Rhodia S.A. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Securities Act (Ontario), ss.25 and 53 - Application for relief from the prospectus requirement and the dealer registration requirement in respect of certain trades made in connection with an employee share offering by a French issuer - The offering involves the use of collective employee shareholding vehicles, each a fonds commun de placement d'enterprise (FCPE) - The issuer cannot rely on the employee exemption in section 2.24 of National Instrument 45-106 Prospectus and Registration Exemptions as the shares are not being offered to Canadian participants directly by the issuer, but through the FCPEs - The offering contains a "leveraged fund" component -- Number of Canadian employees de minimis - Canadian participants will not be induced to participate in the offering by expectation of employment or continued employment - Canadian participants will receive certain disclosure documents - The FCPEs are subject to the supervision of the French Autorité des marchés financiers -- No market for shares of the issuer in Canada - Relief granted, subject to conditions.

Securities Act (Ontario), s.25- Application for relief from the dealer registration requirement and adviser registration requirement for the manager of the FCPEs, to the extent its activities require compliance - The manager will not be involved in providing advice to Canadian participants and its activities do not affect the underlying value of the shares being offered -- Relief granted in respect of specified activities of the manager, subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74.

National Instrument 45-106 Prospectus and Registration Exemptions, ss. 2.24, 2.28.

National Instrument 45-102 Resale of Securities, s. 2.14.

May 19, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

RHODIA S.A. (the "Filer")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for:

1. an exemption from the prospectus requirements of the Legislation (the "Prospectus Relief") so that such requirements do not apply to:

(i) trades in the units ("Units") of three collective shareholding vehicles, the Aspire 2006 FCPE (the "Leveraged Fund") and the Rhodia Souscription International FCPE (the "Intermediary Classic Fund") which will be merged with the Rhodia International FCPE (the "Principal Classic Fund", together with the Intermediary Classic Fund, the "Classic Fund", and together with the Leveraged Fund, the "Funds)" made pursuant to the Employee Share Offering (as defined below) to or with Qualifying Employees (as defined below) resident in the Jurisdictions who elect to participate in the Employee Share Offering (the "Canadian Participants");

(ii) trades of ordinary shares of the Filer (the "Shares") by the Funds to Canadian Participants upon the redemption of Units by Canadian Participants, nor to the issuance of Units of the Classic Fund to holders of Leveraged Fund Units upon the transfer of the assets of the Leveraged Fund to the Classic Fund at the end of the Lock-Up Period (as defined below);

2. an exemption from the dealer registration requirements of the Legislation (the "Registration Relief") so that such requirements do not apply to:

(i) trades in Units of the Classic Fund made pursuant to the Employee Share Offering to or with Canadian Participants;

(ii) trades of Shares by the Funds to Canadian Participants upon the redemption of Units by Canadian Participants, nor to the issuance of Units of the Classic Fund to holders of Leveraged Fund Units upon the transfer of the assets of the Leveraged Fund to the Classic Fund at the end of the Lock-Up Period;

3. an exemption from the adviser registration requirements and dealer registration requirements of the Legislation so that such requirements do not apply to the manager of the Funds, Natexis Asset Management (the "Manager"), to the extent that its activities described in paragraphs 27 and 28 hereof require compliance with the adviser registration requirements and dealer registration requirements (collectively, with the Prospectus Relief and the Registration Relief, the "Initial Requested Relief"); and

4. an exemption from the dealer registration requirements of the Legislation so that such requirements do not apply to the first trade in any Shares acquired by Canadian Participants under the Employee Share Offering (the "First Trade Registration Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MMRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation formed under the laws of France. It is not and has no intention of becoming a reporting issuer (or equivalent) under the Legislation. The Shares are listed on Euronext Paris and on the New York Stock Exchange (in the form of American Depositary Shares).

2. The Filer carries on business in Canada through the following affiliated company, Rhodia Canada Inc. (the "Canadian Affiliate", together with the Filer and other affiliates of the Filer, the "Rhodia Group"). The Canadian Affiliate is an indirect controlled subsidiary of the Filer and is not, and has no intention of becoming, a reporting issuer (or equivalent) under the Legislation.

3. The Filer has established a worldwide share purchase plan for employees of the Rhodia Group (the "Employee Share Offering") which is comprised of two subscription options: (i) an offering of Shares to be subscribed through the Classic Fund (the "Classic Plan"); and (ii) an offering of Shares to be subscribed through the Leveraged Fund (the "Leveraged Plan").

4. Only persons who are employees of a member of the Rhodia Group at the time of the Employee Share Offering (the "Qualifying Employees") will be invited to participate in the Employee Share Offering.

5. The Funds were established for the purpose of implementing the Employee Share Offering.

6. The Funds are not and have no intention of becoming reporting issuers under the Legislation.

7. The Funds are collective shareholding vehicles (Fonds Communs de Placement d'Entreprise or "FCPEs") of a type commonly used in France for the conservation or custodianship of shares held by employee investors. The Funds have been registered with and approved by the Autorité des Marchés Financiers (the "French AMF"). Only Qualifying Employees will be allowed to hold Units of the Funds in an amount proportionate to their respective investments in the Funds.

8. Under French law, all Units acquired in the Employee Share Offering will be subject to a hold period of approximately five years (the "Lock-Up Period"), subject to certain exceptions prescribed by French law (such as a release on death or termination of employment). At the end of the Lock-Up Period, a Canadian Participant may: (a) redeem Units in the Classic Fund in consideration for the underlying Shares or a cash payment equal to the then market value of the Shares, or (b) continue to hold Units in the Classic Fund and redeem those Units at a later date.

9. In the event of an early unwind resulting from the Canadian Participant satisfying one of the exceptions to the Lock-Up Period prescribed by French law, a Canadian Participant may redeem Units: (a) from the Classic Fund in consideration for the underlying Shares or a cash payment equal to the then market value of the Shares, or (b) from the Leveraged Fund using the Redemption Formula (described below), by using the Average Increase determined at the time of unwind to measure the increase, if any, from the Reference Price (described below).

10. Under the Classic Plan, Canadian Participants will be issued Units in the Intermediary Classic Fund, which will subscribe for Shares on behalf of the Canadian Participants, at a subscription price that is equal to the average of the opening price of the Shares on the 20 trading days preceding the date of fixing of the subscription price by the Filer (the "Reference Price"), less a 15% discount. After completion of the Employee Offering, the Intermediary Classic Fund will be merged with the Principal Classic Fund (subject to the approval of the French AMF) and Units of the Intermediary Fund held by Canadian Participants will be replaced with Units of the Principal Classic Fund. Units of the Intermediary Fund will be exchanged for Units of the Principal Classic Fund on a pro rata basis and the Shares subscribed for under the Employee Offering will be held in the Principal Classic Fund.

11. Dividends paid on the Shares held in the Classic Fund will be contributed to the Classic Fund and used to purchase additional Shares. The Canadian Participants will receive additional Units or fractions of Units of the Classic Fund representing such Shares.

12. Under the Leveraged Plan, Canadian Participants will subscribe for Units in the Leveraged Fund, and the Leveraged Fund will then subscribe for Shares using the Employee Contribution (as described below) and certain financing made available by Crédit Suisse (the "Bank").

13. Canadian Participants in the Leveraged Plan receive a 15% discount in the Reference Price. Under the Leveraged Plan, the Canadian Participants effectively receive a share appreciation entitlement in the increase in value, if any, of the Shares financed by the Bank Contribution (as described below).

14. Participation in the Leveraged Plan represents an opportunity for Qualifying Employees potentially to obtain significantly higher gains than would be available through participation in the Classic Plan, by virtue of the Qualifying Employee's indirect participation in a financing arrangement involving a swap agreement (the "Swap Agreement") between the Leveraged Fund and the Bank. In economic terms, the Swap Agreement effectively involves the following exchange of payments: for each Share which may be subscribed for by the Qualifying Employee's contribution (the "Employee Contribution") under the Leveraged Plan at the Reference Price less the 15% discount, the Bank will lend to the Leveraged Fund (on behalf of the Canadian Participant) an amount sufficient to enable the Leveraged Fund (on behalf of the Canadian Participant) to subscribe for an additional nineteen Shares (the "Bank Contribution") at the Reference Price less the 15% discount.

15. Under the terms of the Swap Agreement, at the end of the Lock-Up Period (the "Settlement Date"), the Leveraged Fund will owe to the Bank an amount equal to the market value of the Shares held in the Leveraged Fund, less

(i) 100% of the Employee Contributions; plus

(ii) the greater of

(a) a guaranteed yield of 2% per year on (i), and

(b) an amount equal to 9.2 times the Average Increase (as defined below), if any, of the Shares acquired with the Employee Contributions.

16. The "Average Increase" is determined as the difference between (i) the average of the closing price of the Share observed on the last trading day of each month (a "Monthly Quote") on Eurolist Euronext Paris during the five year life of the Leveraged Plan (i.e. the average of sixty quotes) and (ii) the Reference Price. If a Monthly Quote is less than the Reference Price, the Reference Price will be substituted for the Monthly Quote for that month in the calculation of the Average Increase.

17. If, at the Settlement Date, the market value of the Shares held in the Leveraged Fund is less than 100% of the Employee Contributions, the Bank will, pursuant to a guarantee agreement, make a cash contribution to the Leveraged Fund to make up any shortfall.

18. At the end of the Lock-Up Period, the Swap Agreement will terminate after the making of final swap payments and a Canadian Participant may redeem his or her Leveraged Fund Units in consideration for

(i) payment of an amount equal to the value of the Canadian Participant's Employee Contribution, plus the greater of

(a) a guaranteed yield of 2% per year on (i), and

(b) an amount equal to 9.2 times the Average Increase, if any, of the Shares acquired with the Employee Contributions; or

(ii) delivery of the number of Shares equal to such amount (the "Redemption Formula").

If no redemption is made by the employee, his or her investment in the Leveraged Fund will be transferred to the Principal Classic Fund. New Units of the Principal Classic Fund will be issued to the applicable Canadian Participants in recognition of the assets transferred to the Principal Classic Fund. The Canadian Participants may redeem these Units whenever they wish.

19. Under no circumstances will a Canadian Participant in the Leveraged Fund be entitled to receive less than 100% of his or her Employee Contribution at the end of the Lock-Up Period, nor be liable for any other amounts.

20. Under French law, each Fund, as a FCPE, is a limited liability entity. Each Fund's portfolio will consist exclusively of Shares of the Filer. The Leveraged Fund's portfolio will also include the Swap Agreement. From time to time, the Leveraged Fund may lend Shares to the Bank and will hold collateral while the Shares are on loan. The Funds may also hold cash or cash equivalents pending investments in Shares and for the purposes of Unit redemptions. The risk statement provided to Canadian Participants will confirm that, under no circumstances, will a Canadian Participant in the Leveraged Plan be liable to any of the Leveraged Fund, the Bank or the Filer for any amounts in excess of his or her Employee Contribution under the Leveraged Plan.

21. During the term of the Swap Agreement, dividends paid on the Shares held in the Leveraged Fund will be remitted to the Leveraged Fund, and the Leveraged Fund will remit an equivalent amount to the Bank as partial consideration for the obligations assumed by the Bank under the Swap Agreement.

22. For Canadian federal income tax purposes, the Canadian Participants in the Leveraged Fund will be deemed to receive all dividends paid on the Shares financed by either the Employee Contribution or the Bank Contribution, at the time such dividends are paid to the Leveraged Fund, notwithstanding the actual non-receipt of the dividends by the Canadian Participants by virtue of the terms of the Swap Agreement. Consequently, Canadian Participants will be required to fund the tax liabilities associated with the dividends from their own resources.

23. The payment of dividends on the Shares is determined by the shareholders of the Filer. The Filer has not made any commitment to the Bank as to any minimum payment in respect of dividends.

24. To respond to the fact that, at the time of the initial investment decision relating to participation in the Leveraged Plan, Canadian Participants will be unable to quantify their potential income tax liability resulting from such participation, the Filer will indemnify each Canadian Participant in the Leveraged Plan for all tax costs to the Canadian Participants associated with the payment of dividends in excess of a specified amount of euros per Share during the Lock-Up Period such that, in all cases, a Canadian Participant will, at the time of the original investment decision, be able to quantify, with certainty, his or her maximum tax liability in connection with dividends received by the Leveraged Fund on his or her behalf under the Leveraged Plan.

25. At the time the Canadian Participant's obligations under the Swap Agreement are settled, the Canadian Participant will realize a capital gain (or capital loss) by virtue of having participated in the Swap Agreement to the extent that amounts received by the Leveraged Fund, on behalf of the Canadian Participant, from the Bank exceed (or are less than) amounts paid by the Leveraged Fund, on behalf of the Canadian Participant to the Bank. To the extent that dividends on Shares that are deemed to have been received by a Canadian Participant are paid by the Leveraged Fund on behalf of the Canadian Participant to the Bank, such payments will reduce the amount of any capital gain (or increase the amount of any capital loss) to the Canadian Participant under the Swap Agreement. Capital losses (gains) realized by a Canadian Participant under the Swap Agreement may be offset against (reduced by) any capital gains (losses) realized by the Canadian Participant on a disposition of the Shares, in accordance with the rules and conditions under the Income Tax Act (Canada) or comparable provincial legislation (as applicable).

26. The Manager, Natexis Asset Management, is an asset management company governed by the laws of France. The Manager is registered with the French AMF to manage French investment funds and complies with the rules of the French AMF. The Manager is not and has no intention of becoming a reporting issuer under the Legislation.

27. The Manager's portfolio management activities in connection with the Employee Share Offering and the Funds are limited to subscribing for Shares from the Filer, selling such Shares as necessary in order to fund redemption requests, and such activities as may be necessary to give effect to the Swap Agreement.

28. The Manager is also responsible for preparing accounting documents and publishing periodic informational documents as provided by the rules of each Fund. The Manager's activities in no way affect the underlying value of the Shares and the Manager will not be involved in providing advice to any Canadian Participant.

29. Shares issued in the Employee Share Offering will be deposited in the relevant Fund through Natexis Banque Populaires (the "Depositary"), a large French commercial bank subject to French banking legislation.

30. Under French law, the Depositary must be selected by the Manager from among a limited number of companies identified on a list by the French Minister of the Economy, Finance and Industry and its appointment must be approved by the French AMF. The Depositary carries out orders to purchase, trade and sell securities in the portfolio and takes all necessary action to allow each Fund to exercise the rights relating to the securities held in its respective portfolio.

31. The Canadian resident Qualifying Employees will not be induced to participate in the Employee Share Offering by expectation of employment or continued employment.

32. The total amount invested by a Qualifying Employee in the Employee Share Offering, including any Bank Contribution, cannot exceed 25% of his or her estimated gross annual compensation for 2006.

33. None of the Filer, the Manager, the Canadian Affiliate or any of their employees, agents or representatives will provide investment advice to the Canadian Participants with respect to an investment in the Shares or the Units.

34. The Filer will retain a securities dealer registered as a broker/investment dealer under the Legislation (the "Registrant") to provide advisory services to Canadian Participants who express interest in the Leveraged Plan and to make a determination, in accordance with industry practices, as to whether an investment in the Leveraged Plan is suitable for each such Canadian Participant based on his or her particular financial circumstances. The Registrant will establish accounts for, and will receive the initial account statements from the Leveraged Fund on behalf of, such Canadian Participants. The Units of the Leveraged Fund will be issued by the Leveraged Fund to Canadian Participants solely through the Registrant.

35. Units of the Leveraged Fund will be evidenced by account statements issued by the Leveraged Fund.

36. The Canadian Participants will receive an information package which will include a summary of the terms of the Employee Share Offering, a tax notice relating to the relevant Fund containing a description of Canadian income tax consequences of subscribing to and holding the Units in the Fund and redeeming Units for cash or Shares at the end of the Lock-Up Period, an Information Notice approved by the French AMF for each Fund describing the main characteristics of the relevant Fund, a reservation form and a revocation form. The information package for Canadian Participants in the Leveraged Plan will also include a risk statement which will describe certain risks associated with an investment in Units pursuant to the Leveraged Plan, and a tax calculation document which will illustrate the general Canadian federal income tax consequences of participating in the Leveraged Plan.

37. Upon request, Canadian Participants may receive copies of the Filer's annual report on Form 20-F filed with the United States Securities and Exchange Commission and/or the French Document de Référence filed with the French AMF in respect of the Shares and a copy of the relevant Fund's rules (which are analogous to company by-laws). The Canadian Participants will also have access to copies of the continuous disclosure materials relating to the Filer furnished to Rhodia shareholders generally, which materials are accessible on the Filer's website and at the EDGAR website maintained by the United States Securities and Exchange Commission.

38. There are approximately 81 Qualifying Employees resident in Canada, in the province of Ontario (79) and Québec (2), who in the aggregate represent less than 0.5% of the employees in the Rhodia Group worldwide.

39. As of the date hereof and after giving effect to the Employee Share Offering, Canadian residents do not and will not beneficially own (which term, for the purposes of this paragraph, is deemed to include all Shares held by the Funds on behalf of Canadian Participants) more than 10% of the Shares and do not and will not represent in number more than 10% of the total number of holders of the Shares as shown on the books of the Filer.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Initial Requested Relief is granted provided that:

(1) the first trade in any Units or Shares acquired by Canadian Participants pursuant to this Decision, in a Jurisdiction, is deemed a distribution or a primary distribution to the public under the Legislation of such Jurisdiction unless the following conditions are met:

(a) the issuer of the security

(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date, or

(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(b) at the distribution date, after giving effect to the issue of the security and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security, residents of Canada

(i) did not own directly or indirectly more than 10 percent of the outstanding securities of the class or series, and

(ii) did not represent in number more than 10 percent of the total number of owners directly or indirectly of securities of the class or series; and

(c) the trade is made

(i) through an exchange, or a market, outside of Canada, or

(ii) to a person or company outside of Canada; and

(2) in Quebec, the required fees are paid in accordance with Section 271.6(1.1) of the Securities Regulation (Quebec).

It is the further decision of the Decision Makers under the Legislation that the First Trade Registration Relief is granted provided that the conditions set out in paragraphs (1)(a), (b) and (c) under this decision granting the Initial Requested Relief are satisfied.