Form 20-F 2005

Commercial Litigation
Adisséo Arbitration
Following a fire at its Roches de Condrieu facility on May 22, 2003, Rhodia Eco Services Sulfurique was forced to declare force
majeure in a contract with Adisséo for the supply of hydrogen sulphur. As a result, Adisséo initially asserted a claim of damages in
the amount of €380,000 as a contractual penalty for the supply failure. In addition, Adisséo is seeking to enforce a contractual call
option for the transfer of Rhodia Eco Services Sulfurique’s hydrogen sulphur business unit, including its activity and equipment, to
Adisséo for one euro. This matter is currently in arbitration proceedings before the Association Française d’Arbitrage (“A.F.A.”). In
proceedings during the fourth quarter of 2004, the plaintiff claimed additional damages, which we believe are without foundation.
On November 21, 2004, we received an additional claim from Adisséo for monetary damages for losses sustained by Adisséo as a
result of the fire, including lost revenues. Rhodia PPMC, the successor of Rhodia Eco Services Sulfurique in this litigation, opposes
exercise of the call option as well as the grounds of Adisséo’s claim. Furthermore, on the eve of the August 30, 3005 proceedings
before the Arbitral Tribunal, Rhodia PPMC learned that Adisséo’s insurers would like to voluntarily intervene in the arbitration. The
Arbitral Tribunal approved the intervention by its order of November 4, 2005, while reserving its right to rule upon the validity of
the subrogation and the basis of the claims. The insurers would be subrogated in the rights of Adisséo up to a maximum of their
payment to indemnify the insured, which they made, due to their unilateral decisions, without prior consultation with us,in a total
amount of €12 million, which thereby compensates Adisséo’s alleged operating losses of €27 million. We are contesting Adisséo’s
claims on the merits and accordingly we have not recognized a provision with respect to this proceeding. The Arbitral Tribunal is
expected to render its award the fourth quarter of 2006.
Innophos litigation
On November 8, 2004, we received notification of a claim from Innophos, a portfolio company of Bain Capital, with respect to
amounts claimed by the Mexican National Water Commission for water usage at an Innophos plant in Coatzacoalcos, Mexico
during the period between 1998 and 2002. The total amount of the claim is 1,5 billion Mexican pesos (approximately €100 million)
in fees, interest and penalties. We sold the Coatzacoalcos plant to Bain Capital in August 2004 as part of the disposal of our North
American specialty phosphates business, which became Innophos, and pursuant to the agreement, gave customary indemnities as
to the business sold. In order to protect our interests, we informed Bain Capital that we were assuming direct responsibility, subject
to certain limitations and reservation of rights, for defending the claim made by the Mexican National Water Commission. Since
then, we have worked closely with Innophos to prepare an answer, which was filed on behalf of Innophos on January 17, 2005. The
amount of claim made by the Mexican National Water Commission was reduced following our request for administrative review and
decided in a ruling issued on August 29, 2005, with the stipulation that the Mexican National Water Commission reserve its right to
reformulate these claims if it finds it necessary to do so. The total amount of the revised claim is approximately €16.5 million. We
believe there are still solid arguments in our defense and we therefore filed a motion with the court in November 2005 to have the
claim dismissed in the Mexican Federal Administrative and Tax Court. We disagree with Innophos as to the scope of our contractual
obligations under the representations and warranties, which we made in August 2004 when we sold our Coatzacoalcos plant to Bain
Capital, as regards the Mexican National Water Commission claim. Innophos filed suit against us in this regard with the Supreme
Court of the State of New York in December 2004. On June 13, 2005 the court ruled in favor of Innophos, and we filed an appeal
against this decision on June 16, 2005. Based on our analysis of both cases, we have not recognized provisions with respect to
either proceeding.
Laroche Industries
On January 3, 2005, upon the finalization of the sale of the Chlorap group by Laroche Industries, we signed a settlement agreement
with the latter, definitively bringing to a close all litigation between the parties.
82 Form 20 - F 2005 - Rhodia