Closing Date and without prejudice to the aforesaid, the Offering Circular dated [ ] [, as supplemented by [ ],] containing all material information relating to the assets and liabilities, financial position and profits and losses of the Issuer [and the Guarantor/Parent] and nothing having happened or being expected to happen which would require the Offering Circular [, as so supplemented,] to be [further] supplemented or updated; and (b) the delivery to the Lead Manager on the Closing Date of: (i) legal opinions addressed to the Managers dated the Closing Date in such form and with such contents as the Lead Manager, on behalf of the Managers, may reasonably require [from Freshfields Bruckhaus Deringer/Cravath, Swaine & Moore/Appleby, Spurling & Kempe], the legal advisers to the Issuer as to [German/United States/Bermudan law,] from Homburger, the legal advisers to the Guarantor as to Swiss law, and from Allen & Overy, the legal advisers to the Managers as to English law; (ii) a certificate dated the Closing Date signed by a duly authorised officer of each of the Issuer and the Guarantor to the effect stated in paragraph (i) of this Clause; (iii) a comfort letter dated the Closing Date from the independent auditors of each of the Issuer and the Guarantor, in such form and with such content as the Managers may reasonably request; and (iv) [list such other conditions precedent as may be agreed]. If any of the foregoing conditions is not satisfied on or before the Closing Date, this Agreement shall terminate on such date and the parties hereto shall be under no further liability arising out of this Agreement (except for the liability of the Issuer and the Guarantor in relation to expenses as provided in Clause 4 and except for any liability arising before or in relation to such termination), provided that the Lead Manager, on behalf of the Managers, may in its discretion waive any of the aforesaid conditions (other than the conditions precedent contained in subclause 3.2(c) of the Program Agreement) or any part of them. 6. In connection with the distribution of the Notes, the Lead Manager may over-allot or effect transactions in the open market or otherwise with a view to stabilising or maintaining the market price of the Notes at levels other than those which might otherwise prevail in the open market, but in doing so the Lead Manager shall act as principal and not as agent of the Issuer. Such stabilising if commenced, may be discontinued at any time. Any loss resulting from over-allotment and stabilisation shall be borne, and any net profit arising therefrom shall be retained, by the Lead Manager for its own account. Such stabilisation shall be done in compliance with all applicable laws. 40 7. (a) The Lead Manager, on behalf of the Managers, may, after consultation with the Issuer and the Guarantor if practicable and by notice to the Issuer and the Guarantor, terminate this Agreement at any time prior to payment of the net purchase money to the Issuer if in the opinion of the Lead Manager there shall have been such a change in national or international financial, political or economic conditions or currency exchange rates or exchange controls as would in the view of the Lead Manager be likely to prejudice materially the success of the offering and distribution of the Notes (whether in the primary market or in respect of dealings in the Notes in the secondary market). (b) Upon such notice being given, this Agreement shall terminate and no party shall be under any liability to any other in respect thereof except for the liability of the Issuer and the Guarantor for the payment of costs and expenses as provided in Clause 4 of this Agreement, the obligations of the Managers under Clause 8 of the Program Agreement and the respective obligations of the parties under Clause 6 of the Program Agreement. 8. (a) This Agreement shall be governed by, and construed in accordance with, the laws of England. (b) A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. (c) Each party to this Agreement hereby irrevocably agrees for the exclusive benefit of the other parties to this Agreement that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of or in connection with this Agreement may be brought in such courts. Each party to this Agreement hereby irrevocably waives any objection which it may have to the laying of the venue of any Proceedings in any such courts and any claim that any such Proceedings have been brought in an inconvenient forum and hereby further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon such party and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained herein shall limit any right to take Proceedings against the Issuer and/or the Guarantor in any other court of competent jurisdiction (outside the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982), nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not (subject to the laws of the relevant jurisdiction). The [Issuer and the] Guarantor hereby appoints [the Issuer/Ciba Specialty Chemicals PLC] as its agent for service of process and agrees that, in the event of ceasing so to act or ceasing to be registered in England, it will appoint another person as its agent for service of process in England in respect of any Proceedings. 9. This Agreement may be signed in any number of counterparts, all of which, taken together, shall constitute one and the same agreement and any party may enter into this Agreement by executing a counterpart. 41 Please confirm that this letter correctly sets out the arrangements agreed between us. Yours faithfully, For: [Issuer] By: For: CIBA SPECIALTY CHEMICALS HOLDING INC. By: By: We agree to the foregoing. For: [ ] By: 42 ANNEX 1 [FORM OF PRICING SUPPLEMENT] 43 APPENDIX 7 FORM OF DEED OF COVENANT THIS DEED OF COVENANT is made on 27th March, 2003 by each of Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC, Ciba Spezialitatenchemie Holding Deutschland GmbH and Ciba Specialty Chemicals Eurofinance Ltd. (each an Issuer) in favour of the account holders of Clearstream Banking, societe anonyme (CLEARSTREAM, LUXEMBOURG) and Euroclear Bank S.A./N.V. as operator of the Euroclear System (EUROCLEAR), or any successor to the business thereof or any other additional clearing system or systems as are specified in the Pricing Supplement relating to any Note (as defined below) (each a CLEARING SYSTEM). WHEREAS: (a) Each Issuer has entered into an amended and restated Program Agreement (the PROGRAM AGREEMENT, which expression includes the same as it may be amended, supplemented, novated or restated from time to time) dated 27th March, 2003 with Ciba Specialty Chemicals Holding Inc. (the GUARANTOR) and the Dealers named therein under which the relevant Issuer proposes from time to time to issue Euro Medium Term Notes (the NOTES), which amends and restates the amended and restated program agreement dated 16th June, 2000 with Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC, Ciba Spezialitatenchemie Holdings Deutschland GmbH, Ciba Specialty Chemicals Eurofinance Ltd., the Guarantor and the Dealers named therein (the PRINCIPAL PROGRAM AGREEMENT). (b) Each Issuer has also entered into an amended and restated Agency Agreement (the AGENCY AGREEMENT, which expression includes the same as it may be amended, supplemented, novated or restated from time to time) dated 27th March, 2003 between, inter alios, the Issuer and JPMorgan Chase Bank (the AGENT). (c) The Notes will initially be represented by, and comprised in, Temporary Global Notes (the TEMPORARY GLOBAL NOTES) and thereafter may be represented by, and comprised in, Permanent Global Notes (the PERMANENT GLOBAL NOTES and together with the Temporary Global Notes, the GLOBAL NOTES), such Global Notes representing a certain number of underlying Notes (the UNDERLYING NOTES). (d) Each Global Note will, after issue, be deposited with a common depository for one or more Clearing Systems (each such Clearing System or all such Clearing Systems together, the RELEVANT CLEARING SYSTEM). Upon such deposit of a Global Note the Underlying Notes represented by such Global Note will be credited to a securities account or securities accounts with the Relevant Clearing System. Any account holder with the Relevant Clearing System which has Underlying Notes credited to its securities account from time to time (each a RELEVANT ACCOUNT HOLDER) will, subject to and in accordance with the terms and conditions and operating procedures or management regulations of the Relevant Clearing System, be entitled to transfer such Underlying Notes and (subject to and upon payment being made by the relevant Issuer to the bearer in accordance with the terms of the relevant Global Note) will be entitled to receive payments from the Relevant Clearing System calculated by reference to the Underlying Notes credited to its securities account. (e) In certain circumstances specified in each Global Note, a Global Note will become void. The time at which a Global Note becomes void is hereinafter referred to as the RELEVANT TIME. In such circumstances each Relevant Account Holder will, subject to and in accordance with the terms of this Deed, acquire against the relevant Issuer all those rights which such Relevant Account Holder would have had if, prior to the Global Note becoming void, duly executed 44 and authenticated Definitive Note(s) (as defined in the Agency Agreement) and, if the Notes are repayable in instalments, receipts in respect thereof (the RECEIPTS) and interest coupons (the COUPONS) appertaining to the Definitive Note(s) (if appropriate) had been issued in respect of its Underlying Note(s) and such Definitive Notes(s), Receipts (if appropriate) and Coupons (if appropriate) were held and beneficially owned by such Relevant Account Holder. (f) The obligations of each Issuer under this Deed have been guaranteed by the Guarantor pursuant to the amended and restated Deed of Guarantee (the GUARANTEE) executed by the Guarantor on 27th March, 2003 and an executed copy of the Guarantee has been deposited with and shall be held by the Agent for the time being for the Notes. A copy of the Guarantee shall be available for inspection at the office of the Agent for the time being (being at the date hereof at Trinity Tower, 9 Thomas More Street, London E1 9YT). (g) This Deed of Covenant amends and restates the amended and restated Deed of Covenant entered into by Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC and Ciba Spezialitatenchemie Holding Deutschland GmbH dated 27th March, 2002. This Deed of Covenant does not affect any Notes issued pursuant to the Principal Program Agreement prior to the date hereof. NOW THIS DEED WITNESSES AS FOLLOWS: 1. If any Global Note becomes void in accordance with the terms thereof the relevant Issuer hereby undertakes and covenants with each Relevant Account Holder (other than when any Relevant Clearing System is an account holder of any other Relevant Clearing System) that each Relevant Account Holder shall automatically acquire at the Relevant Time, without the need for any further action on behalf of any person, against the relevant Issuer all those rights which such Relevant Account Holder would have had if at the Relevant Time it held and beneficially owned duly executed and authenticated Definitive Note(s), Receipts (if appropriate) and Coupons (if appropriate) in respect of each Underlying Note represented by such Global Note which such Relevant Account Holder has credited to its securities account with the Relevant Clearing System at the Relevant Time. The relevant Issuer's obligation pursuant to this clause shall be a separate and independent obligation by reference to each Underlying Note which a Relevant Account Holder has credited to its securities account with the Relevant Clearing System and the relevant Issuer agrees that a Relevant Account Holder may assign its rights hereunder in whole or in part. 2. The records of the Relevant Clearing System shall be conclusive evidence of the identity of the Relevant Account Holders and the number of Underlying Notes credited to the securities account of each Relevant Account Holder. For the purposes hereof a statement issued by the Relevant Clearing System stating: (a) the name of the Relevant Account Holder to which such statement is issued; and (b) the aggregate nominal amount of Underlying Notes credited to the securities account of such Relevant Account Holder as at the opening of business on the first day following the Relevant Time on which the Relevant Clearing System is open for business, shall be conclusive evidence of the records of the Relevant Clearing System at the Relevant Time. 3. In the event of a dispute, the determination of the Relevant Time by the Relevant Clearing System shall be final and conclusive for all purposes in connection with the Relevant Account Holders with securities accounts with the Relevant Clearing System. 45 4. (a) Where the Issuer is Ciba Specialty Chemicals Corporation: The Issuer will, subject to the exceptions and limitations set forth below, pay as additional interest on an Underlying Note such additional amounts as are necessary in order that the net amounts receivable pursuant to the terms of the Underlying Note by each Relevant Account Holder who is a United States Alien (as such term is defined below), after deduction for any present or future tax, assessment or governmental charge of the United States (as such term is defined below), or a political subdivision or authority thereof or therein, imposed by withholding with respect to the payment, will not be less than the amounts provided for in such Underlying Note to be then due and payable; provided, however, that the foregoing obligation to pay additional amounts shall not apply to: (i) any tax, assessment or governmental charge that would not have been so imposed but for the existence of any present or former connection between such Relevant Account Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or holder of power over, such holder, if such Relevant Account Holder is an estate, trust, partnership or corporation) and the United States, including, without limitation, such Relevant Account Holder (or fiduciary, settlor, beneficiary, member, shareholder or holder of a power) being considered as: (A) being or having been present or engaged in a trade or business in the United States or having or having had a permanent establishment therein; (B) having a current or former relationship with the United States, including a relationship as a citizen or resident or being treated as a resident thereof; (C) being or having been a personal holding company, a controlled foreign corporation, a passive foreign investment company, a foreign personal holding company with respect to the United States, a corporation that has accumulated earnings to avoid United States Federal income tax or a private foundation or other tax-exempt organisation; or (D) an actual or a constructive "10-per cent shareholder" of the Issuer as defined in Section 871(h)(3) of the United States Internal Revenue Code of 1986, as amended (the CODE); (ii) any Relevant Account Holder who is a fiduciary or partnership or other than the sole beneficial owner of the Underlying Note or Coupon, but only to the extent that a beneficiary or settlor with respect to such fiduciary or member of such partnership or a beneficial owner of the Underlying Note or Coupon would not have been entitled to the payment of an additional amount had such beneficiary, settlor, member or beneficial owner been the Relevant Account Holder of such Underlying Note or Coupon; (iii) any tax, assessment or governmental charge that would not have been imposed or withheld but for the failure of the Relevant Account Holder, if required, to comply with certification, identification or information reporting requirements under United States income tax laws, without regard to any tax treaty, with respect to the payment, concerning the nationality, residence, 46 identity or connection with the United States of the Relevant Account Holder or a beneficial owner of such Underlying Note or Coupon, if such compliance is required by United States income tax laws, without regard to any tax treaty, as a precondition to relief or exemption from such tax, assessment or governmental charge; (iv) any tax, assessment or governmental charge that would not have been so imposed or withheld but for the presentation by the holder of such Underlying Note or Coupon for payment on a date more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on the last day of such 30 day period; (v) any estate, inheritance, gift, sales, transfer, excise, wealth or personal property tax or any similar tax, assessment or governmental charge; (vi) any tax, assessment or governmental charge that is payable otherwise than by withholding from the payment of the amounts receivable in respect of such Underlying Note or Coupon; (vii) any tax, assessment or governmental charge required to be withheld by any paying agent from such payment of amounts receivable in respect of any Underlying Note, if such payment can be made without such withholding by any other paying agent; (viii) any combination of items (i), (ii), (iii), (iv), (v), (vi) or (vii); (ix) any Underlying Note, Receipt or Coupon presented for payment where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of November 26-27, 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive; or (x) any Underlying Note, Receipt or Coupon presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note, Receipt or Coupon to another Paying Agent in a Member State of the EU. As used in this Clause, UNITED STATES means the United States of America, the Commonwealth of Puerto Rico and each possession of the United States of America and place subject to its jurisdiction and UNITED STATES ALIEN means any corporation, partnership, individual or fiduciary that, as to the United States, is for United States Federal income tax purposes (A) a foreign corporation, (B) a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust, (C) a non-resident alien individual or (D) a non-resident alien fiduciary of a foreign estate or trust. (b) Where the Issuer is Ciba Spezialitatenchemie Holding Deutschland GmbH: All payments in respect of the Underlying Note, Receipt or Coupon by the Issuer will be made without withholding or deduction for or on account of any present or future 47 taxes or duties of whatever nature imposed or levied by or on behalf of Germany or any state (Bundesland), municipality or other political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In such event, the Issuer will pay such additional amounts as shall be necessary in order that the net amounts received by the Relevant Account Holders after such withholding or deduction shall equal the amounts which would otherwise have been receivable in respect of the Underlying Note, Receipt or Coupon in the absence of such withholding or deduction; except that no such additional amounts shall be payable with respect to any Underlying Note, Receipt or Coupon to or to the order of a Relevant Account Holder who is liable for such taxes or duties in respect of such Underlying Note, Receipt or Coupon by reason of his having some connection with Germany other than the mere holding of such Underlying Note, Receipt or Coupon or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent which is required to deduct or withhold an amount for or on account of such taxes or duties if such amount can be paid without any deduction or withholding for or on account of any taxes or duties by any other paying agent or in respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. Any advance income tax (Zinsabschlagsteuer) levied in Germany as well as the solidarity surcharge (Solidaritatszuschlag) imposed thereon do not constitute a withholding or deduction within the meaning of this Clause 4(a)(b). (c) Where the Issuer is Ciba Specialty Chemicals PLC: All payments by the Issuer in respect of the Underlying Note, Receipt or Coupon shall be made without withholding or deduction for or on account of any present or future tax, duty or charge of whatever nature imposed or levied by or on behalf of the United Kingdom, or any authority thereof or therein having power to tax unless the withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result (after such withholding or deduction) in the receipt by the Relevant Account Holders of the sums which would have been receivable (in the absence of such withholding or deduction) from the Issuer in respect of their Underlying Note, Receipt or Coupon ; except that no such additional amounts shall be payable with respect to any Underlying Note, Receipt or Coupon to or to the order of a person liable to such tax, duty or charge in respect of such Underlying Note, Receipt or Coupon by reason of his having some connection with the United Kingdom other than the mere holding or ownership of such Underlying Note, Receipt or Coupon or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent which is required to deduct or withhold an amount for or on account of such tax, duty or charge if such amount can be paid without any deduction or withholding for or on account of any tax, duty or charge by any other paying agent or with respect to any Underlying Note, Receipt or Coupon presented 48 for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. (d) Where the Issuer is Ciba Specialty Chemicals Eurofinance Ltd.: All payments by the Issuer in respect of the Underlying Note, Receipt or Coupon shall be made without withholding or deduction for or on account of any present or future tax, duty or charge of whatever nature imposed or levied by or on behalf of Bermuda, or any authority thereof or therein having power to tax unless the withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result (after such withholding or deduction) in the receipt by the Relevant Account Holders of the sums which would have been receivable (in the absence of such withholding or deduction) from the Issuer in respect of their Underlying Note, Receipt or Coupon ; except that no such additional amounts shall be payable with respect to any Underlying Note to or to the order of any person liable to such tax, duty or charge in respect of such Underlying Note, Receipt or Coupon by reason of his having some connection with Bermuda other than the mere holding or ownership of such Underlying Note or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. 5. Each Issuer hereby warrants, represents and covenants with each Relevant Account Holder that it has all corporate power, and has taken all necessary corporate or other steps, to enable it to execute, deliver and perform this Deed, and that this Deed constitutes a legal, valid and binding obligation of the relevant Issuer enforceable in accordance with its terms subject to the laws of bankruptcy and other laws affecting the rights of creditors generally. 6. This Deed shall take effect as a Deed Poll for the benefit of the Relevant Account Holders from time to time and for the time being. This Deed shall be deposited with and held by a depository for Clearstream, Luxembourg and Euroclear, or any successor to the business thereof and for the time being (being at the date hereof JPMorgan Chase Bank at Trinity Tower, 9 Thomas More Street, London E1 9YT) until all the obligations of each Issuer hereunder have been discharged in full. 49 7. Each Issuer hereby acknowledges the right of every Relevant Account Holder to the production of, and the right of every Relevant Account Holder to obtain (upon payment of a reasonable charge) a copy of, this Deed, and further acknowledges and covenants that the obligations binding upon it contained herein are owed to, and shall be for the account of, each and every Relevant Account Holder, and that each Relevant Account Holder shall be entitled severally to enforce the said obligations against the relevant Issuer. 8. No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Deed, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 9. This Deed is governed by, and shall be construed in accordance with, the laws of England. Each Issuer hereby irrevocably agrees, for the exclusive benefit of the Relevant Account Holders, that the courts of England are to have jurisdiction to settle any dispute which may arise out of, or in connection with, this Deed and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of, or in connection with, this Deed may be brought in such courts. Each Issuer irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon the relevant Issuer and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained in this Clause shall limit any right to take Proceedings against any Issuer in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not (subject to the laws of the relevant jurisdictions). Ciba Specialty Chemicals Corporation, Ciba Spezialitatenchemie Holding Deutschland GmbH and Ciba Specialty Chemicals Eurofinance Ltd. each hereby appoints Ciba Specialty Chemicals PLC at its registered office for the time being to accept service of process on its behalf. If Ciba Specialty Chemicals PLC shall cease to be registered under the laws of England and Wales, the relevant Issuer shall appoint another person with an office in London to accept such service. Nothing herein shall affect the right to serve process in any other manner permitted by law. 10. This Deed may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS whereof each Issuer has caused this Deed to be duly executed the day and year first above mentioned. 50 SIGNATORIES EXECUTED as a Deed by CIBA ) SPECIALTY CHEMICALS ) CORPORATION ) acting by ) and ) acting under the authority of that company ) in the presence of: ) Witness's Signature ________________________________ Name ________________________________ Address ________________________________ ________________________________ EXECUTED as a Deed by CIBA ) SPECIALTY CHEMICALS ) PLC ) acting by its attorney(s) ) ) in the presence of: ) Witness's Signature ________________________________ Name ________________________________ Address ________________________________ ________________________________ 51 EXECUTED as a Deed by CIBA ) SPEZIALITATENCHEMIE ) HOLDING DEUTSCHLAND GMBH ) acting by ) and ) acting under the authority of that company ) in the presence of: ) Witness's Signature ________________________________ Name ________________________________ Address ________________________________ ________________________________ EXECUTED as a Deed under ) Seal by CIBA SPECIALTY CHEMICALS ) EUROFINANCE LTD. ) and SIGNED AND DELIVERED as ) a deed on its behalf by ) pursuant to a power of attorney dated 26th ) March, 2002 ) in the presence of: ) Witness's Signature ________________________________ Name ________________________________ Address ________________________________ ________________________________ 52 THE ISSUERS CIBA SPECIALTY CHEMICALS CORPORATION 560 White Plains Road Tarrytown New York 10591-9005 Telephone: +1 914 785 2000 Telefax: +1 914 785 2183 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB CIBA SPECIALTY CHEMICALS PLC Hulley Road Macclesfield Cheshire SK10 2NX Telephone: +44 1 625 421 933 Telefax: +44 1 625 619 637 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH Chemiestrasse D-68623 Lampertheim Germany Telephone: +49 620 6150 Telefax: +49 620 6151368 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB 53 CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. c/o Reid Management Limited 4th Floor Windsor Place 22 Queen Street PO Box HM1179 Hamilton HMEX Bermuda Telephone: +1 441 296 3695 Telefax: +1 441 295 3328 Attention: Tamara Lewis/Adrian Arnold By: KIRK ERSTLING OLIVER STRUB THE GUARANTOR CIBA SPECIALTY CHEMICALS HOLDING INC. Klybeckstrasse 141 CH-4002 Basle Switzerland Telephone: +41 61 636 2740 Telefax: +41 61 636 6828 Attention: Group Treasurer By: KIRK ERSTLING OLIVER STRUB THE DEALERS CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED One Cabot Square London E14 4QJ Telephone: 020 7888 4021 Telefax 020 7905 6128 Attention: MTN Trading DEUTSCHE BANK AG LONDON Winchester House 1 Great Winchester Street London EC2N 2DB Telephone: 020 7545 2761 Telefax: 020 7541 2761 Telex: 94015555 DBLN G Attention: MTN Desk 54 GOLDMAN SACHS INTERNATIONAL Peterborough Court 133 Fleet Street London EC4A 2BB Telephone: 020 7774 2295 Telex: 94012165 GSHH G Telefax: 020 7774 5711 Attention: Euro Medium Term Note Desk J.P. MORGAN SECURITIES LTD. 125 London Wall London EC2Y 5AJ Telephone: 020 7779 3469 Telex: 8954804 MGLTD G Telefax: 020 7325 8225 Attention: Euro Medium Term Note Desk Each by its duly authorised signatory: KARIN FORSTER UBS LIMITED 100 Liverpool Street London EC2M 2RH Telephone: 44 20 7567 2479 Telefax: 44 20 7568 3349 Attention: MTNs and Private Placements By: KARIN FORSTER By: AKSHATA RAO 55 EX-4.2 4 u47015exv4w2.txt EXHIBIT 4.2 DEED OF COVENANT THIS DEED OF COVENANT is made on 27th March, 2003 by each of Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC, Ciba Spezialitatenchemie Holding Deutschland GmbH and Ciba Specialty Chemicals Eurofinance Ltd. (each an ISSUER) in favour of the account holders of Clearstream Banking, societe anonyme (CLEARSTREAM, LUXEMBOURG) and Euroclear Bank S.A./N.V. as operator of the Euroclear System (EUROCLEAR), or any successor to the business thereof or any other additional clearing system or systems as are specified in the Pricing Supplement relating to any Note (as defined below) (each a CLEARING SYSTEM). WHEREAS: (a) Each Issuer has entered into an amended and restated Program Agreement (the PROGRAM AGREEMENT, which expression includes the same as it may be amended, supplemented, novated or restated from time to time) dated 27th March, 2003 with Ciba Specialty Chemicals Holding Inc. (the GUARANTOR) and the Dealers named therein under which the relevant Issuer proposes from time to time to issue Euro Medium Term Notes (the NOTES), which amends and restates the amended and restated program agreement dated 16th June, 2000 with Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC, Ciba Spezialitatenchemie Holdings Deutschland GmbH, Ciba Specialty Chemicals Eurofinance Ltd., the Guarantor and the Dealers named therein (the PRINCIPAL PROGRAM AGREEMENT). (b) Each Issuer has also entered into an amended and restated Agency Agreement (the AGENCY AGREEMENT, which expression includes the same as it may be amended, supplemented, novated or restated from time to time) dated 27th March, 2003 between, inter alios, the Issuer and JPMorgan Chase Bank (the AGENT). (c) The Notes will initially be represented by, and comprised in, Temporary Global Notes (the TEMPORARY GLOBAL NOTES) and thereafter may be represented by, and comprised in, Permanent Global Notes (the PERMANENT GLOBAL NOTES and together with the Temporary Global Notes, the GLOBAL NOTES), such Global Notes representing a certain number of underlying Notes (the UNDERLYING NOTES). (d) Each Global Note will, after issue, be deposited with a common depository for one or more Clearing Systems (each such Clearing System or all such Clearing Systems together, the RELEVANT CLEARING SYSTEM). Upon such deposit of a Global Note the Underlying Notes represented by such Global Note will be credited to a securities account or securities accounts with the Relevant Clearing System. Any account holder with the Relevant Clearing System which has Underlying Notes credited to its securities account from time to time (each a RELEVANT ACCOUNT HOLDER) will, subject to and in accordance with the terms and conditions and operating procedures or management regulations of the Relevant Clearing System, be entitled to transfer such Underlying Notes and (subject to and upon payment being made by the relevant Issuer to the bearer in accordance with the terms of the relevant Global Note) will be entitled to receive payments from the Relevant Clearing System calculated by reference to the Underlying Notes credited to its securities account. (e) In certain circumstances specified in each Global Note, a Global Note will become void. The time at which a Global Note becomes void is hereinafter referred to as the RELEVANT TIME. In such circumstances each Relevant Account Holder will, subject to and in accordance with the terms of this Deed, acquire against the relevant Issuer all those rights which such Relevant Account Holder would have had if, prior to the Global Note becoming void, duly executed and authenticated Definitive Note(s) (as defined in the Agency Agreement) and, if the Notes are repayable in instalments, receipts in respect thereof (the RECEIPTS) and interest coupons 1 (the COUPONS) appertaining to the Definitive Note(s) (if appropriate) had been issued in respect of its Underlying Note(s) and such Definitive Notes(s), Receipts (if appropriate) and Coupons (if appropriate) were held and beneficially owned by such Relevant Account Holder. (f) The obligations of each Issuer under this Deed have been guaranteed by the Guarantor pursuant to the amended and restated Deed of Guarantee (the GUARANTEE) executed by the Guarantor on 27th March, 2003 and an executed copy of the Guarantee has been deposited with and shall be held by the Agent for the time being for the Notes. A copy of the Guarantee shall be available for inspection at the office of the Agent for the time being (being at the date hereof at Trinity Tower, 9 Thomas More Street, London E1 9YT). (g) This Deed of Covenant amends and restates the amended and restated Deed of Covenant entered into by Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC and Ciba Spezialitatenchemie Holding Deutschland GmbH dated 27th March, 2002. This Deed of Covenant does not affect any Notes issued pursuant to the Principal Program Agreement prior to the date hereof. NOW THIS DEED WITNESSES AS FOLLOWS: 1. If any Global Note becomes void in accordance with the terms thereof the relevant Issuer hereby undertakes and covenants with each Relevant Account Holder (other than when any Relevant Clearing System is an account holder of any other Relevant Clearing System) that each Relevant Account Holder shall automatically acquire at the Relevant Time, without the need for any further action on behalf of any person, against the relevant Issuer all those rights which such Relevant Account Holder would have had if at the Relevant Time it held and beneficially owned duly executed and authenticated Definitive Note(s), Receipts (if appropriate) and Coupons (if appropriate) in respect of each Underlying Note represented by such Global Note which such Relevant Account Holder has credited to its securities account with the Relevant Clearing System at the Relevant Time. The relevant Issuer's obligation pursuant to this clause shall be a separate and independent obligation by reference to each Underlying Note which a Relevant Account Holder has credited to its securities account with the Relevant Clearing System and the relevant Issuer agrees that a Relevant Account Holder may assign its rights hereunder in whole or in part. 2. The records of the Relevant Clearing System shall be conclusive evidence of the identity of the Relevant Account Holders and the number of Underlying Notes credited to the securities account of each Relevant Account Holder. For the purposes hereof a statement issued by the Relevant Clearing System stating: (a) the name of the Relevant Account Holder to which such statement is issued; and (b) the aggregate nominal amount of Underlying Notes credited to the securities account of such Relevant Account Holder as at the opening of business on the first day following the Relevant Time on which the Relevant Clearing System is open for business, shall be conclusive evidence of the records of the Relevant Clearing System at the Relevant Time. 3. In the event of a dispute, the determination of the Relevant Time by the Relevant Clearing System shall be final and conclusive for all purposes in connection with the Relevant Account Holders with securities accounts with the Relevant Clearing System. 4. (a) Where the Issuer is Ciba Specialty Chemicals Corporation: 2 The Issuer will, subject to the exceptions and limitations set forth below, pay as additional interest on an Underlying Note such additional amounts as are necessary in order that the net amounts receivable pursuant to the terms of the Underlying Note by each Relevant Account Holder who is a United States Alien (as such term is defined below), after deduction for any present or future tax, assessment or governmental charge of the United States (as such term is defined below), or a political subdivision or authority thereof or therein, imposed by withholding with respect to the payment, will not be less than the amounts provided for in such Underlying Note to be then due and payable; provided, however, that the foregoing obligation to pay additional amounts shall not apply to: (i) any tax, assessment or governmental charge that would not have been so imposed but for the existence of any present or former connection between such Relevant Account Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or holder of power over, such holder, if such Relevant Account Holder is an estate, trust, partnership or corporation) and the United States, including, without limitation, such Relevant Account Holder (or fiduciary, settlor, beneficiary, member, shareholder or holder of a power) being considered as: (A) being or having been present or engaged in a trade or business in the United States or having or having had a permanent establishment therein; (B) having a current or former relationship with the United States, including a relationship as a citizen or resident or being treated as a resident thereof; (C) being or having been a personal holding company, a controlled foreign corporation, a passive foreign investment company, a foreign personal holding company with respect to the United States, a corporation that has accumulated earnings to avoid United States Federal income tax or a private foundation or other tax-exempt organisation; or (D) an actual or a constructive "10-per cent shareholder" of the Issuer as defined in Section 871(h)(3) of the United States Internal Revenue Code of 1986, as amended (the CODE); (ii) any Relevant Account Holder who is a fiduciary or partnership or other than the sole beneficial owner of the Underlying Note or Coupon, but only to the extent that a beneficiary or settlor with respect to such fiduciary or member of such partnership or a beneficial owner of the Underlying Note or Coupon would not have been entitled to the payment of an additional amount had such beneficiary, settlor, member or beneficial owner been the Relevant Account Holder of such Underlying Note or Coupon; (iii) any tax, assessment or governmental charge that would not have been imposed or withheld but for the failure of the Relevant Account Holder, if required, to comply with certification, identification or information reporting requirements under United States income tax laws, without regard to any tax treaty, with respect to the payment, concerning the nationality, residence, identity or connection with the United States of the Relevant Account Holder 3 or a beneficial owner of such Underlying Note or Coupon, if such compliance is required by United States income tax laws, without regard to any tax treaty, as a precondition to relief or exemption from such tax, assessment or governmental charge; (iv) any tax, assessment or governmental charge that would not have been so imposed or withheld but for the presentation by the holder of such Underlying Note or Coupon for payment on a date more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on the last day of such 30 day period; (v) any estate, inheritance, gift, sales, transfer, excise, wealth or personal property tax or any similar tax, assessment or governmental charge; (vi) any tax, assessment or governmental charge that is payable otherwise than by withholding from the payment of the amounts receivable in respect of such Underlying Note or Coupon; (vii) any tax, assessment or governmental charge required to be withheld by any paying agent from such payment of amounts receivable in respect of any Underlying Note, if such payment can be made without such withholding by any other paying agent; (viii) any combination of items (i), (ii), (iii), (iv), (v), (vi) or (vii); (ix) any Underlying Note, Receipt or Coupon presented for payment where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of November 26-27, 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive; or (x) any Underlying Note, Receipt or Coupon presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note, Receipt or Coupon to another Paying Agent in a Member State of the EU. As used in this Clause, UNITED STATES means the United States of America, the Commonwealth of Puerto Rico and each possession of the United States of America and place subject to its jurisdiction and UNITED STATES ALIEN means any corporation, partnership, individual or fiduciary that, as to the United States, is for United States Federal income tax purposes (A) a foreign corporation, (B) a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust, (C) a non-resident alien individual or (D) a non-resident alien fiduciary of a foreign estate or trust. (b) Where the Issuer is Ciba Spezialitatenchemie Holding Deutschland GmbH: All payments in respect of the Underlying Note, Receipt of Coupon by the Issuer will be made without withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of Germany or 4 any state (Bundesland), municipality or other political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In such event, the Issuer will pay such additional amounts as shall be necessary in order that the net amounts received by the Relevant Account Holders after such withholding or deduction shall equal the amounts which would otherwise have been receivable in respect of the Underlying Note, Receipt of Coupon in the absence of such withholding or deduction; except that no such additional amounts shall be payable with respect to any Underlying Note, Receipt of Coupon to or to the order of a Relevant Account Holder who is liable for such taxes or duties in respect of such Underlying Note, Receipt of Coupon by reason of his having some connection with Germany other than the mere holding of such Underlying Note, Receipt of Coupon or with respect to any Underlying Note, Receipt of Coupon presented for payment to a paying agent which is required to deduct or withhold an amount for or on account of such taxes or duties if such amount can be paid without any deduction or withholding for or on account of any taxes or duties by any other paying agent or in respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note, Receipt of Coupon presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. Any advance income tax (Zinsabschlagsteuer) levied in Germany as well as the solidarity surcharge (Solidaritatszuschlag) imposed thereon do not constitute a withholding or deduction within the meaning of this Clause 4(a)(b). (c) Where the Issuer is Ciba Specialty Chemicals PLC: All payments by the Issuer in respect of the Underlying Note, Receipt of Coupon shall be made without withholding or deduction for or on account of any present or future tax, duty or charge of whatever nature imposed or levied by or on behalf of the United Kingdom, or any authority thereof or therein having power to tax unless the withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result (after such withholding or deduction) in the receipt by the Relevant Account Holders of the sums which would have been receivable (in the absence of such withholding or deduction) from the Issuer in respect of their Underlying Note, Receipt of Coupon; except that no such additional amounts shall be payable with respect to any Underlying Note, Receipt of Coupon to or to the order of a person liable to such tax, duty or charge in respect of such Underlying Note, Receipt of Coupon by reason of his having some connection with the United Kingdom other than the mere holding or ownership of such Underlying Note, Receipt of Coupon or with respect to any Underlying Note presented for payment to a paying agent which is required to deduct or withhold an amount for or on account of such tax, duty or charge if such amount can be paid without any deduction or withholding for or on account of any tax, duty or charge by any other paying agent or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of 5 the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. (d) Where the Issuer is Ciba Specialty Chemicals Eurofinance Ltd.: All payments by the Issuer in respect of the Underlying Note, Receipt of Coupon shall be made without withholding or deduction for or on account of any present or future tax, duty or charge of whatever nature imposed or levied by or on behalf of Bermuda, or any authority thereof or therein having power to tax unless the withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result (after such withholding or deduction) in the receipt by the Relevant Account Holders of the sums which would have been receivable (in the absence of such withholding or deduction) from the Issuer in respect of their Underlying Note, Receipt of Coupon; except that no such additional amounts shall be payable with respect to any Underlying Note to or to the order of any person liable to such tax, duty or charge in respect of such Underlying Note, Receipt of Coupon by reason of his having some connection with Bermuda other than the mere holding or ownership of such Underlying Note or with respect to any Underlying Note, Receipt or Coupon presented for payment to a paying agent more than 30 days after the Relevant Date (as defined in the Terms and Conditions of the Underlying Note) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day or where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive or with respect to any Underlying Note presented for payment to a paying agent by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Underlying Note, Receipt or Coupon to another paying agent in a Member State of the EU. 5. Each Issuer hereby warrants, represents and covenants with each Relevant Account Holder that it has all corporate power, and has taken all necessary corporate or other steps, to enable it to execute, deliver and perform this Deed, and that this Deed constitutes a legal, valid and binding obligation of the relevant Issuer enforceable in accordance with its terms subject to the laws of bankruptcy and other laws affecting the rights of creditors generally. 6. This Deed shall take effect as a Deed Poll for the benefit of the Relevant Account Holders from time to time and for the time being. This Deed shall be deposited with and held by a depository for Clearstream, Luxembourg and Euroclear, or any successor to the business thereof and for the time being (being at the date hereof JPMorgan Chase Bank at Trinity Tower, 9 Thomas More Street, London E1 9YT) until all the obligations of each Issuer hereunder have been discharged in full. 6 7. Each Issuer hereby acknowledges the right of every Relevant Account Holder to the production of, and the right of every Relevant Account Holder to obtain (upon payment of a reasonable charge) a copy of, this Deed, and further acknowledges and covenants that the obligations binding upon it contained herein are owed to, and shall be for the account of, each and every Relevant Account Holder, and that each Relevant Account Holder shall be entitled severally to enforce the said obligations against the relevant Issuer. 8. No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Deed, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 9. This Deed is governed by, and shall be construed in accordance with, the laws of England. Each Issuer hereby irrevocably agrees, for the exclusive benefit of the Relevant Account Holders, that the courts of England are to have jurisdiction to settle any dispute which may arise out of, or in connection with, this Deed and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of, or in connection with, this Deed may be brought in such courts. Each Issuer irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon the relevant Issuer and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained in this Clause shall limit any right to take Proceedings against any Issuer in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not (subject to the laws of the relevant jurisdictions). Ciba Specialty Chemicals Corporation, Ciba Spezialitatenchemie Holding Deutschland GmbH and Ciba Specialty Chemicals Eurofinance Ltd. each hereby appoints Ciba Specialty Chemicals PLC at its registered office for the time being to accept service of process on its behalf. If Ciba Specialty Chemicals PLC shall cease to be registered under the laws of England and Wales, the relevant Issuer shall appoint another person with an office in London to accept such service. Nothing herein shall affect the right to serve process in any other manner permitted by law. 10. This Deed may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS whereof each Issuer has caused this Deed to be duly executed the day and year first above mentioned. 7 SIGNATORIES EXECUTED as a Deed by CIBA ) KIRK ERSTLING SPECIALTY CHEMICALS ) CORPORATION ) OLIVER STRUB acting by ) and ) acting under the authority of that company ) in the presence of: ) Witness's Signature A.STEINER ------------------------------------ Name A.STEINER ------------------------------------ Address C/o CIBA SPECIALTY CHEMICALS INC. ------------------------------------ CH-4002 BASEL ------------------------------------ EXECUTED as a Deed by CIBA ) KIRK ERSTLING SPECIALTY CHEMICALS ) PLC ) OLIVER STRUB acting by its attorney(s) ) ) in the presence of: ) Witness's Signature A. STEINER ------------------------------------ Name A. STEINER ------------------------------------ Address C/O CIBA SPECIALTY CHEMICALS INC. ------------------------------------ CH-4002 BASEL ------------------------------------ 8 EXECUTED as a Deed by CIBA ) KIRK ERSTLING SPEZIALITATENCHEMIE ) HOLDING DEUTSCHLAND GMBH ) OLIVER STRUB acting by ) and ) acting under the authority of that company ) in the presence of: ) Witness's Signature A. STEINER ------------------------------------ Name A. STEINER ------------------------------------ Address C/O CIBA SPECIALTY CHEMICALS INC. ------------------------------------ CH-4002 BASEL ------------------------------------ EXECUTED as a Deed under ) Seal by CIBA SPECIALTY CHEMICALS ) KIRK ERSTLING EUROFINANCE LTD. ) and SIGNED AND DELIVERED as ) OLIVER STRUB a deed on its behalf by ) pursuant to a power of attorney dated 26th ) March, 2002 in the presence of: ) Witness's Signature A. STEINER ------------------------------------ Name A. STEINER ------------------------------------ Address C/O CIBA SPECIALTY CHEMICALS INC. ------------------------------------ CH-4002 BASEL ------------------------------------ 9 CONFORMED COPY 27TH MARCH, 2003 CIBA SPECIALTY CHEMICALS PLC CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. AS ISSUERS --------------------------------------------- DEED OF COVENANT -------------------------------------------- [ALLEN & OVERY LOGO] LONDON EX-4.3 5 u47015exv4w3.txt EXHIBIT 4.3 DEED OF GUARANTEE THIS DEED OF GUARANTEE is made on 27th March, 2003 by CIBA SPECIALTY CHEMICALS HOLDING INC., (the GUARANTOR) in favour of the Relevant Account Holders (as defined in the Deed of Covenant referred to below) and the holders for the time being of the Notes (as defined below) and the interest coupons (if any) appertaining to the Notes (COUPONS), the Coupons being attached on issue to Definitive Note(s) (as defined below). Each Relevant Account Holder, each holder of a Note and each holder of a Coupon is a HOLDER. WHEREAS: (A) CIBA SPECIALTY CHEMICALS CORPORATION, CIBA SPECIALTY CHEMICALS PLC, CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH, CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (the ISSUERS and each an ISSUER) and the Guarantor have entered into an amended and restated Program Agreement (the PROGRAM AGREEMENT, which expression includes the same as it may be amended or supplemented from time to time) dated 27th March, 2003 with the Dealers named therein, which amends and restates the amended and restated program agreement entered into by, inter alia, Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC and Ciba Spezialitatenchemie Holding Deutschland GmbH dated 27th March, 2002 (the PRINCIPAL PROGRAM AGREEMENT), under which each Issuer proposes from time to time to issue Euro Medium Term Notes (the NOTES, such expression to include each Definitive Note issued by an Issuer and each Global Note issued by an Issuer (where DEFINITIVE NOTE and GLOBAL NOTE have the meanings ascribed thereto in the Agency Agreement defined below) and to include any receipts issued in respect of Notes repayable in instalments); (B) each Issuer has executed a Deed of Covenant of even date (the DEED OF COVENANT) relating to Global Notes issued by that Issuer pursuant to the Program Agreement; (C) the Issuers and the Guarantor have entered into an amended and restated agency agreement (the AGENCY AGREEMENT, which expression includes the same as it may be amended or supplemented from time to time) dated 27th March, 2003 with the Paying Agents named therein; and (D) this Deed of Guarantee amends and restates the amended and restated Deed of Guarantee made by the Guarantor dated 27th March, 2002, and does not affect any Notes issued pursuant to the Principal Program Agreement prior to the date hereof. NOW THIS DEED WITNESSES as follows: 1. Guarantee: The Guarantor irrevocably and unconditionally undertakes to secure by way of deed poll to each Holder the due and punctual payment as stipulated in an Issuer's Note or Coupon or under its Deed of Covenant, as the case may be. The Guarantor therefore undertakes to pay on first demand of such a Holder, irrespective of the validity and the legal effects of the above mentioned relationship in respect of a Note or Coupon or Deed of Covenant and waiving all rights of objection and defence arising therefrom any amount not paid by the relevant Issuer (including any premium or any other amounts of whatever nature or additional amounts) upon receipt of the written request for payment by such Holder and the confirmation in writing by the Agent that the relevant Issuer has not made such payments on the dates specified and in the amount called under the Guarantee. The Guarantor hereby expressly undertakes and secures that payments under this Guarantee will not be less than as stipulated in an Issuer's Note or Coupon. In implementation of this undertaking and in case Swiss withholding taxes are imposed in respect of payments made under this Guarantee, the Guarantor undertakes, as a separate and independent obligation, to pay an increased amount on the relevant Note or Coupon so that the payment received by the Noteholder or Couponholder shall equal the amount actually stipulated in such Note or Coupon (assuming no such withholding applies). 2. Guarantor's Obligations Continuing: The Guarantor's obligations under this Guarantee are and will remain in full force and effect by way of continuing security until no sum remains payable under any Note, any Coupon or the Deed of Covenant. Furthermore, these obligations of the Guarantor are additional to, and not instead of, any security or other guarantee or indemnity at any time existing in favour of a Holder, whether from the Guarantor or otherwise. The Guarantor irrevocably waives all notices and demands whatsoever, except as provided herein. 3. Repayment to the Issuer: If any payment received by a Holder is, on the subsequent liquidation or insolvency of the relevant Issuer, avoided under any laws relating to liquidation or insolvency, such payment will not be considered as having discharged or diminished the liability of the Guarantor and this Guarantee will continue to apply as if such payment had at all times remained owing by the relevant Issuer. 4. Status of Guarantee: The payment obligations of the Guarantor under this Guarantee constitute direct, unconditional and (subject to clause 5 below) unsecured obligations of the Guarantor and (subject as aforesaid) rank and will rank pari passu with all other outstanding unsecured and unsubordinated indebtedness and monetary obligations of the Guarantor, present or future, including those in respect of deposits (other than obligations preferred by law). 5. Negative Pledge of the Guarantor: So long as any of the Notes remains outstanding, but not later than the time when payment for the full amount of principal and interest in respect of all outstanding Notes has been duly provided for, the Guarantor will procure that no Indebtedness of the Guarantor which is represented by bonds, notes or other securities which in any such case are listed or capable of being listed on any recognised Stock Exchange will be secured upon any of the present or future assets or revenues of the Guarantor unless all amounts payable under this Guarantee are secured equally and rateably with such other security or such other security or guarantee is granted to the Notes and Coupons as shall have been approved by an Extraordinary Resolution of the Noteholders. Any reference to an obligation being guaranteed shall include a reference to an indemnity being given in respect of payment thereof. As used herein INDEBTEDNESS means all indebtedness for money borrowed that is created, assumed, incurred or guaranteed in any manner by the Guarantor or for which the Guarantor is otherwise responsible or liable. 6. Tax Gross-up: All payments in respect of the Notes by the Guarantor shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (TAXES) imposed or levied by or on behalf of Switzerland, or any political sub-division of, or any authority in, or of, Switzerland having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, the Guarantor will pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes or, as the case may be, Coupons in the absence of the withholding or deduction; 2 except that no additional amount shall be payable in relation to any payment in respect of any Note or Coupon: (i) by or on behalf of a person liable to such tax, duty or charge in respect of such Note, Receipt or Coupon by reason of his having some connection with Switzerland other than the mere holding or ownership of such Note, Receipt or Coupon; and/or (ii) presented for payment to the relevant Issuer more than 30 days after the Relevant Date (as defined in Condition 7(f) of the Terms and Conditions of the relevant Notes) except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of the period of 30 days; and/or (iii) to, or to a third party on behalf of, a holder who would be able to avoid such withholding or deduction by making a declaration of non-residence or similar claim for exemption but fails to do so; and/or (iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive; and/or (v) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the EU. 7. Power to execute: The Guarantor hereby warrants, represents and covenants with each Holder that it has all corporate power, and has taken all necessary corporate or other steps, to enable it to execute, deliver and perform this Guarantee, and that this Guarantee constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its terms subject to applicable bankruptcy, reorganisation, insolvency, fraudulent transfer, moratorium and other similar laws affecting creditor's rights generally from time to time in effect, and to general principles of equity, regardless of whether considered in a proceeding in law or at equity. 8. Deposit of Guarantee: This Guarantee shall take effect as a Deed Poll for the benefit of the Holders from time to time and for the time being. This Guarantee shall be deposited with and held by The Chase Manhattan Bank for the benefit of the Holders until all the obligations of the Guarantor hereunder have been discharged in full. 9. Production of Guarantee: The Guarantor hereby acknowledges the right of every Holder to the production of, and the right of every Holder to obtain (upon payment of a reasonable charge) a copy of, this Guarantee, and further acknowledges and covenants that the obligations binding upon it contained herein are owed to, and shall be for the account of, each and every Holder, and that each Holder shall be entitled severally to enforce the said obligations against the Guarantor. 10. Subrogation: Until all amounts which may be payable under the Notes, the Coupons and/or the Deed of Covenant have been irrevocably paid in full, the Guarantor shall not exercise any rights of subrogation in respect of any rights of any Holder or claim in competition with the Holders against the relevant Issuer. 3 11. Governing Law and Jurisdiction: This Guarantee is governed by and shall be construed in accordance with English law. The Guarantor irrevocably agrees for the benefit of each Holder that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Guarantee and that accordingly any suit, action or proceedings arising out of or in connection with this Guarantee (together referred to as PROCEEDINGS) may be brought in the courts of England. The Guarantor irrevocably waives any objection which it may have now or hereafter to the laying of the venue of the Proceedings in the courts of England and irrevocably agrees that a final judgment in any Proceedings brought in the courts of England shall be conclusive and binding upon the Guarantor and may be enforced in the courts of any other jurisdiction. Nothing contained in this clause shall limit any right to take Proceedings against the Guarantor in any other court of competent jurisdiction, nor shall the taking of Proceedings in none or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act. The Guarantor hereby appoints Ciba Specialty Chemicals PLC as its agent for service of process in England in respect of any Proceedings and undertakes that in the event of it ceasing so to act it will appoint another person as its agent for that purpose. IN WITNESS whereof this Guarantee has been manually executed as a deed poll on behalf of the Guarantor. Executed as a deed ) by CIBA SPECIALTY CHEMICALS ) KIRK ERSTLING HOLDING INC. ) acting by ) OLIVER STRUB and ) ) acting under the authority of ) that Company in the presence of: ) Witness's A. STEINER Signature: ....................................... A.STEINER Name: ....................................... C/o CIBA SPECIALTY CHEMICALS INC. Address: ....................................... CH-4002 BASEL ....................................... Dated 27th March, 2003 4 CONFORMED COPY 27TH MARCH, 2003 CIBA SPECIALTY CHEMICALS HOLDING INC. AS GUARANTOR --------------------------------------------- DEED OF GUARANTEE -------------------------------------------- [ALLEN & OVERY LOGO] LONDON EX-4.4 6 u47015exv4w4.txt EXHIBIT 4.4 CONFORMED COPY AGENCY AGREEMENT IN RESPECT OF A U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM (AMENDED AND RESTATED) DATED 27TH MARCH, 2003 CIBA SPECIALTY CHEMICALS PLC CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. AS ISSUERS AND CIBA SPECIALTY CHEMICALS HOLDING INC. AS GUARANTOR AND JP MORGAN CHASE BANK AS AGENT J.P. MORGAN BANK LUXEMBOURG S.A. AS PAYING AGENT [ALLEN & OVERY LOGO] CONTENTS

AGENCY AGREEMENT IN RESPECT OF A EURO MEDIUM TERM NOTE PROGRAM THIS AGREEMENT is made on 27th March, 2003 BETWEEN: (1) CIBA SPECIALTY CHEMICALS CORPORATION of 560 White Plains Road, Tarrytown, New York 10591-9005, United States (CIBA US); (2) CIBA SPECIALTY CHEMICALS PLC of Hulley Road, Macclesfield, Cheshire SK10 2NX, England (CIBA UK); (3) CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH of Chemiestrasse, D-68623 Lampertheim, Germany (CIBA GERMANY); (4) CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. of Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda (CIBA BERMUDA); (5) CIBA SPECIALTY CHEMICALS HOLDING INC. of Klybeckstrasse 141, CH-4002 Basle, Switzerland (the GUARANTOR); (6) JPMORGAN CHASE BANK of Trinity Tower, 9 Thomas More Street, London E1W 1YT (the AGENT, which expression shall include any successor agent appointed in accordance with Clause 21); and (7) J.P. MORGAN BANK LUXEMBOURG S.A. of 5 Rue Plaetis, L-2338 Luxembourg (together with the Agent, the PAYING AGENTS, which expression shall include any additional or successor paying agent appointed in accordance with Clause 21 and PAYING AGENT shall mean any of the Paying Agents). WHEREAS: (A) CIBA US, CIBA UK, CIBA Germany, CIBA Bermuda (each an ISSUER and together, the ISSUERS) and the Guarantor have entered into an amended and restated program agreement dated 27th March, 2003 (the PROGRAM AGREEMENT) with the Dealers named therein pursuant to which the Issuer may issue Euro Medium Term Notes (the NOTES) in an aggregate nominal amount outstanding at any time of up to U.S.$2,000,000,000 (or its equivalent in other currencies). The Program Agreement amends and restates the amended and restated program agreement entered into by CIBA US, CIBA UK, CIBA Germany, CIBA Bermuda and the Guarantor dated 27th March, 2002 with the Dealers named therein. (B) CIBA US, CIBA UK, CIBA Germany, CIBA Bermuda, the Guarantor, the Agent and the Paying Agents entered into an amended and restated Agency Agreement (the PRINCIPAL AGENCY AGREEMENT) dated 27th March, 2002 in respect of U.S.$2,000,000,000 Euro Medium Term Note Program. (C) This Agreement amends and restates the Principal Agency Agreement. Any Notes issued on or after the date hereof (other than any such Notes issued so as to be consolidated and form a single Series with any Notes issued prior to the date hereof) shall be issued pursuant to this Agreement. This does not affect any Notes issued prior to the date hereof. 1 (D) Each issue of Notes will be initially represented by a temporary global Note exchangeable in whole or in part for definitive Notes or for a permanent global Note which will be exchangeable as described therein for definitive Notes. IT IS HEREBY AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 Terms and expressions defined in the Program Agreement or the Notes or used in the applicable Pricing Supplement shall have the same meanings in this Agreement, except where the context requires otherwise or unless otherwise stated. 1.2 Without prejudice to the foregoing: CLEARSTREAM, LUXEMBOURG means Clearstream Banking, societe anonyme; CONDITIONS means, in relation to the Notes of any Series, the terms and conditions endorsed on or incorporated by reference into or attached to the Note or Notes constituting such Series, such terms and conditions being in or substantially in the form set out in Schedule 1 or in such other form, having regard to the terms of the notes of the relevant Series, as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer as modified and supplemented by the Pricing Supplement applicable to the Notes of the relevant Series; COUPON means an interest coupon appertaining to a Definitive Note (other than a Zero Coupon Note), such coupon being: (a) if appertaining to a Fixed Rate Note, in the form or substantially in the form set out in Part 4 A of Schedule 2 or in such other form, having regard to the terms of issue of the Notes of the relevant Series, as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer; or (b) if appertaining to a Floating Rate Note or an Indexed Interest Note, in the form or substantially in the form set out in Part 4 B of Schedule 2 or in such other form, having regard to the terms of issue of the Notes of the relevant Series, as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer; or (c) if appertaining to a Definitive Note which is neither a Fixed Rate Note nor a Floating Rate Note nor an Indexed Interest Note, in such form as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer, and includes, where applicable, the Talon(s) appertaining thereto and any replacements for Coupons and Talons issued pursuant to Condition 10; COUPONHOLDERS means the several persons who are for the time being holders of the Coupons and shall, unless the context otherwise requires, include the holders of the Talons; DEFINITIVE NOTE means a definitive Note issued or, as the case may require, to be issued by the relevant Issuer in accordance with the provisions of the Program Agreement or any other agreement between the relevant Issuer, the Guarantor and the relevant Dealer in exchange for either a Temporary Global Note or a Permanent Global Note (all as indicated in the applicable Pricing Supplement), such definitive Note being in the form or substantially in the form set out in Part 3 of Schedule 2 with such modifications (if any) as may be agreed between the 2 relevant Issuer, the Guarantor, the Agent and the relevant Dealer and having the Conditions endorsed thereon or attached thereto or, if permitted by the relevant authority or authorities and agreed by the relevant Issuer, the Guarantor and the relevant Dealer, incorporating the Conditions by reference and having the applicable Pricing Supplement (or the relevant provisions thereof) either endorsed thereon or attached thereto and (except in the case of a Zero Coupon Note) having Coupons and, where appropriate, Receipts and/or Talons attached thereto on issue; DISTRIBUTION COMPLIANCE PERIOD has the meaning given to such term in Regulation S under the Securities Act; DUAL CURRENCY NOTE means a Note in respect of which payments of principal and/or interest are made or to be made in such different currencies, and at rates of exchange calculated upon such basis or bases, as the relevant Issuer, the Guarantor and the relevant Dealer may agree (as indicated in the applicable Pricing Supplement); EURIBOR means the Euro-zone inter-bank offered rate; EUROCLEAR means Euroclear Bank S.A./N.V. as operator of the Euroclear System, or any successor to the business thereof; EURO-ZONE means the region composed of Member States of the European Union that are participating in the third stage of European economic and monetary union; FIXED RATE NOTE means a Note on which interest is calculated at a fixed rate payable in arrear on a fixed date or dates in each year and on the redemption date or on such other dates as may be agreed between the relevant Issuer, the Guarantor and the relevant Dealer (as indicated in the applicable Pricing Supplement); FLOATING RATE NOTE means a Note on which interest is calculated at a floating rate payable in respect of such period or on such date(s) as may be agreed between the relevant Issuer, the Guarantor and the relevant Dealer (as indicated in the applicable Pricing Supplement); GLOBAL NOTE means a Temporary Global Note and/or a Permanent Global Note, as applicable; GUARANTEE means the guarantee dated the date of this Agreement, substantially in the form set out in Schedule 3 executed as a deed poll by the Guarantor in respect of any Note and in respect of the obligations of the Issuers under the Deed of Covenant; INDEXED INTEREST NOTE means a Note in respect of which the amount payable in respect of interest is calculated by reference to an index and/or a formula as the relevant Issuer, the Guarantor and the relevant Dealer may agree (as indicated in the applicable Pricing Supplement); INDEXED NOTE means an Indexed Interest Note and/or an Indexed Redemption Amount Note, as applicable; INDEXED REDEMPTION AMOUNT NOTE means a Note in respect of which the amount payable in respect of principal is calculated by reference to an index and/or a formula as the relevant Issuer, the Guarantor and the relevant Dealer may agree (as indicated in the applicable Pricing Supplement); INTEREST COMMENCEMENT DATE means, in the case of interest-bearing Notes, the date specified in the applicable Pricing Supplement from (and including) which such Notes bear 3 interest, which may or may not be the Issue Date (but if no date is specified shall be the Issue Date); ISDA DEFINITIONS means the 2000 ISDA Definitions, each as amended and updated as at the Issue Date of the first Tranche of Notes of the relevant Series and published by the International Swaps and Derivatives Association, Inc.; ISSUE DATE means the date of issue and purchase of a Note, in each case pursuant to and in accordance with the Program Agreement or any other agreement between the relevant Issuer, the Guarantor and the relevant Dealer, being in the case of any Permanent Global Note or Definitive Note, the same date as the date of issue of the Temporary Global Note which initially represented such Note; ISSUE PRICE means the price, generally expressed as a percentage of the nominal amount of the Notes, at which the Notes will be issued; LIBOR means the London inter-bank offered rate; MATURITY DATE means, in relation to a Note, the date on which it is expressed to be redeemable; NOTE means a note denominated in Australian dollars, Canadian dollars, Czech koruna, Danish kroner, euro, Hong Kong dollars, Japanese Yen, New Zealand dollars, Norwegian kroner, South African Rand, Sterling, Swedish kronor, Swiss francs, U.S. dollars or such other currency or currencies as may be agreed between the relevant Issuer, the Guarantor and the relevant Dealer issued or to be issued by the relevant Issuer pursuant to the Program Agreement or any other agreement between the relevant Issuer, the Guarantor and the relevant Dealer and which shall initially be represented by, and comprised in, a Temporary Global Note which may (in accordance with the terms of such Temporary Global Note) be exchanged for either Definitive Notes or a Permanent Global Note which Permanent Global Note may (in accordance with the terms of such Permanent Global Note) in turn be exchanged for Definitive Notes (all as indicated in the applicable Pricing Supplement) and includes any replacements for a Note issued pursuant to Condition 10 and, where applicable, the Receipts relating thereto; NOTEHOLDERS means the several persons who are for the time being holders of the Notes save that, in respect of the Notes of any Series, for so long as such Notes or any part thereof are represented by a Global Note held on behalf of Euroclear and/or of Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular nominal amount of the Notes of such Series (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, the Guarantor, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal or interest on such Notes, for which purpose the bearer of the relevant Global Note shall be treated by the Issuer, the Guarantor, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes in accordance with and subject to the terms of the relevant Global Note and this agreement and the expressions NOTEHOLDER, HOLDER OF NOTES and related expressions shall be construed accordingly; OUTSTANDING means, in relation to the Notes, all the Notes issued other than (a) those which have been redeemed in full in accordance with the Conditions, (b) those in respect of which 4 the date for redemption in accordance with the Conditions has occurred and the redemption moneys wherefor (including all interest (if any) accrued thereon to the date for such redemption and any interest (if any) payable under the Conditions after such date) have been duly paid to the Agent as provided herein (and, where appropriate, notice has been given to the Noteholders of the relevant Series in accordance with Condition 14) and remain available for payment against presentation of Notes, (c) those which have become void under Condition 8, (d) those which have been purchased and cancelled as provided in Condition 6, (e) those mutilated or defaced Notes which have been surrendered in exchange for replacement Notes pursuant to Condition 10, (f) (for the purpose only of determining the nominal amount of the Notes outstanding and without prejudice to their status for any other purpose) those Notes alleged to have been lost, stolen or destroyed and in respect of which replacement Notes have been issued pursuant to Condition 10, (g) Temporary Global Notes to the extent that they shall have been duly exchanged for Permanent Global Notes and/or Definitive Notes and Permanent Global Notes to the extent that they shall have been duly exchanged for Definitive Notes, in each case pursuant to their respective provisions and (h) Temporary Global Notes and Permanent Global Notes which have become void in accordance with their terms (provided that at the Relevant Time (as defined in the Deed of Covenant) the Underlying Notes (as defined in the Deed of Covenant) will be deemed to be still outstanding) and, PROVIDED THAT for each of the following purposes, namely: (a) the right to attend and vote at any meeting of the Noteholders or any of them; and (b) the determination of how many and which Notes are for the time being outstanding for the purposes of paragraphs 2, 5 and 6 of Schedule 4 hereto, those Notes (if any) which are for the time being held by any person (including but not limited to any Issuer, the Guarantor or any of their respective Subsidiaries) for the benefit of any Issuer, the Guarantor or any of their respective Subsidiaries shall (unless and until ceasing to be so held) be deemed not to be outstanding; PERMANENT GLOBAL NOTE means a global note in the form or substantially in the form set out in Part II of Schedule 2 together with the copy of the applicable Pricing Supplement attached thereto with such modifications (if any) as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer, comprising some or all of the Notes of the same Series, issued by the relevant Issuer pursuant to the Program Agreement or any other agreement between the relevant Issuer, the Guarantor and the relevant Dealer in exchange for the whole or part of any Temporary Global Note issued in respect of such Notes; PROCEDURES MEMORANDUM means the operating and administrative procedures memorandum set out in Schedule 6 hereto; PUT NOTICE means a notice in the form set out in; RECEIPT means a receipt attached on issue to a Definitive Note redeemable in instalments for the payment of an instalment of principal, such receipt being in the form or substantially in the form set out in Part 5 of Schedule 2 or in such other form as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer and includes any replacements for Receipts issued pursuant to Condition 10; RECEIPTHOLDERS means the several persons who are for the time being holders of the Receipts; REFERENCE BANKS means, in the case of subclause 8.2(a)(i) below, those banks whose offered rates were used to determine such quotation when such quotation last appeared on the 5 Relevant Screen Page and, in the case of subclause 8.2(a)(ii) below, those banks whose offered quotations last appeared on the Relevant Screen Page when no fewer than three such offered quotations appeared; REPLACEMENT AGENT means the Paying Agent in Luxembourg; SECURITIES ACT means the United States Securities Act of 1933, as amended; SERIES means a Tranche of the Notes together with any further Tranche or Tranches of the Notes which are (i) expressed to be consolidated and form a single series and (ii) identical in all respects (including as to listing) except for their respective Issue Dates, Interest Commencement Dates and/or Issue Prices and the expressions NOTES OF THE RELEVANT SERIES and HOLDERS OF NOTES OF THE RELEVANT SERIES and related expressions shall be construed accordingly; TALONS means the talons (if any) appertaining to, and exchangeable in accordance with the provisions therein contained for further Coupons appertaining to, a Definitive Note (other than a Zero Coupon Note), such talons being in the form or substantially in the form set out in Part 6 of Schedule 2 or in such other form as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer and includes any replacements for Talons issued pursuant to Condition 10; TEMPORARY GLOBAL NOTE means a global note in the form or substantially in the form set out in Part 1 of Schedule 2 together with the copy of the applicable Pricing Supplement attached thereto with such modifications (if any) as may be agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer, comprising some or all of the Notes of the same Series, issued by the relevant Issuer pursuant to the Program Agreement or any other agreement between the Issuer and the relevant Dealer; TRANCHE means all Notes which are identical in all respects (including as to listing); and ZERO COUPON NOTE means a Note on which no interest is payable. 1.3 Words denoting the singular number only shall include the plural number also and vice versa; words denoting one gender only shall include the other gender; and words denoting persons only shall include firms and corporations and vice versa. 1.4 All references in this Agreement to costs or charges or expenses shall include any value added tax or similar tax charged or chargeable in respect thereof. 1.5 For the purposes of this Agreement, the Notes of each Series shall form a separate series of Notes and the provisions of this Agreement shall apply mutatis mutandis separately and independently to the Notes of each Series and in this Agreement the expressions NOTES, NOTEHOLDERS, RECEIPTS, RECEIPTHOLDERS, COUPONS, COUPONHOLDERS and TALONS shall be construed accordingly. 1.6 All references in this Agreement to principal and/or interest or both in respect of the Notes or to any moneys payable by any Issuer and/or the Guarantor under this Agreement shall have the meaning set out in Condition 5(d). 6 1.7 All references in this Agreement to the RELEVANT CURRENCY shall be construed as references to the currency in which the relevant Notes and/or Coupons are denominated (or payable in the case of Dual Currency Notes). 1.8 In this Agreement, clause headings are inserted for convenience and ease of reference only and shall not affect the interpretation of this Agreement. All references in this Agreement to the provisions of any statute shall be deemed to be references to that statute as from time to time modified, extended, amended or re-enacted or to any statutory instrument, order or regulation made thereunder or under such re-enactment. 1.9 All references in this Agreement to an agreement, instrument or other document (including, without limitation, this Agreement, the Program Agreement, the Deed of Covenant, the Guarantee, the Procedures Memorandum, the Notes and any Conditions appertaining thereto) shall be construed as a reference to that agreement, instrument or document as the same may be amended, modified, varied or supplemented from time to time. 1.10 Any references herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system approved by the relevant Issuer, the Guarantor and the Agent. 2. APPOINTMENT OF AGENT AND PAYING AGENTS 2.1 The Agent is hereby appointed, and the Agent hereby agrees to act, as agent of the Issuers and the Guarantor, upon the terms and subject to the conditions set out below, for the purposes of, inter alia: (a) completing, authenticating and delivering Global Notes and (if required) authenticating and delivering Definitive Notes; (b) exchanging Temporary Global Notes for Permanent Global Notes or Definitive Notes, as the case may be, in accordance with the terms of such Temporary Global Notes; (c) exchanging Permanent Global Notes for Definitive Notes in accordance with the terms of such Permanent Global Notes; (d) paying sums due on Global Notes and Definitive Notes, Receipts and Coupons; (e) exchanging Talons for Coupons in accordance with the Conditions; (f) determining the end of the Distribution Compliance Period applicable to each Tranche; (g) unless otherwise specified in the applicable Pricing Supplement, determining the interest and/or other amounts payable in respect of the Notes in accordance with the Conditions; (h) arranging on behalf of any Issuer and/or the Guarantor for notices to be communicated to the Noteholders; (i) preparing and sending monthly reports to the Bank of England and ensuring that, as directed by the relevant Issuer, all necessary action is taken to comply with any reporting requirements of any competent authority in respect of any relevant currency 7 as may be in force from time to time with respect to the Notes to be issued under the Program; (j) subject to the Procedures Memorandum, submitting to the relevant authority or authorities such number of copies of each Pricing Supplement which relates to Notes which are to be listed as the relevant authority or authorities may reasonably require; (k) acting as Calculation Agent in respect of Notes where named as such in the relevant Pricing Supplement; and (l) performing all other obligations and duties imposed upon it by the Conditions, this Agreement and the Procedures Memorandum. 2.2 Each Paying Agent is hereby appointed as paying agent of the Issuers and the Guarantor, upon the terms and subject to the conditions set out below, for the purposes of paying sums due on Notes, Receipts and Coupons and of performing all other obligations and duties imposed upon it by the Conditions and this Agreement. 2.3 Each of the Issuer and the Guarantor undertakes that, if the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000 are implemented, it will ensure that it maintains a paying agent in an EU member state that will not be obliged to withhold or deduct tax pursuant to the Directive. 3. ISSUE OF TEMPORARY GLOBAL NOTES 3.1 Subject to subclause 3.2 below, following receipt of a faxed copy of the Pricing Supplement signed by any Issuer and the Guarantor, the relevant Issuer and the Guarantor hereby authorise the Agent and the Agent hereby agrees to take the steps required of the Agent in the Procedures Memorandum. For this purpose the Agent will, inter alia, on behalf of the relevant Issuer: (a) prepare a Temporary Global Note by attaching a copy of the applicable Pricing Supplement to a copy of the applicable master Temporary Global Note; (b) authenticate such Temporary Global Note; (c) deliver such Temporary Global Note to the specified common depositary for Euroclear and/or Clearstream, Luxembourg against receipt from the common depositary of confirmation that such common depositary is holding the Temporary Global Note in safe custody for the account of Euroclear and/or Clearstream, Luxembourg and to instruct Euroclear or Clearstream, Luxembourg or both of them (as the case may be) unless otherwise agreed in writing between the Agent and the relevant Issuer (i) in the case of an issue of Notes not subscribed pursuant to a Subscription Agreement, to credit the Notes represented by such Temporary Global Note to the Agent's distribution account, and (ii) in the case of Notes subscribed pursuant to a Subscription Agreement, to hold the Notes represented by such Temporary Global Note to the Issuer's order; and (d) ensure that the Notes of each Tranche are assigned a common code and ISIN by Euroclear and Clearstream, Luxembourg which are different from the common code and ISIN assigned to Notes of any other Tranche of the same Series until not earlier than 40 days after the completion of the distribution of the Notes of such Tranche as notified by the Agent to the relevant Dealer. 8 3.2 The Agent shall only be required to perform its obligations under subclause 3.1 above if it holds: (a) a master Temporary Global Note duly executed by a person or persons authorised to execute the same on behalf of the relevant Issuer, which may be used by the Agent for the purpose of preparing a Temporary Global Note in accordance with subclause 3.1(a) above; and (b) a master Permanent Global Note duly executed by a person or persons authorised to execute the same on behalf of the relevant Issuer, which may be used by the Agent for the purpose of preparing a Permanent Global Note in accordance with Clause 4 below. 4. DETERMINATION OF EXCHANGE DATE, ISSUE OF PERMANENT GLOBAL NOTES AND DEFINITIVE NOTES AND DETERMINATION OF END OF DISTRIBUTION COMPLIANCE PERIOD 4.1 (a) The Agent shall determine the Exchange Date for each Temporary Global Note in accordance with the terms thereof. Forthwith upon determining the Exchange Date in respect of any Tranche, the Agent shall notify such determination to the relevant Issuer, the Guarantor, the other Paying Agents, the relevant Dealer, Euroclear and Clearstream, Luxembourg. (b) The Agent shall deliver, upon notice from Euroclear or Clearstream, Luxembourg, a Permanent Global Note or Definitive Notes, as the case may be, in accordance with the terms of the Temporary Global Note. Where a Temporary Global Note is to be exchanged for a Permanent Global Note, the Agent is hereby authorised on behalf of the relevant Issuer: (i) in the case of the first Tranche of any Series of Notes, to prepare and complete a Permanent Global Note in accordance with the terms of the Temporary Global Note applicable to such Tranche by attaching a copy of the applicable Pricing Supplement to a copy of the applicable master Permanent Global Note; (ii) in the case of the first Tranche of any Series of Notes, to authenticate such Permanent Global Note; (iii) in the case of the first Tranche of any Series of Notes, to deliver such Permanent Global Note to the common depositary which is holding the Temporary Global Note applicable to such Tranche for the time being on behalf of Euroclear and/or Clearstream, Luxembourg either in exchange for such Temporary Global Note or, in the case of a partial exchange, on entering details of such partial exchange of the Temporary Global Note in the relevant spaces in Schedule 2 of both the Temporary Global Note and the Permanent Global Note; and (iv) in any other case, by attaching a copy of the applicable Pricing Supplement to the Permanent Global Note applicable to the relevant Series and entering details of any exchange in whole or part as aforesaid. 4.2 (a) In the case of a Tranche in respect of which there is only one Dealer, the Agent will determine the end of the Distribution Compliance Period in respect of such Tranche as being the fortieth day (or such later day as may be specified in the applicable 9 Pricing Supplement) following the date certified by the relevant Dealer to the Agent as being the date as of which distribution of the Notes of that Tranche was completed. (b) In the case of a Tranche in respect of which there is more than one Dealer but is not issued on a syndicated basis, the Agent will determine the end of the Distribution Compliance Period in respect of such Tranche as being the fortieth day (or such later day as may be specified in the applicable Pricing Supplement) following the latest of the dates certified by all the relevant Dealers to the Agent as being the respective dates as of which distribution of the Notes of that Tranche purchased by each such Dealer was completed. (c) In the case of a Tranche issued on a syndicated basis, the Agent will determine the end of the Distribution Compliance Period in respect of such Tranche as being the fortieth day (or such later day as may be specified in the applicable Pricing Supplement) following the date certified by the Lead Manager to the Agent as being the date as of which distribution of the Notes of that Tranche was completed. (d) Forthwith upon determining the end of the Distribution Compliance Period in respect of any Tranche, the Agent shall notify such determination to the relevant Issuer, the Guarantor, Euroclear, Clearstream, Luxembourg, the relevant Dealer(s) (in the case of a non-syndicated issue) and the Lead Manager (in the case of a syndicated issue). 5. ISSUE OF DEFINITIVE NOTES 5.1 Upon notice from Euroclear or Clearstream, Luxembourg pursuant to the terms of a Temporary Global Note or a Permanent Global Note, as the case may be, the Agent shall deliver the relevant Definitive Note(s) in accordance with the terms of the relevant Global Note. For this purpose the Agent is hereby authorised on behalf of the relevant Issuer: (a) to authenticate such Definitive Note(s) in accordance with the provisions of this Agreement; and (b) to deliver such Definitive Note(s) to or to the order of Euroclear and/or Clearstream, Luxembourg either in exchange for such Global Note or, in the case of a partial exchange of a Temporary Global Note, on entering details of any partial exchange of the Temporary Global Note in the relevant space in Schedule 2 of such Temporary Global Note. The Agent shall notify the relevant Issuer forthwith upon receipt of a request for issue of Definitive Note(s) in accordance with the provisions of a Temporary Global Note or Permanent Global Note, as the case may be, (and the aggregate nominal amount of such Temporary Global Note or Permanent Global Note, as the case may be, to be exchanged in connection therewith). 5.2 Each Issuer undertakes to deliver to the Agent sufficient numbers of executed Definitive Notes with, if applicable, Receipts, Coupons and Talons attached to enable the Agent to comply with its obligations under this clause. 6. TERMS OF ISSUE 6.1 The Agent shall cause all Temporary Global Notes, Permanent Global Notes and Definitive Notes delivered to and held by it under this Agreement to be maintained in safe custody and shall ensure that such Notes are issued only in accordance with the provisions of this Agreement and the relevant Global Note and Conditions. 10 6.2 Subject to the procedures set out in the Procedures Memorandum, for the purposes of subclause 3.1 the Agent is entitled to treat a telephone or facsimile communication from a person purporting to be (and who the Agent believes in good faith to be) the authorised representative of any Issuer and/or the Guarantor named in the lists referred to in, or notified pursuant to, subclause 19.7 as sufficient instructions and authority of such Issuer and/or the Guarantor for the Agent to act in accordance with subclause 3.1. 6.3 In the event that a person who has signed on behalf of any Issuer any Note not yet issued but held by the Agent in accordance with subclause 3.1 ceases to be authorised as described in subclause 19.7, the Agent shall (unless the relevant Issuer gives notice to the Agent that Notes signed by that person do not constitute valid and binding obligations of the relevant Issuer or otherwise until replacements have been provided to the Agent) continue to have authority to issue any such Notes, and the relevant Issuer hereby warrants to the Agent that such Notes shall, unless notified as aforesaid, be valid and binding obligations of such Issuer. Promptly upon such person ceasing to be authorised, the relevant Issuer shall provide the Agent with replacement Notes and upon receipt of such replacement Notes the Agent shall cancel and destroy the Notes held by it which are signed by such person and shall provide to the relevant Issuer a confirmation of destruction in respect thereof specifying the Notes so cancelled and destroyed. 6.4 If the Agent pays an amount (the ADVANCE) to the Issuer on the basis that a payment (the PAYMENT) has been, or will be, received from a Dealer and if the Payment is not received by the Agent on the date the Agent pays the relevant Issuer, the relevant Issuer (failing which the Guarantor) shall repay to the Agent the Advance and shall pay interest on the Advance (or the unreimbursed portion thereof) from (and including) the date such Advance is made to (but excluding) the earlier of repayment of the Advance and receipt by the Agent of the Payment (at a rate quoted at that time by the Agent as its cost of funding the Advance provided that evidence of the basis of such rate is given to the relevant Issuer and the Guarantor). 6.5 Except in the case of issues where the Agent does not act as receiving bank for the relevant Issuer in respect of the purchase price of the Notes being issued, if on the relevant Issue Date a Dealer does not pay the full purchase price due from it in respect of any Note (the DEFAULTED NOTE) and, as a result, the Defaulted Note remains in the Agent's distribution account with Euroclear and/or Clearstream, Luxembourg after such Issue Date, the Agent will continue to hold the Defaulted Note to the order of the relevant Issuer. The Agent shall notify the relevant Issuer forthwith of the failure of the Dealer to pay the full purchase price due from it in respect of any Defaulted Note and, subsequently, shall notify the relevant Issuer forthwith upon receipt from the Dealer of the full purchase price in respect of such Defaulted Note. 7. PAYMENTS 7.1 The Issuer (failing which the Guarantor) will, before 10.00 a.m. (local time in the relevant financial centre of the payment), on each date on which any payment in respect of any Note becomes due, transfer to an account specified by the Agent such amount in the relevant currency as shall be sufficient for the purposes of such payment in funds settled through such payment system as the Agent and the relevant Issuer or, as the case may be, the Guarantor may agree. 7.2 The Issuer (failing which the Guarantor) will ensure that no later than 10.00 a.m. (London time) on the second Business Day (as defined below) immediately preceding the date on which any payment is to be made to the Agent pursuant to subclause 7.1, the Agent shall 11 receive from the paying bank of the Issuer or, as the case may be, the Guarantor a payment confirmation in the form of a SWIFT message. For the purposes of this clause BUSINESS DAY means a day which is both: (a) day on which commercial banks and foreign exchange markets settle payments in London and any other place specified in the applicable Pricing Supplement as an Additional Business Centre; and (b) either (i) in relation to a payment to be made in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments in the principal financial centre of the country of the relevant Specified Currency (if other than London and any Additional Business Centre) and which, if the Specified Currency is New Zealand Dollars, shall be Auckland or (ii) in relation to a payment to be made in euro, a day on which the TARGET System is open, where TARGET SYSTEM means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System. Unless otherwise provided in the applicable Pricing Supplement, the principal financial centre for any currency shall be as provided in the ISDA Definitions. 7.3 The Agent shall ensure that payments of both principal and interest in respect of a Temporary Global Note will be made only to the extent that certification of non-U.S. beneficial ownership as required by U.S. securities laws and U.S. Treasury regulations (in the form set out in the Temporary Global Note) has been received from Euroclear and/or Clearstream, Luxembourg in accordance with the terms thereof. 7.4 The Agent or the relevant Paying Agent shall pay or cause to be paid all amounts due in respect of the Notes on behalf of each Issuer and the Guarantor in the manner provided in the Conditions. If any payment provided for in subclause 7.1 is made late but otherwise in accordance with the provisions of this Agreement, the Agent and each Paying Agent shall nevertheless make payments in respect of the Notes as aforesaid following receipt by it of such payment. 7.5 If for any reason the Agent considers in its sole discretion that the amounts to be received by the Agent pursuant to subclause 7.1 will be, or the amounts actually received by it pursuant thereto are, insufficient to satisfy all claims in respect of all payments then falling due in respect of the Notes, neither the Agent nor any Paying Agent shall be obliged to pay any such claims until the Agent has received the full amount of all such payments. 7.6 Without prejudice to subclauses 7.4 and 7.5, if the Agent pays any amounts to the holders of Notes, Receipts or Coupons or to any Paying Agent at a time when it has not received payment in full in respect of the relevant Notes in accordance with subclause 7.1 (the excess of the amounts so paid over the amounts so received being the SHORTFALL), the relevant Issuer (failing which the Guarantor) will, in addition to paying amounts due under subclause 7.1, pay to the Agent on demand interest (at a rate which represents the Agent's cost of funding the Shortfall as evidenced to the relevant Issuer and the Guarantor by the provision of details of the calculation of the cost of funding) on the Shortfall (or the unreimbursed portion thereof) until the receipt in full by the Agent of the Shortfall. 7.7 The Agent shall on demand promptly reimburse each Paying Agent for payments in respect of Notes properly made by such Paying Agent in accordance with this Agreement and the Conditions unless the Agent has notified the Paying Agent, prior to the opening of business in the location of the office of the Paying Agent through which payment in respect of the Notes can be made on the due date of a payment in respect of the Notes, that the Agent does not 12 expect to receive sufficient funds to make payment of all amounts falling due in respect of such Notes. 7.8 Whilst any Notes are represented by Global Notes, all payments due in respect of such Notes shall be made to, or to the order of, the holder of the Global Notes, subject to and in accordance with the provisions of the Global Notes. On the occasion of any such payment the Paying Agent to which the Global Note was presented for the purpose of making such payment shall cause the appropriate Schedule to the relevant Global Note to be annotated so as to evidence the amounts and dates of such payments of principal and/or interest as applicable. 7.9 If the amount of principal and/or interest then due for payment is not paid in full (otherwise than by reason of a deduction required by law to be made therefrom), the Paying Agent to which a Note is presented for the purpose of making such payment shall make a record of such Shortfall on the Note and such record shall, in the absence of manifest error, be prima facie evidence that the payment in question has not to that extent been made. 7.10 The obligations of the Guarantor as set forth in this Clause 7 shall be based on the Guarantee only and not be deemed to be primary obligations of the Guarantor. 8. DETERMINATIONS AND NOTIFICATIONS IN RESPECT OF NOTES AND INTEREST DETERMINATION 8.1 DETERMINATIONS AND NOTIFICATIONS (a) The Agent shall make all such determinations and calculations (howsoever described) as it is required to do under the Conditions, all subject to and in accordance with the Conditions. (b) The Agent shall not be responsible to any Issuer, the Guarantor or to any third party (except in the event of negligence, default or bad faith of the Agent, as the case may be) as a result of the Agent having acted on any quotation given by any Reference Bank which subsequently may be found to be incorrect. (c) The Agent shall promptly notify (and confirm in writing to) the relevant Issuer, the Guarantor, the other Paying Agents and (in respect of a Series of Notes listed on a Stock Exchange) the relevant Stock Exchange and Listing Agent of, inter alia, each Rate of Interest, Interest Amount and Interest Payment Date and all other amounts, rates and dates which it is obliged to determine or calculate under the Conditions as soon as practicable after the determination thereof and of any subsequent amendment thereto pursuant to the Conditions. (d) The Agent shall use its best endeavours to cause each Rate of Interest, Interest Amount and Interest Payment Date and all other amounts, rates and dates which it is obliged to determine or calculate under the Conditions to be published as required in accordance with the Conditions as soon as possible after their determination or calculation. (e) If the Agent does not at any material time for any reason determine and/or calculate and/or publish the Rate of Interest, Interest Amount and/or Interest Payment Date in respect of any Interest Period or any other amount, rate or date as provided in this clause, it shall forthwith notify the relevant Issuer, the Guarantor and the other Paying Agents of such fact. (f) Determinations with regard to Notes (including, without limitation, Indexed Notes and Dual Currency Notes) shall be made by the Calculation Agent specified in the applicable Pricing Supplement in the manner specified in the applicable Pricing Supplement. Unless otherwise agreed between the relevant Issuer, the Guarantor and the relevant Dealer or unless the Agent 13 is the Calculation Agent (in which case the provisions of this Agreement shall apply), such determinations shall be made on the basis of a Calculation Agency Agreement substantially in the form of Appendix A to this Agreement. 8.2 INTEREST DETERMINATION, SCREEN RATE DETERMINATION INCLUDING FALLBACK PROVISIONS (a) Where Screen Rate Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will, subject as provided below, be either: (i) the offered quotation; or (ii) the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the offered quotations, expressed as a percentage rate per annum), for the Reference Rate for deposits in the Specified Currency for that Interest Period which appears or appear, as the case may be, on the Relevant Screen Page as at 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date in question plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any), all as determined by the Agent. If five or more such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations. (b) If the Relevant Screen Page is not available or, if in the case of subclause 8.2(a)(i) above, no such offered quotation appears or, in the case of subclause 8.2(a)(ii) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph the Agent shall request the principal London office (in the case of LIBOR) or Euro-zone office (in the case of EURIBOR) of each of the Reference Banks to provide the Agent with its offered quotation (expressed as a percentage rate per annum) for the Reference Rate at approximately 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date in question. If two or more of the Reference Banks provide the Agent with such offered quotations, the Rate of Interest for such Interest Period shall be the arithmetic mean (rounded if necessary to the fifth decimal place with 0.000005 being rounded upwards) of such offered quotations plus or minus (as appropriate) the Margin (if any), all as determined by the Agent. (c) If on any Interest Determination Date one only or none of the Reference Banks provides the Agent with such offered quotations as provided in the preceding paragraph, the Rate of Interest for the relevant Interest Period shall be the rate per annum which the Agent determines as being the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the rates, as communicated to (and at the request of) the Agent by the Reference Banks or any two or more of them, at which such banks were offered, at approximately 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the relevant Interest Determination Date, deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate by leading banks in the London inter-bank market (in the case of LIBOR) or the Euro-zone inter-bank market (in the case of EURIBOR) plus or minus (as appropriate) the Margin (if any) or, if fewer than two of the Reference Banks provide the Agent with such offered rates, the offered rate for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, or the arithmetic mean (rounded as provided above) of the 14 offered rates for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, at which, at approximately 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the relevant Interest Determination Date, any one or more banks (which bank or banks is or are in the opinion of the relevant Issuer suitable for such purpose) informs the Agent it is quoting to leading banks in the London inter-bank market (in the case of LIBOR) or the Euro-zone inter-bank market (in the case of EURIBOR) plus or minus (as appropriate) the Margin (if any), provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions of this paragraph, the Rate of Interest shall be determined as at the last preceding Interest Determination Date (though substituting, where a different Margin is to be applied to the relevant Interest Period from that which applied to the last preceding Interest Period, the Margin relating to the relevant Interest Period, in place of the Margin relating to that last preceding Interest Period). (d) If the Reference Rate from time to time in respect of Floating Rate Notes is specified in the applicable Pricing Supplement as being other than LIBOR or, as the case may be, EURIBOR, the Rate of Interest in respect of such Notes will be determined as provided in the applicable Pricing Supplement. 9. NOTICE OF ANY WITHHOLDING OR DEDUCTION If any Issuer and/or the Guarantor is, in respect of any payment, compelled to withhold or deduct any amount for or on account of taxes, duties, assessments or governmental charges as specifically contemplated under the Conditions, such Issuer and/or the Guarantor shall give notice thereof to the Agent as soon as it becomes aware of the requirement to make such withholding or deduction and shall give to the Agent such information as it shall require to enable it to comply with such requirement. 10. DUTIES OF THE AGENT IN CONNECTION WITH EARLY REDEMPTION 10.1 If any Issuer decides to redeem any Notes for the time being outstanding prior to their Maturity Date in accordance with the Conditions, such Issuer shall give notice of such decision to the Agent not less than 15 days before the date on which the relevant Issuer will give notice to the Noteholders in accordance with the Conditions of such redemption in order to enable the Agent to undertake its obligations herein and in the Conditions. 10.2 If some only of the Notes are to be redeemed on such date, the Agent shall, in the case of Definitive Notes, make the required drawing in accordance with the Conditions but shall give the relevant Issuer reasonable notice of the time and place proposed for such drawing and the relevant Issuer shall be entitled to send representatives to attend such drawing and shall, in the case of Notes in global form, co-ordinate the selection of Notes to be redeemed with Euroclear and Clearstream, Luxembourg, all in accordance with the Conditions. 10.3 The Agent shall publish the notice required in connection with any such redemption and shall at the same time also publish a separate list of the serial numbers of any Notes in definitive form previously drawn and not presented for redemption. Such notice shall specify the date fixed for redemption, the redemption amount, the manner in which redemption will be effected and, in the case of a partial redemption of Definitive Notes, the serial numbers of the Notes to be redeemed. Such notice will be published in accordance with the Conditions. The Agent will also notify the other Paying Agents of any date fixed for redemption of any Notes. 10.4 Each Paying Agent will keep a stock of Put Notices and will make such notices available on demand to holders of Definitive Notes, the Conditions of which provide for redemption at the option of Noteholders. Upon receipt of any Note deposited in the exercise of such option in 15 accordance with the Conditions, the Paying Agent with which such Note is deposited shall hold such Note (together with any Receipts, Coupons and Talons relating to it deposited with it) on behalf of the depositing Noteholder (but shall not, save as provided below, release it) until the due date for redemption of the relevant Note consequent upon the exercise of such option, when, subject as provided below, it shall present such Note (and any such Receipts, Coupons and Talons) to itself for payment of the amount due thereon together with any interest due on such date in accordance with the Conditions and shall pay such moneys in accordance with the directions of the Noteholder contained in the relevant Put Notice. If, prior to such due date for its redemption, such Note becomes immediately due and repayable or if upon due presentation payment of such redemption moneys is improperly withheld or refused, the Paying Agent concerned shall post such Note (together with any such Receipts, Coupons and Talons) by uninsured post to, and at the risk of, the relevant Noteholder unless the Noteholder has otherwise requested and paid the costs of such insurance to the relevant Paying Agent at the time of depositing the Notes at such address as may have been given by the Noteholder in the relevant Put Notice. At the end of each period for the exercise of such option, each Paying Agent shall promptly notify the Agent of the principal amount of the Notes in respect of which such option has been exercised with it together with their serial numbers and the Agent shall promptly notify such details to the relevant Issuer. 11. RECEIPT AND PUBLICATION OF NOTICES 11.1 Forthwith upon the receipt by the Agent of a demand or notice from any Noteholder in accordance with the Conditions the Agent shall forward a copy thereof to the relevant Issuer and the Guarantor. 11.2 On behalf of and at the request and expense of each Issuer (failing which the Guarantor), the Agent shall cause to be published all notices required to be given by any Issuer or the Guarantor to the Noteholders in accordance with the Conditions. 12. CANCELLATION OF NOTES, RECEIPTS, COUPONS AND TALONS 12.1 All Notes which are redeemed, all Receipts or Coupons which are paid and all Talons which are exchanged shall be cancelled by the Agent or Paying Agent by which they are redeemed, paid or exchanged. In addition, all Notes which are purchased by or on behalf of any Issuer, the Guarantor or any of their respective subsidiaries and are surrendered to a Paying Agent for cancellation, together (in the case of Definitive Notes) with all unmatured Receipts, Coupons or Talons (if any) attached thereto or surrendered therewith, shall be cancelled by the Paying Agent to which they are surrendered. Each of the other Paying Agents shall give to the Agent details of all payments made by it and shall deliver all cancelled Notes, Receipts, Coupons and Talons to the Agent. 12.2 A certificate stating: (a) the aggregate nominal amount of Notes which have been redeemed and the aggregate amount paid in respect thereof; (b) the number of Notes cancelled together (in the case of Notes in definitive form) with details of all unmatured Receipts, Coupons or Talons (if any) attached thereto or delivered therewith; (c) the aggregate amount paid in respect of interest on the Notes; (d) the total number by maturity date of Receipts, Coupons and Talons so cancelled; and 16 (e) (in the case of Definitive Notes) the serial numbers of such Notes, shall be given to the relevant Issuer and the Guarantor by the Agent as soon as reasonably practicable and in any event within three months after the date of such repayment, payment, cancellation or replacement, as the case may be. 12.3 The Agent shall destroy all cancelled Notes, Receipts, Coupons and Talons and, forthwith upon destruction, furnish the Issuer with a certificate of the serial numbers of the Notes (in the case of Notes in definitive form) and the number by maturity date of Receipts, Coupons and Talons so destroyed. 12.4 Without prejudice to the obligations of the Agent pursuant to subclause 12.2, the Agent shall keep a full and complete record of all Notes, Receipts, Coupons and Talons (other than serial numbers of Coupons, except those which have been replaced pursuant to Condition 10) and of their redemption, purchase by or on behalf of any Issuer or the Guarantor or any of their respective subsidiaries and cancellation, payment or replacement (as the case may be) and of all replacement Notes, Receipts, Coupons or Talons issued in substitution for mutilated, defaced, destroyed, lost or stolen Notes, Receipts, Coupons or Talons. The Agent shall in respect of the Coupons of each maturity retain (in the case of Coupons other than Talons) until the expiry of ten years from the Relevant Date in respect of such Coupons and (in the case of Talons) indefinitely either all paid or exchanged Coupons of that maturity or a list of the serial numbers of Coupons of that maturity still remaining unpaid or unexchanged. The Agent shall at all reasonable times make such record available to the relevant Issuer, the Guarantor and any persons authorised by either of them for inspection and for the taking of copies thereof or extracts therefrom. 12.5 All records and certificates made or given pursuant to this clause and Clause 13 shall make a distinction between Notes, Receipts, Coupons and Talons of each Series. 13. ISSUE OF REPLACEMENT NOTES, RECEIPTS, COUPONS AND TALONS 13.1 Each Issuer will cause a sufficient quantity of additional forms of Notes, Receipts, Coupons and Talons to be available, upon request, to the Replacement Agent at its specified office for the purpose of issuing replacement Notes, Receipts, Coupons and Talons as provided below. 13.2 The Replacement Agent will, subject to and in accordance with the Conditions and the following provisions of this clause, cause to be delivered any replacement Notes, Receipts, Coupons and Talons which any Issuer may determine to issue in place of Notes, Receipts, Coupons and Talons which have been lost, stolen, mutilated, defaced or destroyed. 13.3 In the case of a mutilated or defaced Note, the Replacement Agent shall ensure that (unless otherwise covered by such indemnity as the relevant Issuer may reasonably require) any replacement Note will only have attached to it Receipts, Coupons and Talons corresponding to those (if any) attached to the mutilated or defaced Note which is presented for replacement. 13.4 The Replacement Agent shall obtain verification in the case of an allegedly lost, stolen or destroyed Note, Receipt, Coupon or Talon in respect of which the serial number is known, that the Note, Receipt, Coupon or Talon has not previously been redeemed, paid or exchanged, as the case may be. The Replacement Agent shall not issue any replacement Note, Receipt, Coupon or Talon unless and until the claimant therefor shall have: (a) paid such reasonable costs and expenses as may be incurred in connection therewith; 17 (b) furnished it with such evidence (including evidence as to the serial number of such Note, Receipt, Coupon or Talon) and indemnity (which may include a bank guarantee) as the relevant Issuer, the Guarantor and the Agent may reasonably require; (c) in the case of any mutilated or defaced Note, Receipt, Coupon or Talon, surrendered it to the Replacement Agent. 13.5 The Replacement Agent shall cancel any mutilated or defaced Notes, Receipts, Coupons and Talons in respect of which replacement Notes, Receipts, Coupons and Talons have been issued pursuant to this clause and shall furnish the relevant Issuer and the Guarantor with a certificate stating the serial numbers of the Notes, Receipts, Coupons and Talons so cancelled and, unless otherwise instructed by the relevant Issuer in writing, shall destroy such cancelled Notes, Receipts, Coupons and Talons and furnish the relevant Issuer and the Guarantor with a destruction certificate containing the information specified in subclause 12.3. 13.6 The Replacement Agent shall, on issuing any replacement Note, Receipt, Coupon or Talon, forthwith inform the relevant Issuer, the Guarantor, the Agent and the other Paying Agents of the serial number of such replacement Note, Receipt, Coupon or Talon issued and (if known) of the serial number of the Note, Receipt, Coupon or Talon in place of which such replacement Note, Receipt, Coupon or Talon has been issued. Whenever replacement Receipts, Coupons or Talons are issued pursuant to the provisions of this clause, the Replacement Agent shall also notify the Agent and any other Paying Agents of the maturity dates of the lost, stolen, mutilated, defaced or destroyed Receipts, Coupons or Talons and of the replacement Receipts, Coupons or Talons issued. 13.7 The Agent shall keep a full and complete record of all replacement Notes, Receipts, Coupons and Talons issued and shall make such record available at all reasonable times to the Issuers, the Guarantor and any persons authorised by either of them for inspection and for the taking of copies thereof or extracts therefrom. 13.8 Whenever any Note, Receipt, Coupon or Talon for which a replacement Note, Receipt, Coupon or Talon has been issued and in respect of which the serial number is known is presented to the Agent or any of the other Paying Agents for payment, the Agent or, as the case may be, the relevant other Paying Agent shall immediately send notice thereof to the relevant Issuer, the Guarantor and the other Paying Agents. 13.9 The Paying Agents shall issue further Coupon sheets against surrender of Talons. A Talon so surrendered shall be cancelled by the relevant Paying Agent who (except where the Paying Agent is the Agent) shall inform the Agent of its serial number. Further Coupon sheets issued on surrender of Talons shall carry the same serial number as the surrendered Talon. 14. COPIES OF DOCUMENTS AVAILABLE FOR INSPECTION 14.1 The executed Guarantee shall be deposited with the Agent and shall be held in safe custody by it on behalf of the Noteholders, the Receiptholders and the Couponholders at its specified office for the time being. 14.2 Each Paying Agent shall hold available for inspection at its specified office during normal business hours copies of all documents required to be so available by the Conditions of any Notes or the rules of any relevant Stock Exchange (or any other relevant authority). For these above purposes, each Issuer and the Guarantor shall furnish the Paying Agents with sufficient copies of each of the relevant documents. 18 15. MEETINGS OF NOTEHOLDERS 15.1 The provisions of Schedule 4 hereto shall apply to meetings of the Noteholders and shall have effect in the same manner as if set out in this Agreement. 15.2 Without prejudice to subclause 15.1, each of the Agent and the other Paying Agents on the request of any Noteholder shall issue voting certificates and block voting instructions in accordance with Schedule 4 and shall forthwith give notice to the relevant Issuer and the Guarantor in writing of any revocation or amendment of a block voting instruction. Each of the Agent and the other Paying Agents will keep a full and complete record of all voting certificates and block voting instructions issued by it and will, not less than 24 hours before the time appointed for holding a meeting or adjourned meeting, deposit at such place as the Agent shall designate or approve, full particulars of all voting certificates and block voting instructions issued by it in respect of such meeting or adjourned meeting. 16. COMMISSIONS AND EXPENSES 16.1 The Issuers and the Guarantor agree to pay to the Agent such reasonable fees and commissions as the Issuers and the Guarantor and the Agent shall separately agree in respect of the services of the Agent and the Paying Agents hereunder and to reimburse any reasonable out-of-pocket expenses (including reasonable legal, printing, postage tax and cable) incurred by the Agent and the Paying Agents in connection with their said services including the expense of making such notifications and publications to Noteholders as are required by the Terms and Conditions of any Notes or as may be required by any Issuer. 16.2 In addition, the Issuers and the Guarantor jointly and severally agree with the Agent to reimburse its reasonable out-of-pocket expenses (including legal fees) incurred by the Agent in connection with the preparation, execution and delivery of this Agreement. 16.3 The Agent will make payment of the fees and commissions due hereunder to the Paying Agents and will reimburse their expenses promptly after the receipt of the relevant moneys from an Issuer or the Guarantor, as the case may be. None of the Issuers or the Guarantor shall be responsible for any such payment or reimbursement by the Agent to the Paying Agents. 17. INDEMNITY 17.1 Each Issuer will, severally as to itself, and the Guarantor will, jointly with the relevant Issuer and severally as to itself, indemnify the Agent and each of the Paying Agents and each of their directors, officers, employees and agents against any losses, liabilities, claims, actions or demands and any reasonable out-of-pocket costs and expenses (including, but not limited to, all reasonable costs, charges and expenses paid or incurred in disputing or defending any of the foregoing) which it may incur or which may be made against the Agent or any Paying Agent as a result of or in connection with its appointment or the exercise of its powers and duties hereunder except such as may result from its own default, negligence or bad faith or that of its officers, directors, employees or agents or the breach by it of the terms of this Agreement. 17.2 Each of the Agent and the Paying Agents will severally indemnify each of the Issuers and the Guarantor and each of their directors, officers, employees and agents against any loss, liability, claim, action or demand and any reasonable out-of-pocket costs and expenses (including, but not limited to, all reasonable costs, legal fees, charges and expenses paid or incurred in disputing or defending any of the foregoing) which the relevant company may incur or which may be made against the relevant company as a result of the breach by the 19 Agent or such Paying Agents of the terms of this Agreement or its default, negligence or bad faith or that of its officers, directors, employees or agents. 18. REPAYMENT BY THE AGENT Upon any Issuer or the Guarantor, as the case may be, being discharged from its obligation to make payments in respect of any Notes pursuant to the relevant Conditions, and provided that there is no outstanding, bona fide and proper claim in respect of any such payments, the Agent shall forthwith on demand pay to the relevant Issuer sums equivalent to any amounts paid to it by the relevant Issuer or the Guarantor, as the case may be, for the purposes of such payments. 19. CONDITIONS OF APPOINTMENT 19.1 The Agent shall be entitled to deal with money paid to it by any Issuer or the Guarantor for the purpose of this Agreement in the same manner as other money paid to a banker by its customers except: (a) that it shall not exercise any right of set-off, lien or similar claim in respect thereof; (b) as provided in subclause 19.2 below; and (c) that it shall not be liable to account to any Issuer or the Guarantor for any interest thereon. 19.2 In acting hereunder and in connection with the Notes, the Agent and the other Paying Agents shall act solely as agents of the Issuers and the Guarantor and will not thereby assume any obligations towards or relationship of agency or trust for or with any of the owners or holders of the Notes, Receipts, Coupons or Talons. 19.3 The Agent and the other Paying Agents hereby undertake to the Issuers and the Guarantor to perform such obligations and duties, and shall be obliged to perform such duties and only such duties, as are herein, in the Conditions and in the Procedures Memorandum specifically set forth, and no implied duties or obligations shall be read into this Agreement or the Notes against the Agent and the other Paying Agents, other than the duty to act honestly and in good faith and to exercise the diligence of a reasonably prudent agent in comparable circumstances. 19.4 The Agent may consult with legal and other professional advisers and the written opinion of such advisers shall be full and complete protection in respect of any action taken, omitted or suffered hereunder in good faith and in accordance with the opinion of such advisers. 19.5 Each of the Agent and the other Paying Agents shall be protected and shall incur no liability for or in respect of any action taken, omitted or suffered in reliance upon any instruction, request or order from any Issuer or the Guarantor or any notice, resolution, direction, consent, certificate, affidavit, statement, cable, telex or other paper or document which it reasonably believes to be genuine and to have been delivered, signed or sent by the proper party or parties or upon written instructions from the Issuer or the Guarantor. 19.6 Any of the Agent and the other Paying Agents and their officers, directors and employees may become the owner of, or acquire any interest in, any Notes, Receipts, Coupons or Talons with the same rights that it or he would have if the Agent or the relevant other Paying Agent, as the case may be, concerned were not appointed hereunder, and may engage or be interested in any financial or other transaction with any Issuer or the Guarantor and may act on, or as depositary, trustee or agent for, any committee or body of holders of Notes or Coupons or in 20 connection with any other obligations of any Issuer or the Guarantor as freely as if the Agent or the relevant other Paying Agent, as the case may be, were not appointed hereunder. 19.7 Each Issuer and the Guarantor shall provide the Agent with a certified copy of the list of persons authorised to execute documents and take action on its behalf in connection with this Agreement and shall notify the Agent immediately in writing if any of such persons ceases to be so authorised or if any additional person becomes so authorised together, in the case of an additional authorised person, with evidence satisfactory to the Agent that such person has been so authorised. 20. COMMUNICATION BETWEEN THE PARTIES A copy of all communications relating to the subject matter of this Agreement between any Issuer or the Guarantor and the Noteholders, Receiptholders or Couponholders and any of the Paying Agents (other than the Agent) shall be sent to the Agent by the other relevant Paying Agent. 21. CHANGES IN AGENT AND OTHER PAYING AGENTS 21.1 Each Issuer and the Guarantor agree that, for so long as any Note is outstanding, or until moneys for the payment of all amounts in respect of all outstanding Notes have been made available to the Agent and have been returned to the relevant Issuer or the Guarantor, as the case may be, as provided herein (whichever is the later): (a) so long as any Notes are listed on any Stock Exchange or admitted to listing by any other relevant authority, there will at all times be a Paying Agent (which may be the Agent) with a specified office in such place as may be required by the rules and regulations of such Stock Exchange or other relevant authority; and (b) there will at all times be a Paying Agent (which may be the Agent) with its specified office in a country outside the tax jurisdiction of the Issuer; and (c) there will at all times be an Agent; and (d) if the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000 are implemented, it will ensure that it maintains a Paying Agent in an EU member state that will not be obliged to withhold or deduct tax pursuant to the relevant Directive. In addition, each Issuer and the Guarantor shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in the final paragraph of Condition 5(b). Any termination, appointment or change in the Agent or Paying Agent shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days' prior notice thereof shall have been given to the Noteholders in accordance with Condition 14. 21.2 The Agent may (subject as provided in subclause 21.4 below) at any time resign as Agent by giving at least 90 days' written notice to the Issuers and the Guarantor of such intention on its part, specifying the date on which its desired resignation shall become effective. 21.3 The Agent may (subject as provided in subclause 21.4 below) be removed at any time by the Issuers and the Guarantor on at least 45 days' notice by the filing with it of an instrument in writing signed on behalf of the Issuers and the Guarantor specifying such removal and the date when it shall become effective. 21 21.4 Any resignation under subclause 21.2 or removal under subclauses 21.3 or 21.5 shall only take effect upon the appointment by the Issuers and the Guarantor as hereinafter provided, of a successor Agent and (other than in cases of insolvency of the Agent, when such resignation or removal shall become effective immediately) on the expiry of the notice to be given under Clause 23. The Issuers and the Guarantor agree with the Agent that if, by the day falling ten days before the expiry of any notice under subclause 21.2, the Issuers and the Guarantor have not appointed a successor Agent, then the Agent shall be entitled, on behalf of the Issuers and the Guarantor, to appoint as a successor Agent in its place a reputable financial institution of good standing which the Issuer and the Guarantor shall approve (such approval not to be unreasonably withheld or delayed). 21.5 In case at any time the Agent resigns, or is removed, or becomes incapable of acting or is adjudged bankrupt or insolvent, or files a voluntary petition in bankruptcy or makes an assignment for the benefit of its creditors or consents to the appointment of an administrator, liquidator or administrative or other receiver of all or a substantial part of its property, or admits in writing its inability to pay or meet its debts as they mature or suspends payment thereof, or if any order of any court is entered approving any petition filed by or against it under the provisions of any applicable bankruptcy or insolvency law or if a receiver of it or of all or a substantial part of its property is appointed or if any officer takes charge or control of it or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, a successor Agent, which shall be a reputable financial institution of good standing may be appointed by the Issuers and the Guarantor by an instrument in writing filed with the successor Agent. Upon the appointment as aforesaid of a successor Agent and acceptance by the latter of such appointment and (other than in case of insolvency of the Agent when it shall be of immediate effect) upon expiry of the notice to be given under Clause 23 the Agent so superseded shall cease to be the Agent hereunder. 21.6 Subject to subclause 21.1, the Issuers and the Guarantor may, after prior consultation with the Agent, terminate the appointment of any of the other Paying Agents at any time and/or appoint one or more further other Paying Agents by giving to the Agent, and to the relevant other Paying Agent at least 45 days' notice in writing to that effect (other than in the case of insolvency of the other Paying Agent). 21.7 Subject to subclause 21.1, all or any of the Paying Agents may resign their respective appointments hereunder at any time by giving the Issuers, the Guarantor and the Agent at least 45 days' written notice to that effect. 21.8 Upon its resignation or removal becoming effective, the Agent or the relevant Paying Agent: (a) shall forthwith transfer all moneys held by it hereunder and, if applicable, the records referred to in clauses 12.4 and 13.7 to the successor Agent hereunder; and (b) shall be entitled to the payment by the Issuers or the Guarantor of its commissions, fees and expenses for the services therefore rendered hereunder in accordance with the terms of Clause 16. 21.9 Upon its appointment becoming effective, a successor Agent and any new Paying Agent shall, without further act, deed or conveyance, become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of its predecessor or, as the case may be, a Paying Agent with like effect as if originally named as Agent or (as the case may be) a Paying Agent hereunder. 22 22. MERGER AND CONSOLIDATION Any corporation into which the Agent or any other Paying Agent may be merged or converted, or any corporation with which the Agent or any of the other Paying Agents may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Agent or any of the other Paying Agents shall be a party, or any corporation to which the Agent or any of the other Paying Agents shall sell or otherwise transfer all or substantially all the assets of the Agent or any other Paying Agent shall, on the date when such merger, conversion, consolidation or transfer becomes effective and to the extent permitted by any applicable laws, become the successor Agent or, as the case may be, other Paying Agent under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto, unless otherwise required by the Issuers and the Guarantor, and after the said effective date all references in this Agreement to the Agent or, as the case may be, such other Paying Agent shall be deemed to be references to such corporation. Written notice of any such merger, conversion, consolidation or transfer shall forthwith be given to each Issuer and the Guarantor by the relevant Agent or other Paying Agent. 23. NOTIFICATION OF CHANGES TO PAYING AGENTS Following receipt of notice of resignation from the Agent or any other Paying Agent and forthwith upon appointing a successor Agent or, as the case may be, further or other Paying Agents or on giving notice to terminate the appointment of any Agent or, as the case may be, other Paying Agent, the Agent (on behalf of and at the expense of the Issuers and the Guarantor) shall give or cause to be given not more than 45 days' nor less than 30 days' notice thereof to the Noteholders in accordance with the Conditions. 24. CHANGE OF SPECIFIED OFFICE If the Agent or any other Paying Agent determines to change its specified office it shall give to the Issuers, the Guarantor and (if applicable) the Agent written notice of such determination giving the address of the new specified office which shall be in the same city and stating the date on which such change is to take effect, which shall not be less than 45 days thereafter. The Agent (on behalf and at the expense of the Issuers and the Guarantor) shall within 15 days of receipt of such notice (unless the appointment of the Agent or the other relevant Paying Agent, as the case may be, is to terminate pursuant to Clause 21 on or prior to the date of such change) give or cause to be given not more than 45 days' nor less than 30 days' notice thereof to the Noteholders in accordance with the Conditions. 25. NOTICES 25.1 Any notice or communication given hereunder shall be sufficiently given or served: (a) if delivered in person to the relevant address specified on the signature pages hereof or such other address as may be notified by the recipient in accordance with this clause and, if so delivered, shall be deemed to have been delivered at time of receipt; or (b) if sent by facsimile to the relevant number specified on the signature pages hereof or such other number as may be notified by the recipient in accordance with this clause and, if so sent, shall be deemed to have been delivered when an acknowledgement of receipt is received. 23 Where a communication is received after 5 p.m. local time in the place to which the communication is addressed it shall be deemed to be received and become effective on the next business day. 25.2 A copy of any notice served in accordance with subclause 25.1 above on an Issuer shall be given to the Guarantor at: Klybeckstrasse 141 CH-4002 Basle Switzerland Telephone: 41 61 636 2740 Telefax: 41 61 636 6828 Attention: Group Treasurer 26. TAXES AND STAMP DUTIES The Issuers and the Guarantor jointly and severally agree to pay any and all stamp and other documentary taxes or duties which may be payable in Germany, the United States of America, the United Kingdom, the Grand Duchy of Luxembourg, Belgium or Switzerland in connection with the execution, delivery, performance and enforcement of this Agreement, the Deed of Covenant or the Deed of Guarantee. 27. CURRENCY INDEMNITY If, under any applicable law and whether pursuant to a judgment being made or registered against any Issuers and/or the Guarantor or in the liquidation, insolvency or analogous process of any Issuer and/or the Guarantor or for any other reason, any payment under or in connection with this Agreement is made or falls to be satisfied in a currency (the OTHER CURRENCY) other than that in which the relevant payment is expressed to be due (the REQUIRED CURRENCY) under this Agreement, then, to the extent that the payment (when converted into the required currency at the rate of exchange on the date of payment or, if it is not practicable for the Agent or the relevant other Paying Agent to purchase the required currency with the other currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so or, in the case of a liquidation, insolvency or analogous process at the rate of exchange on the latest date permitted by applicable law for the determination of liabilities in such liquidation, insolvency or analogous process) actually received by the Agent or the relevant other Paying Agent falls short of the amount due under the terms of this Agreement, the relevant Issuer and the Guarantor each undertakes that it shall, as a separate and independent obligation, indemnify and hold harmless the Agent and each other Paying Agent against the amount of such shortfall. For the purpose of this clause, RATE OF EXCHANGE means the rate at which the Agent or the relevant other Paying Agent is able on the relevant date to purchase the required currency with the other currency and shall take into account any premium and other costs of exchange. The parties hereto understand and agree that in the event that the required currency is replaced by the Euro after the date hereof, the Euro will not be considered an OTHER CURRENCY for the purposes of this Clause 27. 28. AMENDMENTS This Agreement may be amended in writing by agreement between the Issuers, the Guarantor, the Agent and the other Paying Agents, but without the consent of any Noteholder, Receiptholder or Couponholder, (i) for the purpose of curing any ambiguity or of curing, correcting or supplementing any defective provision contained herein or complying with mandatory provisions of the law of the jurisdiction in which the Issuer or Guarantor is 24 incorporated or (ii) in any manner which the parties may mutually deem necessary or desirable and which shall not be materially prejudicial to the interests of the Noteholders. The Issuers, the Guarantor and the Agent may also agree any modification pursuant to Condition 15. 29. DESCRIPTIVE HEADINGS The descriptive headings in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 30. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. 31. GOVERNING LAW AND SUBMISSION TO JURISDICTION 31.1 This Agreement is governed by, and shall be construed in accordance with, the laws of England. 31.2 Each party hereto hereby irrevocably agrees, for the exclusive benefit of the other parties hereto, that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of or in connection with this Agreement may be brought in such courts. Each party hereto hereby irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any such Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum and hereby further irrevocably agrees that a judgment in any such Proceedings brought in the English courts shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained in this clause shall limit any right to take Proceedings against any party hereto in any other court of competent jurisdiction (outside the Contracting States as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982), nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not (subject to the laws of the relevant jurisdictions). Each of CIBA US, CIBA Germany, CIBA Bermuda and the Guarantor each hereby appoints CIBA UK as its agent for service of process, and undertakes that, in the event of CIBA UK ceasing so to act or ceasing to be registered in England, it will appoint another person, as the Agent may approve, as its agent for service of process in England in respect of any Proceedings. The Replacement Agent hereby appoints the Agent as its agent for service of process, and undertakes that, in the event of the Agent ceasing so to act or ceasing to be registered in England, it will appoint another person, as the Guarantor may approve, as its agent for service of process in England in respect of any Proceedings. Nothing herein shall affect the right to serve process in any other manner permitted by law. 32. COUNTERPARTS This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. 25 APPENDIX 1 FORM OF CALCULATION AGENCY AGREEMENT CALCULATION AGENCY AGREEMENT DATED [ ], 2[ ] [CIBA SPECIALTY CHEMICALS PLC/ CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] AS ISSUER - AND - CIBA SPECIALTY CHEMICALS HOLDING INC. AS GUARANTOR U.S. $2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM [ALLEN & OVERY LOGO] LONDON 26 CALCULATION AGENCY AGREEMENT IN RESPECT OF A EURO MEDIUM TERM NOTE PROGRAM THIS AGREEMENT is made on [ ], 2[ ] BETWEEN: (1) [CIBA SPECIALTY CHEMICALS CORPORATION of 560 White Plains Road, Tarrytown, New York 10591-9005, United States/CIBA SPECIALTY CHEMICALS PLC of Hulley Road, Macclesfield, Cheshire SK10 2NX/CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH of Chemiestrasse D-68623 Lampertheim, Germany/CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. of Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda] (the ISSUER); (2) CIBA SPECIALTY CHEMICALS HOLDING INC. of Klybeckstrase 141, CH-4002 Basle, Switzerland (the GUARANTOR); and (3) [ ] of [ ] (the CALCULATION AGENT, which expression shall include its successor or successors for the time being as calculation agent hereunder). WHEREAS: (A) The Issuer, the Guarantor and certain other subsidiaries of the Guarantor have entered into an amended and restated program agreement with the Dealers named therein dated 27th March, 2003 under which the Issuer and such other subsidiaries may issue Euro Medium Term Notes (NOTES). (B) The Notes will be issued subject to and with the benefit of an amended and restated agency agreement (the AGENCY AGREEMENT) dated 27th March, 2003 and entered into between the Issuer, the Guarantor, such other subsidiaries, JPMorgan Chase Bank as Agent (the AGENT which expression shall include its successor or successors for the time being under the Agency Agreement) and the other parties named therein. NOW IT IS HEREBY AGREED that: 1. APPOINTMENT OF THE CALCULATION AGENT The Issuer and the Guarantor hereby appoint [ ] as Calculation Agent in respect of each Series of Notes described in the Schedule hereto (the RELEVANT NOTES) for the purposes set out in Clause 2 below, all upon the provisions hereinafter set out. The agreement of the parties hereto that this Agreement is to apply to each Series of Relevant Notes shall be evidenced by the manuscript annotation and signature in counterpart of the Schedule hereto. 2. DUTIES OF CALCULATION AGENT The Calculation Agent shall in relation to each Series of Relevant Notes perform all the functions and duties imposed on the Calculation Agent by the terms and conditions of the Relevant Notes (the CONDITIONS) including endorsing the Schedule hereto appropriately in relation to each Series of Relevant Notes. 27 3. EXPENSES Save as provided in Clause 4 below, the Calculation Agent shall bear all expenses incurred by it in connection with its said services. 4. INDEMNITY 4.1 The Issuer and the Guarantor shall jointly and severally indemnify and keep indemnified the Calculation Agent, its directors, officers, employees and agents against any losses, liabilities, claims, actions or demands and any reasonable out-of-pocket costs and expenses which it may incur or which may be made against it by third parties as a result of or in connection with its appointment or the exercise of its powers and duties under this Agreement except such as may result from its own default, negligence or bad faith or that of its officers, directors, employees or agents or the breach by it of the terms of this Agreement. The Issuer and the Guarantor must be notified immediately of such claims, actions or demands and be invited and permitted to participate in the defence thereof. 4.2 The Calculation Agent shall indemnify each of the Issuer and the Guarantor and each of their officers, directors, employees and agents against any losses, liabilities, claims, actions or demands and any reasonable out-of-pocket costs and expenses which it may incur or which may be made against it as a direct result of the breach by the Calculation Agent of the terms of this Agreement or its default, negligence or bad faith or that its agents, officers, directors or employees. The Calculation Agent must be notified immediately of such claims, actions or demands and be invited and permitted to participate in the defence thereof. 5. CONDITIONS OF APPOINTMENT 5.1 In acting hereunder and in connection with the Relevant Notes the Calculation Agent shall act as agent of the Issuer and the Guarantor and shall not thereby assume any obligations towards or relationship of agency or trust for or with any of the owners or holders of the Relevant Notes or the receipts or coupons (if any) appertaining thereto (the RECEIPTS and the COUPONS, respectively). 5.2 In relation to each issue of Relevant Notes the Calculation Agent shall be obliged to perform such duties and only such duties as are herein and in the Conditions specifically set forth and no implied duties or obligations shall be read into this Agreement or the Conditions against the Calculation Agent, other than the duty to act honestly and in good faith and to exercise the diligence of a reasonably prudent agent in comparable circumstances. 5.3 The Calculation Agent may consult with legal and other professional advisers and the written opinion of such advisers shall be full and complete protection in respect of any action taken, omitted or suffered hereunder in good faith and in accordance with the opinion of such advisers. 5.4 The Calculation Agent shall be protected and shall incur no liability for or in respect of any action taken, omitted or suffered in reliance upon any instruction, request or order from the Issuer or the Guarantor or any notice, resolution, direction, consent, certificate, affidavit, statement, cable, telex or other paper or document which it reasonably believes to be genuine and to have been delivered, signed or sent by the proper party or parties or upon written instructions from the Issuer or the Guarantor. 5.5 The Calculation Agent and any of its officers, directors and employees may become the owner of, or acquire any interest in, any Notes, Receipts or Coupons (if any) with the same rights that it or he would have if the Calculation Agent were not appointed hereunder, and 28 may engage or be interested in any financial or other transaction with the Issuer or the Guarantor and may act on, or as depositary, trustee or agent for, any committee or body of holders of Notes or Coupons (if any) or in connection with any other obligations of the Issuer or the Guarantor as freely as if the Calculation Agent were not appointed hereunder. 6. TERMINATION OF APPOINTMENT 6.1 The Issuer and the Guarantor may terminate the appointment of the Calculation Agent at any time by giving to the Calculation Agent at least 45 days' prior written notice to that effect, provided that, so long as any of the Relevant Notes is outstanding: (a) such notice shall not expire less than 45 days before any date upon which any payment is due in respect of any Relevant Notes; and (b) notice shall be given in accordance with the Conditions to the holders of the Relevant Notes at least 30 days prior to any removal of the Calculation Agent. 6.2 Notwithstanding the provisions of subclause 6.1 above, if at any time: (a) the Calculation Agent becomes incapable of acting, or is adjudged bankrupt or insolvent, or files a voluntary petition in bankruptcy or makes an assignment for the benefit of its creditors or consents to the appointment of an administrator, liquidator or administrative or other receiver of all or any substantial part of its property, or it admits in writing its inability to pay or meet its debts as they may mature or suspends payment thereof, or if any order of any court is entered approving any petition filed by or against it under the provisions of any applicable bankruptcy or insolvency law or if a receiver of it or of all or a substantial part of its property is appointed or if any officer takes charge or control of the Calculation Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; or (b) the Calculation Agent fails duly to perform any function or duty imposed upon it by the Conditions and this Agreement, the Issuer and the Guarantor may forthwith without notice terminate the appointment of the Calculation Agent, in which event notice thereof shall be given to the holders of the Relevant Notes in accordance with the Conditions as soon as practicable thereafter. 6.3 The termination of the appointment pursuant to subclause 6.1 or 6.2 above of the Calculation Agent hereunder shall not entitle the Calculation Agent to any amount by way of compensation but shall be without prejudice to any amount then accrued due. 6.4 The Calculation Agent may resign its appointment hereunder at any time by giving to the Issuer and the Guarantor at least 90 days' prior written notice to that effect. Following receipt of a notice of resignation from the Calculation Agent, the Issuer or the Guarantor shall promptly give notice thereof to the holders of the Relevant Notes in accordance with the Conditions. 6.5 Notwithstanding the provisions of subclauses 6.1, 6.2 and 6.4 above, so long as any of the Relevant Notes is outstanding, the termination of the appointment of the Calculation Agent (whether by the Issuer, the Guarantor or by the resignation of the Calculation Agent) shall not be effective unless upon the expiry of the relevant notice a successor Calculation Agent has been appointed. 29 6.6 Any successor Calculation Agent appointed hereunder shall execute and deliver to its predecessor, the Issuer and the Guarantor an instrument accepting such appointment hereunder, and thereupon such a successor Calculation Agent, without further act, deed or conveyance, shall become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of such predecessor with like effect as if originally named as the Calculation Agent hereunder. 6.7 If the appointment of the Calculation Agent hereunder is terminated (whether by the Issuer and the Guarantor or by the resignation of the Calculation Agent), the Calculation Agent shall on the date on which such termination takes effect deliver to the successor Calculation Agent any records concerning the Relevant Notes maintained by it (and copies of such documents and records as it is obliged by law or regulation to retain but except such documents it is required by law not to release), but shall have no other duties or responsibilities hereunder. 6.8 Any corporation into which the Calculation Agent may be merged or converted, or any corporation with which the Calculation Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Calculation Agent shall be a party, or any corporation to which the Calculation Agent shall sell or otherwise transfer all or substantially all of its assets shall, on the date when such merger, consolidation or transfer becomes effective and to the extent permitted by any applicable laws, become the successor Calculation Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, unless otherwise required by the Issuer and the Guarantor, and after the said effective date all references in this Agreement to the Calculation Agent shall be deemed to be references to such corporation. Written notice of any such merger, conversion, consolidation or transfer shall forthwith be given to the Issuer, the Guarantor and the Agent. 6.9 Upon giving notice of the intended termination of the appointment of the Calculation Agent, the Issuer and the Guarantor shall use all reasonable endeavours to appoint a further financial institution of good standing as successor Calculation Agent. 7. NOTICES Any notice or communication given hereunder shall be sufficiently given or served: (a) if delivered in person to the relevant address specified on the signature pages hereof or such other address as may be notified by the recipient in accordance with this clause and, if so delivered, shall be deemed to have been delivered at time of receipt; or (b) if sent by facsimile to the relevant number specified on the signature pages hereof or such other number as may be notified by the recipient in accordance with this clause and, if so sent, shall be deemed to have been delivered when an acknowledgement of receipt is received (in the case of facsimile). Where a communication is received after 5 p.m. local time in the place to which the communication is addressed it shall be deemed to be received and become effective on the next business day. 8. DESCRIPTIVE HEADINGS AND COUNTERPARTS 8.1 The descriptive headings in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 30 8.2 This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same agreement and any party may enter into this Agreement by executing a counterpart. 9. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act. 10. GOVERNING LAW AND SUBMISSION TO JURISDICTION 10.1 This Agreement is governed by, and shall be construed in accordance with, the laws of England. 10.2 Each party hereto hereby irrevocably agrees, for the exclusive benefit of the other parties hereto, that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as PROCEEDINGS) arising out of or in connection with this Agreement may be brought in such courts. Each party hereto hereby irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any such Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum and hereby further irrevocably agrees that a judgment in any such Proceedings brought in the English courts shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction (subject to the laws of the jurisdiction in which enforcement is sought). Nothing contained in this clause shall limit any right to take Proceedings against any party in any other court of competent jurisdiction (outside the Contracting States, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982), nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not (subject to the laws of the relevant jurisdictions). The [Issuer and the] Guarantor [each] hereby appoints the [Issuer/CIBA Specialty Chemicals PLC] as its agent for service of process, and undertakes that, in the event of [the Issuer/CIBA Specialty Chemicals PLC] ceasing so to act or ceasing to be registered in England, it will appoint another person, as the Calculation Agent may approve, as its agent for the service of process in England in respect of any Proceedings. [The Calculation Agent hereby appoints [ ] as its agent for service of process, and undertakes that, in the event of [ ] ceasing so to act or ceasing to be registered in England, it will appoint another person, as the relevant Issuer or the Guarantor may approve, as its agent for service of process in England in respect of any Proceedings]. Nothing herein shall affect the right to serve process in any manner permitted by law. IN WITNESS whereof this Agreement has been entered into the day and year first above written. 31 SCHEDULE TO THE CALCULATION AGENCY AGREEMENT

32 ISSUER [CIBA SPECIALTY CHEMICALS CORPORATION 560 White Plains Road PO Box 2005 Tarrytown, New York 10591-9005 Telephone: 001 914 785 2000 Telefax: 001 914 785 2650 Attention: Treasurer]/ [CIBA SPECIALTY CHEMICALS PLC Hulley Road Macclesfield Cheshire SK10 2NX Telephone: 44 1 625 888 220 Telefax: 44 1 625 888 380 Attention: Treasurer]/ [CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH Chemiestrasse D-68623 Lampertheim Germany Telephone: 00 49 6206 152 810 Telefax: 00 49 6206 152 816 Attention: Treasurer] [CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. c/o Reid Management Limited 4th Floor Windsor Place 22 Queen Street PO Box HM1179 Hamilton HMEX Bermuda Telephone: +441 296 3695 Telefax: +441 295 3328 Attention: Tamara Lewis/Adrian Arnold] By: 33 GUARANTOR CIBA SPECIALTY CHEMICALS HOLDING INC. Klybeckstrasse 141 CH-4002 Basle Switzerland Telephone: 00 41 61 636 2740 Telefax No: 00 41 61 636 6828 Attention: Group Treasurer By: By: CALCULATION AGENT [ ] Telephone: [ ] Telefax No: [ ] Attention: [ ] 34 SCHEDULE 1 TERMS AND CONDITIONS OF THE NOTES (TO BE INCLUDED FROM FINAL OFFERING CIRCULAR) 35 AGENT JPMORGAN CHASE BANK TRINITY TOWER 9 THOMAS MORE STREET LONDON E1W 1YT PAYING AGENT J.P. MORGAN BANK LUXEMBOURG S.A. 5 RUE PLAETIS L-2338 LUXEMBOURG and/or such other or further Agent and other or further Paying Agents and/or specified offices as may from time to time be duly appointed by the Issuer and the Guarantor and notice of which has been given to the Noteholders. 57 SCHEDULE 2 FORMS OF GLOBAL AND DEFINITIVE NOTES, RECEIPTS, COUPONS AND TALONS PART 1 FORM OF TEMPORARY GLOBAL NOTE THIS GLOBAL NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) [CIBA SPECIALTY CHEMICALS CORPORATION (a company incorporated under the laws of the State of Delaware, U.S.A.)/ CIBA SPECIALTY CHEMICALS PLC (a company incorporated with limited liability in England)/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH (a company incorporated with limited liability in Germany)/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (a company incorporated with limited liability in Bermuda)] unconditionally and irrevocably guaranteed by CIBA SPECIALTY CHEMICALS HOLDING INC. (a company incorporated with limited liability in Switzerland) - -------- 1 This legend to appear on Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on all Notes with a maturity of more than 183 days. 58 TEMPORARY GLOBAL NOTE This Global Note is a Temporary Global Note in respect of a duly authorised issue of Euro Medium Term Notes (the NOTES) of [Ciba Specialty Chemicals Corporation/Ciba Specialty Chemicals PLC/Ciba Spezialitatenchemie Holding Deutschland GmbH/Ciba Specialty Chemicals Eurofinance Ltd.] (the ISSUER) described, and having the provisions specified, in the Pricing Supplement attached hereto (the PRICING SUPPLEMENT). Payments in respect of the Notes have been unconditionally and irrevocably guaranteed by Ciba Specialty Chemicals Holding Inc. (the GUARANTOR). References herein to the Conditions shall be to the Terms and Conditions of the Notes as set out in Schedule 1 to the Agency Agreement (as defined below) as modified and supplemented by the information set out in the Pricing Supplement, but in the event of any conflict between the provisions of that Schedule and the information set out in the Pricing Supplement, the Pricing Supplement will prevail. Words and expressions defined or set out in the Conditions and/or the Pricing Supplement shall bear the same meaning when used herein. This Global Note is issued subject to, and with the benefit of, the Conditions and an amended and restated Agency Agreement (the AGENCY AGREEMENT, which expression shall be construed as a reference to that agreement as the same may be amended, supplemented or restated from time to time) dated 27th March, 2003 and made between, inter alia, the Issuer, the Guarantor, JPMorgan Chase Bank (the AGENT) and the other agents named therein. For value received the Issuer, subject to and in accordance with the Conditions, promises to pay to the bearer hereof on each Instalment Date (if the Notes are repayable in instalments) and on the Maturity Date and/or on such earlier date(s) as all or any of the Notes represented by this Global Note may become due and repayable in accordance with the Conditions, the amount payable under the Conditions in respect of such Notes on each such date and to pay interest (if any) on the nominal amount of the Notes from time to time represented by this Global Note calculated and payable as provided in the Conditions together with any other sums payable under the Conditions, upon presentation and, at maturity, surrender of this Global Note at the office of the Agent at Trinity Tower, 9 Thomas More Street, London E1W 1YT or at the specified office of any of the other paying agents located outside the United States (except as provided in the Conditions) from time to time appointed by the Issuer and the Guarantor in respect of the Notes, but in each case subject to the requirements as to certification provided herein. On any redemption or payment of an instalment or interest being made in respect of, or purchase and cancellation of, any of the Notes represented by this Global Note details of such redemption, payment or purchase and cancellation (as the case may be) shall be entered by or on behalf of the Issuer in Schedule 1 hereto and the relevant space in Schedule 1 hereto recording any such redemption, payment or purchase and cancellation (as the case may be) shall be signed by or on behalf of the Issuer. Upon any such redemption, payment of an instalment or purchase and cancellation, as aforesaid, the nominal amount of the Notes represented by this Global Note shall be reduced by the nominal amount of such Notes so redeemed or purchased and cancelled or the amount of such instalment. The nominal amount of the Notes represented by this Global Note following any such redemption, payment of an instalment or purchase and cancellation as aforesaid or any exchange as referred to below shall be the nominal amount most recently entered by or on behalf of the Issuer in the relevant column in Part 2, 3 or 4 of Schedule 1 or Schedule 2 hereto. Prior to the Exchange Date (as defined below), all payments (if any) on this Global Note will only be made to the bearer hereof to the extent that there is presented to the Agent by Clearstream, Luxembourg or Euroclear a certificate, substantially in the form set out in Schedule 3 hereto, to the effect that it has received from or in respect of a person entitled to a particular nominal amount of the 59 Notes (as shown by its records) a certificate in or substantially in the form of Certificate "A" as set out in Schedule 3 hereto. The bearer of this Global Note will not be entitled to receive any payment of interest hereon due on or after the Exchange Date unless upon due certification exchange of this Global Note is improperly withheld or refused. On or after the date (the EXCHANGE DATE) which is 40 days after the later of the Issue Date and completion of the distribution of the Tranche of Notes represented by this Global Note or such later date specified in the Pricing Supplement, this Global Note may be exchanged in whole or in part (free of charge) for, as specified in the Pricing Supplement, either security printed Definitive Notes and (if applicable) Coupons, Receipts and Talons in the form set out in Parts 3, 4, 5 and 6 respectively of Schedule 2 to the Agency Agreement (on the basis that all the appropriate details have been included on the face of such Definitive Notes and (if applicable) Coupons, Receipts and Talons and the Pricing Supplement (or the relevant provisions of the Pricing Supplement) have been either endorsed on or attached to such Definitive Notes) or a Permanent Global Note in or substantially in the form set out in Part 2 of Schedule 2 to the Agency Agreement (together with the Pricing Supplement attached thereto) upon notice being given by Euroclear and/or Clearstream, Luxembourg acting on the instructions of any holder of an interest in this Global Note and subject, in the case of Definitive Notes, to such notice period as is specified in the Pricing Supplement. If Definitive Notes and (if applicable) Coupons, Receipts and/or Talons have already been issued in exchange for all the Notes represented for the time being by the Permanent Global Note, then this Global Note may only thereafter be exchanged for Definitive Notes and (if applicable) Coupons, Receipts and/or Talons pursuant to the terms hereof. Presentation of this Global Note for exchange shall be made by the bearer hereof on any day (other than a Saturday or Sunday) on which banks are open for business in London at the office of the Agent specified above. The Issuer shall procure that the Definitive Notes or (as the case may be) the Permanent Global Note shall be so issued and delivered in exchange for only that portion of this Global Note in respect of which there shall have been presented to the Agent by Euroclear or Clearstream, Luxembourg a certificate, substantially in the form set out in Schedule 3 hereto, to the effect that it has received from or in respect of a person entitled to a beneficial interest in a particular nominal amount of the Notes (as shown by its records) a certificate from such person in or substantially in the form of Certificate "A" as set out in Schedule 3 hereto. On an exchange of the whole of this Global Note, this Global Note shall be surrendered to the Agent. On an exchange of part only of this Global Note, details of such exchange shall be entered by or on behalf of the Issuer in Schedule 2 hereto and the relevant space in Schedule 2 hereto recording such exchange shall be signed by or on behalf of the Issuer, whereupon the nominal amount of this Global Note and the Notes represented by this Global Note shall be reduced by the nominal amount so exchanged. On any exchange of this Global Note for a Permanent Global Note, details of such exchange shall be entered by or on behalf of the Issuer in Schedule 2 to the Permanent Global Note and the relevant space in Schedule 2 thereto recording such exchange shall be signed by or on behalf of the Issuer. Until the exchange of the whole of this Global Note as aforesaid, the bearer hereof shall in all respects (except as otherwise provided herein) be entitled to the same benefits as if he were the bearer of Definitive Notes and the relative Coupons, Receipts and/or Talons (if any) in the forms set out in Parts 3, Part 4, Part 5 and Part 6, respectively, of Schedule 2 to the Agency Agreement. In the event that this Global Note (or any part hereof) has become due and repayable in accordance with the Conditions or that the Maturity Date has occurred and, in either case, payment in full of the amount due has not been made to the bearer in accordance with the foregoing then, unless within the period of fifteen days commencing on the relevant due date payment in full of the amount due in 60 respect of this Global Note is received by the bearer in accordance with the foregoing, this Global Note will become void at 8.00 p.m. (London time) on such fifteenth day and the bearer will have no further rights under this Global Note (but without prejudice to the rights which the bearer or any other person may have under the amended and restated Deed of Covenant executed, inter alia, by the Issuer on 27th March, 2003 in respect of the Euro Medium Term Notes issued under the Program Agreement pursuant to which this Global Note is issued). No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act. This Global Note is governed by, and shall be construed in accordance with, English law. This Global Note shall not be valid unless authenticated by the Agent. IN WITNESS whereof the Issuer has caused this Global Note to be duly executed on its behalf. [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] By: ............................. Authorised Signatory Authenticated without recourse, warranty or liability by JPMORGAN CHASE BANK By: .......................... Authorised Signatory 61 SCHEDULE ONE TO THE TEMPORARY GLOBAL NOTE PART I INTEREST PAYMENTS

62 PART II PAYMENT OF INSTALMENT AMOUNTS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 63 PART III REDEMPTIONS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 64 PART IV PURCHASES AND CANCELLATIONS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 65 SCHEDULE TWO TO THE TEMPORARY GLOBAL NOTE EXCHANGES FOR DEFINITIVE NOTES OR PERMANENT GLOBAL NOTE The following exchanges of a part of this Global Note for Definitive Notes or a Permanent Global Note have been made:

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 66 SCHEDULE THREE TO THE TEMPORARY GLOBAL NOTE FORM OF CERTIFICATE TO BE PRESENTED BY EUROCLEAR OR CLEARSTREAM, LUXEMBOURG [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Title of Securities] (the SECURITIES) This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organisations appearing in our records as persons being entitled to a beneficial interest in a portion of the principal amount set forth below (our MEMBER ORGANISATIONS) substantially to the effect set forth in the Agency Agreement, as of the date hereof, [ ] principal amount of the above-captioned Securities (i) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source (UNITED STATES PERSONS), (ii) is owned by United States persons that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Sections 1.165-12(c)(1)(iv)) (FINANCIAL INSTITUTIONS) purchasing for their own account or for resale, or (b) acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, UNITED STATES means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction; and its POSSESSIONS include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. If the Securities are of the category contemplated in Section 230.903(c)(3) of Regulation S under the Securities Act of 1933, as amended (the ACT) then this is also to certify with respect to such principal amount of Securities set forth above that, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from our Member Organisations entitled to a portion of such principal amount, certifications with respect to such portion, substantially to the effect that the Securities are beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who purchased the Securities in transactions which did not require registration under the Act. We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the temporary global Security excepted in 67 such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as the date hereof. We understand that this certification is required in connection with certain tax laws and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings. Dated: [ ], 2[ ]* Yours faithfully, [Euroclear Bank S.A./N.V. as operator of the Euroclear System] or [Clearstream Banking, societe anonyme] By: - ---------- * To be dated no earlier than the Exchange Date. 68 CERTIFICATE "A" [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Title of Securities] (the SECURITIES) This is to certify that as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source (UNITED STATES PERSON(S)), (ii) are owned by United States person(s) that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(iv)) (FINANCIAL INSTITUTIONS) purchasing for their own account or for resale, or (b) acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the Securities is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)) this is to further certify that such financial institution has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. If the Securities are of the category contemplated in Section 230.903(c)(3) of Regulation S under the Securities Act of 1933, as amended (the ACT) then this is also to certify with respect to such principal amount of Securities set forth above that, except as set forth below, the Securities are beneficially owned by (a) a non-U.S. person(s) or (b) a U.S. person(s) who purchased the Securities in transactions which did not require registration under the Act. As used in this paragraph, the term U.S. PERSON has the meaning given to it by Regulation S under the Act. As used herein, UNITED STATES means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction; and its POSSESSIONS include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Securities held by you for our account in accordance with your documented procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certification excepts and does not relate to [ ] of such interest in the above Securities in respect of which we are not able to certify and as to which we understand exchange and delivery of definitive Securities (or, if relevant, exercise of any right or collection of any interest) cannot be made until we do so certify. 69 We understand that this certification is required in connection with certain tax laws and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings. Dated: [ ], [ ]* Name of Person Making Certification By: - ---------- * To be dated no earlier than the fifteenth day prior to the Exchange Date. 70 PART 2 FORM OF PERMANENT GLOBAL NOTE THE GLOBAL NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) [CIBA SPECIALTY CHEMICALS CORPORATION.] (a company incorporated under the laws of the State of Delaware, U.S.A.)/ CIBA SPECIALTY CHEMICALS PLC (a company incorporated with limited liability in England)/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH (a company incorporated with limited liability in Germany)/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (a company incorporated with limited liability in Bermuda)] unconditionally and irrevocably guaranteed by CIBA SPECIALTY CHEMICALS HOLDING INC. (a company incorporated with limited liability in Switzerland) PERMANENT GLOBAL NOTE This Global Note is a Permanent Global Note in respect of a duly authorised issue of Euro Medium Term Notes (the NOTES) of [Ciba Specialty Chemicals Corporation/Ciba Specialty Chemicals PLC/Ciba Spezialitatenchemie Holding Deutschland GmbH/Ciba Specialty Chemicals Eurofinance Ltd.] (the ISSUER) described, and having the provisions specified, in the Pricing Supplement or Pricing Supplements attached hereto (together the PRICING SUPPLEMENT). Payments in respect of the Notes - ---------- 1 This legend to appear on Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on all Notes with a maturity of more than 183 days. 71 have been unconditionally and irrevocably guaranteed by Ciba Specialty Chemicals Holding Inc. (the GUARANTOR). References herein to the Conditions shall be to the Terms and Conditions of the Notes as set out in Schedule 1 to the Agency Agreement (as defined below) as modified and supplemented by the information set out in the Pricing Supplement, but in the event of any conflict between the provisions of that Schedule and the information set out in the Pricing Supplement, the Pricing Supplement will prevail. Words and expressions defined or set out in the Conditions and/or the Pricing Supplement shall bear the same meaning when used herein. This Global Note is issued subject to, and with the benefit of, the Conditions and an amended and restated Agency Agreement (the AGENCY AGREEMENT, which expression shall be construed as a reference to that agreement as the same may be amended, supplemented or restated from time to time) dated 27th March, 2003 and made between, inter alia, the Issuer, the Guarantor, JPMorgan Chase Bank (the AGENT) and the other agents named therein. For value received the Issuer, subject to and in accordance with the Conditions, promises to pay to the bearer hereof on each Instalment Date (if the Notes are repayable in instalments) and on the Maturity Date and/or on such earlier date(s) as all or any of the Notes represented by this Global Note may become due and repayable in accordance with the Conditions, the amount payable under the Conditions in respect of such Notes on each such date and to pay interest (if any) on the nominal amount of the Notes from time to time represented by this Global Note calculated and payable as provided in the Conditions together with any other sums payable under the Conditions, upon presentation and, at maturity, surrender of this Global Note at the office of the Agent at Trinity Tower, 9 Thomas More Street, London E1W 1YT or at the specified office of any of the other paying agents located outside the United States (except as provided in the Conditions) from time to time appointed by the Issuer and the Guarantor in respect of the Notes. On any redemption or payment of an instalment or interest being made in respect of, or purchase and cancellation of, any of the Notes represented by this Global Note details of such redemption, payment or purchase and cancellation (as the case may be) shall be entered by or on behalf of the Issuer in Schedule 1 hereto and the relevant space in Schedule 1 hereto recording any such redemption, payment or purchase and cancellation (as the case may be) shall be signed by or on behalf of the Issuer. Upon any such redemption, payment of an instalment or purchase and cancellation as aforesaid, the nominal amount of the Notes represented by this Global Note shall be reduced by the nominal amount of such Notes so redeemed or purchased and cancelled or the amount of such instalment. The nominal amount of the Notes represented by this Global Note following any such redemption, payment of an instalment or purchase and cancellation as aforesaid, or any exchange as referred to below shall be the nominal amount most recently entered by or on behalf of the Issuer in the relevant column in Part 2, 3 or 4 of Schedule 1 or Schedule 2 hereto. On any exchange of the Temporary Global Note issued in respect of the Notes for this Global Note or any part hereof, details of such exchange shall be entered by or on behalf of the Issuer in Schedule 2 hereto and the relevant space in Schedule 2 hereto recording such exchange shall be signed by or on behalf of the Issuer, whereupon the nominal amount of the Notes represented by this Global Note shall be increased by the nominal amount of the Temporary Global Note so exchanged. This Global Note may be exchanged in whole but not in part (free of charge), for Definitive Notes and (if applicable) Coupons, Receipts and/or Talons in the form set out in Part 3, Part 4, Part 5 and Part 6 respectively, of Schedule 2 to the Agency Agreement (on the basis that all the appropriate details have been included on the face of such Definitive Notes and (if applicable) Coupons, Receipts and Talons and the Pricing Supplement (or the relevant provisions of the Pricing Supplement) have been 72 endorsed on or attached to such Definitive Notes) either, as specified in the applicable Pricing Supplement: (a) upon not less than 60 days' written notice being given to the Agent by Euroclear and/or Clearstream, Luxembourg acting on the instructions of any holder of an interest in this Global Note; or (b) only upon the occurrence of any Exchange Event. An EXCHANGE EVENT means an Event of Default has occurred and is continuing; the Issuer has been notified that either Euroclear or Clearstream, Luxembourg has been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or has announced an intention permanently to cease business or has in fact done so and no alternative clearing system is available; or the Issuer has or will become obliged to pay additional amounts as provided for or referred to in Condition 7 which would not be required were the Notes represented by this Global Note in definitive form. If this Global Note is only exchangeable following the occurrence of an Exchange Event: The first notice requesting exchange in accordance with the above provisions shall give rise to the issue of Definitive Notes for the total amount of Notes represented by this Global Note. Any such exchange as aforesaid will be made upon presentation of this Global Note at the office of the Agent specified above by the bearer hereof on any day (other than a Saturday or Sunday) on which banks are open for business in London. The aggregate nominal amount of Definitive Notes issued upon an exchange of this Global Note will be equal to the aggregate nominal amount of this Global Note. On an exchange of this Global Note, this Global Note shall be surrendered to the Agent. Until the exchange of this Global Note as aforesaid, the bearer hereof shall in all respects (except as otherwise provided herein) be entitled to the same benefits as if he were the bearer of Definitive Notes and the relative Coupons, Receipts and/or Talons (if any) in the forms set out in Part 3, Part 4, Part 5 and Part 6, respectively, of Schedule 2 to the Agency Agreement. In the event that this Global Note (or any part hereof) has become due and repayable in accordance with the Conditions or that the Maturity Date has occurred and, in either case, payment in full of the amount due has not been made to the bearer in accordance with the foregoing then, unless within the period of fifteen days commencing on the relevant due date payment in full of the amount due in respect of this Global Note is received by the bearer in accordance with the foregoing, this Global Note will become void at 8.00 p.m. (London time) on such fifteenth day and the bearer will have no further rights under this Global Note (but without prejudice to the rights which the bearer or any other person may have under the amended and restated Deed of Covenant executed by the Issuer on 27th March, 2003 in respect of the Euro Medium Term Notes issued under the Program Agreement pursuant to which this Global Note is issued). No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act. This Global Note is governed by, and shall be construed in accordance with, English law. 73 This Global Note shall not be valid unless authenticated by the Agent. IN WITNESS whereof the Issuer has caused this Global Note to be duly executed on its behalf. [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] By: ......................... Authorised Signatory Authenticated without recourse, warranty or liability by JPMORGAN CHASE BANK By: .......................... Authorised Signatory 74 SCHEDULE ONE TO THE TEMPORARY GLOBAL NOTE PART I INTEREST PAYMENTS

75 PART II PAYMENT OF INSTALMENT AMOUNTS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 76 PART III REDEMPTIONS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 77 PART IV PURCHASES AND CANCELLATIONS

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 78 SCHEDULE TWO TO THE PERMANENT GLOBAL NOTE SCHEDULE OF EXCHANGES The following exchanges affecting the nominal amount of this Global Note have been made:

- -------- * See most recent entry in Part 2, 3 or 4 of Schedule One or Schedule Two in order to determine this amount. 79 PART 3 FORM OF DEFINITIVE NOTE [Face of Note] ----------------------------------------------------------------------- 00 000000 [ISIN] 00 000000 ------------------------------------------------------------------------ THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) [CIBA SPECIALTY CHEMICALS CORPORATION] (a company incorporated under the laws of the State of Delaware, U.S.A.)/ CIBA SPECIALTY CHEMICALS PLC (a company incorporated with limited liability in England)/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH (a company incorporated with limited liability in Germany)/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (a company incorporated with limited liability in Bermuda)] unconditionally and irrevocably guaranteed by CIBA SPECIALTY CHEMICALS HOLDING INC. (a company incorporated with limited liability in Switzerland) [Specified Currency and Nominal Amount of Tranche] - -------- 1 This legend to appear on Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on all Notes with a maturity of more than 183 days. 80 EURO MEDIUM TERM NOTES DUE [Year of Maturity] This Note is one of a duly authorised issue of Euro Medium Term Notes denominated in the Specified Currency maturing on the Maturity Date (the NOTES) of [Ciba Specialty Chemicals Corporation/Ciba Specialty Chemicals PLC/Ciba Spezialitatenchemie Holding Deutschland GmbH/Ciba Specialty Chemicals Eurofinance Ltd.] (the ISSUER). Payments in respect of the Notes have been unconditionally and irrevocably guaranteed by Ciba Specialty Chemicals Holding Inc. (the GUARANTOR). References herein to the Conditions shall be to the Terms and Conditions [endorsed hereon/attached hereto/set out in Schedule 1 to the Agency Agreement (as defined below) which shall be incorporated by reference herein and have effect as if set out herein] as modified and supplemented by the Pricing Supplement (the PRICING SUPPLEMENT) (or the relevant provisions of the Pricing Supplement) endorsed hereon, but in the event of any conflict between the provisions of the Conditions and the information in the Pricing Supplement, the Pricing Supplement will prevail. This Note is issued subject to, and with the benefit of, the Conditions and an amended and restated Agency Agreement (the AGENCY AGREEMENT, which expression shall be construed as a reference to that agreement as the same may be amended, supplemented or restated from time to time) dated 27th March, 2003 and made between, inter alia, the Issuer, the Guarantor, JPMorgan Chase Bank (the AGENT) and the other agents named therein. For value received, the Issuer, subject to and in accordance with the Conditions, promises to pay to the bearer hereof [on each Instalment Date and] on the Maturity Date and/or on such earlier date(s) as this Note may become due and repayable in accordance with the Conditions, the amount payable under the Conditions in respect of this Note on each such date and to pay interest (if any) on this Note calculated and payable as provided in the Conditions together with any other sums payable under the Conditions. These Notes shall be governed by, and construed in accordance with, English law. This Note shall not be validly issued unless authenticated by the Agent. IN WITNESS whereof the Issuer has caused this Note to be duly executed on its behalf. [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] By: ............................. Authorised Signatory Authenticated without recourse, warranty or liability by JPMORGAN CHASE BANK By: .......................... Authorised Signatory 81 TERMS AND CONDITIONS [Terms and Conditions to be as set out in Schedule 1 to the Agency Agreement] PRICING SUPPLEMENT [Here to be set out text of Pricing Supplement relating to the Notes] 82 PART 4 FORM OF COUPON (Face of Coupon) [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Specified Currency and Nominal Amount Tranche] NOTES DUE [Year of Maturity] Series No. [ ] PART A [FOR FIXED RATE NOTES:- This Coupon is payable to bearer, separately Coupon for negotiable and subject to the Terms and [ ] Conditions of the said Notes. due on [ ] PART B [FOR FLOATING RATE NOTES OR INDEXED INTEREST NOTES:- Coupon for the amount due in accordance with Coupon due the Terms and Conditions on the said Notes on in [ ] the Interest Payment Date falling in [ ]]. This Coupon is payable to bearer, separately negotiable and subject to such Terms and Conditions, under which it may become void before its due date.] THE NOTE PERTAINING HERETO HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED 83 STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) - ------------------------------------------------------------------------ 00 000000 [ISIN] 00 000000 - ------------------------------------------------------------------------ - ---------- 1 This legend to appear on Coupons attaching to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on Coupons attaching to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of more than 183 days and all other Coupons. 84 (Reverse of Coupon) AGENT JPMORGAN CHASE BANK TRINITY TOWER 9 THOMAS MORE STREET LONDON E1W 1YT PAYING AGENT J.P. MORGAN BANK LUXEMBOURG S.A. 5 RUE PLAETIS L-2338 LUXEMBOURG and/or such other or further Agent and other or further Paying Agents and/or specified offices as may from time to time be duly appointed by the Issuer and the Guarantor and notice of which has been given to the Noteholders. 85 (On the front) PART 5 FORM OF RECEIPT THE NOTE PERTAINING HERETO HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Specified Currency and Nominal Amount of Tranche] EURO MEDIUM TERM NOTES DUE [Year of Maturity] Series No. [ ] Receipt for the sum of [ ] being the instalment of principal payable in accordance with the Terms and Conditions endorsed on the Note to which this Receipt appertains (the CONDITIONS) on [ ]. This Receipt is issued subject to and in accordance with the Conditions which shall be binding upon the holder of this Receipt (whether or not it is for the time being attached to such Note) and is payable at the specified office of the Agent or any of the Paying Agents set out on the reverse of the Note to which this Receipt appertains (and/or any other or further Paying Agents and/or specified offices as may from time to time be duly appointed and notified to the Noteholders). - ---------- 1 This legend to appear on Receipts pertaining to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on Receipts pertaining to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of more than 183 days and on all other Receipts. 86 This Receipt must be presented for payment together with the Note to which it appertains. The Issuer shall have no obligation in respect of any Receipt presented without the Note to which it appertains or any unmatured Receipts. [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] By:........................... Authorised Signatory 87 PART 6 FORM OF TALON THE NOTE PERTAINING HERETO HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF U.S. PERSONS OTHER THAN PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](1) [ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](2) (On the front) [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Specified Currency and Nominal Amount of Tranche] EURO MEDIUM TERM NOTES DUE [Year of Maturity] Series No. [ ] On and after [ ] further Coupons [and a further Talon] appertaining to the Note to which this Talon appertains will be issued at the specified office of the Agent or any of the Paying Agents set out on the reverse hereof (and/or any other or further Paying Agents and/or specified offices as may from time to time be duly appointed and notified to the Noteholders) upon production and surrender of this Talon. This Talon may, in certain circumstances, become void under the Terms and Conditions endorsed on the Notes to which this Talon appertains. - ---------- 1 This legend to appear on Talons pertaining to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days or less. 2 This legend to appear on Talons pertaining to Notes issued by Ciba Specialty Chemicals Corporation with a maturity of 183 days and on all other Talons. 88 [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] By: ........................... Authorised Signatory 89 (Reverse of Receipt and Talon) AGENT JPMORGAN CHASE BANK TRINITY TOWER 9 THOMAS MORE STREET LONDON E1W 1YT PAYING AGENT J.P. MORGAN BANK LUXEMBOURG S.A. 5 RUE PLAETIS L-2338 LUXEMBOURG and/or such other or further Agent and other or further Paying Agents and/or specified offices as may from time to time be duly appointed by the Issuer and the Guarantor and notice of which has been given to the Noteholders. 90 SCHEDULE 3 FORM OF DEED OF GUARANTEE THIS DEED OF GUARANTEE is made on 27th March, 2003 by CIBA SPECIALTY CHEMICALS HOLDING INC., (the GUARANTOR) in favour of the Relevant Account Holders (as defined in the Deed of Covenant referred to below) and the holders for the time being of the Notes (as defined below) and the interest coupons (if any) appertaining to the Notes (COUPONS), the Coupons being attached on issue to Definitive Note(s) (as defined below). Each Relevant Account Holder, each holder of a Note and each holder of a Coupon is a HOLDER. WHEREAS: (A) CIBA SPECIALTY CHEMICALS CORPORATION, CIBA SPECIALTY CHEMICALS PLC, CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH, CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. (the ISSUERS and each an ISSUER) and the Guarantor have entered into an amended and restated Program Agreement (the PROGRAM AGREEMENT, which expression includes the same as it may be amended or supplemented from time to time) dated 27th March, 2003 with the Dealers named therein, which amends and restates the amended and restated program agreement entered into by, inter alia, Ciba Specialty Chemicals Corporation, Ciba Specialty Chemicals PLC and Ciba Spezialitatenchemie Holding Deutschland GmbH dated 30th March, 2001 (the PRINCIPAL PROGRAM AGREEMENT), under which each Issuer proposes from time to time to issue Euro Medium Term Notes (the NOTES, such expression to include each Definitive Note issued by an Issuer and each Global Note issued by an Issuer (where DEFINITIVE NOTE and GLOBAL NOTE have the meanings ascribed thereto in the Agency Agreement defined below) and to include any receipts issued in respect of Notes repayable in instalments); (B) each Issuer has executed a Deed of Covenant of even date (the DEED OF COVENANT) relating to Global Notes issued by that Issuer pursuant to the Program Agreement; (C) the Issuers and the Guarantor have entered into an amended and restated agency agreement (the AGENCY AGREEMENT, which expression includes the same as it may be amended or supplemented from time to time) dated 27th March, 2003 with the Paying Agents named therein; and (D) this Deed of Guarantee amends and restates the amended and restated Deed of Guarantee made by the Guarantor dated 27th March, 2002, and does not affect any Notes issued pursuant to the Principal Program Agreement prior to the date hereof. NOW THIS DEED WITNESSES as follows: 1. Guarantee: The Guarantor irrevocably and unconditionally undertakes to secure by way of deed poll to each Holder the due and punctual payment as stipulated in an Issuer's Note or Coupon or under its Deed of Covenant, as the case may be. The Guarantor therefore undertakes to pay on first demand of such a Holder, irrespective of the validity and the legal effects of the above mentioned relationship in respect of a Note or Coupon or Deed of Covenant and waiving all rights of objection and defence arising therefrom any amount not paid by the relevant Issuer (including any premium or any other amounts of whatever nature or additional amounts) upon receipt of the written request for payment by such Holder and the confirmation in writing by the Agent that the relevant Issuer has not made such payments on the dates specified and in the amount called under the Guarantee. The Guarantor hereby expressly undertakes and secures that payments under this Guarantee will not be less than as 91 stipulated in an Issuer's Note or Coupon. In implementation of this undertaking and in case Swiss withholding taxes are imposed in respect of payments made under this Guarantee, the Guarantor undertakes, as a separate and independent obligation, to pay an increased amount on the relevant Note or Coupon so that the payment received by the Noteholder or Couponholder shall equal the amount actually stipulated in such Note or Coupon (assuming no such withholding applies). 2. Guarantor's Obligations Continuing: The Guarantor's obligations under this Guarantee are and will remain in full force and effect by way of continuing security until no sum remains payable under any Note, any Coupon or the Deed of Covenant. Furthermore, these obligations of the Guarantor are additional to, and not instead of, any security or other guarantee or indemnity at any time existing in favour of a Holder, whether from the Guarantor or otherwise. The Guarantor irrevocably waives all notices and demands whatsoever, except as provided herein. 3. Repayment to the Issuer: If any payment received by a Holder is, on the subsequent liquidation or insolvency of the relevant Issuer, avoided under any laws relating to liquidation or insolvency, such payment will not be considered as having discharged or diminished the liability of the Guarantor and this Guarantee will continue to apply as if such payment had at all times remained owing by the relevant Issuer. 4. Status of Guarantee: The payment obligations of the Guarantor under this Guarantee constitute direct, unconditional and (subject to Clause 5 below) unsecured obligations of the Guarantor and (subject as aforesaid) rank and will rank pari passu with all other outstanding unsecured and unsubordinated indebtedness and monetary obligations of the Guarantor, present or future, including those in respect of deposits (other than obligations preferred by law). 5. Negative Pledge of the Guarantor: So long as any of the Notes remains outstanding, but not later than the time when payment for the full amount of principal and interest in respect of all outstanding Notes has been duly provided for, the Guarantor will procure that no Indebtedness of the Guarantor which is represented by bonds, notes or other securities which in any such case are listed or capable of being listed on any recognised Stock Exchange will be secured upon any of the present or future assets or revenues of the Guarantor unless all amounts payable under this Guarantee are secured equally and rateably with such other security or such other security or guarantee is granted to the Notes and Coupons as shall have been approved by an Extraordinary Resolution of the Noteholders. Any reference to an obligation being guaranteed shall include a reference to an indemnity being given in respect of payment thereof. As used herein INDEBTEDNESS means all indebtedness for money borrowed that is created, assumed, incurred or guaranteed in any manner by the Guarantor or for which the Guarantor is otherwise responsible or liable. 6. Tax Gross-up: All payments in respect of the Notes by the Guarantor shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (TAXES) imposed or levied by or on behalf of Switzerland, or any political sub-division of, or any authority in, or of, Switzerland having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, the Guarantor will pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes or, as the case may be, Coupons in the absence of the withholding or deduction; 92 except that no additional amount shall be payable in relation to any payment in respect of any Note or Coupon: (a) by or on behalf of a person liable to such tax, duty or charge in respect of such Note, Receipt or Coupon by reason of his having some connection with Switzerland other than the mere holding or ownership of such Note, Receipt or Coupon; and/or (b) presented for payment to the relevant Issuer more than 30 days after the Relevant Date (as defined in Condition 7(f) of the Terms and Conditions of the relevant Notes) except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of the period of 30 days; and/or (c) to, or to a third party on behalf of, a holder who would be able to avoid such withholding or deduction by making a declaration of non-residence or similar claim for exemption but fails to do so; and/or (d) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000, or any law implementing or complying with, or introduced in order to conform to, such Directive; and/or (e) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the EU. 7. Power to execute: The Guarantor hereby warrants, represents and covenants with each Holder that it has all corporate power, and has taken all necessary corporate or other steps, to enable it to execute, deliver and perform this Guarantee, and that this Guarantee constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its terms subject to applicable bankruptcy, reorganisation, insolvency, fraudulent transfer, moratorium and other similar laws affecting creditor's rights generally from time to time in effect, and to general principles of equity, regardless of whether considered in a proceeding in law or at equity. 8. Deposit of Guarantee: This Guarantee shall take effect as a Deed Poll for the benefit of the Holders from time to time and for the time being. This Guarantee shall be deposited with and held by The Chase Manhattan Bank for the benefit of the Holders until all the obligations of the Guarantor hereunder have been discharged in full. 9. Production of Guarantee: The Guarantor hereby acknowledges the right of every Holder to the production of, and the right of every Holder to obtain (upon payment of a reasonable charge) a copy of, this Guarantee, and further acknowledges and covenants that the obligations binding upon it contained herein are owed to, and shall be for the account of, each and every Holder, and that each Holder shall be entitled severally to enforce the said obligations against the Guarantor. 10. Subrogation: Until all amounts which may be payable under the Notes, the Coupons and/or the Deed of Covenant have been irrevocably paid in full, the Guarantor shall not exercise any rights of subrogation in respect of any rights of any Holder or claim in competition with the Holders against the relevant Issuer. 11. Governing Law and Jurisdiction: This Guarantee is governed by and shall be construed in accordance with English law. The Guarantor irrevocably agrees for the benefit of each 93 Holder that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Guarantee and that accordingly any suit, action or proceedings arising out of or in connection with this Guarantee (together referred to as PROCEEDINGS) may be brought in the courts of England. The Guarantor irrevocably waives any objection which it may have now or hereafter to the laying of the venue of the Proceedings in the courts of England and irrevocably agrees that a final judgment in any Proceedings brought in the courts of England shall be conclusive and binding upon the Guarantor and may be enforced in the courts of any other jurisdiction. Nothing contained in this clause shall limit any right to take Proceedings against the Guarantor in any other court of competent jurisdiction, nor shall the taking of Proceedings in none or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act. The Guarantor hereby appoints Ciba Specialty Chemicals PLC as its agent for service of process in England in respect of any Proceedings and undertakes that in the event of it ceasing so to act it will appoint another person as its agent for that purpose. IN WITNESS whereof this Guarantee has been manually executed as a deed poll on behalf of the Guarantor. Executed as a deed ) by CIBA SPECIALTY CHEMICALS ) HOLDING INC. ) acting by ) and ) ) acting under the authority of ) that Company in the presence of: ) Witness's Signature:......................................... Name: ............................................. Address:........................................... ............................................. Dated 27th March, 2003 94 SCHEDULE 4 PROVISIONS FOR MEETINGS OF NOTEHOLDERS 1. As used in this Schedule the following expressions shall have the following meanings unless the context otherwise requires: (A) VOTING CERTIFICATE shall mean an English language certificate issued by a Paying Agent and dated in which it is stated: (i) that on the date thereof Notes (not being Notes in respect of which a block voting instruction has been issued and is outstanding in respect of the meeting specified in such voting certificate and any adjourned such meeting) bearing specified serial numbers were deposited with such Paying Agent or (to the satisfaction of such Paying Agent) were held to its order or under its control and that no such Notes will cease to be so deposited or held until the first to occur of: (A) the conclusion of the meeting specified in such certificate or, if applicable, any adjourned such meeting; and (B) the surrender of the certificate to the Paying Agent who issued the same; and (ii) that the bearer thereof is entitled to attend and vote at such meeting and any adjourned such meeting in respect of the Notes represented by such certificate; (B) BLOCK VOTING INSTRUCTION shall mean an English language document issued by a Paying Agent and dated in which: (i) it is certified that Notes (not being Notes in respect of which a voting certificate has been issued and is outstanding in respect of the meeting specified in such block voting instruction and any adjourned such meeting) have been deposited with such Paying Agent or (to the satisfaction of such Paying Agent) were held to its order or under its control and that no such Notes will cease to be so deposited or held until the first to occur of: (A) the conclusion of the meeting specified in such document or, if applicable, any adjourned such meeting; and (B) the surrender to the Paying Agent not less than 48 hours before the time for which such meeting or any adjourned such meeting is convened of the receipt issued by such Paying Agent in respect of each such deposited Note which is to be released or (as the case may require) the Note or Notes ceasing with the agreement of the Paying Agent to be held to its order or under its control and the giving of notice by the Paying Agent to the Issuer in accordance with paragraph 17 hereof of the necessary amendment to the block voting instruction; (ii) it is certified that each holder of such Notes has instructed such Paying Agent that the vote(s) attributable to the Note or Notes so deposited or held should 95 be cast in a particular way in relation to the resolution or resolutions to be put to such meeting or any adjourned such meeting and that all such instructions are during the period commencing 48 hours prior to the time for which such meeting or any adjourned such meeting is convened and ending at the conclusion or adjournment thereof neither revocable nor capable of amendment; (iii) the total number and the serial numbers of the Notes so deposited or held are listed distinguishing with regard to each such resolution between those in respect of which instructions have been given as aforesaid that the votes attributable thereto should be cast in favour of the resolution and those in respect of which instructions have been so given that the votes attributable thereto should be cast against the resolution; and (iv) one or more persons named in such document (each hereinafter called a PROXY) is or are authorised and instructed by such Paying Agent to cast the votes attributable to the Notes so listed in accordance with the instructions referred to in paragraph (iii) above as set out in such document. The holder of any voting certificate or the proxies named in any block voting instruction shall for all purposes in connection with the relevant meeting or adjourned meeting of Noteholders be deemed to be the holder of the Notes to which such voting certificate or block voting instruction relates and the Paying Agent with which such Notes have been deposited or the person holding the same to the order or under the control of such Paying Agent shall be deemed for such purposes not to be the holder of those Notes. (c) References herein to the NOTES are to the Notes in respect of which the relevant meeting is convened. 2. The relevant Issuer or the Guarantor may at any time and, upon a requisition in writing of Noteholders holding not less than five per cent. in nominal amount of the Notes for the time being outstanding, shall convene a meeting of the Noteholders and if the relevant Issuer makes default for a period of seven days in convening such a meeting the same may be convened by the requisitionists. Whenever the relevant Issuer or the Guarantor is about to convene any such meeting it shall forthwith give notice in writing to the Agent and the Dealers of the day, time and place thereof and of the nature of the business to be transacted thereat. Every such meeting shall be held at such time and place as the Agent may approve. 3. At least 21 days' notice (exclusive of the day on which the notice is given and the day on which the meeting is held) specifying the place, day and hour of meeting shall be given to the Noteholders prior to any meeting of the Noteholders in the manner provided by Condition 14. Such notice shall state generally the nature of the business to be transacted at the meeting thereby convened but (except for an Extraordinary Resolution) it shall not be necessary to specify in such notice the terms of any resolution to be proposed. Such notice shall include a statement to the effect that Notes may be deposited with Paying Agents for the purpose of obtaining voting certificates or appointing proxies not less than 24 hours before the time fixed for the meeting or that, in the case of corporations, they may appoint representatives by resolution of their directors or other governing body. A copy of the notice shall be sent by post to the Issuer (unless the meeting is convened by the relevant Issuer) and to the Guarantor (unless the meeting is convened by the Guarantor). 96 4. Some person (who may but need not be a Noteholder) nominated in writing by the relevant Issuer shall be entitled to take the chair at every such meeting but if no such nomination is made or if at any meeting the person nominated shall not be present within fifteen minutes after the time appointed for holding the meeting the Noteholders present shall choose one of their number to be Chairman. 5. At any such meeting one or more persons present holding Notes or voting certificates or being proxies and holding or representing in the aggregate not less than twenty per cent. in nominal amount of the Notes for the time being outstanding shall (except for the purpose of passing an Extraordinary Resolution (as defined in paragraph 20 below)) form a quorum for the transaction of business and no business (other than the choosing of a Chairman) shall be transacted at any meeting unless the requisite quorum be present at the commencement of business. The quorum at any such meeting for passing an Extraordinary Resolution shall (subject as provided below) be one or more persons present holding Notes or voting certificates or being proxies and holding or representing in the aggregate not less than 50 per cent. in nominal amount of the Notes for the time being outstanding PROVIDED THAT at any meeting the business of which includes any of the following matters (each of which shall only be capable of being effected after having been approved by Extraordinary Resolution) namely: (a) modification of the Maturity Date of the Notes or reduction or cancellation of the nominal amount payable upon maturity; or (b) reduction or cancellation of the amount payable or modification of the payment date in respect of any interest in respect of the Notes or variation of the method of calculating the rate of interest in respect of the Notes; or (c) reduction of any Minimum Interest Rate and/or Maximum Interest Rate specified in the applicable Pricing Supplement of any Note; or (d) modification of the currency in which payments under the Notes and/or the Receipts and/or Coupons appertaining thereto are to be made; or (e) modification of the majority required to pass an Extraordinary Resolution; or (f) the sanctioning of any such scheme or proposal as is described in paragraph (f) below; or (g) alteration of this proviso or the proviso to paragraph 6 below; the quorum shall be one or more persons present holding Notes or voting certificates or being proxies and holding or representing in the aggregate not less than 75 per cent. in nominal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the holders of Notes will be binding on all holders of Notes, whether or not they are present at the meeting, and on all holders of Coupons appertaining to such Notes. 6. If within fifteen minutes after the time appointed for any such meeting a quorum is not present the meeting shall if convened upon the requisition of Noteholders be dissolved. In any other case it shall stand adjourned to the same day in the next week (or if such day is a public holiday the next succeeding business day) at the same time and place (except in the case of a meeting at which an Extraordinary Resolution is to be proposed in which case it shall stand adjourned for such period being not less than 14 days nor more than 42 days, and at such place as may be appointed by the Chairman and approved by the Agent) and at such adjourned meeting one or more persons present holding Notes or voting certificates or being 97 proxies (whatever the nominal amount of the Notes so held or represented by them) shall (subject as provided below) form a quorum and shall (subject as provided below) have power to pass any Extraordinary Resolution or other resolution and to decide upon all matters which could properly have been dealt with at the meeting from which the adjournment took place had the requisite quorum been present PROVIDED THAT at any adjourned meeting the business of which includes any of the matters specified in the proviso to paragraph 5 above the quorum shall be one or more persons present holding Notes or voting certificates or being proxies and holding or representing in the aggregate not less than a clear majority in nominal amount of the Notes for the time being outstanding. 7. Notice of any adjourned meeting at which an Extraordinary Resolution is to be submitted shall be given in the same manner as notice of an original meeting but as if 10 were substituted for 21 in paragraph 3 above and such notice shall (except in cases where the proviso to paragraph 6 above shall apply when it shall state the relevant quorum) state that one or more persons present holding Notes or voting certificates or being proxies at the adjourned meeting whatever the nominal amount of the Notes held or represented by them will form a quorum. Subject as aforesaid it shall not be necessary to give any notice of an adjourned meeting. 8. Every question submitted to a meeting shall be decided in the first instance by a show of hands and in case of equality of votes the Chairman shall both on a show of hands and on a poll have a casting vote in addition to the vote or votes (if any) to which he may be entitled as a Noteholder or as a holder of a voting certificate or as a proxy. 9. At any meeting, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the Chairman or the relevant Issuer or by one or more persons present holding Notes or voting certificates or being proxies (whatever the nominal amount of the Notes so held by them), a declaration by the Chairman that a resolution has been carried or carried by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 10. Subject to paragraph 12 below, if at any such meeting a poll is so demanded it shall be taken in such manner and subject as hereinafter provided either at once or after an adjournment as the Chairman directs and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded as at the date of the taking of the poll. The demand for a poll shall not prevent the continuance of the meeting for the transaction of any business other than the motion on which the poll has been demanded. 11. The Chairman may with the consent of (and shall if directed by) any such meeting adjourn the same from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully (but for lack of required quorum) have been transacted at the meeting from which the adjournment took place. 12. Any poll demanded at any such meeting on the election of a Chairman or on any question of adjournment shall be taken at the meeting without adjournment. 13. Any director or officer of the Issuer or the Guarantor and their respective lawyers may attend and speak at any meeting. Save as aforesaid, but without prejudice to the proviso to the definition of OUTSTANDING in clause 1.2 of this Agreement, no person shall be entitled to attend and speak nor shall any person be entitled to vote at any meeting of the Noteholders or join with others in requisitioning the convening of such a meeting unless he either produces the Note or Notes of which he is the holder or a voting certificate or is a proxy. None of the 98 Issuers, the Guarantor nor any of their respective subsidiaries shall be entitled to vote at any meeting in respect of Notes held by it for the benefit of any such company and no other person shall be entitled to vote at any meeting in respect of Notes held by it for the benefit of any such company. Nothing herein contained shall prevent any of the proxies named in any block voting instruction from being a director, officer or representative of or otherwise connected with the Issuer or the Guarantor. 14. Subject as provided in paragraph 13 hereof at any meeting: (a) on a show of hands every person who is present in person and produces a Note or voting certificate or is a proxy shall have one vote; and (b) on a poll every person who is so present shall have one vote in respect of: (i) in the case of a meeting of the holders of Notes all of which are denominated in a single currency, each minimum integral amount of such currency; and (ii) in the case of a meeting of the holders of Notes denominated in more than one currency, each U.S.$1.00 or, in the case of a Note denominated in a currency other than U.S. dollars, the equivalent of U.S.$1.00 in such currency at the Agent's spot buying rate for the relevant currency against U.S. dollars at or about 11.00 a.m. (London time) on the date of publication of the notice of the relevant meeting (or of the original meeting of which such meeting is an adjournment), or such other amount as the Agent shall in its absolute discretion stipulate in nominal amount of Notes so produced or represented by the voting certificate so produced or in respect of which he is a proxy. Without prejudice to the obligations of the proxies named in any block voting instruction any person entitled to more than one vote need not use all his votes or cast all the votes to which he is entitled in the same way. 15. The proxies named in any block voting instruction need not be Noteholders. 16. Each block voting instruction together (if so requested by the relevant Issuer) with proof satisfactory to the relevant Issuer of its due execution on behalf of the relevant Paying Agent shall be deposited at such place as the Agent shall approve not less than 24 hours before the time appointed for holding the meeting or adjourned meeting at which the proxies named in the block voting instruction propose to vote and in default the block voting instruction shall not be treated as valid unless the Chairman of the meeting decides otherwise before such meeting or adjourned meeting proceeds to business. A certified copy of each block voting instruction shall be deposited with the Agent before the commencement of the meeting or adjourned meeting but the Agent shall not thereby be obliged to investigate or be concerned with the validity of or the authority of the proxies named in any such block voting instruction. 17. Any vote given in accordance with the terms of a block voting instruction shall be valid notwithstanding the previous revocation or amendment of the block voting instruction or of any of the Noteholders' instructions pursuant to which it was executed PROVIDED THAT no intimation in writing of such revocation or amendment shall have been received from the relevant Paying Agent by the relevant Issuer at its registered office (or such other place as may have been approved by the Agent for the purpose) by the time being 24 hours before the time appointed for holding the meeting or adjourned meeting at which the block voting instruction is to be used. 99 18. A meeting of the Noteholders shall in addition to the powers hereinbefore given have the following powers exercisable by Extraordinary Resolution (subject to the provisions relating to quorum contained in paragraphs 5 and 6 above) only, namely: (a) power to sanction any compromise or arrangement proposed to be made between the Issuer and the Guarantor and the Noteholders and Couponholders or any of them; (b) power to sanction any abrogation, modification, compromise or arrangement in respect of the rights of the Noteholders and Couponholders against the relevant Issuer and the Guarantor or against any of its property whether such rights shall arise under this Agreement, the Notes or the Coupons or otherwise; (c) power to assent to any modification of the provisions contained in this Agreement or the Conditions, the Notes, the Coupons, the Guarantee or the Deed of Covenant which shall be proposed by the Issuer or the Guarantor; (d) power to give any authority or sanction which under the provisions of this Agreement or the Notes is required to be given by Extraordinary Resolution; (e) power to appoint any persons (whether Noteholders or not) as a committee or committees to represent the interests of the Noteholders and to confer upon such committee or committees any powers or discretions which the Noteholders could themselves exercise by Extraordinary Resolution; (f) power to sanction any scheme or proposal for the exchange or sale of the Notes for, or the conversion of the Notes into or the cancellation of the Notes in consideration of, shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities of the Issuer or any other company formed or to be formed, or for or into or in consideration of cash, or partly for or into or in consideration of such shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities as aforesaid and partly for or into or in consideration of cash; and (g) power to approve the substitution of any entity in place of (i) the Issuer (or any previous substitute) as the principal debtor in respect of the Notes and the Coupons or (ii) the Guarantor (or any previous substitute) as guarantor under the Guarantee. 19. Any resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provision hereof shall be binding upon all the Noteholders whether present or not present at such meeting and whether or not voting and upon all Couponholders and Receiptholders and each of them shall be bound to give effect thereto accordingly and the passing of any such resolution shall be conclusive evidence that the circumstances justify the passing thereof. Notice of the result of the voting on any resolution duly considered by the Noteholders shall be published in accordance with Condition 14 by the relevant Issuer within 14 days of such result being known PROVIDED THAT the non-publication of such notice shall not invalidate such resolution. 20. The expression EXTRAORDINARY RESOLUTION when used in this Agreement or the Conditions means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions herein contained by a majority consisting of not less than 75 per cent. of the persons voting thereat upon a show of hands or if a poll be duly demanded then by a majority consisting of not less than 75 per cent. of the votes given on such poll. 21. Minutes of all resolutions and proceedings at every such meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the relevant 100 Issuer and any such Minutes as aforesaid if purporting to be signed by the Chairman of the meeting at which such resolutions were passed or proceedings had shall be conclusive evidence of the matters therein contained and until the contrary is proved every such meeting in respect of the proceedings of which Minutes have been made shall be deemed to have been duly held and convened and all resolutions passed or proceedings had thereat to have been duly passed or had. 22. Subject to all other provisions contained herein the Agent may without the consent of the relevant Issuer, the Guarantor, the Noteholders or the Couponholders prescribe such further regulations regarding the requisitioning and/or the holding of meetings of Noteholders and attendance and voting thereat as the Agent may in its sole discretion think fit. 101 SCHEDULE 5 FORM OF PUT NOTICE [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [TITLE OF RELEVANT SERIES OF NOTES] By depositing this duly completed Notice with any Paying Agent for the above Series of Notes (the NOTES) the undersigned holder of such Notes surrendered with this Notice and referred to below irrevocably exercises its option to have such Notes redeemed in accordance with Condition 6(e) on [redemption date]. This Notice relates to Notes in the aggregate nominal amount of .......... bearing the following serial numbers: .......................................................................... .......................................................................... .......................................................................... If the Notes referred to above are to be returned (1) to the undersigned under clause 10.4 of the Agency Agreement, they should be returned by post to the following address outside the United States: ............................. ............................. ............................. PAYMENT INSTRUCTIONS Please make payment in respect of the above-mentioned Notes by [cheque posted to the above address/transfer to the following bank account] (2): Bank:................................. Branch Address outside the United States: ................................ Branch Code: ................................ Account Number: ................................ Signature of holder: ................................ 102 Duly authorised on behalf of [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [To be completed by recipient Paying Agent] Details of missing unmatured Coupons ...............................(3) Received by: ................................ [Signature and stamp of Paying Agent] At its office at: ................................. On:.................................... NOTES 1. The Agency Agreement provides that Notes so returned will be sent by post, uninsured and at the risk of the Noteholder, unless the Noteholder otherwise requests and pays the costs of such insurance to the relevant Paying Agent at the time of depositing the Note referred to above. 2. Delete as applicable. 3. Only relevant for Fixed Rate Notes (which are not also Indexed Redemption Amount Notes) in definitive form. N.B. The Paying Agent with whom the above-mentioned Notes are deposited will not in any circumstances be liable to the depositing Noteholder or any other person for any loss or damage arising from any act, default or omission of such Paying Agent in relation to the said Notes or any of them unless such loss or damage was caused by the fraud or gross negligence of such Paying Agent or its directors, officers or employees. This Put Notice is not valid unless all of the paragraphs requiring completion are duly completed. Once validly given this Put Notice is irrevocable except in the circumstances set out in clause 10.4 of the Agency Agreement. 103 SCHEDULE 6 [ ] DATED 27TH MARCH, 2003 CIBA SPECIALTY CHEMICALS PLC CIBA SPECIALTY CHEMICALS CORPORATION CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. AS ISSUERS - AND - CIBA SPECIALTY CHEMICALS HOLDING INC. AS GUARANTOR ---------------------------------------- OPERATING & ADMINISTRATIVE PROCEDURES MEMORANDUM IN RESPECT OF A U.S.$2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM (AMENDED AND RESTATED) ------------------------------------------ [ALLEN & OVERY LOGO] LONDON 104 The aggregate nominal amount of all Notes outstanding at any time will not, subject as provided below, exceed U.S.$2,000,000,000 or its equivalent in other currencies at the time of agreement to issue, subject to increase as provided in the Program Agreement. The Program Agreement provides for the increase in the nominal amount of Notes that may be issued under the Program. In that event, this Procedures Memorandum shall apply to the Program as increased. The documentation of the Program provides for the issue of Notes denominated in any currency or currencies as may be agreed between the relevant Issuer, the Guarantor and the relevant Dealer (subject to certain restrictions as to minimum and/or maximum maturities as set out in the Offering Circular describing the Program) and being any of: o Fixed Rate Notes o Floating Rate Notes o Zero Coupon Notes o Dual Currency Notes o Indexed Interest Notes o Indexed Redemption Amount Notes o Instalment Notes o Partly Paid Notes o other forms of Notes agreed between the relevant Dealer or Lead Manager, the relevant Issuer and the Guarantor All terms with initial capitals used herein without definition shall have the meanings given to them in the Offering Circular dated 27th March, 2003 (the OFFERING CIRCULAR as supplemented), or, as the case may be, the amended and restated Program Agreement dated 27th March, 2003 (the PROGRAM AGREEMENT as amended, supplemented or restated) between the Issuers, the Guarantor and the Dealers named therein pursuant to which the Issuer may issue Euro Medium Term Notes. OPERATING PROCEDURES Dealers must confirm all trades directly with the Issuer, the Guarantor and the Agent. 1. RESPONSIBILITIES OF THE AGENT The Agent will, in addition to the responsibilities in relation to settlement described in Annexe A, be responsible for the following: (a) in the case of Notes which are to be listed on a Stock Exchange, distributing, or procuring the distribution, to the Stock Exchange and any other relevant authority such number of copies of the Pricing Supplement required by the Stock Exchange and such other relevant authority; (b) in the case of Notes which are to be listed on a Stock Exchange, immediately notifying the relevant Issuer and the relevant Dealer if at any time the Agent is notified by the Listing Agent or the Stock Exchange that the listing of a Tranche of Notes has been refused or otherwise will not take place; and (c) determining the end of the Distribution Compliance Period in respect of a Tranche in accordance with Clause 4 of the Agency Agreement. The Agent shall upon determining the end of the Distribution Compliance Period in respect of any Tranche notify the relevant Issuer, the Guarantor, Euroclear, Clearstream, Luxembourg and the relevant Dealer or Lead Manager, as the case may be. 105 2. RESPONSIBILITIES OF DEALER/LEAD MANAGER (a) Each Dealer/Lead Manager will be responsible for preparing and agreeing with the relevant Issuer and the Guarantor a Pricing Supplement (substantially in the form of Annexe C hereto) giving details of each Tranche of Notes to be issued. (b) In the case of an issue not to be subscribed pursuant to a Subscription Agreement, each Dealer which agrees to purchase Notes from the relevant Issuer will be responsible for notifying the Agent upon completion of the distribution of the Notes of each Tranche purchased by that Dealer. In the case of an issue of Notes to be subscribed pursuant to a Subscription Agreement, the Lead Manager will be responsible for notifying the Agent upon completion of the distribution of the Notes of such issue. 3. SETTLEMENT The settlement procedures set out in Annexe A shall apply to each issue of Notes (Part 1 in the case of issues not to be subscribed pursuant to a Subscription Agreement, Part 2 in the case of issues to be subscribed pursuant to a Subscription Agreement), unless otherwise agreed between the relevant Issuer, the Guarantor, the Agent and the relevant Dealer or the Lead Manager, as the case may be. With issues of Notes to be listed on a Stock Exchange other than the Luxembourg Stock Exchange more time may be required to comply with the relevant Stock Exchange's listing requirements and with issues of Dual Currency or Indexed Notes more time may be required to settle documentation. A Trading Desk and Administrative Contact List is set out in Annexe D. N.B.: ALL COMMUNICATIONS WITH ANY ISSUER MUST BE COPIED TO THE GUARANTOR. 106 ANNEX 1 [ ] PART 1 SETTLEMENT PROCEDURES FOR ISSUES NOT TO BE SUBSCRIBED PURSUANT TO A SUBSCRIPTION AGREEMENT References below to the ISSUER is to the RELEVANT ISSUER.

107

108

109 ANNEXE 1 PART 2 SETTLEMENT PROCEDURES FOR ISSUES SUBSCRIBED PURSUANT TO A SUBSCRIPTION AGREEMENT References below to the ISSUER is to the RELEVANT ISSUER.

110

111

Explanatory Notes to Annexe 1 (a) Each DAY is a day on which banks and foreign exchange markets are open for business in London, counted in reverse order from the proposed Issue Date. (b) The Issue Date must be a Business Day. For the purposes of this Memorandum, BUSINESS DAY means a day which is: 112 (i) a day on which commercial banks and foreign exchange markets settle payments in London and any other place as is specified in the applicable Pricing Supplement (each an ADDITIONAL BUSINESS CENTRE); (ii) either (1) in relation to Notes denominated or payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments in the principal financial centre of the country of the relevant Specified Currency (if other than London or any Additional Business Centre) and which, if the Specified Currency is New Zealand Dollars, shall be Auckland) or (2) in relation to Notes denominated or payable in euro, a day on which the TARGET System is open. TARGET SYSTEM means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System. Unless otherwise provided in the applicable Pricing Supplement, the principal financial centre for any currency shall be as provided in the 2000 ISDA Definitions, each as amended and updated as at the Issue Date of the first Tranche of Notes of the relevant Series and published by the International Swaps and Derivatives Association, Inc.; and (iii) a day on which Euroclear, Clearstream, Luxembourg and any other relevant clearing system is open for general business. (c) Times given are the approximate times for the taking of the action in question and are references to London time. 113 ANNEX 2 FORM OF DEALER'S CONFIRMATION FOR ISSUES WITH NO SUBSCRIPTION AGREEMENT [Date] To: [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] and: CIBA SPECIALTY CHEMICALS HOLDING INC. c.c. JPMorgan Chase Bank [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] [Title of relevant Tranche of Notes (specifying type of Notes)] issued pursuant to the U.S.$2,000,000,000 Euro Medium Term Note Program We hereby confirm the agreement for the issue to us of [describe issue] Notes due [ ] (the NOTES) under the above Program pursuant to the terms of issue set out in the Pricing Supplement which we are faxing herewith. [The selling commission in respect of the Notes will be [ ] per cent. of the nominal amount of the Notes and will be deductible from the net proceeds of the issue.] The Notes are to be credited to [Euroclear/Clearstream, Luxembourg] account number [ ] in the name of [Name of Dealer]. Please confirm your agreement to the terms of issue by signing and faxing to us a copy of the following Pricing Supplement. Please also fax a copy of the Pricing Supplement to the Agent. For and on behalf of [Name of Dealer] By: ............................... Authorised signatory 114 ANNEX 3 FORM OF PRICING SUPPLEMENT [Date] [CIBA SPECIALTY CHEMICALS CORPORATION/ CIBA SPECIALTY CHEMICALS PLC/ CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH/ CIBA SPECIALTY CHEMICALS EUROFINANCE LTD.] ISSUE OF [AGGREGATE NOMINAL AMOUNT OF TRANCHE] [TITLE OF NOTES] GUARANTEED BY CIBA SPECIALTY CHEMICALS HOLDING INC. UNDER THE USD 2,000,000,000 EURO MEDIUM TERM NOTE PROGRAM This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Offering Circular dated [ ]. This Pricing Supplement must be read in conjunction with such Offering Circular. [Include whichever of the following apply or specify as NOT APPLICABLE (N/A). Note that the numbering should remain as set out below, even if NOT APPLICABLE is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Pricing Supplement.] [If Notes issued by Ciba Specialty Chemicals PLC have a maturity of less than one year from the date of their issue, the minimum redemption amount must be L100,000 or its equivalent in any other currency. If Notes issued by any other Issuer (including Notes denominated in sterling), in respect of which the issue proceeds are to be accepted in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the Financial Services and Markets Act 2000, have a maturity of less than one year from the date of their issue, the minimum redemption amount must be L100,000 or its equivalent in any other currency.] 1. (i) Issuer: [ ] (ii) Guarantor: Ciba Specialty Chemicals Holding Inc. 2. (i)] Series Number: [ ] [(ii) Tranche number: [ ] (If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible)] 3. Specified Currency or [ ] Currencies: 4. Aggregate Nominal Amount: [ ] - Tranche: [ ]

115 - Series: [ ] 5. Issue Price of Tranche: [ ] per cent [Net proceeds] (required only for listed issues) 6. Specified Denominations: [In the case of Notes with a maturity of 183 days or less issued by (i) Ciba Specialty Chemicals Corporation or (ii) where proceeds of the issuance are on-lent to a U.S. entity, the minimum denomination for such Notes shall be USD 500,000 (or the equivalent thereof at exchange rates applicable on the relevant date of calculation)] [In the case of Notes that are issued by Ciba Specialty Chemicals Eurofinance Ltd. the minimum denomination for such Notes shall be USD 500,000 (or the equivalent thereof at exchange rates applicable on the Issue Date of such Note), unless a prospectus is filed with the Registrar of Companies in Bermuda in accordance with Part III of the Companies Act 1981 (as amended) of Bermuda.] 7. [(i)] Issue Date: [ ] (ii) Interest Commencement Date (if different from the Issue Date): [ ]] 8. Maturity Date: [Fixed rate - specify date/ Floating rate - Interest Payment Date falling in [specify month and year]] 9. Interest Basis: [[ ] percent Fixed Rate] [[LIBOR/EURIBOR] +/- [ ] percent Floating Rate] [Zero Coupon] [Indexed Interest] [specify other] (further particulars specified below) 10. Redemption/Payment Basis: [Redemption at par] [Indexed Redemption] [Dual Currency] [Partly Paid] [Instalment] [specify other] 11. Change of Interest Basis or Redemption/Payment Basis: [Specify details of any provision for change of Notes into another Interest

116 Basis or Redemption/Payment Basis] 12. Put/Call Options: [Investor Put] [Issuer Call] [(further particulars specified below)] 13. Listing: [Luxembourg/specify other/None] 14. Method of distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 15. FIXED RATE NOTE PROVISIONS [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Rate[(s)] of Interest: [ ] percent per annum [payable [annually/semi-annually/quarterly/monthly] in arrears] (ii) Interest Payment Date(s): [ ] in each year (iii) Fixed Coupon Amount(s): [ ] per [ ] in nominal amount (iv) Broken Amount(s): [Insert particulars of any initial or final broken interest amounts which do not correspond with the Fixed Coupon Amounts] (v) Fixed Day Count Fraction: [30/360 or Actual/Actual (ISMA) or specify other] (Note that if interest is not payable on a regular basis (for example, if there are Broken Amounts specified) Actual/Actual (ISMA) will not be a suitable Fixed Day Count Fraction) (vi) Interest Determination [ ] in each year Date(s): [Insert interest payment dates except where there are long or short periods. In these cases, insert regular interest payment dates] (NB: Only relevant where Day Count Fraction is Actual/Actual (ISMA)) (vii) Other terms relating to the method of calculating interest [None/Give details] for Fixed Rate Notes: 16. FLOATING RATE NOTE PROVISIONS [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Specified Period(s)/Specified [ ] Interest Payment Dates: (ii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business

117 Day Convention/Preceding Business Day Convention/[specify other]] (iii) Additional Business [ ] Centre(s): (iv) Manner in which the Rate of Interest and Interest Amount is to [Screen Rate Determination/ISDA be determined: Determination/specify other] (v) Party responsible for calculating the Rate of Interest and Interest Amount (if not the [ ] Principal Paying Agent): (vi) Screen Rate Determination: - Reference Rate: [ ] (Either LIBOR, EURIBOR or other, although additional information is required if other - including fallback provisions in the Agency Agreement) - Interest Determination [ ] Date(s): (Second day on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in London prior to the start of each Interest Period if LIBOR and second TARGET day prior to the start of each Interest Period if EURIBOR) - Relevant Screen [ ] Page: (in the case of EURIBOR, if not Telerate 248 ensure it is a page which shows a composite rate) (vii) ISDA Determination: - Floating Rate [ ] Option: - Designated [ ] Maturity: - Reset Date(s): [ ] (viii) Margin(s): [+/ - ] [ ] per cent per annum (ix) Minimum Rate of Interest: [ ] per cent per annum (x) Maximum Rate of Interest: [ ] per cent per annum (xi) Floating Day Count [ ] Fraction:

118 (xii) Fall back provisions, rounding provisions and any other terms relating to the method of calculating interest on Floating Rate Notes, [ ] if different from those set out in the Conditions: 17. ZERO COUPON NOTE PROVISIONS [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Accrual Yield: [ ] per cent per annum (ii) Reference Price: [ ] (iii) Any other formula/basis of determining amount [ ] payable: (Consider applicable day count fraction if euro denominated) 18. INDEXED INTEREST NOTE [Applicable/Not Applicable] PROVISIONS (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Index/Formula: [give or annex details] (ii) Calculation Agent responsible for calculating the [ ] principal and/or interest due: (iii) Provisions for determining coupon where calculation by reference to Index and/or Formula is [ ] impossible or impracticable: (iv) Specified Period(s)/Specified [ ] Interest Payment Dates: (v) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/specify other] (vi) Additional Business [ ] Centre(s): (vii) Minimum Rate of [ ] per cent per annum Interest: (viii) Maximum Rate of [ ] per cent per annum Interest: (ix) Floating Day Count [ ] Fraction:

119 19. DUAL CURRENCY NOTE PROVISIONS [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Rate of Exchange/method of calculating Rate of [give details] Exchange: (ii) Calculation Agent, if any, responsible for calculating the [ ] principal and/or interest due: (iii) Provisions applicable where calculation by reference to Rate of Exchange is impossible [ ] or impracticable: (iv) Person at whose option Specified Currency(ies) is/are payable: [ ] PROVISIONS RELATING TO REDEMPTION 20. Issuer Call: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ] (ii) Optional Redemption Amount(s) and method, if any, of calculation of such [ ] amount(s): (iii) If redeemable in part: (a) Minimum [ ] Redemption Amount (b) Higher Redemption [ ] Amount (iv) Notice period (if other than as set out [ ] in the Conditions): 21. Investor Put: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ]

120 (ii) Optional Redemption Amount(s) and method, if any, of calculation of such [ ] amount(s): (iii) Notice period (if other than as set in [ ] the Conditions): 22. Final Redemption Amount: [Par/specify other/see Appendix] 23. Early Redemption Amount(s) payable on redemption for taxation reasons or on event of default and/or the method of calculating the same (if required or if different [ ] from that set out in Condition 6(f)): GENERAL PROVISIONS APPLICABLE TO THE NOTES 24. Form of Notes: Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes [on 60 days notice given at any time/only upon an Exchange Event] [n.b. the latter option is not available to Ciba Specialty Chemicals Corporation or where proceeds are to be on-lent to a United States entity]. [Temporary Global Note exchangeable for Definitive Notes on and after the Exchange Date.] 25. Additional Financial Centre(s) or other special [Not Applicable/give details] provisions relating to (Note that this item relates to the Payment Dates: place of payment and not Interest Period end dates to which item 16(iii) relates) 26. Talons for future Coupons or Receipts to be attached to Definitive Notes (and dates on which such Talons mature): [Yes/No. If yes, give details] 27. Details relating to Partly Paid Notes: amount of each payment comprising the Issue Price and date on which each payment is to be made and, if different from those specified in the Temporary Global Note, consequences of failure to pay, including any right of the Issuer to [Not Applicable/give details] forfeit the Notes and interest due on late payment: 28. Details relating to Instalment Notes:

121 amount of each instalment, date on [Not Applicable/give details] which each payment is to be made: 29. Redenomination applicable: Redenomination [not] applicable (If Redenomination is applicable, specify either the applicable Fixed Day Count Fraction or any provisions necessary to deal with floating rate interest calculation (including alternative reference rates)) 30. Details relating to Instalment Notes: Specify Instalment Amounts and [Not Applicable/give details] Instalment Dates: 31. Other terms or special [Not Applicable/give details] conditions: DISTRIBUTION 32. (i) If syndicated, names of Managers: [Not Applicable/give names] (ii) Stabilising Manager [Not Applicable/give names] (if any): 33. If non-syndicated, name of relevant Dealer: [Not Applicable/give names] 34. Whether TEFRA D rules applicable or TEFRA rules [TEFRA D/TEFRA not applicable] not applicable: 35. Additional selling [Not Applicable/give details] restrictions: OPERATIONAL INFORMATION 36. Any clearing system(s) other than Euroclear and Clearstream, Luxembourg and the relevant identification [Not Applicable/give names(s) and number(s): number(s)] 37. Delivery: Delivery [against/free of] payment 38. Additional Paying Agent(s) [ ] (if any):

ISIN: [ ] Common Code: [ ] 122 [LISTING APPLICATION This Pricing Supplement comprises the details required to list the issue of Notes described herein pursuant to the listing of the USD 2,000,000,000 Euro Medium Term Note Program of Ciba Specialty Chemicals Corporation/Ciba Specialty Chemicals PLC/Ciba Spezialitatenchemie Holding Deutschland GmbH/Ciba Speciality Chemicals Eurofinance Ltd.] RESPONSIBILITY The Issuer and the Guarantor accept responsibility for the information contained in this Pricing Supplement. Signed on behalf of the Issuer: Signed on behalf of the Guarantor: By:................................... By:................................... Duly authorised Duly authorised By:................................... Duly authorised 123 ANNEX 4 TRADING DESK AND ADMINISTRATIVE INFORMATION THE ISSUERS CIBA SPECIALTY CHEMICALS CORPORATION 560 White Plains Road PO Box 2005 Tarrytown, New York 10591-9005 Telephone: +1 914 785 2000 Telefax: +1 914 785 2650 Attention: Treasurer CIBA SPECIALTY CHEMICALS PLC Hulley Road Macclesfield Cheshire SK10 2NX Telephone: +44 1625 888 220 Telefax: +44 1625 888 380 Attention: Treasurer CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH Chemiestrasse D-68623 Lampertheim Germany Telephone: +49 6206 152810 Telefax: +49 6206 152816 Attention: Treasurer CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. c/o Reid Management Limited 4th Floor Windsor Place 22 Queen Street PO Box HM1179 Hamilton HMEX Bermuda Telephone: +1 441 296 3695 Telefax: +1 441 295 3328 Attention: Tamara Lewis/Adrian Arnold 124 THE GUARANTOR CIBA SPECIALTY CHEMICALS HOLDING INC. Klybeckstrasse 141 CH-4002 Basle Switzerland Telephone: +41 61 636 2740 Telefax: +41 61 636 6828 Attention: Group Treasurer THE DEALERS CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED One Cabot Square London E14 4QJ Telephone: +44 20 7888 4021 Telefax +44 20 7905 6128 Attention: MTN Trading DEUTSCHE BANK AG LONDON Winchester House 1 Great Winchester Street London EC2N 2DB Telephone: +44 20 7545 2761 Telex: 94 01 5555 DBLN G Telefax: +44 20 7541 2761 Attention: MTN Desk GOLDMAN SACHS INTERNATIONAL Peterborough Court 133 Fleet Street London EC4A 2BB Telephone: +44 20 7774 2295 Telex: 94012165 GSHH G Telefax: +44 20 7774 5711 Attention: Euro Medium Term Note Desk J.P. MORGAN SECURITIES LTD. 125 London Wall London EC2Y 5AJ Telephone: +44 20 7779 3469 Telex: 8954804 MGLTD G Telefax: +44 20 7325 8225 Attention: Euro Medium Term Note Desk 125 UBS LIMITED 1 Finsbury Avenue London EC2M 2PP Telephone: +44 20 7567 2324 Telex: 887434 UBSW G Telefax: +44 20 7568 3349 Attention: MTNs and Private Placements THE AGENT JPMorgan Chase Bank Trinity Tower 9 Thomas More Street London E1W 1YT Telephone: +44 1202 347430 Telex: 8954681 CMB G Telefax: +44 1202 347438 Attention: Manager, Institutional Trust Services 126 SIGNATORIES THE ISSUERS CIBA SPECIALTY CHEMICALS CORPORATION 560 White Plains Road PO Box 2005 Tarrytown, New York 10591-9005 Telephone: +1 914 785 2000 Telefax: +1 914 785 2650 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB CIBA SPECIALTY CHEMICALS PLC Hulley Road Macclesfield Cheshire SK10 2NX Telephone: +44 1625 888 220 Telefax: +44 1625 888 380 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB CIBA SPEZIALITATENCHEMIE HOLDING DEUTSCHLAND GMBH Chemiestrasse D-68623 Lampertheim Germany Telephone: +49 6206 152 810 Telefax: +49 6206 152 816 Attention: Treasurer By: KIRK ERSTLING OLIVER STRUB CIBA SPECIALTY CHEMICALS EUROFINANCE LTD. c/o Reid Management Limited 4th Floor Windsor Place 22 Queen Street PO Box HM1179 Hamilton HMEX Bermuda Telephone: +1 441 296 3695 Telefax: +1 441 295 3328 Attention: Tamara Lewis/Adrian Arnold 127 By: KIRK ERSTLING OLIVER STRUB THE GUARANTOR CIBA SPECIALTY CHEMICALS HOLDING INC. Klybeckstrasse 141 CH-4002 Basle Switzerland Telephone: +41 61 636 2740 Telefax: +41 61 636 6828 Attention: Group Treasurer By: KIRK ERSTLING OLIVER STRUB THE AGENT JPMORGAN CHASE BANK, LONDON BRANCH Trinity Tower 9 Thomas More Street London E1W 1YT Telephone: +44 1202 347430 Telex No: 8954681 CMB G Telefax No: +44 1202 347438 Attention: Manager, Institutional Trust Services By: PHILIP TOWNSEND THE LUXEMBOURG PAYING AGENT J.P. MORGAN BANK LUXEMBOURG S.A. 5 rue Plaetis L-2338 Luxembourg All communications should be sent care of the Agent By: PHILIP TOWNSEND 128 ~~EX-8.1 7 u47015exv8w1.htm EXHIBIT 8.1 exv8w1~~

Group Holdings in % Principal Function of Company

Selling Manufacturing Research Service, Finance

AMERICAS

Argentina

Ciba Especialidades Quimicas S.A., Buenos Aires
100
•

Bermuda

Chemical Insurance Company Ltd., Hamilton
100

•

Ciba Specialty Chemicals Eurofinance Ltd., Hamilton
100

•

Ciba Specialty Chemicals International Finance Ltd., Hamilton
100

•

Ciba Specialty Chemicals Investment Ltd., Hamilton
100

•

Brazil

Ciba Especialidades Quimicas Ltda., Sao Paulo
100
•

•

Canada

Ciba Specialty Chemicals Canada Inc., Mississauga
100
•

Ciba Specialty Chemicals Water Treatments Corp., Mississauga
100
•

Chile

Ciba Especialidades Quimicas Ltd., Santiago de Chile
100
•

•

Ciba Especialidades Quimicas Conosur S.A., Santiago de Chile
100
•

Colombia

Ciba Especialidades Quimicas S.A., Bogota
100
•

•

Guatemala

Ciba Especialidades Quimicas, S.A. (ACC), Guatemala
100
•

•

Mexico

Ciba Especialidades Quimicas Mexico S.A. de C.V., Mexico
100
•

•

Panama

Ciba Especialidades Quimicas Colon S.A., Colon
100
•

USA

Ciba Specialty Chemicals Corporation, Tarrytown, NY
100
•

•

•

ASIA-PACIFIC

Australia

Ciba Specialty Chemicals Pty. Ltd., Thomastown
100
•

•

Bahrain

Ciba Specialty Chemicals Middle East WLL
100
•

China

Ciba Specialty Chemicals (China) Ltd., Beijing
100

•

Ciba Specialty Chemicals (Hong Kong) Ltd., Hong Kong
100
•

Ciba Specialty Chemicals (Shanghai) Ltd., Shanghai
100
•

Guangdong Ciba Specialty Chemicals Co. Ltd., Panyu, Guangdong
95
•

•

Guangzhou Ciba Specialty Chemicals Co. Ltd., Guangzhou
80
•

•

Qingdao Ciba Dyes Co. Ltd., Qingdao
94
•

•

Qingdao Ciba Pigments Co. Ltd., Qingdao
91
•

•

Shanghai Ciba Gao-Qiao Chemical Co. Ltd., Shanghai
75
•

•

Shenzhen Ciba Specialty Chemicals Co. Ltd., Shenzhen
85
•

•

Xiangtan Chemicals & Pigments Co. Ltd., Xiangtan
49
•

•

India

Ciba India Private Ltd., Mumbai
100

•

•

Ciba Specialty Chemicals (India) Ltd., Mumbai
69
•

•

Diamond Dye-Chem Limited, Mumbai
69
•

•


(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

		OR

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2003

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Asset management	2003			2002

Net current operating assets:
Absolute in CHF		327			378
As a percentage of sales		19	%		21	%
Capital expenditures in CHF		59			86
Invested capital in CHF		1 127			1 236
Total assets in CHF		1 378			1 493


Asset management	2003			2002

Net current operating assets:
Absolute in CHF		520			575
As a percentage of sales		29	%		30	%
Capital expenditures in CHF		79			74
Invested capital in CHF		1 773			1 834
Total assets in CHF		2 020			2 107


Asset management	2003			2002

Net current operating assets:
Absolute in CHF		290			335
As a percentage of sales		22	%		24	%
Capital expenditures in CHF		42			35
Invested capital in CHF		2 271			2 429
Total assets in CHF		2 460			2 606


Title of each class American Depositary shares, Each representing one half of one ordinary share, nominal value CHF 6 per share		Name of each exchange on which registered New York Stock Exchange

Ordinary shares, par value CHF 6 per share*


Introduction
Currency Translation
Cautionary Statement Regarding Forward-Looking Information
PART I
	Item 1. Identity of Directors, Senior Management and Advisors
	Item 2. Offer Statistics and Expected Timetable
	Item 3. Key Information
	Item 4. Information on the Company
	Item 6. Directors, Senior Management and Employees
	Item 7. Major Shareholders and Related Party Transactions.
	Item 8. Financial Information.
	Item 9. The Offer and Listing
	Item 10. Additional 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 Modification to the Rights of Security Holders and Use of Proceeds
	Item 15. Controls and Procedures
	Item 16A. Audit Committee Financial Expert
	Item 16B. Code of Ethics
	Item 16C. Principal Accountant Fees and Services
	Item 16D. Exemptions from the Listing Standards for Audit Committees
PART III
	Item 17. Financial Statements
	Item 18. Financial Statements
	Item 19. Exhibits
Signature
Report of independent auditors — Ernst & Young Ltd.
Independent auditors’ report — Arthur Andersen AG
Consolidated statements of income for the years ended December 31, 2003,2002 and 2001
Consolidated balance sheets at December 31, 2003 and 2002
Consolidated statements of cash flows for the years ended December 31, 2003, 2002 and 2001
Consolidated statements of shareholders’ equity for the years ended December 31, 2003, 2002 and 2001
Business segment data
Geographic data
Notes to consolidated financial statements
Exhibit 4.1
Exhibit 4.2
Exhibit 4.3
Exhibit 4.4
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1

(1)		As of January 1, 2002, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets”, which requires that goodwill no longer be amortized to earnings. The results of operations on an adjusted basis, excluding goodwill amortization, for the years prior to 2002 had SFAS No. 142 been applied retroactively for all periods presented, would have been: Income from continuing operations — in 2001 CHF 441 million, in 2000 CHF 482 million, in 1999 CHF 290 million; Basic and diluted earnings per share for income from continuing operations — in 2001 CHF 6.64, in 2000 CHF 7.27, in 1999 CHF 4.37; Net income — in 2001 CHF 443 million, in 2000 CHF 520 million, in 1999 CHF 387 million; Basic and diluted earnings per share for net income — in 2001 CHF 6.68, in 2000 CHF 7.83, in 1999 CHF 5.83. For the years 2000 and 1999, net income as adjusted excludes goodwill amortization from continuing operations and from discontinued operations.

(2)		The Company applied FASB Interpretation No. 46 (FIN No. 46) to a previously unconsolidated trust that leases an asset to the Company, resulting in the consolidation by the Company of the trust effective July 1, 2003.

(3)		As of January 1, 2001, the Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended which replaced existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities.

(4)		Effective January 1, 2003, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 123, as amended. Had the Company applied the fair value method for all periods prior to 2003, pro forma income from continuing operations would have been in 2002 CHF 395 million, in 2001 CHF 368 million, in 2000 CHF 410 million, in 1999 CHF 224 million; pro forma basic and diluted earnings per share for income from continuing operations would have been — in 2002 CHF 5.76, in 2001 CHF 5.53, in 2000 CHF 6.19, in 1999 CHF 3.37; pro forma net income would have been in 2002 CHF 395 million, in 2001 CHF 370 million, in 2000 CHF 444 million and in 1999 CHF 311 million; pro forma basic and diluted earnings per share for net income would have been in 2002 CHF 5.76, in 2001 CHF 5.57, in 2000 CHF 6.69 and in 1999 CHF 4.68. (see note 17 to the Consolidated Financial Statements).

(1)		The Americas are comprised of North, Central and South America.

(2)		Asia Pacific is comprised of Asia, Africa, the Middle East, Australia and New Zealand.


(amounts in millions of CHF, except percentages)	2003			2002			2001

Total Segment net sales		1 722			1 813			1 834
Operating income		178			245			275
Capital expenditures		59			86			80
Research and development expenditures		82			81			73
Contribution to the consolidated Company net sales from continuing operations, in percentage		25.9	%		25.6	%		24.9	%

(1)		The shares of Ciba Specialty Chemicals (India) Ltd., Mumbai, (“CSCIL”) are listed on the Mumbai Stock Exchange (www.bseindia.com) under the scrip name “CIBA SPE CH”; the scrip code is 532184. The total market value of the 13 280 819 outstanding shares of CSCIL as of December 31, 2003 was approximately CHF 60 million (INR 2198 million). Ciba Specialty Chemicals Holding Inc. (“CSCH”) made a voluntary offer to the public shareholders of the CSCIL to acquire up to 6 507 594 CSCIL shares, representing the balance of 49% share capital of CSCIL at a price of INR 110 per share. The offer commenced on June 05, 2002 and closed on July 04, 2002. As a result of this offer and the subsequent acquisition of shares of CSCIL, CSCH along with its group company hold 9 200 887 Equity Shares as at December 31, 2003, representing 69.28% of the paid-up share capital of CSCIL.

(2)		Diamond Dye-Chem Limited is a wholly owned subsidiary of Ciba Specialty Chemicals (India) Ltd.

(1)		One hectare is equal to 2.471 United States acres.

(2)		Most of the infrastructure facilities are shared with Syngenta and Huntsman through a joint venture in which the Company holds a 50 percent interest.

(3)		Joint venture with Chemipro Kasai Kaisha, Ltd., in which the Company holds a 51 percent interest.

(4)		Joint venture with Mitsui Petrochemical and Musashino-Geigy, in which the Company holds a 40 percent interest.

(5)		Effective January 2001, the Company acquired a controlling interest in Musashino-Geigy Co. Ltd., increasing its holdings from 50 percent to 60 percent in this joint venture with Musashino Chemical Laboratory Co. Ltd.

(6)		Venture with Panyu City Shilou Town Economical Development Company Limited, in which the Company holds a 95 percent interest.

(7)		Venture with Qingdao Double Peach, in which the Company holds a 91.4 percent interest.

(8)		Venture with Qingdao Double Peach, in which the Company holds a 94 percent interest.

(9)		Joint venture with Shanghai Gao-Qiao Petrochemical Company, in which the Company holds a 75 percent interest.

(10)		Joint venture with Daihan Color Ind., Co., Ltd., in which the Company holds a 50 percent interest.

(1)		EBITDA, free cash flow and net debt are non-U.S. GAAP financial measures. See Use of Certain Supplementary Financial Indicators in this Management’s Discussion and Analysis for further discussion of the use of these measures.

(2)		For 2003, the Board of Directors proposes to carry forward the entire retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a dividend. The Board of Directors, however, proposes a cash payment to the shareholders resulting from a capital reduction of CHF 3 per share, which is reflected in the table above. The per share amounts presented above for 2002 reflect that no dividend was paid in 2003, based on 2002 results, as well as the capital reduction approved by the Company’s shareholders in 2003, based on 2002 results. For further information see the Operational Review section of this Management’s Discussion and Analysis and Item 6. Directors, Senior Management and Employees — Dividends and Dividend Policy.


Consolidated sales development	2003 compared to 2002

Volume/product mix		3	%
Price		(3	)%
Currency		(6	)%
Total in Swiss francs		(6	)%


Geographic sales distribution	2003			2002

Europe		41	%		38	%
Americas⁽¹⁾		31	%		35	%
Asia-Pacific⁽²⁾		28	%		27	%


Yes x		No o


Sales development	2003 compared to 2002

Volume/product mix		4	%
Price		(3	)%
Currency		(6	)%
Total in Swiss francs		(5	)%


Selected balance sheet data as of December 31,	2003		2002

Cash and cash equivalents and short-term investments		2 397		2 377
Total assets		11 098		11 792
Total shareholders’ equity		4 245		4 354


Net debt	2003			2002

Short-term debt		259			1 496
Long-term debt		3 187			2 344
Total debt		3 446			3 840
Less: cash and cash equivalents		(2 386	)		(2 361	)
Less: short-term investments		(11	)		(16	)
Net debt		1 049			1 463


Free cash flow	2003			2002			2001

Net cash from continuing operations		1 033			1 038			1 054
Add: restructuring payments		0			12			46
Less: net cash used in investing activities		(239	)		(349	)		(334	)
Add: sale (acquisition) of business, net of cash		71			116			144
Less: dividends⁽¹⁾		(137	)		(134	)		(132	)
Other		0			0			1
Free cash flow		728			683			779


	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years

Long-term debt, including current portion⁽¹⁾		3 134		1		265		1 212		1 656
Long-term obligations, including current portion⁽²⁾		1 487		70		148		151		1 118
Raw material purchase commitments		253		122		88		43		—
Fixed assets and other purchase commitments		176		97		63		4		12
Lease commitments		86		39		33		10		4
Total		5 136		329		597		1 420		2 790

(1)		Long-term debt shown is the face amount of the debt obligations. The amounts reported on the Consolidated Balance Sheets and in Note 13 to Consolidated Financial Statements are net of discounts and premiums, in accordance with U.S. GAAP.

(2)		Estimated payments for long-term obligations have been determined by the Company based on payment schedules for those long-term obligations where set payments exist. For long-term obligations with no set payment schedules, estimates have been made by the Company based on the most likely timing of cash payments based on the facts and circumstances that exist as of December 31, 2003. The ultimate timing of these future cash flows may differ due to events and circumstances that are out of the direct control of the Company. Also included are liabilities related to environmental matters, which are further discussed in Note 21 to Consolidated Financial Statements.

(1)		Effective January 1, 2002, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142 Goodwill and Other Intangible Assets, which requires that goodwill no longer be amortized to earnings. For comparison purposes to the 2002 reported results, the results of operations on an adjusted basis, excluding goodwill amortization, for the year 2001 are shown in the table above in the Results of operations as adjusted excluding goodwill amortization section (see Note 1 to Consolidated Financial Statements).

(2)		Restructuring payments were CHF 12 million in 2002 and CHF 46 million in 2001.

(3)		For the calculation of free cash flow, see the corresponding table in the Liquidity and Capital resources section of this Management’s Discussion and Analysis.

(4)		For the calculation of net debt, see the corresponding table in the Consolidated balance sheets section of this Management’s Discussion and Analysis.

(5)		For 2002, the Board of Directors proposes to carry forward the entire retained earnings of Ciba Specialty Chemicals Holding Inc. and not to pay a dividend. The Board of Directors, however, proposes a cash payment to the shareholders resulting from a capital reduction of CHF 3 per share. For further information see the Operational review section of this Management’s Discussion and Analysis and Item 8. Financial Information — Dividends and Dividend Policy.


Consolidated sales development	2002 compared to 2001

Volume/product mix⁽¹⁾		6	%
Price		(3	)%
Currency		(7	)%
Total in Swiss francs		(4	)%


	2002			2001

Operating income (EBIT)		788			761
EBITDA, before restructuring and special charges		1 173			1 230
EBIT margin		11.1	%		10.3	%
EBITDA margin, before restructuring and special charges		16.6	%		16.7	%
2002 compared to 2001
Operating income (EBIT)		4	%
EBITDA		(5	)%


	Severance costs			Other costs			Total

January 1, 2002		5			7			12
Amounts utilized⁽¹⁾		(5	)		(7	)		(12	)
December 31, 2002		0			0			0


Operating income (EBIT)	2002			2001

Absolute in CHF		245			275
As a percentage of sales (EBIT margin)		13.5	%		15.0	%
EBITDA
Absolute in CHF		346			388
As a percentage of sales (EBITDA margin)		19.1	%		21.1	%

(1)		At the Company’s Annual General Meeting of Shareholders to be held on February 26, 2004, Ms. Gertrud Höhler and Mr. Armin Meyer are proposed to be re-elected as Board Members for an additional term of four years.

(2)		The Board has appointed Thomas Koch, born November 21,1954, German, as its new Secretary effective March 1, 2004.

C =		Chairman

M =		Member

(1)		Armin Meyer is not present at the meetings when the Committee discusses and prepares its proposal with regard to Armin Meyer’s compensation as CEO of the Company.


	Term of allocation		Subscription			Strike price
Year of allocation	(years)		ratio	Number		(CHF)

1997		8	1:1		23 632		107.16
1998		5	1:1		3 284		163.70
1999		5	1:1		4 108		110.60
2000		5	1:1		2 562		105.40
2001		5	1:1		6 892		109.20
2002		5	1:1		9 280		109.00


Security	Stock exchange	Ticker symbol	Security number	ISIN code

Share with CHF 6 nominal value	SWX/virt-x	CIBN	581 972	CH 000 581972 4
Share with CHF 6 nominal value (buy-back over second trading line)	SWX/virt-x	CIBNE	1 661 377	CH 001 661377 7
ADS	NYSE	CSB	CUSIP: 17162 W206	N/A


	Dividend payment		Capital reduction
AGM year	(CHF)		payment (CHF)

1998		2		0
1999		2		0
2000		2		0
2001		2		0
2002		2		1
2003		0		3
2004⁽¹⁾		0		3


	2003				2002⁽¹⁾

	thousand		in % of		thousand		in % of
	CHF		total fees		CHF		total fees

Audit fees		3 927		76		3 490		60
Audit-related fees		237		5		1 088		19
Tax fees		827		16		951		16
All other fees		165		3		315		5
Total fees		5 156		100		5 845		100


			Rights
	Exercise price		outstanding

Balance at December 31, 2000		15		232 760
Rights granted		15		86 240
Rights exercised		15		(16 260	)
Balance at December 31, 2001		15		302 740
Rights granted		15		86 040
Rights exercised		15		(18 500	)
Balance at December 31, 2002		15		370 280
Rights granted		15		105 275
Rights exercised		15		(20 005	)
Balance at December 31, 2003		15		455 550
Rights granted		15		104 200
Rights exercised		15		(2 900	)
Balance at January 30, 2004		15		556 850


	January 30, 2004			January 31, 2003			January 31, 2002

Artisan Partners Limited, USA-Wisconsin		—			5.0	%		—
BNP Paribas (Suisse) SA, Geneva*		—			—			—
Chase Nominees Ltd, London*		5.6	%		5.3	%		3.1	%
Mellon Bank N.A., Everett*		2.6	%
Putnam Group, Boston⁽¹⁾		—			5.2	%		5.2	%
Euroclear Nominees Ltd., Bruxelles*		—			—			—
Hanover Nominees Ltd., London*		—			—			—

(*)		Registered as nominees.

(1)		Of which 0.7 percent was entered into the Share Register of the Company with the right to vote.