2008 Registration Document - Rexel

Arbitration regarding ABMIn connection with the acquisition of ABM by Hagemeyerin 2001, it was agreed to make certain earn-out paymentsto the seller of ABM, contingent upon Hagemeyer’sachievement of certain agreed EBITDA levels. Hagemeyerdetermined that such agreed EBITDA levels were notachieved which was disputed by the seller. An arbitrationaward at the benefit of the seller was rendered onNovember 11, 2008 and a settlement took place onDecember 12, 2008 between the sellers of ABM and ABMresulting in a net disbursement of €11.7 million to thebenefit of the seller.22.2 Tax litigationAs of December 31, 2008, the principal tax proceedingsinvolving Group companies are described below:Manudax BelgiumManudax Belgium N.V., one of Hagemeyer’s Belgiansubsidiaries, entered into voluntary liquidation onNovember 27, 2000. During 1999 and 2000, ManudaxBelgium was subject to a tax reassessment for VAT inconnection with fraudulent transactions allegedly enteredinto by former employees during the period beginning late1996 until early 1998. The amount of this tax reassessment,including penalties and excluding interest, is €78.2 million.The interest accrued until December 31, 2007 amounts to€52.1 million. All reassessments have been challenged byManudax Belgium.The time allowed for recourse against Manudax’sshareholder is statute barred. The Group considers that therisk of recovery by the Belgian tax authorities is limited tothe amount available on Manudax’s current account withHagemeyer, i.e., €14 million, without any impact on theGroup’s financial situation.Rexel DéveloppementIn 2008, Rexel Développement was subject to a tax auditfor the fiscal years 2005 and 2006.The French tax authorities notified a tax reassessmentrelating to services invoiced in 2005 by Clayton Dubilier &Rice Inc., Eurazeo and Merrill Lynch Global Private EquityPartner Inc. at the time of the buy-out of Rexel Distributionin an amount of €33.6 million. These services are allegednot to be rendered in the business interest of the companyand are qualified as constructive dividends. This results in aproposed tax reassessment of approximately €22 million,including penalties and interest for late payment. TheGroup contests the argumentation developed by the taxauthorities.Rexel DistributionIn 2008, Rexel Distribution was notified a proposed taxreassessment by the French tax authorities which allegedthat the selling price of its shareholding in Rexel, Inc. (Rexel’sUS subsidiary), transferred in 2005 to its Luxembourgsubsidiary Mexel, was lower by €346 million than its fairvalue. This reassessment would result in an additionalincome tax expense of circa €120 million excludinginterest for late payment. The Group believes this taxreassessment has no sound ground and therefore conteststhe argumentation of the tax authorities.22.3 Other potential liabilitiesDistribution agreementIn 2006, Rexel has entered into a distribution agreement witha key supplier that requires minimum product purchasesof $1.1 billion over the agreement’s three-year term. AtDecember 31, 2008, open commitments for the Groupwere 0.3 billion. The agreement contains cure periods forvolume shortfalls and provisions that protect the Groupagainst conditions outside its control. Committed volumesare in line with historic annual levels.In the scope of the disposal of certain of its subsidiaries, theGroup has granted the following guarantees to the acquirers.As at the date of closing of the financial statements, theseguarantees have not been triggered.Environmental warrantyUnder an agreement signed on February 28, 2003with Ashtenne, a real estate company, concerning asale and leaseback transaction relating to 45 sites inEurope, the Group agreed to indemnify the acquirer forany environmental liabilities with respect to third partyclaims and governmental injunctions. This warrantycovers a maximum of €4 million before taxes for all of theproperties sold, with a minimum threshold of €30,000.This commitment expires five years after the expiration ofthe lease.Warranties given in connection with the saleof the Gardiner group companiesIn connection with the disposal of Gardiner to ElectraPartners, an investment fund, the Group granted a taxliability warranty which expires on June 30, 2010. Thiswarranty was granted for a maximum amount of €60million, with a minimum threshold of €1 million.Warranties given in connection with the saleof Schrack and its subsidiariesIn accordance with the agreement for the sale of Schrackand its subsidiaries with Hannover Finance, the Groupgranted tax liability warranties to the acquirer. In the event theGroup fails to honor its commitments, Hannover Finance willhave the right to request a price reduction for the purpose ofcovering possible liabilities. The warranties expire 48 monthsafter August 31, 2005, and are limited to €7 million, with aminimum threshold of €0.1 million.Warranties given in connection with the saleof Kontakt SystemIn the context of the sale of assets of the connection andtelematics branch of Kontakt System, which occurred onJune 4, 2007 and August 24, 2007, the Group granted theacquirer a warranty limited to CHF 2.3 million for a period ofREXEL 2008 | PAGE 205