SPERIAN PROTECTION REFERENCE DOCUMENT 2009

Transcription

1 SPERIAN PROTECTION REFERENCE DOCUMENT 2009

2 This is a free translation* of the Reference Document («Document de référence») filed with the French Market Authority (AMF) on April 13, 2010, in accordance with Articles of its general regulations. *Statutory financial statements are available only in French. Copies of this document are available on request, at no charge, from the Investor Relations department of Sperian Protection at the following address: ZI Paris Nord II Immeuble Edison 33 rue des Vanesses BP Villepinte Roissy CDG cedex, France tel: +33 (0) fax: +33 (0) investorrelations@sperian.com

3 REFERENCE DOCUMENT FINANCIAL REPORT P Management Report P Risk Management Report P Recent events and outlook P Key figures P Consolidated financial statements P BUSINESS REVIEW P History P The Personal Protective Equipement (PPE) Market P Business segments P Strategy P Development and capital expenditure P SOCIAL AND ENVIRONMENT REPORT P The Sperian Spirit P Human Resources Policies P Workforce and Production Plants P Environmental Policies P CORPORATE GOVERNANCE P Board of Directors P Directors interests P Directors compensation P Other information about the directors P Organization structure P Chairman s Report P INVESTOR INFORMATION P Information about the Company P Information about the Company s capital P Authorized, unissued capital P Ownership structure P Market for the Company s shares P Dividends and Dividend Policy P Information Policy P OTHER INFORMATION P Person responsible for the Reference Document P Statement of the Person Responsible for the Reference Document P Persons responsible for Auditing the Financial Statement P Auditor s Fees P. 145 REFERENCE DOCUMENT 2009 P. 1

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5 1. FINANCIAL REPORT 1.1. Management Report P Consolidated revenue P Consolidated results P Consolidated financial position P Risk Management P Financial and market risks P Legal risks P Insurance P Recent events and outlook P Key figures P Five-year financial key figures P Revenue contribution by business segment P Revenue contribution by geographical zone P quarterly revenue P Consolidated Financial Statements P Balance sheet P Consolidated income statement P Consolidated statement of cash flows P Consolidated statement of changes in equity P Notes to the consolidated financial statements at December 31, 2009 P Statutory Auditor s Report on the consolidated financial statements P. 61 FINANCIAL REPORT P. 3

6 1. FINANCIAL REPORT 1.1. Management Report In 2009, the world economic crisis reached unprecedented proportions. The entire personal protective equipment market was affected by the general downturn in activity, which led to a sharp reduction in inventories both by distributors and end users. Sperian Protection therefore suffered a 12% fall in business during the year. However, the Group proved its ability to adapt to these crisis conditions while continuing to invest in product differentiation programs. The cost cutting and industrial restructuring plans designed to increase the Group s competitiveness have proved effective and produced tangible results during 2009, containing the erosion in operating margin which stood at 9.7% for the year. These plans were supported by a number of actions to prepare for the future. Developing innovation and focusing on promising emerging countries and vertical markets will be the main drivers of organic growth for Sperian Protection. The Group continued to rationalize its portfolio of activities, selling the image wear business which offered few industrial, logistics or commercial synergies with other Group businesses. In addition, the syndicated loan due to mature in mid-2010 was successfully renegotiated during the year, providing the Group with the financing required for its future expansion Consolidated revenue Revenue declined by 12.1% compared to 2008, to million. Recent acquisitions (Combisafe and Musitani) contributed about 18 million to organic consolidated revenue. The image wear business was sold and deconsolidated as of November 1, 2009, while the dollar s strength against the euro added almost 8 million to revenue. (in millions) % change % organic change Total revenue (12.1) (15.4) Head Protection (9.1) (10.9) Body Protection (15.3) (20.3) Americas (15.0) (19.9) Europe, Middle East, Africa (10.4) (12.4) Asia-Pacific (6.2) (9.3) The contraction in organic growth in head protection was contained to 10.9% thanks to a sustained contribution from respiratory protection throughout the year, driven by sales of disposable masks in France for the H1N1 influenza prevention plan and deliveries of respiratory systems to California fire departments. The decline in eye and hearing protection was similar, although hearing protection began to recover towards the year end. The body protection businesses declined by 20.3%. Fall protection was sharply affected by deep recession in the construction market was a year of transition for the protective gloves business, marked by a ramp-up of production at the Nantong plant in China, industrial restructuring in Europe and the United States and optimization of the product range. In protective clothing, the image wear business was sold and deconsolidated on November 1, Other protective clothing segments were in line with market trends, as was the safety footwear business. P. 4 FINANCIAL REPORT

7 Consolidated results Income of operating activities Income of operating activities came to 63.7 million versus million in 2008, giving an operating margin of 9.7% versus 13.5% the previous year. The decline was mainly due to the sharp drop in sales volumes, partly offset by a far-reaching plan to cut fixed costs and purchases, which led to 33 million of savings during the year. The strength of the dollar, which rose to an average 1.39 from 1.47 in 2008, added 3.5 million to income of operating activities. (in millions) at constant exchange rates (a) 2008 (b) Change (a)-(b) Revenue (13.1)% Gross profit (18.5)% Gross margin (%) 36.9% 36.5% 38.9% Sales & marketing expenses (10.0)% General & administrative expenses (2.8)% R&D expenses (5.0)% Income of operating activities (40.7)% Operating margin (%) 9.7% 9.2% 13.5% At constant exchange rates, the income statement items can be analyzed as follows: Gross margin was 36.9%, down from 38.9% in The erosion stemmed mainly from the 15.4% drop in sales volumes, coupled with a less favorable product and geographical mix and a high fixed cost base. However, programs to adjust production and improve purchasing helped contain the adverse effect. Sales & marketing expenses fell by 10% due to cost cutting plans implemented in However, some of these cuts were only temporary as the Group decided to resume its investment in marketing to improve its effectiveness and competitiveness in certain buoyant markets. All in all, sales & marketing expenses represented 13.6% of revenue versus 13.1% in General and administrative expenses include the costs of setting up the Group s new website, an effective marketing resource to support the Group s strategy of staying closely attuned to end-user requirements. The decline in research & development expenses was deliberately limited in 2009, as the Group continued to invest in innovation, a key success and product differentiation factor. R&D costs represented 2.0% of revenue versus 1.86% in 2008, when research & development expenses included a large tax credit. EBITDA (1) at constant exchange rates came to 84.8 million, giving a margin of 12.8%. (in millions) Income of operating activities Depreciation and amortization EBITDA EBITDA margin 12.8% 15.8% (1) Net income before interest, tax, depreciation, amortization and non-operating items FINANCIAL REPORT P. 5

8 Net income Consolidated net income came to 18.7 million versus 48.0 million in (in millions ) Income of operating activities Restructuring costs (11.4) (2.8) Amortization and impairment of revalued intangible assets (5.4) (4.8) Other income (9.8) (4.9) Net finance costs (10.7) (22.6) Income tax expense (7.7) (18.4) Net income The other main income statement items can be analyzed as follows: Restructuring costs amounted to 11.4 million, corresponding to right-sizing programs undertaken to align the organization with the slowdown in business and to the major industrial restructuring required to support the repositioning of the protective gloves business ( 3.3 million). In 2008, restructuring costs totaled 2.8 million including 2.3 million in provisions for a cost-cutting and reorganization plan initiated by the Group at the end of 2008 to counter the initial impacts of economic crisis. Amortization of revalued intangible assets amounted to 5.4 million, including 3.3 million for the Nacre and Combisafe patents and trademarks. Other income corresponds to the accounting loss incurred on disposal of the image wear business in November In 2008, the net expense of 4.9 million mainly comprised the cost of the Group s name change and brand rationalization plan ( 4.2 million). Net finance costs came to 10.7 million, including 9.2 million in interest expense, down from 14.7 million in The improvement stemmed from a sharp decrease in interest rates compared with the previous year, although this was offset to some extent by a rise in average debt from 256 million in 2008 to 277 million. Other items included exchange losses of 1.5 million, a sharp improvement on Income tax expense amounted to 7.7 million, representing an effective tax rate of 29.1% versus 27.6% in P. 6 FINANCIAL REPORT

9 Consolidated financial position Summary cash flow statement (in thousands) Operating cash flow before change in working capital Change in working capital 71.9 (17.2) Net cash from operating activities Capital expenditure (18.2) (29.0) Acquisitions/disposals 0.6 (70.9) Increase/(decrease) in borrowings (64.5) 58.1 Treasury shares 0.5 (8.5) Dividends paid (9.2) (11.4) Other 0.3 (6.6) Change in cash and cash equivalents Net cash from operating activities rose sharply compared to 2008 thanks to a sharp decrease in working capital, and more particularly inventories (down 41 million) and trade receivables (down 37 million, including 18.2 million related to a nonrecourse factoring program). Capital expenditure amounted to 18.2 million in 2009, down from 29 million in 2008, which was a year of heavy expenditure mainly on the acquisition of a dipped glove plant in China and the construction of a new manufacturing plant in Brazil. In 2009, ERP, CRM and other IT projects accounted for investments of 4.5 million. Nearly 1 million was also spent on completing the relocation and consolidation of the two respiratory protection facilities in France and 2.5 million on increasing production capacity of the French disposable respiratory mask plant. Other capital expenditure mainly concerned innovation ( 4.6 million) and industrial optimization projects. In all, the EMEA region accounted for 63% of total expenditure, the Americas for 31% and Asia-Pacific for 6%. Lastly, under the share buyback program authorized by the Board of Directors in September 2007, the Group purchased treasury shares to a value of more than 8 million in 2008 (including the amount allocated to the liquidity agreement). No shares were purchased during FINANCIAL REPORT P. 7

10 Summary balance sheet (in millions ) ASSETS Intangible assets Property, plant & equipment Other non-current assets Total non-current assets Current assets Total assets 998 1,115 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Minority interests Long-term financial liabilities Provisions Other non-current liabilities Total non-current liabilities Short-term financial liabilities Trade & other payables Provisions 11 7 Other current liabilities Total current liabilities Total equity and liabilities 998 1,115 Working capital amounted to 110 million representing 62 days of revenue (adjusted for the image wear business), down sharply from 86 days the previous year (1). In addition to tighter inventory and trade receivables management, the Group completed an 18.2 million non-recourse factoring program, which substantially reduced its trade receivables. Net debt amounted to 216 million at the year end versus 303 million at December 31, The 2009 figure includes 15.6 million related to the settlement of the St. Louis lawsuit in the United States. The Group s financial structure remains robust, with net debt to EBITDA standing at 2.49 (2), unchanged from end-2008 (3), while net debt to equity amounted to 37% versus 53%. (1) Working capital at end-2008 and 2009 does not include the litigation-related insurance receivable, which is recognized in operating receivables. (2) Adjusted for the image wear business. (3) Adjusted for Combisafe/Musitani. P. 8 FINANCIAL REPORT

11 1.2. Risk Management Financial and market risks Market risk is the risk of adverse fluctuations in the value of financial instruments caused by changes in exchange rates, interest rates or stock market prices. The Group is exposed to exchange rate and interest rate risk. The Group does not believe it is exposed to liquidity risk. Detailed information on the management of these risks is provided in note 4.14 to the consolidated financial statements Legal risks The Company exercises the manufacturing and/or distribution of personal protective equipment throughout the world either through its subsidiaries or through contractual relationships with third parties. In that respect, it is subject to a complex regulatory environment associated with the types of businesses and/or the business location (see chapter 2 of this document). In Europe, the market is governed by European directive 89/686/EC of December 21, 1989 on the approximation of the laws of the Member States relating to personal protective equipment, which sets out the regulations on marketing, free movement and the basic health and safety requirements to be satisfied. The risks to which it is exposed are the typical risks for identical companies given the domain covered: defective products, product sales methods, sub-contractor relationships, suppliers and/or distribution networks and intellectual property. Litigation In the course of normal business, the Company can find itself confronted with litigation. The Sperian Protection group believes that it has subscribed to an appropriate level of liability insurance (except for applicable insurance loss retentions) which provides coverage against any material financial loss which could result should its legal responsibility be put in question. With the exception of the actions described in the paragraphs below, to the knowledge of the Company no other litigation or arbitration exists, including suspended or threatened proceedings of which the Company is aware, that could have a significant impact either in the past 12 months or within the foreseeable future on the financial structure or profitability of the Company and/or the Group. Contractual commitments The Group has worldwide commitments of all kinds in its operations and transactions with customers, suppliers, employees, financial institutions, partners and third parties. These commitments give rise to certain rights and obligations, with which the Group complies. Any difficulties that arise in fulfilling a commitment are usually settled amicably using alternative dispute resolution techniques such as mediation or conciliation. However, when these techniques fail, the Group will refer a conflict to the courts to defend its interests and uphold its rights. At the end of 2009, a lawsuit was brought in French courts in connection with a claim on a seller s warranty given by one of the company s subsidiaries on the disposal of a group company in Sperian Protection believes the claim is unfounded. Protection of Sperian Protection Intellectual Property rights Sperian Protection s policy is to protect its property rights through the filing of patents, trademarks, confidentiality agreements and license agreements. Nonetheless, there can be no assurance that this policy will be adequate for the protection of its technology or the prevention of fraudulent copies or imitations. In addition, although the Company believes that its products do not infringe upon the proprietary rights of third parties, there can be no assurance that infringement or invalidity claims will not be asserted against it. The costs of defending such claims or the costs and interest associated with any unfavorable judgment resulting from such litigation could have a material negative impact upon the Company s financial position and business. Liability for defective products In general, given the nature of the business, the Group can be confronted with product liability claims if it is alleged that the FINANCIAL REPORT P. 9

12 use of its products results in, or such products fail to protect from, personal injury. As far as PPE products are concerned, legal actions related to defective products are generally claims based upon negligence, product design defects or safety requirements, or inadequate warnings, sometimes without the possibility of establishing a link between the damages and the cause of the source event. In addition, should there be any concerns about the design or use of one of its products, the Group may have to recall the product, withdraw it from the market or redesign it. The Group maintains insurance against product liability claims; however, there can be no assurance that such coverage will be adequate to cover liabilities which the Company may incur or that such insurance will continue to be available on reasonable terms. The competent government authorities have the right to carry out investigations or check conformity with standards, regulations and general safety requirements. When its products enter the European Union, the Group is subject to regular controls and audits, particularly by the customs authorities. Some of the Company s subsidiaries based in the United States are currently the subject of mass tort suits for respiratory product liability in several States. The plaintiffs, who claim to have contracted respiratory illnesses (silicosis, asbestos or other respiratory illnesses) at their workplace, have challenged the quality of the masks used and the nature of warnings on the masks and, consequently seek damages against many defendants, including the manufacturers of respiratory products. In 2003 and 2004, the number of legal claims increased significantly as a result of changes in Mississippi and Texas law, which led plaintiffs attorneys to file proceedings before the effective date of those changes. During 2006 through 2009, the number of such claims declined significantly. Although, so far, the risk per case has been relatively small, the legal expense for the American subsidiaries concerned is significant due to the large number of cases in process. The Group has taken the necessary measures to reduce the risks related to this litigation, including compromise settlements, and has created adequate provisions based upon actuarial estimates (see note 4.10 of the consolidated financial statements). While insurance is in place and can be obtained, it is often ineffective because of policy exclusions and high retention levels. The Group does not expect these legal proceedings to have a significant impact upon its financial position and business. There are no other litigation or arbitration claims outstanding which may have, or may have had, in the recent past, a significant impact on the Company s financial statements, its business or its profitability and as a consequence, on the Group Insurance The Sperian Protection Group has renewed the global insurance policies for 2010 that provide diverse categories of insurance coverage for subsidiaries worldwide on either a primary or DIC (Difference In Conditions) basis. Additionally, various local policies are still in place in those countries where mandated by local laws. Civil (general) liability policies are in place to cover all entities for exposures stemming from the daily operations of its manufacturing facilities. Additionally, product liability coverage is in force to provide protection for the Company for potential claims emanating from the use of Sperian Protection products. Of particular relevance, no claims related to exposure to asbestos and silica since 1986 are excluded from coverage. The global property policy provides coverage for property damage resulting from the perils of fire, explosion, lightning, windstorm, vandalism, riot or civil commotion, and other miscellaneous extensions of coverage identified in the policy. Coverage for business interruption losses is provided for all entities in the United States as well as Group companies outside the US. Limited coverage for earthquakes and floods is provided up to certain limits dependent upon location. Workers compensation coverage is provided for all Sperian Protection companies in the United States as required by applicable law. Employer s liability coverage is provided on a worldwide basis excluding the United States. This global program provides a level of coverage deemed to be suitable by the Company. Globalization of the company s insurance program provides for consistency of coverage across all operating companies, efficiencies of administration and premium savings due to the economies of scale associated with a worldwide program. Since 2009, Sperian Protection has taken out a global cargo policy. P. 10 FINANCIAL REPORT

13 Europe & Rest of the World Each Sperian Protection company benefits from, at a minimum, a liability insurance policy as well as a «property damage» policy on either a primary or DIC basis. Liability coverage is provided within the framework of a European program, with local policies meeting the legal specifications resulting from local legal environments, and supplemented by additional insurance coverage provided within the framework of the Group policy subscribed to by the parent company. The insurance coverage includes «Completed Operations» and «Product» risks for all operating entities. With respect to «Property Damage», an insurance program has been implemented which provides coverage in line with the capacity of the insurance market and for coverage amounts which are sufficient given the property values which are regularly reassessed. The retention levels are at levels commensurate with Company s size and risk exposure and are reflective of the fact that recent claims have been low in frequency as well as in total amounts. In the current state, insurance has been taken against losses related to business interruption. For companies which benefit from coverage outside of the program, the amount of their coverage corresponds to reported values existing and should insurance related to losses as a result of business interruption have been subscribed, except for French sites that coverage amount is based upon the gross margin amounts as recorded in accounting records. Business interruption coverage was put in place for the French plants on January 1, The total amount of the premium in 2009 for the Eastern Hemisphere amounted to USD 1.6 million, an amount which is subject to controlled changes with respect to the generally observed price demands of insurers. United States The American companies benefit from their own insurance programs, which are subscribed locally. These programs cover risks such as: liability, most notably product liability with significant coverage provided through the use of several «layers» of which the cumulative amount is fixed for the financial year at USD 53 million; property damage and business interruption, with a combined limit of USD 150 million per claim; employer liabilities as well as coverage for employees according to the local laws and regulations or local common practice for amounts required by those jurisdictions; crime, fiduciary, and automotive according to the standards in force. The total cost of the premiums amounted to USD 2.9 million in 2009 and is the subject of regular analysis and control. All insurance companies with which Sperian Protection has subscribed its policies are rated A or A+ by A.M. Best. In addition, the Company holds a worldwide insurance policy for Management Liability for a cumulative amount of USD 25 million. In 2009, Sperian Protection purchased A-side DIC coverage for non-indemnifiable claims with a limit of USD 5 million. In 2003, the Company formed a captive insurance company based in Vermont, USA. At that time, the Company transferred its self-insured portion of its product liability related to Respiratory Protection Products to that Captive and, as a result, transferred all of the related damages. The captive insurer covers the Company for all of the self-insured indemnities with respect to claims covered by this program including rights, expenses and other related costs. At the end of 2007, the Company added liabilities for the self-insured position of its other product liability claims, as well as Workers Compensation claims, to the Captive. FINANCIAL REPORT P. 11

14 1.3. Recent events and outlook After a very difficult year in 2009, Sperian Protection expects to see a general improvement in 2010, which should lead to renewed organic sales growth. The Group s operating margin should also improve, supported by the positive impacts of optimization plans implemented in Selling, marketing and R&D expense will rise compared to 2009 in order to support medium-term expansion. Growth will be driven by an increased focus across the entire organization on buoyant vertical markets such as oil and gas, construction and electricity, and on fast-growing emerging countries such as China and Brazil, as well as developing a range of products and services that even more closely meet the needs of all customers. On March 31, 2010, Sperian Protection s Board of Directors met under Mr. Henri-Dominique Petit s chairmanship to learn about the terms and conditions of the contemplated voluntary public tender offer that Menelas France SAS, a company 100% held by Cinven, an investment fund, intends to launch on Sperian Protection s shares before the end of April The offer price proposed by Menelas France SAS is 70 (dividend attached) per Sperian Protection share. The Board of Directors will communicate its recommendation on the offer, after reception of the expert s fairness opinion, the final offer documentation, including the tender offer document of Menelas France SAS and the agreement of financing banks. This should occur before the end of April. The terms and conditions of this offer are described in the press release posted on the Group s website. The press release may also be found in chapter 6 below. The planned tender offer values the Company at 532 million. As the Company s consolidated equity amounted to 587 million at December 31, 2009, at the next balance sheet date, June 30, 2010, the Group will perform impairment tests in accordance with IAS 36 and using the same procedures performed at every balance sheet date Key figures Five-year financial key figures (in millions ) Revenue Income of operating activities Net income from continuing operations Net income attributable to equity holders of the parent Net debt at December Net cash from operating activities (1) (1) Cash flows from operating activities before capital expenditure P. 12 FINANCIAL REPORT

15 Revenue contribution by business segment (%) Eye and face protection Respiratory protection Hearing protection Head Protection Fall protection Protective gloves Safety footwear Protective clothing Body Protection Total Revenue contribution by geographical zone (%) Americas Europe, Middle East, Africa Asia-Pacific Total quarterly revenue (in millions ) 2009 Q1 Q2 Q3 Q4 Total Head Protection Body Protection Americas Europe, Middle East, Africa Asia-Pacific FINANCIAL REPORT P. 13

16 1.5. Consolidated Financial Statements Balance sheet (in thousands of euros) Note December 2009 December 2008 ASSETS Non-current assets Goodwill , ,869 Other intangible assets ,281 98,213 Intangible assets 649, ,082 Property, plant & equipment ,469 95,315 Deferred tax assets ,022 35,698 Other financial assets 4.5 3,382 4,188 Total non-current assets 770, ,283 Current assets Inventories and work in progress , ,047 Trade receivables , ,786 Other operating receivables ,939 28,843 Derivative financial instruments ,044 Cash and cash equivalents ,689 24,629 Total current assets 226, ,349 Total assets 997,889 1,114,632 EQUITY AND LIABILITIES Equity Share capital ,310 15,310 Share premium 442, ,721 Treasury shares (8,225) (8,778) Cumulative translation differences 4.9 (62,397) (69,382) Net gain/(loss) on cash flow hedges 4.9 (1,356) (1,298) Net income for the period 18,553 47,776 Reserves and retained earnings 182, ,101 Total equity attributable to equity holders of the parent 586, ,450 Minority interests 1,271 1,289 Total equity 588, ,739 Non-current liabilities Deferred tax liabilities ,534 26,204 Long-term financial liabilities , ,668 Retirement benefit obligation ,387 11,128 Provisions ,010 57,481 Total non-current liabilities 275, ,481 Current liabilities Trade payables ,415 95,679 Current tax liabilities 0 10,462 Short-term financial liabilities ,837 74,814 Derivative financial instruments ,166 10,172 Provisions ,469 7,285 Total current liabilities 133, ,412 Total liabilities 409, ,893 Total equity and liabilities 997,889 1,114,632 P. 14 FINANCIAL REPORT

17 Consolidated income statement (in thousands of euros) Note December 31, 2009 December 31, 2008 Sales 660,15 750,88 Cost of goods sold (416,562) (458,568) Gross profit 243, ,312 Sales & marketing expenses (89,537) (98,492) General & administrative expenses (76,919) (78,448) R&D expenses (13,421) (13,903) Income of operating activities 63, ,469 Restructuring costs 4.16 (11,413) (2,833) Amortization and impairment of revalued intangible assets 4.18 (5,421) (4,805) Other income/expenses 4.16 (9,798) (4,855) Operating income 37,079 88,976 Net finance costs 4.17 (10,735) (22,580) Income before tax 26,344 66,396 Income tax 4.21 (7,661) (18,348) Net income 18,683 48,048 Attributable to: Equity holders of the parent 18,553 47,776 Minority interests ,683 48,048 Earnings per share 4.22 Basic earnings per share Diluted earnings per share Weighted average number of shares in issue 7,544,142 7,565,342 Weighted average number of shares, fully diluted 7,544,142 7,577,689 Statement of comprehensive income Note December 31, 2009 December 31, 2008 (in thousands of euros) Net income 18,683 48,048 Gains/losses on hedging instruments (58) (440) Exchange differences on translation of foreign operations 3,587 (2,471) Gains/losses on hedges of net investments in foreign operations 3,343 (8,729) Tax on items recognized directly in equity Comprehensive net income 25,575 36,559 Attributable to: Equity holders of the parent 25,500 36,311 Minority interests FINANCIAL REPORT P. 15

18 Consolidated statement of cash flows (in thousands of euros) Note December 31, 2009 December 31, 2008 Operating activities Net income attributable to equity holders of the parent 26,214 66,124 Minority interests Non-cash income and expenses: Share-based payment ,349 2,590 Depreciation, amortization and impairment ,565 23,487 Change in provisions (11,327) (409) Change in financial instruments (4,745) 4,632 Other financial transactions 0 5,144 Gains or losses on divestment of non-current assets 944 (32) Gains or losses on divestment of consolidated companies 10,389 Interest charges ,849 12,629 Interest paid (6,803) (13,019) Income taxes paid (13,820) (15,708) Operating cash flow before change in working capital 37,745 85,710 (Increase)/decrease in inventory and work in process 41,173 (15,242) (Increase)/decrease in trade and other receivables 36,552 12,129 Increase/(decrease) in trade and other payables (4,596) (7,791) Change in other operating assets/(liabilities) (1,259) (6,275) Change in working capital 71,870 (17,179) Net cash provided by operating activities 109,615 68,531 Investing activities Acquisitions of property, plant & equipment, intangible and financial assets (18,214) (28,951) Acquisition of investments in consolidated companies, net of cash acquired (143) (71,153) Divestment of property, plant & equipment and intangible assets Net cash provided/(used) by investing activities (17,592) (99,867) Financing activities Change in borrowings (64,539) 58,098 Other financial transactions 0 (5,144) Capital increase Sales/(purchases) of treasury shares (8,474) Dividends paid to equity holders of the parent 4.23 (9,067) (11,362) Dividends paid to minority shareholders of consolidated companies (93) (79) Net cash provided/(used) by financing activities (73,146) 33,125) Effect of exchange rate changes on cash and cash equivalents 206 (1,580) Change in cash and cash equivalents 19, Opening cash and cash equivalents 4.8 (10,531) (10,740) Closing cash and cash equivalents 4.8 8,552 (10,531) Movement in cash and cash equivalents 19, P. 16 FINANCIAL REPORT

19 Consolidated statement of changes in equity See Note 4.9 Attributable to equity holders of the parent Total Minority interests (in thousands of euros) Share capital Share premiums Treasury shares Cash flow hedges Reserves Cumulative translation differences Net income for the period At January 1, , ,659 (7,521) (858) 91,040 (58,206) 58, ,450 1, ,566 Allocation of ,833 (58,833) 0 0 net income Dividends paid (11,362) (11,362) (75) (11,437) Shares issued on exercise of stock options Share-based payment 2,590 2,590 2,590 Purchase/sale of treasury shares (8,474) (8,474) (8,474) Cancelation of treasury shares (195) (7,022) 7, net income 47,776 47, ,048 Gains/losses on hedging instruments (440) (440) (440) Gains/losses on hedges (8,729) (8,729) (8,729) of net investments Change in cumulative translation differences (2,447) (2,447) (24) (2,471) At December 31, , ,721 (8,778) (1,298) 141,101 (69,382) 47, ,450 1, ,739 Allocation of 2008 net income 47,776 (47,776) 0 0 Dividends paid (9,067) (9,067) (93) (9,160) Shares issued on exercise 0 0 of stock options Share-based payment 2,349 2,349 2,349 Purchase of treasury shares net income 18,553 18, ,683 Gains/losses on hedging instruments (58) (58) (58) Gains/losses on hedges 3,343 3,343 3,343 of net investments Change in cumulative translation differences 3,642 3,642 (55) 3,587 At December 31, , ,721 (8,225) (1,356) 182,159 (62,397) 18, ,765 1, ,036 Equity FINANCIAL REPORT P. 17

20 Notes to the consolidated financial statements at December 31, 2009 Introduction On March 2, 2010, the Board of Directors approved the consolidated financial statements for the year ended December 31, 2009 and authorized their publication. Sperian Protection is a listed société anonyme registered in France. Note 1: Accounting policies 1.1. Basis of preparation As required by European Council regulation 1606/2002 of July 19, 2002, the Group s 2009 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations as endorsed by the European Union on December 31, The Group made the following elections on first-time adoption of the new standards: - not to restate business combinations prior to January 1, 2004; - to transfer cumulative translation adjustments at January 1, 2004 to reserves; - to apply IFRS 2 «Share-based Payment» to plans granted after November 7, 2002 that had not vested at January 1, The Group elected not to recognize its unrecognized actuarial gains or losses at December 31, 2003 in equity as permitted by IFRS 1, as they were not material. Accounting policies are consistent with those used to prepare the financial statements for the previous year, with the following exceptions. During the year, the Group adopted the following new standards, amendments or interpretations: IAS 1 Revised «Presentation of Financial Statements» IAS 23 Revised «Borrowing Costs» IAS 32 and IAS 1 Amendment «Puttable Instruments and Obligations Arising on Liquidation» IFRS 2 Amendment «Vesting Conditions and Cancellations» IFRS 8 «Operating Segments» IFRIC 11 - IFRS 2 Group and Treasury Share Transactions» Amendment to IFRIC 9 and IAS 39 «Reassessment of Embedded Derivatives» IFRS 1 and IAS 27 amendment «Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRIC 13 «Customer Loyalty Programmes» IFRIC 14 «The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction» Amendment to IAS 39 and IFRS 7 «Reclassification of Financial Assets» Amendment to IFRS 4 and IFRS 7 «Improving Disclosures about Fair Value» Improvements to IFRSs May 2008 (except IFRS 5) The adoption of these revised standards and interpretations had no impact on the Group s performance or financial position. The Group has elected not to early adopt those standards and interpretations endorsed by the European Union that were not mandatory at January 1, 2009: IAS 27 amended «Consolidated and Separate Financial Statements» and IFRS 3 revised «Business Combinations» IFRS 1 reorganized Amendment to IAS 32 «Classification of Rights Issues» IFRIC 12 «Service Concession Arrangements» IFRIC 15 «Agreements for the Construction of Real Estate» IFRIC 16 «Hedges of a Net Investment in A Foreign Operation» IFRIC 17 «Distributions of Non-cash Assets to Owners» IFRIC 18 «Transfers of Assets from Customers» P. 18 FINANCIAL REPORT

21 Sperian Protection is currently analyzing the potential impacts of applying these new standards to the consolidated financial statements. At this stage, their impacts cannot be determined with sufficient precision. The consolidated financial statements have been prepared using the historical cost convention, except for certain asset and liability classes which are measured at fair value as required by IFRS. The assets and liabilities concerned are described in the notes below Accounting policies Consolidation principles and methods Entities over which the Sperian Protection group has exclusive control, either directly or indirectly, are fully consolidated. Control is defined as the power to govern the financial and operating policies of the subsidiary in order to derive economic benefits from its activities. Entities over which the Sperian Protection group exercises significant influence are accounted for using the equity method. Significant influence is generally presumed to exist if the reporting entity holds at least 20% of the voting rights. Subsidiaries are included in the financial statements from the date control commences until the date control ceases Elimination of intra-group transactions Transactions between consolidated companies and any intra-group profits are eliminated Year end The consolidated financial statements are based on the separate financial statements of Sperian Protection S.A. and its subsidiaries as of December 31 each year. All subsidiaries have the same year end as the parent company and use the same accounting methods Translation of financial statements of foreign entities The consolidated financial statements are presented in euros, which is the functional currency of the Sperian Protection group. Each Group entity determines its own functional currency and the items included in their separate financial statements are measured using that currency. The balance sheets of subsidiaries whose functional currency is not the euro are translated at the exchange rates ruling on the reporting date. Their income statements are translated at the average rate for the year. Any translation differences are recognized in consolidated reserves for the Group share and in minority interests for the non-group share. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity. Accordingly, they are expressed in that entity s functional currency and translated at the year-end rate. On disposal of a foreign entity, the cumulative translation differences recognized in equity in respect of that entity are recycled to profit or loss. FINANCIAL REPORT P. 19

22 The exchange rates of the main currencies used in consolidation are as follows: Vs the euro Year-end rate Average rate Australia AUD Brazil BRL Canada CAD China CNY United States USD Hong Kong HKD Morocco MAD Mexico MXN Norway NOK United Kingdom GBP Sweden SEK Switzerland CHF Foreign currency transactions Foreign currency transactions are translated at the exchange rate ruling on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate ruling on the reporting date. The resulting exchange differences are recognized in profit or loss Hedges of net investments Hedges of a net investment in a foreign operation, including hedges of a monetary asset recognized as part of the net investment, are accounted for in the same way as cash flow hedges (Note 1.3.7). Gains or losses on the effective portion of the hedge are recognized directly in equity and gains or losses on the ineffective portion are recognized through profit or loss. When the foreign operation is sold, or the criteria for recognition as a hedge of a net investment in a foreign operation under IAS 21 are no longer met, the cumulative gains and losses recognized in equity are recycled to profit or loss Use of estimates In preparing the financial statements in accordance with IFRS, the Group is required to make certain estimates and assumptions that affect the amounts presented. The balance sheet items whose carrying amount is likely to be significantly affected by changes in estimates made by the Group are goodwill, patents and trademarks (Note 4.3), provisions and contingent liabilities (Note 4.10) and deferred tax assets (Note ). P. 20 FINANCIAL REPORT

23 1.3. Significant accounting methods applied to balance sheet and income statement items Intangible assets Goodwill Goodwill is initially measured as the excess of the cost of the business combination over the Group s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired entity. On the acquisition date, goodwill is allocated to one or more cash-generating units (CGUs). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is not amortized but tested for impairment whenever there is an indication that it may be impaired and at least once a year on the reporting date. Impairment testing consists of comparing the carrying amount of a CGU with its value in use, which is the present value of the future cash flows expected to be derived from continuing use of the CGU and its ultimate disposal. If value in use is less than the carrying amount, an impairment loss is recognized in profit or loss and deducted to the extent possible from the goodwill allocated to that CGU. Goodwill impairment losses are not reversible. Research & development expenses Research expenditures are recognized as an expense when they are incurred. Development expenditures are only recognized as an intangible asset if they will generate individually probable future economic benefits. Most development costs are incurred before product certification. They are therefore expensed as incurred as there is no reasonable assurance before this stage that the products will come to market. Other intangible assets Other intangible assets consist mainly of software, patents and trademarks acquired or created by the Group. At initial recognition, they are measured at cost or at fair value as deemed cost where they have been acquired in a business combination. Fair value is determined by outside experts where necessary. They are subsequently measured at cost less accumulated amortization and impairment losses. The Group determines whether an intangible asset has a finite or an indefinite life. Assets with a finite useful life, such as software and patents, are amortized over a period corresponding to their estimated useful lives. Leading brands are deemed to have an indefinite useful life. They are not amortized but reviewed annually to verify that they can continue to be used indefinitely. Other brands or product names are deemed to have a finite useful life and are amortized over their estimated useful lives. Amortization periods are as follows: Patents and similar rights: Software: Brands: 5 to 15 years 3 to 10 years 8 to 10 years or not amortized Assets with an indefinite useful life are tested for impairment at least once a year. Impairment testing consists of comparing their recoverable amount with their carrying amount. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized in profit or loss. Assets with a finite useful life are also tested for impairment whenever there is objective evidence that they may be impaired. The discounted cash flow method is used to assess value in use Property, plant & equipment Property, plant & equipment are measured at cost, or fair value as deemed cost where they have been acquired in a business combination, less accumulated depreciation and impairment losses. They are not revalued after initial recognition. FINANCIAL REPORT P. 21

24 Where applicable, the total cost of an asset is allocated to significant components that have a different useful life or rate of consumption of future economic benefits than the asset as a whole. Maintenance and repair costs are recognized as expenses when they are incurred, except for expenditures intended to increase the productivity or extend the estimated useful life of the asset. The residual value of an asset is deducted from its depreciable amount if it can be measured reliably. Assets are depreciated over their estimated useful lives as follows: Buildings Installations and fittings Manufacturing equipment and materials Tooling Vehicles Office furniture and equipment Depreciation period 20 to 40 years 10 years 5 to 10 years 3 to 5 years 3 to 5 years 3 to 10 years These depreciation periods are reviewed regularly and any adjustments recognized prospectively. If there is objective evidence of impairment, the recoverable amount of the asset or the cash-generating unit to which it belongs is compared to its carrying amount. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized in profit or loss. Finance leases Assets acquired under finance leases are recognized on the balance sheet when the lease transfers substantially all the risks and rewards incidental to ownership to the Group. At inception of the lease, the leased assets are measured at the lower of their market value and the net present value of future lease payments. They are recognized on the balance sheet as property, plant & equipment with a corresponding amount recognized as a financial liability. Leased assets are depreciated over the shorter of the lease term and the estimated useful life of the asset. In the income statement, lease payments are broken down into interest expense on the finance lease liability and depreciation of the asset. Lease contracts that do not transfer substantially all the risks and rewards incidental to ownership to the Group are classified as operating leases. Lease payments are recognized in profit or loss on a straight- line basis over the term of the lease Inventories and work-in-progress Inventories comprise raw materials, semi-finished and finished products and goods purchased for resale. They are measured at the lower of cost (including indirect production costs) and net realizable value. Cost is determined using the weighted average cost method Receivables Receivables are carried at their face value. An impairment charge is recognized if there is a risk of non-recovery. Receivables denominated in foreign currencies are translated at the year-end rate Taxes Deferred taxes are recognized on all temporary differences between the tax base and carrying amounts of assets and liabilities, and on consolidation adjustments made to align accounting methods used by various subsidiaries. Deferred tax assets arising from tax losses are recognized only if there is convincing evidence that sufficient taxable profit will be available in the future to offset the losses. Deferred taxes are calculated using the liability method, using the tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. P. 22 FINANCIAL REPORT

25 Borrowings Bank debt is measured at amortized cost using the effective interest method, which includes all directly attributable costs of arranging the loan Derivative financial instruments and hedging The Group uses derivative financial instruments to hedge its exposure to interest and exchange rate risks. It does not take speculative positions. These risks are monitored centrally and broad hedging guidelines have been set which apply throughout the Group. Hedges are purchased over-the-counter from first-class banks. Exchange rate risk As far as possible, Group companies invoice and are invoiced in their functional currency to minimize exchange rate risk. Otherwise, risk is hedged on a case by case basis. Interest rate risk Exposure to interest rate risk is managed through a Group-wide policy approved by management. Speculative positions are not permitted. Hedges are purchased over-the-counter from first-class banks. Recognition and measurement Derivative financial instruments are used to hedge the Group s current or future exposure to fluctuations in exchange rates or interest rates. In line with IAS 32 and IAS 39, derivative financial instruments are recognized on the balance sheet and measured at their fair value. - Hedge accounting: - Changes in the fair value of instruments designated as fair value hedges of assets or liabilities are recognized in profit or loss symmetrically with the unrealized gains or losses on the hedged items. - Changes in the fair value of instruments designated as cash flow hedges, which protect against variations in future cash flows, are recognized in equity to the extent of the effective portion of the gain or loss. Amounts accumulated in equity are reclassified into the income statement in the period in which the hedged item affects profit or loss. The ineffective portion is recognized in profit or loss. - Instruments that do not qualify for hedge accounting: - Changes in the fair value of financial instruments that do not satisfy the criteria for hedge accounting are recognized in profit or loss Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, together with short-term deposits with a maturity of less than three months. In the cash flow statement, net cash and cash equivalents are equal to cash and cash equivalents as defined above net of any short-term bank debt Provisions A provision is recognized when the Group has a present obligation (legal or constructive) and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. In the case of restructurings, a provision is recognized as soon as the restructuring has been announced and the Group has drawn up or started to implement a detailed restructuring plan approved by management. FINANCIAL REPORT P. 23

26 Post-employment benefits Lump-sum retirement payments, supplementary pensions and similar commitments (medical expenses for retired employees and disability insurance) are recognized as and when the employees rights vest. The obligation is measured on the reporting date based on the length of service of each employee and the probability of their being employed by the Group on retirement, in accordance with the legislation applicable in countries where the Group operates. The calculation is based on an actuarial model using assumptions on mortality rates, staff turnover, salary increases, long-term return on plan assets and economic conditions in each country. The obligation in respect of lump-sum retirement payments is determined using the projected unit credit method over the employee s total working life with the Group. Provisions recognized in the balance sheet are stated net of any payments to external organizations designed to fund the benefit obligation. Defined contribution plans Under defined contribution plans, the Group s only obligation is the payment of a contractually agreed contribution to an external fund, in exchange for services rendered by the employees. The contributions are recognized in profit or loss as and when the services are rendered by the employees. Defined benefit plans The net obligation under defined benefit pension and healthcare plans represents the post-employment benefit entitlement that employees have accumulated in exchange for services rendered during the current and past years. It is determined separately for each plan using the projected unit credit method, whereby each period of service gives rise to an additional unit of benefit entitlement and each unit is accounted for separately to build up the final obligation. The benefits are then discounted to determine the present value of the obligation net of the fair value of the plan assets, using a discount rate appropriate to each country concerned. Under this method, the amount in excess of 10% of the higher of the net obligation and the fair value of the plan assets is deferred over the remaining working lives of the employees participating in the plan. The obligation is calculated by independent actuaries Provisions for litigation Provisions for litigation are recognized on the reporting date to cover all known future liabilities and charges on that date. They are determined using best estimates on the reporting date in terms of the risks involved and the probability of their occurrence. Provisions are taken only for specifically identified risks and principally those that are not covered by insurance. The provision represents the total amount that Group companies may have to pay as a result of legal proceedings, net of any sums insured. The amount of the provision is measured on an actuarial basis according to known and potential risks or litigation on the reporting date Earnings per share Basic earnings per share is determined on the basis of the weighted average number of shares in issue during the year. Diluted earnings per share is determined on the basis of the weighted average number of shares in issue during the year plus the total number of shares that would be issued if all existing stock options were exercised Revenue recognition Revenue on the sale of goods is recognized when the significant risks and rewards of ownership of the goods are transferred to the buyer (usually on transfer of goods). Revenue is measured at the fair value of the consideration received or receivable, after deducting any rebates and discounts. Transportation and other costs billed to customers are included in revenue. Transportation costs borne by the Group are included in the cost of goods sold. P. 24 FINANCIAL REPORT

27 Other income The Group uses income of operating activities as its main performance indicator. Income of operating activities is defined as consolidated net income before: - Gains or losses on disposal of assets; - Gains or losses on the disposal of consolidated companies; - Restructuring costs; - Impairment losses (including on goodwill); - Amortization of revalued intangible assets; - Litigation costs and other losses, gains and changes in provisions arising from material events that are exceptional in nature; - Net finance cost; - Income tax; - Share of results of associates Net finance cost Net finance cost comprises: - The net cost of debt, which corresponds to interest expense on bank loans and other financial liabilities (including finance leases), less interest income on cash and cash equivalents; - Dividends received from non-consolidated entities; - The impact of discounting provisions (except for retirement benefit obligations); - Change in fair value of financial instruments; - Exchange differences on financial transactions Share-based payments Stock options granted to executive officers and some employees of the Group are recognized and measured in accordance with IFRS 2. The fair value of stock options is measured on the date of grant using the Black & Scholes and Monte Carlo methods. It is based on the expected life of the options, their exercise price, the current price of the underlying shares and expected volatility of the share price. The expense is deferred and released to profit or loss in personnel expenses over the vesting period, i.e. the period between the date of grant and the initial exercise date. A corresponding amount is recognized directly in equity (share premium). Performance shares awarded to executive officers and some employees of the Group are recognized and measured in accordance with IFRS 2. The fair value of the performance shares is measured on the date of grant using the Monte Carlo method. The value depends mainly on the number of shares contingent upon the probability of achieving the market-related performance, the lock-up period, the current price of the underlying shares and expected volatility of the share price. The expense is deferred and released to profit or loss in personnel expenses over the vesting period. A corresponding amount is recognized directly in equity (share premium). IFRS 2 only applies to plans granted after November 7, 2002 that had not vested at January 1, Non-current assets held for sale and discontinued operations Non-current assets held for sale and discontinued operations are measured at the lower of their carrying amount and the estimated selling price net of costs to sell. These assets or groups of assets are identified separately in the balance sheet. FINANCIAL REPORT P. 25

28 Note 2: Changes in scope of consolidation In November 2009, the Group announced the disposal of its image wear business to Cepovett, a work and image wear manufacturer. The disposal is in keeping with Sperian Protection s strategy of focusing on its core business in personal protective equipment. In addition, the image wear business offered few industrial, logistics or commercial synergies with the Group s other businesses. Comoditex and Oxbridge were deconsolidated from October 31, The disposal of both companies generated a consolidated loss of 9.9 million (see note 4.16). Image wear is the only one part of the Group s protective clothing business sold. Thus, the business sold does not meet discontinued operations criteria according to IFRS 5. Note 3: Segment reporting Segment information is extracted from the consolidated financial statements of the Sperian Protection Group. As previously indicated, Sperian Protection has analyzed its market structure and internal management system in light of the disclosure requirements set out in IFRS 8. The Group provides its customers worldwide with a full range of personal protective equipment for the head and body. The internal reporting system used by general management and the Executive Committee to review and monitor the Group s operations is currently based on these two business segments, each one being made up of various product groups. For the purposes of IFRS 8, the Group has therefore decided to report only two operating segments head protection and body protection which management believes are representative of Sperian Protection s operations Business segment information December 31, 2009 December 31, 2008 Body Body Body Body (in thousands) Protection Protection Corporate Total Protection Protection Corporate Total External sales 305, , , , , ,880 Income of operating activities 3,391 60,320 63,711 26,766 74, ,469 Fixed assets 162, , , , , , , ,397 Working capital 56,407 52,427 1, , ,699 90,709 (9,873) 189,535 Provisions 8,029 27,140 2,310 37,479 5,415 57,678 1,673 64,766 Capital expenditure 4,226 8,815 5,173 18,214 84,254 14,423 5, ,937 Amortization, depreciation and impairment 6,802 13,132 6,570 26,504 5,127 11,469 5,637 22,233 P. 26 FINANCIAL REPORT

29 3.2. Geographical segment information December 31, 2009 December 31, 2008 EMEA* and EMEA* and (in thousands of euros) Americas Asia-Pacific Total Americas Asia-Pacific Total External sales 276, , , , , ,880 Fixed assets 390, , , , , ,397 Working capital 42,396 67, ,290 58, , ,535 Provisions 27,762 9,717 37,479 57,177 7,589 64,766 Capital expenditure 5,679 12,534 18,214 23,755 80, ,937 Amortization, depreciation 11,622 14,882 26,504 11,006 11,227 22,233 and impairment * EMEA: Europe, Middle East, Africa Note 4: Notes to the balance sheet and income statement 4.1. Goodwill (in thousands of euros) December 31, 2009 December 31, 2008 Opening balance 554, ,570 Cumulative translation differences 3,335 (7,192) Acquisitions (Combisafe and Musitani) ,881 Disposals (1,900) (6,390) Net 556, ,869 Gross value 577, ,208 Cumulative impairment losses (20,934) (21,339) Goodwill arising on the acquisition of Combisafe and Musitani was recognized on a provisional basis at December 31, 2008 and adjusted in The disposal of Comoditex and Oxbridge gave rise to a 1.9 million decrease in goodwill. FINANCIAL REPORT P. 27

30 The breakdown of goodwill as of December 31, 2009 is as follows: (in thousands of euros) Year of acquisition Net WGM ,583 Pulsafe ,405 Söll ,042 Fendall ,798 Bacou group ,558 Sécuritex ,866 SGP ,228 Epicon ,447 Nacre ,141 Combisafe ,204 Musitani ,490 Other* 15,990 Total 556,752 * Goodwill on acquisitions prior to 2002 where each separate item is less than 10 million 4.2. Other intangible assets At December 31, 2009 (in thousands of euros) Brands Patents Technology Other Total Opening gross value 52,329 29,847 11,948 45, ,472 Translation differences (1,070) (913) 1, Acquisitions ,296 4,296 Impairment losses Reclassification (11) (11) Disposals (537) (537) Changes in scope of consolidation 0 (816) (816) Closing gross value 51,259 28,934 13,902 48, ,446 Accumulated amortization (966) (16,683) (2,336) (21,274) (41,259) Amortization for the year (1,348) (1,407) (1,800) (5,051) (9,606) Cumulative translation differences (6) 527 (497) Reclassification (231) (231) Disposals Changes in scope of consolidation Net 48,939 11,371 9,269 22,702 92,281 Cumulative impairment losses (3,054) (3,054) P. 28 FINANCIAL REPORT

31 Brands and patents principally comprise Uvex (in the United States) and Howard Leight, together with the eye protection patents recognized on acquisition of the Bacou group. Other intangible assets consist mainly of software and customer relationships. Acquisitions in 2009 and 2008 comprise information systems developments. Changes in scope of consolidation reflect the disposal of Comoditex and Oxbridge. In keeping with the Group s policy of rationalizing its brand portfolio and promoting the Sperian brand, the Bacou brand will be written down over a period of eight years from At December 31, 2008 (in thousands of euros) Brands Patents Technology Other Total Opening gross value 43,361 26,888 13,207 30, ,103 Cumulative translation differences 1,501 1,449 (2,580) (301) 69 Acquisitions 0 1, ,469 5,021 Impairment losses Reclassification 0 (42) 0 3,438 3,396 Disposals (800) (800) Changes in scope of consolidation 7, ,321 8,895 17,683 Closing gross value 52,329 29,847 11,948 45, ,472 Accumulated amortization (335) (14,042) (943) (15,110) (30,430) Amortization for the year (629) (1,942) (1,855) (3,908) (8,334) Cumulative translation differences (2) (741) 462 (481) (762) Reclassification (2,573) (2,531) Disposals Changes in scope of consolidation Net 51,363 13,164 9,612 24,074 98,213 Cumulative impairment losses (3,162) (3,162) In 2008, changes in scope of consolidation comprise the fair value of Combisafe s brand, technology and customer relationships. Capital expenditure on patents mainly comprised the acquisition of dosebusters noise dosimetry technology for 1.5 million Impairment of goodwill, brands and patents Intangible assets have been allocated to Cash-Generating Units (CGUs) or to groups of CGUs where they relate to the Group s organization methods and resulting synergies. FINANCIAL REPORT P. 29

32 The breakdown by group of CGUs is as follows: (in thousands of euros) Body Protection Head Protection Shared Carrying amount of goodwill 110, , , ,752 Carrying amount of brands, trademarks, patents and other 17,922 59,065 15,294 92,281 Total intangible assets 128, , , ,033 Impairment of goodwill recognized in Impairment of brands and trademarks, patents and other 0 recognized in 2009 Total impairment losses recognized in Total Goodwill Each of the CGUs and groups of CGU were tested for impairment on the reporting date. The procedure involves estimating their value in use based on discounted future cash flows. The main assumptions used were as follows: - Five-year cash flows based on the strategic plan drawn up in the first half of 2009; - Discount rate before tax of 8%; - Terminal value based on a perpetual growth rate of 1.5% applied to fifth-year cash flows; - Standard tax rate of 36% applied to future cash flows. A sensitivity test was carried out on the following inputs for each CGU: - Perpetual growth rate: change of +/- 0.5 points; - Discount rate before tax: change of +/- 1% point; None of the changes individually tested would have caused recoverable amounts to fall below carrying amounts at December 31, In addition, cash flows in the strategic plan used for impairment testing include future revenue growth rates similar to those used in previous years tests. They correspond to management s best estimate of medium-term trends in the Group s business activities and factor in the expected impacts of the crisis. Consequently, a deterioration in the economic environment is a factor of uncertainty in drawing up the cash flow forecasts used and in the resulting valuations. Brands, patents and other intangible assets Impairment tests on other intangible assets at the year end revealed that recoverable amounts are higher than, or in rare cases similar to, carrying amounts. Accordingly, no impairment losses were deemed necessary. Net of tax discount rates used in impairment testing range from 7.6% to 8.3% depending on the country. P. 30 FINANCIAL REPORT

33 4.4. Property, plant and equipment At December 31, 2009 (in thousands of euros) At January 1, 2009 Changes in scope of consolidation Acquisitions Decreases/ disposals Transfers Translation differences Dotations aux amortissements et aux dépréciations Valeur en fin d exercice Land 4,332 (79) 4,253 Buildings 56,892 (2,759) 1,064 (897) 228 (72) (15) 54,441 Plant, equipment 142,008 (2,248) 12,631 (4,419) (53) (986) (63) 146,870 and other assets Gross value 203,232 (5,007) 13,695 (5,316) 175 (1,137) (78) 205,564 Buildings (22,949) 1, (11) 217 (3,267) (23,703) Plant, equipment (84,968) 833 3, ,032 (13,554) (93,392) and other assets Net 95,315 (2,324) 13,695 (1,674) (16,899) 88,469 Capital expenditure amounted to 14 million in 2009, down from 24 million in 2008, which was a year of heavy expenditure mainly on the acquisition of a dipped glove plant in China and the construction of a new manufacturing plant in Brazil. Nearly 1 million was spent on completing the relocation and consolidation of the two respiratory protection facilities in France and 2.5 million on increasing production capacity of the French disposable respiratory mask plant. Other capital expenditure mainly concerned innovation ( 4.6 million) and industrial optimization projects. The EMEA region accounted for 63% of total expenditure, the Americas for 31% and Asia-Pacific for 6%. At December 31, 2008 (in thousands of euros) At January 1, 2009 Changes in scope of consolidation Acquisitions Decreases/ disposals Transfers Translation differences Depreciation and impairment At December 31, 2008 Land 4,209 (7) 130 4,332 Buildings 49, ,230 (154) (5) 56,892 Plant, equipment 121,371 4,544 18,817 (1,324) (4,138) 2,920 (182) 142,008 and other assets Gross value 175,016 5,305 24,047 (1,485) (3,396) 3,932 (187) 203,232 Buildings (20,256) (384) (2,764) (22,949) Plant, equipment (74,983) 1,046 2,312 (2,395) (10,948) (84,968) and other assets Net 79,777 5,305 24,047 (203) (865) 1,153 (13,899) 95,315 Capital expenditure in 2008 mainly comprised the purchase of a dipped glove manufacturing facility in China for 3.4 million, the construction of a new manufacturing facility in Brazil for 2.9 million and the relocation of some French respiratory protection activities for 2.3 million. Other outlays were devoted to innovation, particularly in hearing protection, industrial optimization (San Diego) and IT equipment. FINANCIAL REPORT P. 31

34 4.5. Financial assets (in thousands of euros) December 31, 2009 December 31, 2008 Pension plan assets (Note 4.11) 2,028 3,006 Other financial assets 1,354 1,182 Net 3,382 4,188 Other financial assets at December 31, 2009 principally comprised investments in non-consolidated entities for 150 thousand and various security deposits for 1.2 million Inventories and work in progress (in thousands of euros) December 31, 2009 December 31, 2008 Raw materials and supplies 40,943 52,992 Goods held for resale, finished products and work in progress 74, ,537 Gross value 115, ,529 Impairment losses (19,868) (21,482) Net 95, ,047 The change in inventories and impairment charges and reversals are recognized in the cost of goods sold Trade and other receivables Trade receivables (in thousands of euros) December 31, 2009 December 31, 2008 Gross value 91, ,85 Provisions (4,929) (4,064) Net 86, ,786 As in previous years, the risk on trade receivables is low. Provisions totaled 0.9 million in 2009 and 0.6 million in Other operating receivables (in thousands of euros) December 31, 2009 December 31, 2008 Income tax receivables 806 2,045 Insurance receivables 12,515 12,472 Other tax receivables 4,042 5,967 Prepaid expenses 5,301 4,195 Advances to suppliers 1,227 1,237 Other receivables 4,048 2,927 Net 27,939 28,843 P. 32 FINANCIAL REPORT

35 Insurance receivables correspond to the amount that will be recovered from insurance companies in respect of the Saint Louis lawsuit (see Note 4.10). All trade and other receivables except for insurance receivables are due in less than one year Net cash and cash equivalents (in thousands of euros) December 31, 2009 December 31, 2008 Cash 13,682 22,059 Short and medium-term money market investments 3,007 2,570 Total cash and cash equivalents 16,689 24,629 Short-term financing (Note 4.13) (8,137) (35,160) Net cash and cash equivalents 8,552 (10,531) 4.9. Share capital and reserves At December 31, 2009, the share capital was 15,310,046 divided into 7,655,023 fully paid shares with a par value of 2.00, all of the same class. (number of shares) Shares Number of shares in issue at January 1, ,751,409 Shares canceled in 2008 (97,686) Shares issued during 2008 on exercise of stock options 1,300 Number of shares in issue at December 31, ,655,023 Shares canceled in 2009 Shares issued during 2009 on exercise of stock options Number of shares in issue at December 31, ,655,023 Treasury shares held under the share buyback program* 82,902 Treasury shares held under the liquidity agreement 12,184 * Including 10,000 shares in the course of cancelation Liquidity agreement: Sperian Protection has entered into a market making agreement for its shares with Exane BNP Paribas. The agreement complies with the A.F.E.I. Code of Conduct, which is recognized by the Autorité des Marchés Financiers. The sum of 1.7 million was credited to the liquidity account at inception of the agreement, a further 0.5 million in July 2007 and 0.5 million in January Treasury shares purchased by the Group are deducted from equity. Gains and losses generated on purchases and sales of treasury shares are recognized in equity. Share buyback program: On September 20, 2007, the Board of Directors authorized the company to purchase shares under the share buyback program approved at the annual shareholders meeting of May 10, The program is governed by articles L et seq. of the French Commercial Code (Code de commerce) and was described in a document published on April 4, Under the program, the Company may trade in its own shares, within the limits set in the program, for a maximum period of eighteen FINANCIAL REPORT P. 33

36 months from the date of the Annual Meeting and at a maximum purchase price of 140 per share, approved by the annual Meeting held on May 19, The shares must be purchased in accordance with French stock market regulations and the provisions of the General Regulation of the Autorité des Marchés Financiers («AMF»). More particularly, share purchases must not hamper fair trading in the market or be misleading to investors. On March 4, 2008, the Board of Directors decided to reduce the share capital by canceling 97,686 shares, using the authorization granted at the annual shareholders meeting on May 10, Stock option and performance share plans: The company has granted stock options and performance shares to certain key managers and executive officers (Note 4.20). Net gain or loss on cash flow hedges: This item comprises the effective portion of gains or losses on financial instruments designated as cash flow hedges (Note 4.15). Hedges of net investments in foreign operations: Two intragroup loans are classified as hedges of net investments in subsidiaries, one for SEK 539 million ( 52.6 million) and the other for 4.6 million ( 5.2 million). Translation differences on the loans are recognized through equity to offset the translation differences of the equivalent loans recognized by the subsidiaries in the Group s functional currency (euros). At December 31, 2009, cumulative translation differences recognized in equity amounted to 5.4 millions versus 8.7 million in Cumulative translation differences: This item comprises exchange differences arising on translation of the financial statements of foreign entities. Changes in cumulative translation differences are principally due to fluctuations in the US dollar and the Norwegian krone. (in thousands of euros) December 31, 2009 December 31, 2008 Change USD (53,512) (41,904) (11,608) ARS (1,348) 0 (1,348) CAD 787 (581) 1,368 AUD 313 (2,320) 2,633 GBP 1,087 (172) 1,259 NOK (5,281) (17,891) 12,609 Other currency (4,444) (6,514) 2,070 Total (62,397) (69,382) 6, Provisions and contingent liabilities (in thousands of euros) At January 1, 2009 Change in scope of consolidation Discounting Increases Reversals (used) Reversals (not used) Reclassifications Exchange differences At December 31, 2009 Litigation 55,882 (395) 1,180 4,803 (18,344) (2,285) (12,458) (893) 27,490 Warranties 1, (134) (419) 6 1,372 Restructuring 3,147 (517) 5,292 (1,883) (174) 90 (33) 5,922 Other provisions 4,063 1,082 (1,846) (573) (48) 17 2,695 Total 64,766 (912) 1,180 11,422 (22,207) (3,451) (12,416) (903) 37,479 P. 34 FINANCIAL REPORT

37 Provisions for litigation cover all known and potential risks arising from the Group s liability as a safety equipment manufacturer. The amount covers legal costs and potential damages that either exceed sums insured or are not insured. These provisions are estimated annually on the basis of reviews carried out by independent actuaries, taking account of the number of cases and the average cost per case for the various risks. As the number of cases is expected to fall, a 2.2 million provision reversal has been recognized. In September 2007, the jury in the St. Louis, Missouri, Circuit Court in the United States returned a verdict against the Group s US respiratory protection subsidiary in a lawsuit involving the accidental death of a firefighter in The Missouri Court of Appeals upheld this ruling at the end of The Group therefore paid the sum of USD 22.4 millions to the plaintiffs in December The balance of USD 18 million, corresponding to the amount recoverable from the Group s insurers, has been recognized in the balance sheet under other receivables (insurance receivable) and trade and other payables (balance payable to the plaintiffs). The balance was paid directly by the insurance company in January Provisions for restructuring costs concern restructuring plans that had started but were not completed at the reporting date (see Note 4.16). Other provisions cover various identified risks for which individual amounts are not material. The non-current portion (over one year) amounted to 26.0 million in 2009 against 57.5 million in 2008 and principally comprises provisions for litigation. No material contingent liabilities were identified Retirement benefit obligation The Group s main post-employment benefit obligations correspond to defined benefit plans. They mainly comprise lumpsum retirement payments in France, a non-qualified plan in the United States and various other plans in North American and European companies. The assets of the non-qualified plan are identified separately (Note 4.5.). The Group s obligation is measured by independent actuaries. At December 31, 2009: Net amount recognized in the income statement: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Service cost for the year Interest cost for the year Expected return on plan assets (8) (286) (294) Actuarial gains or losses recognized in the year Past service cost 2 2 Settlements and curtailments 0 0 Other 55 (7) Total cost ,514 Total FINANCIAL REPORT P. 35

38 Plan (assets) liabilities: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Present value of obligation 2,028 4,713 4,022 7,157 17,920 Fair value of plan assets (741) (4,419) (5,160) Net present value of obligation 2,028 4,713 3,281 2,738 12,760 Unrecognized actuarial gains or losses (130) (17) (2,226) (2,373) Unrecognized past service cost Liability recognized in the balance sheet 2,028 4,583 3, ,387 Total Change in present value of defined benefit plan obligation: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Obligation in respect of defined benefit 3,006 4,799 3, ,128 plans at December 31, 2008 Cost for the year ,514 Benefits paid (483) (483) Exchange differences on foreign plans (72) (196) (42) (310) Changes in scope of consolidation (466) (466) Other changes (906) 0 (90) (996) Obligation in respect of defined benefit plans at December 31, ,028 4,583 3, ,387 Total The main assumptions used by the Group to determine its obligation are: Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Discount rate N/A 4.9% 5 to 7% 5.8% Expected return on assets N/A N/A 5 to 6% 7.5% Future salary increases N/A 3 to 3.5% 2.0% N/A Expected long-term inflation rate N/A 2.2% 1 to 2% N/A P. 36 FINANCIAL REPORT

39 At December 31, 2008: Net amount recognized in the income statement: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Service cost for the year Interest cost for the year Expected return on plan assets (25) (429) (454) Actuarial gains or losses recognized in the (3) (42) (45) year Past service cost Settlements and curtailments (140) (140) Other 11 (39) (28) Total cost Total Plan (assets) liabilities: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Present value of obligation 3,006 4,830 3,596 7,197 18,629 Fair value of plan assets (540) (4,228) (4,768) Net present value of obligation 3,006 4,830 3,056 2,969 13,861 Unrecognized actuarial gains or losses (31) 81 (2,783) (2,733) Unrecognized past service cost Liability recognized in the balance sheet 3,006 4,799 3, ,128 Total Change in present value of defined benefit plan obligation: (in thousands of euros) Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Obligation in respect of defined benefit 3,653 4,431 3, ,782 plans at December 31, 2007 Cost for the year Benefits paid (187) (182) (227) (596) Exchange differences on foreign plans 165 (312) 4 (143) Changes in scope of consolidation 2 2 Other changes (812) (18) (20) (850) Obligation in respect of defined benefit plans at December 31, ,006 4,799 3, ,128 Total FINANCIAL REPORT P. 37

40 The main assumptions used by the Group to determine its obligation are: Non-qualified plan Lump-sum payments Other plans USA France Europe Americas Discount rate N/A 5.8% 5 to 7% 6.0% Expected return on assets N/A N/A 5 to 6% 7.5% Future salary increases N/A 3 to 3.5% 2.0% N/A Expected long-term inflation rate N/A 2.0% 2.0% N/A Trade and other payables (in thousands of euros) December 31, 2009 December 31, 2008 Trade payables 53,486 59,158 Other payables 33,414 36,521 St Louis litigation liability (note 4.10) 12,515 Total 99,415 95, Bank debt and financial liabilities (in thousands of euros) December 31, 2009 December 31, 2008 Maturity One to two years 72, ,737 Two to three years 137, ,149 Three to four years 413 1,105 Over four years 1,532 1,677 Long and medium-term debt 212, ,668 Current portion of long-term debt 12,700 39,654 Short-term borrowings 8,137 35,160 Short-term financial liabilities 20,837 74,814 Total borrowings and financial liabilities 232, ,482 Net cash and cash equivalents (Note 4.8) (16,689) (24,629) Total net debt 216, ,853 Short-term borrowings correspond to overdraft facilities. The current portion of long-term debt includes one to three month drawdowns on confirmed credit lines in euros or foreign currency. P. 38 FINANCIAL REPORT

41 Breakdown by currency (in thousands of euros) December 31, 2009 December 31, 2008 Euro 132, ,589 US dollar 95, ,083 Other 5,434 13,81 Total 232, ,482 Breakdown of debt and transaction costs (in thousands of euros) Long and medium-term debt Amortizable transaction costs Maturity Less than one year 13,938 (1,238) 12,700 One to two years 73,507 (1,253) 72,254 Two to three years 139,089 (1,253) 137,836 Three to four years Over four years 1,532 1,532 Total debt 228,479 (3,744) 224,735 On December 22, 2009, the Group obtained a new 200 million medium-term syndicated facility arranged by five banks mandated as bookrunners (BNP Paribas, Calyon, HSBC, Natixis, Société Générale Corporate & Investment Banking) to refinance the bank debt maturing on June 30, The new loan is in addition to existing confirmed credit lines and gives the Group available financing capacity of more than 300 million. Its purpose is to provide stability and diversify the Group s sources of financing. At December 31, 2009, only million were drawn down, representing just of half of the authorized amount. It gives the Group a source of liquidity in case of need. The syndicated facility contains a number of financial covenants, including ratios for net debt to equity, net debt to consolidated EBITDA and consolidated EBITDA to interest costs.(1) In the event of default, the banks have the right to demand early repayment. The ratios at December 31, 2009 were as follows: Actual Contractual limits Net debt to equity 37% < 100% Net debt to EBITDA (1) 2.55 < 4.00 EBITDA (1) to interest costs > 4.00 The Group has further diversified its sources of financing by securing bilateral credit lines with several banks, most of which are confirmed for periods of several years. At December 31, 2009, these lines totaled 119 million. The Group also has various overdraft facilities. At December 31, 2009, the additional liquidity provided by these authorized, undrawn credit lines represented more than 130 million. (1) EBITDA: income of operating activities less depreciation and amortization Net FINANCIAL REPORT P. 39

42 4.14. Financial risk and market risk management policies Market risk is the risk of adverse fluctuations in the value of financial instruments caused by changes in exchange rates, interest rates or stock market prices. The Group is exposed to exchange rate and interest rate risk Interest rate risk Debt is mainly at floating-rate and denominated in euros and US dollars. The Group s policy is to reduce its exposure to interest rate risk. Risk is monitored centrally and broad hedging guidelines have been set which apply throughout the Group. Hedges are purchased over-the-counter from first-class banks. Gains or losses on these instruments are recognized symmetrically with the gains or losses arising on the hedged items. Although the Group s strategy is to hedge at least 50% of its debt on a twenty-four month rolling basis, there is no absolute guarantee that a change in interest rates will not have a negative impact on growth and earnings. Based on debt at the yearend, a 25 basis point increase in interest rates would have increased net finance costs by 0.3 million while a 25 basis point decrease in interest rates would have decreased net finance costs by 0.4 million Exchange rate risk The Group generates a significant proportion of its revenue in foreign currency, principally US dollars. Its functional currency is the euro. Accordingly, all items denominated in a currency other than euros are translated at the prevailing exchange rates. Changes in exchange rates may therefore have an impact on the value of the items in the consolidated financial statements, even if the amounts have not changed in the original currency. A rise in the euro against other currencies may cause a decrease in revenue or asset values of subsidiaries whose functional currency is not the euro. The following table shows a breakdown of the Group s balance sheet by currency US dollar 50% 49% Euros 36% 37% Other 14% 14% Total 100% 100% Breakdown of 2008 and 2009 revenue by geographical segment: Americas 42% 43% EMEA 51% 50% Other 7% 7% Total 100% 100% Group companies are also exposed to exchange rate risk when transactions are denominated in a foreign currency. As far as possible, Group companies invoice and are invoiced in their functional currency to minimize this risk. Otherwise, exchange rate risk is hedged on a case-by-case basis. Risk is managed and monitored centrally. The Group s policy is to hedge at least 50% of exchange rate exposure over a twelve-months rolling period. However, because exchange rates are volatile, the Group may be unable to manage its exchange rate exposure effectively. Although the operating companies can hedge their exposure on a case-by-case basis, there is no absolute guarantee that exchange rate fluctuations will not have a negative impact on revenue and earnings. P. 40 FINANCIAL REPORT

43 The following table illustrates the sensitivity of revenue and income of operating activities to exchange rate changes: $/ exchange rate Change in euro vs dollar Impact on revenue Impact on income of operating activities $ % 7% 12% $ % 4% 8% $ % 2% 4% $1.39-1* 0% 0% 0% $ % -2% -3% $ % -3% -6% $ % -5% -9% * Average rate in 2009 The risk profile was similar in Liquidity risk In 2009, operating cash flow totaled million. In 2010, the Group will focus on organic growth and should therefore generate positive operating cash flow, although below the 2009 level. Drawdowns on credit lines will therefore decrease during the year Capital management The Group s main objective in terms of managing capital is to ensure that it complies with the financial covenants set out in the syndicated loan agreement (Note 4.13). Its objectives, policies and processes for managing capital remained unchanged in 2009 and Derivatives The fair values of derivative instruments were measured by an independent expert on the reporting date, based on market rates. Derivative instruments comprise interest rate hedges of debt and exchange rate hedges of intra-group current accounts and future trading cash flows over the next twelve months. (in thousands of euros) December 31, 2009 December 31, 2008 Interest rate hedges Exchange rate hedges Total Interest rate hedges Exchange rate hedges Financial instruments - assets ,990 6,044 Financial instruments - liabilities 1, , ,173 10,172 Unrealized gains or losses recognized through equity (1,200) (156) (1,356) (1,034) (264) (1,298) Total The revised version of IFRS 7 - Financial Instruments: Disclosures «Improving Disclosures about Fair Value» concerns assets and liabilities measured at fair value. It requires financial instruments to be classified into a fair value hierarchy comprising three levels reflecting the type of inputs used: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included under Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (unobservable input). FINANCIAL REPORT P. 41

44 The Group s financial instruments are classified in level 2. In accordance with the Group s strategy for hedging future cash flows, exchange rate hedging instruments comprise mostly option-type instruments and, to a lesser extent, forward currency purchases and sales. Most hedges have a maturity of less than one year and almost all unrealized gains and losses recognized in equity at December 31, 2008 were recycled to financial income in Interest rate hedges have a maturity of no more than three years, in line with the debt hedged. Losses recycled to financial income in respect of interest rate hedges amounted to 0.25 million in Interest rate hedges (in thousands of euros) Euro US dollar Other currencies TOTAL Debt 132,176 95,262 5, ,872 Percentage of year-end debt hedged (interest rate hedges) 76% 26% 0% 53% Debt in euros and US dollars is hedged mainly by option- type instruments and fixed-rate payer swaps. The maximum interest rate guaranteed by the hedges is about 3.80% in euros and 3.50% in US dollars. At December 31, 2009, 100 million of euro debt and USD 35 million of US dollar debt was hedged. To date, the Group has primarily used derivatives such as interest rate caps, collars or swaps. Hedged positions at December 31, 2009 were as follows: Euro caps: 30 million Euro swaps: 70 million Dollar caps: USD 10 million Dollar swaps: USD 25 million Sensitivity of derivatives to changes in interest rates: A +100 bp change would have a negative impact of 18.7 thousand on net income and a positive impact of thousand on equity. A -100 bp change would have a positive impact of 6.7 thousand on net income and a negative impact of 574 thousand on equity. Exchange rate hedges Exchange rate hedges mainly concern intra-group current accounts. Sensitivity of derivatives to changes in exchange rates: A +10% change in the closing rate would have a positive impact of 2,619.9 thousand on net income and a positive impact of 204 thousand on equity. A -10% change would have a negative impact of 2,690.4 thousand on net income and a negative impact of thousand on equity. The impacts on the income statement are mainly due to hedges of intergroup loans and are offset symmetrically with the gain or loss on the hedged items. P. 42 FINANCIAL REPORT

45 4.16. Other income/expenses Restructuring costs Restructuring costs amounted to 11.4 million, primarily for right-sizing and industrial optimization programs undertaken to align the organization with the slowdown in business. Other income (in thousands of euros) December 31, 2009 December 31, 2008 Change in provision for litigation (Note 4.10) 0 (632) Cost of name change to Sperian Protection 0 (4,255) Gains/(losses) on disposals of consolidated companies (Note 2) (9,894) 0 Gains/(losses) on asset disposals (125) 32 Other Total (9,798) (4,855) Net finance costs (in thousands of euros) December 31, 2009 December 31, 2008 Interest expense on bank debt (7,909) (13,683) Investment income Dividend income Foreign exchange gains 21,514 14,598 Foreign exchange losses (23,025) (22,417) Discounting (1,675) (1,574) Other (12) (200) Total (10,735) (22,580) Net gains and losses on interest rate derivatives are included in interest expense on bank debt. Net gains and losses on currency derivatives are included in foreign exchange gains or foreign exchange losses. The ineffective portion of cash flow hedges recognized in net finance costs is not material. FINANCIAL REPORT P. 43

46 4.18. Depreciation, amortization and impairment (in thousands of euros) December 31, 2009 December 31, 2008 Depreciation and amortization Impairment losses Total Depreciation and amortization Impairment losses Operating items 21, ,084 17, ,326 Non operating items 6, ,481 5, ,161 O/w restructuring costs O/w amortization and impairment of 5, ,421 4, ,805 revalued intangible assets O/w net finance costs 1, ,060 1, ,254 Total 27, ,565 23, ,487 EBITDA (in thousands of euros) December 31, 2009 December 31, 2008 Income of operating activities 63, ,469 Depreciation, amortization and impairment 21,084 17,326 EBITDA 84, ,795 Total Depreciation, amortization and impairment recognized in the balance sheet (in thousands of euros) December 31, 2009 December 31, 2008 Depreciation and amortization Impairment losses Total Depreciation and amortization Impairment losses Goodwill Other intangible assets 9, ,606 8, ,334 Property, plant & equipment 16, ,899 13, ,899 Financial assets Amortizable transaction costs 1,06 0 1,060 1, ,054 Total 27, ,565 23, ,487 Total Personnel costs and employees Personnel costs (in thousands of euros) December 31, 2009 December 31, 2008 Wages and salaries 136, ,685 Social security contributions 44,291 44,803 Pensions and other post-employment benefits 1, (Note 4.11) Share-based payment expense (Note 4.20) 2,349 2,590 Total 184, ,011 P. 44 FINANCIAL REPORT

47 Employees as of December 31, 2009 Zone December 31, 2009 December 31, 2008 France 1,145 1,194 Western Europe excl. France Other European countries United States and Canada 1,427 1,699 Asia-Pacific Rest of world 1,998 2,016 Total 5,887 6, Stock option and performance share plans On May 6, 2009, the shareholders authorized the Board of Directors, under the terms and conditions set out in article L et seq. of the French Commercial Code, to grant, on one or several occasions, certain employees or executive officers who own less than 10% of the share capital (i) performance shares and (ii) options to subscribe for new shares or to purchase existing shares held by the Company under its share buyback program as permitted under articles L to L of the French Commercial Code. The authority is valid for thirty-eight months from the date of the annual shareholders meeting. Its key provisions are: Shareholders expressly renounce their preemptive rights to any shares issued on exercise of the options or awarded under performance share plans in favor of the holders; The number of stock options or shares granted may not exceed 3% of the share capital; The exercise price is to be set by the Board of Directors in accordance with the terms of the law on the date of grant of the options. No stock options were granted for the second consecutive year, and performance shares were granted for the third consecutive year Stock option plans Twenty-four stock option plans have been granted since December 14, Stock options granted in 2009 by the Board of Directors under the current authority Options granted during the year to the top ten optionees excluding executive officers Options exercised during the year by the top ten optionees excluding executive officers Number of options granted/shares subscribed or purchased Weighted average price ( ) Plan None N/A N/A None N/A N/A FINANCIAL REPORT P. 45

48 Information on plans that expired in 2009 Plan 17 Date of shareholders' meeting Sept. 6, 2001 Date of Board meeting Oct. 31, 2003 Number of options granted at inception 38,000 Total share entitlement: - Executive officers 0 - Top ten optionees 15,000 Initial exercise date Oct. 31, 2007 Expiration date Oct. 31, 2009 Adjusted exercise price 66.6 Number of shares issued in Options canceled during the year 17,000 Options outstanding 0 - o/w Executive officers 0 As a percentage of diluted capital N/A Information on plans valid as of January 1, 2010 Plan Date of shareholders' meeting Sept. 6, 2001 Date of Board meeting Sept. 7, 2004 Sept. 6, 2001 Nov. 5, 2004 May 11, 2005 Dec. 7, 2005 May 11, 2005 Dec. 7, 2006 May 11, 2005 Jan. 23, 2007 May 10, 2007 Dec. 6, 2007 May 10, 2007 Dec. 6, 2007 Number of options granted at inception 46,500 4, , ,910 2,400 22,535 8,000 Total share entitlement: Executive officers 40, ,000 15, ,000 Top ten optionees 6,500 4,500 52,800 41,140 2,400 22,535 0 Initial exercise date Sept. 7, 2008 Expiration date Sept. 7, 2010 Nov. 5, 2008 Nov. 5, 2010 Dec. 7, 2009 Dec. 7, 2013 Dec. 7, 2010 Dec. 7, 2014 Jan. 23, 2011 Jan. 23, 2015 Dec. 6, 2011 Dec. 6, 2015 Dec. 6, 2011 Dec. 6, 2015 Adjusted exercise price Terms of exercise (1) (1) (1) (2) (1)(2) (1)(2) (1)(2) (1)(2)(3) Number of shares issued in ,900 3, Options canceled during the year Options outstanding 43,900 4,500 79, ,054 1,400 21,727 8,000 - o/w executive officers 40, ,000 15, ,000 As percentage of diluted capital (4) (1) For plans established at subsequent Board meetings, non-residents may exercise one third of their options between the thirteenth month and the third year following the date of grant, and the entirety thereafter. Residents may exercise any or all of their options four years after the date of grant. (2) and (3) See below. (4) See Section P. 46 FINANCIAL REPORT

49 Restrictions on stock options For options granted at Board meetings on or after December 7, 2005 (see note 2), the capital gain on exercise of the options is deemed to be equal to the difference between the previous day s closing price and the exercise price. It may not be more than 150% of the value of all options granted to the optionee by the Board (number of options x exercise price). If the options are exercised in several blocks, the gain on the first block will determine the maximum number of shares that may be exercised by the optionee the second time. The cumulative gain made on the first two blocks will determine the maximum number of options that may be exercised the third time, and so on until the cumulative gains have reached 150% of the total value of all options granted. Once that level has been reached, any outstanding unexercised options will be canceled immediately. This restriction on gains does not apply in the event of a change of control following a merger or partial asset transfer involving Sperian Protection and a non-group company, or in the event of a public offer for Sperian Protection shares or a buyout procedure aimed at delisting Sperian Protection shares. In accordance with new legislation applicable to executive officers since December 31, 2006, the Board of Directors set the number of shares that Henri-Dominique Petit, an optionee under Plan 24, would be required to hold in registered form (see note 2) Performance share plans The Board set up a new performance share plan on December 15, As for previous plans, for French tax residents, the minimum vesting period is two years and the minimum lock-up period is two years after the vesting date. For non-french tax residents, the vesting period is four years and there is no lock-period after the vesting date. However, if the performance conditions are met, the award and the quantity will become irrevocable after two years. All employees will therefore have free use of their shares after a period of four years. The performance conditions are described below. The Company has set up nine performance share plans since December 6, 2007 (plans 25 to 33). The shares awarded under plans 25 to 27 did not vest on December 6, 2009 as the performance conditions were not met. a. Information on plans that expired in 2009 Plan Date of shareholders' meeting May 10, 2007 May 10, 2007 May 10, 2007 Date of Board meeting Dec. 6, 2007 Dec. 6, 2007 Dec. 6, 2007 Number of performance shares awarded at inception 11,349 39,919 3,726 Total share entitlement: - Executive officers 0 0 3,726 - Top ten participants 11, Start of vesting period Dec. 6, 2007 Dec. 6, 2007 Dec. 6, 2007 Expiration of vesting period for French tax residents Dec. 6, 2009 Dec. 6, 2009 Dec. 6, 2009 Expiration of lock-up period Dec. 6, 2011 Dec. 6, 2011 Dec. 6, 2011 Number of shares vested in Shares canceled during the year 11,349 37,338 3,726 - o/w executive officers 0 0 3,726 As percentage of diluted capital N/A N/A N/A b. Performance shares awarded in 2009 by the Board of Directors under the current authority Number of performance shares Plan awarded/vested Performance shares awarded to the top ten participants 19,656 31/32/33 Vested shares held by the top ten participants 0 0 FINANCIAL REPORT P. 47

50 c. Performance share plans valid as of January 1, 2010 Plan Date of shareholders' meeting May 10, 2007 Date of Board meeting Dec 12, 2008 Number of performance shares granted at inception: Total share entitlement: May 10, 2007 Dec 12, 2008 May 10, 2007 Dec 12, 2008 May 6, 2009 May 6, 2009 May 6, 2009 Dec 15, 2009 Dec 15, 2009 Dec. 15, ,919 28,440 7,452 22,610 13,160 5,796 - Executive officers 0 0 7, ,796 - Top ten participants 7,965 28, ,404 13,160 0 Start of vesting period Dec 12, 2008 Expiration of vesting period French tax residents Dec. 12, 2010 Expiration of lock-up period Dec. 12, 2012 Dec 12, 2008 Dec. 12, 2010 Dec. 12, 2012 Dec 12, 2008 Dec. 12, 2010 Dec. 12, 2012 Dec 15, 2009 Dec. 15, 2011 Dec. 15, 2013 Dec 15, 2009 Dec. 15, 2011 Dec. 15, 2013 Dec. 15, 2009 Dec. 15, 2011 Dec. 15, 2013 Terms of exercise (1) (1) (1) (2) (1) (1) (1) (2) Number of shares vested in Shares canceled in , Unvested shares outstanding 33,633 28,440 7,452 22,610 13,160 5,796 - o/w executive officers 0 0 7, ,796 As percentage of diluted capital (4) For Notes (1) and (2) See paragraph d. d. Restrictions: performance conditions for plans outstanding The awards are contingent on performance conditions. The total number of shares awarded («Total Entitlement») will be calculated as follows: 64.3% of the Total Entitlement is subject to share price performance (as defined in paragraph A) below) and 35.7% is indexed to Sperian Protection s «absolute performance» (as defined in paragraph 2) below). On March 2, 2010, the Board of Directors adjusted the performance conditions for the 2008 plans (plans 28, 29 and 30) to take account of the economic environment, as permitted by the plan regulations. Performance is now partly a function of Sperian Protection s absolute share performance. These performance conditions are identical to those set for the plans granted in December Stock market performance Stock market performance (Mkt) is calculated as follows: (closing price - initial price)/initial price. Sperian Protection share performance relative to the CAC Mid100 (PRel) is calculated as follows: PRel = (1+Mkt Sperian)/(1+ Mkt CAC Mid100). Sperian Protection s relative performance will be measured over a period of two years from the award date. The reference price will be the average of the twenty quoted Sperian Protection prices and CAC Mid100 index levels immediately preceding the award date and the average of the 90 closing prices or index levels immediately preceding the vesting date. P. 48 FINANCIAL REPORT

51 The number of shares that will vest is based on the following scale: Plan no. Performance target PRel % entitlement 28 PRel 100% PRel > 120% % < PRel <= 120% [100; 180]* PRel = 100% % <= PRel < 100% 25 PRel < 95% 0 29 and 30 PRel 100% PRel > 120% %= < PRel <= 120% [100; 180]* PRel = 100% 100 PRel < 100% 0 31 PRel 100% PRel > 120% %= < PRel <= 120% [100; 180]* PRel = 100% % <= PRel < 100% 25 PRel < 95% 0 32 and 33 PRel 100% PRel > 120% %= < PRel <= 120% [100; 180]* PRel = 100% 100 PRel < 100% 0 * Linear interpolation The table above is a purely economic presentation of the performance share grants. The figure of 180% referred to above does not mean that the participant will receive an additional share award. It is equal to the entire performance share entitlement awarded by the Board of Directors. 2 Sperian Protection absolute performance The Total Entitlement is indexed to Sperian Protection s «absolute performance» (AP). Absolute performance is equal to the difference between the end share price («End Price»), and the start share price («Start Price»). It will be measured over the two-year period from the award date to the vesting date. The reference prices will be the average of the twenty quoted Sperian Protection prices immediately preceding the award date (Start Price) and the average of the 90 closing prices immediately preceding the vesting date (End Price). For plans 28 and 31, the award will be equal to: 50% if the End Price is higher than the Start Price; Another 50% if the End Price is at least 10% higher than the Start Price. For plans 29, 30, 32 and 33, the total award is indexed to Sperian Protection s absolute performance combined with attainment of an income of operating activities target. ROCE is equal to the ratio between capital employed and income of operating activities after tax, defined as follows: Capital employed = intangible assets + property, plant and equipment + operating working capital Income of operating activities after tax = income of operating activities tax at a fixed rate of 30% FINANCIAL REPORT P. 49

52 The award will be equal to: - 50% (i) if the End Price is higher than the Start Price and (ii) for plans 29 and 30, if ROCE for the four quarters ending September 30, 2010 is higher than or equal to 2009 full year ROCE, and for plans 32 and 33, if ROCE is higher than or equal to 7% calculated on the basis of the four quarters ending September 30, Another 50% if the End Price is at least 10% higher than the Start Price and if the ROCE target for the plans as defined in the preceding paragraph is met. The number of shares that will vest is therefore based on the following scale: Plan no. AP and ROCE % entitlement 28 and 31 End Price > 110% 100% 100% End Price 110% 50% 29 and 30 End Price > 110% and ROCE for the four quarters ending September 30, 2010 is 100% higher than or equal to 2009 full year ROCE 100% End Price 110% and ROCE for the four quarters ending September 30, 50% 2010 is higher than or equal to 2009 full year ROCE 32 and 33 End Price > 110% and ROCE 7% calculated on the basis of the four quarters 100% ending September 30, % End Price 110% and ROCE 7% calculated on the basis of the four quarters ending September 30, % Plans 30 and 33 (Note (2): special case In accordance with new legislation applicable to executive officers since December 31, 2006, the Board of Directors decided that Henri-Dominique Petit (plan 30) and Brice de La Morandière (plan 33) would be required to hold the following shares in registered form after the lock-up period: (i) 50% of any vested performance shares and (ii) 50% of the balance of shares arising on the exercise of stock options after the immediate sale of the shares required to pay for the shares purchased and the corresponding tax, until the sum of (i) and (ii) above reaches an amount equal to two years compensation (excluding bonuses) Maximum potential diluted capital As of January 1, 2010, if all outstanding stock options were exercised and all performance shares had vested, 374,322 new shares would be issued, representing potential dilution of 4.88% Impact of accounting for stock option and performance share plans in accordance with IFRS 2 Stock option and share performance plans resulted in an expense of 2.3 million in 2009 compared with 2.6 million in The fair value of stock options is estimated on the date of grant using the Black & Scholes and Monte Carlo methods, taking account of the attributes of the options granted. Assumptions: - Life of options: economic life - Dividend yield: 1% to 1.4% - Historical volatility: 26.6% to 50% - Risk-free interest rate: 3.01% to 4.10% The fair value of performance shares is estimated on the date of award using the Monte Carlo method, taking account of the attributes of the shares awarded. P. 50 FINANCIAL REPORT

53 Assumptions: - Plan with performance conditions: one performance share entitles the holder to between 1 and 1.4 shares - Dividend yield: 1.40 to 1.87% - Historical volatility of Sperian Protection shares: 26.6% to 46.7% (average observed over periods of one to five years) - Historical volatility of CAC Mid 100: 14.8% to 24.5% - Risk-free interest rate: 1.73% to 3.9% (zero coupon OAT France) Measurement of performance shares awarded at end 2009 based on IFRS 2 The total cost of the new end-2009 plans (no.s 31 to 33) under IFRS is 1.2 million deferred over the vesting period, which is two years. The unit value of the performance shares is between and Assumptions: - Monte Carlo model - Life of performance shares: two years based on performance requirements - Plan with performance conditions: one performance share entitles the holder to between 1 and 1.8 shares - Dividend yield: 1.87% - Historical volatility of Sperian Protection shares: 46.7% (average observed over periods of one to five years) - Historical volatility of CAC Mid 100: 23.5% - Risk-free interest rate: 1.73% (zero coupon OAT France) Current and deferred income taxes Breakdown of the tax charge (in thousands of euros) December 31, 2009 December 31, 2008 Current taxes (708) (21,518) Deferred taxes (6,953) 3,170 Income tax expense (7,661) (18,348) Effective tax rate The effective tax rate rose from 27.6% in 2008 to 29.1% in The latter rate primarily reflects the use of tax loss carryforwards in France, for which deferred tax assets were recognized for only part of the amount. In addition, no deferred tax assets were recognized in respect of losses incurred in some countries in 2009, notably Brazil. The following table shows a reconciliation with the standard tax rate in France: (in thousands of euros) December 31, 2009 December 31, 2008 French statutory rate 34.43% 34.43% Impact of different tax rates in foreign 3.99% (0.69)% countries Utilization of unrecognized tax loss (6.28)% (7.45)% carryforwards Permanent differences (5.25)% (0.60)% Unrecognized deferred tax assets 7.52% 1.06% Tax reassessments (1.71)% 1.85% Other (3.60)% (0.97)% Effective tax rate 29.1% 27.6% FINANCIAL REPORT P. 51

54 Analysis of deferred taxes The breakdown of deferred tax is as follows: (in thousands of euros) December 31, 2009 December 31, 2008 Assets Liabilities Assets Liabilities Difference between tax base and carrying , ,715 amounts of non-current assets Retirement benefit obligation 3,095 3,304 Other provisions 9, , Temporary differences 872 1,344 3,475 1,041 Elimination of intra-group margins on inventory Recognized tax losses* 15,251 14,998 Other sources of deferred taxes Total 30,022 27,534 35,698 26,204 * Including France: 11,500 in 2009 and 2008 Differences between tax base and carrying amounts of non-current assets mainly concern intangible assets. The Group has 83.4 million of tax losses in France that may be carried forward to offset future profits made by members of the French tax group. The resulting deferred tax asset has only been recognized to the extent of 11.5 million, corresponding to the estimated tax charge payable in the medium-term in France. Unrecognized deferred tax assets therefore amounted to 17.2 million.. In 2008, the Group had 99 million of tax losses. The resulting deferred tax asset was only recognized to the extent of 11.5 million, corresponding to the estimated tax charge that would have been payable in France in 2008 and 2009 in the absence of any tax loss carryforwards. Unrecognized deferred tax assets therefore amounted to 21.5 million Earnings per share Basic earnings per share is determined by dividing net income attributable to equity holders of the parent by the weighted average number of shares in issue during the period. Diluted earnings per share is determined by dividing net income attributable to equity holders of the parent by the weighted average number of shares in issue increased by the number of dilutive potential shares. The table below shows the data used to calculate basic and diluted earnings per share. (in thousands of euros) December 31, 2009 December 31, 2008 Continuing and discontinued operations Net income used to calculate basic earnings per 18,553 47,776 share Weighted average number of shares in issue 7,544,142 7,565,342 during the year Impact of dilution (stock options) 0 12,347 Weighted average number of shares, diluted 7,544,142 7,577,689 Basic earnings per share ( ) Diluted earnings per share ( ) P. 52 FINANCIAL REPORT

55 4.23. Dividends paid and proposed 2008 dividends paid in 2009 amounted to 9.1 million or 1.20 per share. Payment was made on July 9, The Board of Directors is proposing a dividend of 1 per share for 2009, making a total payout of 7.7 million. Payment will be made on July 2, The proposed dividend has not been recognized as a liability at December 31, Leases At December 31, 2009 Operating leases (Group as lessee): The following table shows minimum future payments on non-cancelable operating leases as of December 31, 2009: Maturity (in thousands of euros) Under 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Operating lease commitments 7,827 5,755 5,751 2,202 2,071 2,780 26,386 Total Finance leases: Leased assets mainly comprise the Group s premises in France. Maturity (in thousands of euros) Under 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Finance lease commitments ,247 Total Carrying amount by asset class at December 31, 2009 Buildings 2,159 Plant, equipment and other assets 27 Carrying amount 2,186 At December 31, 2008 Operating leases (Group as lessee): The following table shows minimum future payments on non-cancelable operating leases as of December 31, 2008: Maturity (in thousands of euros) Under 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Operating lease commitments 8,602 8,013 3,930 2,225 1,298 3,111 27,179 Total Finance leases: Leased assets mainly comprise the Group s premises in France. Maturity (in thousands of euros) Under 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years Finance lease commitments ,246 Total FINANCIAL REPORT P. 53

56 Carrying amount by asset class at December 31, 2008 Buildings 3,735 Plant, equipment and other assets 82 Carrying amount 3,817 Note 5: Other information 5.1 Contingent assets and liabilities Contingent liabilities are not material in relation to the size of the Group. 5.2 Subsequent events No events have occurred since the year end that might have a material impact on the Group s financial position. 5.3 Related parties There were no transactions with related companies during the year Directors fees and executive officers compensation 2009 Director Fixed Variable Directors' Benefits in TOTAL In compensation compensation fees kind Philippe Alfroid 11,040 11,040 Philippe Bacou 30,000 8,839 38,839 Patrick Boissier (1) 5,120 5,120 Ginette Dalloz (2) 5,001 6,080 11,081 François de Lisle 26,320 26,320 Patrice Hoppenot 22,280 22,280 Gunther Mauerhofer 27,240 27,240 Henri-Dominique Petit 456,000 10,329 4, ,334 Brice de La Morandière 507,208 4,902 9, ,589 Philippe Rollier 25,920 25,920 André Talmon 25,440 25,440 Laurent Vacherot (3) 2,920 2,920 TOTAL 998, ,430 13,484 1,188,123 (1) Patrick Boissier has no longer been a director since July 7, (2) Ginette Dalloz has no longer been a director since May 6, (3) Laurent Vacherot was co-opted as director on July 7, P. 54 FINANCIAL REPORT

57 2008 Director In Fixed compensation Variable compensation (1) Directors' fees Benefits in kind Philippe Alfroid 11,040 11,040 Philippe Bacou 30,000 12,757 42,757 Patrick Boissier 19,360 19,360 Ginette Dalloz 20,004 13,895 33,899 François de Lisle 28,560 28,560 Patrice Hoppenot 23,400 23,400 Gunther Mauerhofer 27,240 27,240 Henri-Dominique Petit 570, ,560 12,424 11,654 1,033,638 Philippe Rollier 27,040 27,040 André Talmon 26,560 26,560 TOTAL 620, , ,276 11,654 1,273,494 (1) Variable compensation of 439,560 comprises performance-related bonuses paid in 2008 in respect of TOTAL Stock options and performance shares held by members of he Board of Directors No directors other than Henri-Dominique Petit and Brice de La Morandière held stock options or performance shares as of December 31, No stock options or performance shares were granted to directors other than Brice de La Morandière during Stock options or performance shares granted to directors and stock options exercised Number of options/ performance shares granted/exercised Exercise price ( ) Expiration Options granted in 2009 to Brice de La Morandière None N/A N/A N/A Performance shares granted to Brice de La Morandière 5,796 N/A Dec. 15, 2013** 33 Options exercised by executive officers in * See note for a history of stock option and performance share plans. ** End of vesting period: December 12, End of lock-up period: December 12, The directors held 119,308 stock options and performance shares as of December 31, Director Number of options or Exercise price ( ) Plan Expiration performance shares Henri-Dominique Petit 40, September 7, 2004 September 7, 2010 Henri-Dominique Petit 14, December 7, 2005 December 7, 2013 Henri-Dominique Petit 15, December 7, 2006 December 7, 2014 Henri-Dominique Petit 8, December 6, 2007 December 6, 2015 Henri-Dominique Petit 7,452 N/A* December 12, 2008 December 12, 2012 Brice de La Morandière 5, December 7, 2005 December 7, 2013 Brice de La Morandière 8, December 7, 2006 December 7, 2014 Brice de La Morandière 4, December 6, 2007 December 6, 2015 Brice de La Morandière 10,260 N/A* December 12, 2008 December 12, 2012 Brice de La Morandière 5,796 N/A* December 15, 2009 December 15, 2013 Total 119,308 * Performance share plans Plan* FINANCIAL REPORT P. 55

58 5.3.3 Loans and guarantees No loans or guarantees have been granted to directors Agreements with directors In line with new legislation on commitments to executive officers with respect to compensation, indemnities or benefits payable on loss or change of office, the Board of Directors renewed the agreements in respect of the non-competition clause and loss of office compensation for No other agreements have been entered into directly with the directors other than ordinary business agreements on competitive terms, and more particularly no service contract has been entered into with the executive officers. 5.4 Auditors fees The table below shows fees paid to auditors and members of their network for audit work carried out in 2008 and Ernst & Young ECA Amount % Amount % (in thousands of euros) Audit Audit, certification and review of Company and consolidated financial statements Parent company % 24% % 36% Fully-consolidated subsidiaries % 69% % 64% Audit-related services Parent company Fully-consolidated subsidiaries % 0% Sub-total Audit % 93% % 100% Other services provided by networks to fully consolidated subsidiaries Legal, fiscal, payroll % 7% 0 0 0% 0% Other Total other services % 7% 0 0 0% 0% TOTAL % 100% % 100% 5.5 List of fully-consolidated companies Name Address Country % holding SIREN no. (French companies) Société Annic SAS La Mayounelle, La Guepie France 99.9% Sperian Fall Protection France SAS Rue de la Bidauderie, France 100.0% Vierzon P. 56 FINANCIAL REPORT

59 Name Address Country % holding SIREN no. (French companies) Bacoudev 2 SARL Immeuble Edison, ZI Paris Nord II, France 100.0% rue des Vanesses, Villepinte Sperian Protection France SAS Immeuble Edison, ZI Paris Nord II, France 100.0% rue des Vanesses, Villepinte BD Project 3 Immeuble Edison, ZI Paris Nord II, France 100.0% rue des Vanesses, Villepinte BD Project 4 Immeuble Edison, ZI Paris Nord II, France 100.0% rue des Vanesses, Villepinte Sperian Protection Footwear Givors SAS ZI du Gier, Givors France 100.0% Sperian Protection Logistique Systems SNC Parc d'activités du Val de Bourgogne, ZAC Nord-Est, Sevrey France 100.0% Combisafe France SAS 63 boulevard de Ménilmontant, France 100.0% Paris Sperian Protection SA Immeuble Edison, ZI Paris Nord II, France 100.0% rue des Vanesses, Villepinte Sperian Protection Clothing SAS Zone d'activité de Berret, France 100.0% Bagnol sur Cèze Sperian Protection Europe SAS Immeuble Edison, ZI Paris Nord II, 33 rue des Vanesses, Villepinte France 100.0% Sperian Respiratory Protection France SAS Immeuble Edison, ZI Paris Nord II, 33 rue des Vanesses, Villepinte France 100.0% Sperian Protection Gloves Plancher Bas SAS Immeuble Edison, ZI Paris Nord II, 33 rue des Vanesses, Villepinte France 100.0% Sperian Protection Armor SAS ZI de la Gare, Plaintel France 100.0% Sperian Protection Footwear Valence SAS ZA Briffaut-Est, 30, avenue Maurice France 100.0% Simonet, Valence Sperian Protection Gloves Autun SAS Porte d'autun, Saint Forgeaot France 100.0% Sperian Protection Defense SAS Immeuble Edison, ZI Paris Nord II, 33 rue France 100.0% des Vanesses, Villepinte Sperian Protection Gloves Franche Comté SAS "Le Mont", Plancher Bas, Champagne France 100.0% Combisafe Deutschland GmbH Rhenusplatz 3, Holzwickede Germany 100.0% Sperian Protection Deutschland GmbH & Co Kg Kronsforder Allee 16, D Lübeck Germany 100.0% Sperian Protection Verwaltungs GmbHKronsforder Allee 16, Lübeck Germany 100.0% OPMA Arbeitsshutz GmbH Fabrikweg 3, Emskirchen Germany 100.0% Sperian Fall Protection Deutschland Seligenweg 10, D Hof Germany 100.0% Gmbh & Co KG Sperian Protection Management Seligenweg 10, D Hof Germany 100.0% GmbH Sperian Protection Argentina SA Erezcano 3675, City of Buenos Aires Argentina 100.0% Moxham Safety Pty Ltd 3 Walker Street Braeside,Victoria 3195 Australia 100.0% FINANCIAL REPORT P. 57

60 Name Address Country % holding SIREN no. (French companies) Auralguard Pty Ltd 3 Walker Street Braeside,Victoria 3195 Australia 100.0% Sperian Protection Australia Pty Ltd 3 Walker Street Braeside,Victoria 3195 Australia 100.0% Sperian Fall Protection Australia Pty Ltd 3 Walker Street Braeside,Victoria 3195 Australia 100.0% Dalloz Holding Pty Ltd 3 Walker Street Braeside,Victoria 3195 Australia 100.0% CEP Rue du Zoning Industriel 60B, B-4300 Waremme Belgium 100.0% Sperian Produtos de Seguranca Ltda. (f/k/a Epicon Industria de Equipamentos de Porteçao Individual Ltda.) City of Diadema, State of São Paulo at Rue Álvares Cabral No. 1370, Vila Conceicão Brazil 100.0% Sperian Protective Apparel, Ltd St-Laurent Blvd., 6th fl., Montreal, Canada 100.0% Quebec H2W 2R2 Sperian Fall Protection Canada Ltd. Wooler Road, Hwy 401, PO Box 1200, Canada 100.0% Trenton, Ontario, K8V 6B4 Sperian Protection (China) Co., Ltd 312, Mei Neng Da Rd., Songjiang Industrial Park, Shanghai China 100.0% Sperian Protection (Shanghai) Trading Co., Ltd Sperian Protection (Nantong) Co.Ltd 2nd Floor, Keyuan Workshop, No. 11, Rying Road (South), Waigaoqiao Free Trade Zone, Shanghai South of Huanghe Road, Rudong Economic Development Zone, Jiangsu Province China 100.0% China 100.0% Combisafe Denmark APS Sluseholmen 2-4, 2450 Copenhagen SV Denmark 100.0% Combisafe Gulf LLC Emirate of Dubai United Arab Emirates 100.0% Sperian Protection Iberica SA Avenida de Castilla no.1, San Fernando Spain 100.0% de Henares, Madrid Glendale Protective Technologies, Inc. 900 Douglas Pike, Smithfield, RI United States 100.0% BMP I, Inc. 900 Douglas Pike, Smithfield, RI United States 100.0% SP USA Finance, Inc. c/o Corporation Service Company, Multifood Towers 33 South Sixth St., Minneapolis, MN United States 100.0% Sperian Protection USA, Inc. 900 Douglas Pike, Smithfield, RI United States 100.0% SP Assurance Vermont Co., Ltd. 100 Bank Street, Suite 610, Burlington, United States 100.0% VT Sperian Protection Instrumentation, LLC 651 South Main Street, Middletown, CT United States 100.0% Sperian Protection Investment, Inc. 900 Douglas Pike, Smithfield, RI United States 100.0% Sperian Fall Arrest Systems, Inc th Street, Franklin, PA United States 100.0% Sperian Protective Apparel USA, LLC th Street, Franklin, PA United States 100.0% Sperian Hearing Protection, LLC 7828 Waterville Road, San Diego, United States 100.0% CA Sperian Fall Protection, Inc th Street, Franklin, PA United States 100.0% P. 58 FINANCIAL REPORT

61 Name Address Country % holding SIREN no. (French companies) Bacou-Dalloz Safety, Inc 900 Douglas Pike, Smithfield, RI United States 100.0% Sperian Protection Americas, Inc. 900 Douglas Pike, Smithfield, RI United States 100.0% Nacre (US), Inc. 104 Bud Place, Aberdeen, NC United States 100.0% Sperian Protective Gloves USA, LLC 85 Innsbruck Drive, Buffalo, NY United States 100.0% Sperian Eye & Face Protection, Inc. 10 Thurber Blvd., Smithfield, RI United States 100.0% Sperian Respiratory Protection USA, LLC 3001 S Susan St., Santa Ana, CA United States 100.0% Sperian Protection Optical, Inc. 10 Thurber Blvd., Smithfield, RI United States 100.0% Sperian Metal Mesh Protection USA, Inc. 200 John Dietsch Blvd., Attleboro Falls, United States 100.0% MA Combisafe Suomi Oy Linjatie 5, Vanda Finland 100.0% Sperian Protection Hong Kong Ltd Suite 602, 6/F., Chinachem Exchange Hong Kong 100.0% Square, 1-7 Hoi Wan Street, Quarry Bay Sperian Protection Hungaria Kft 1139 Budapest, Forgach U. 9-B Hungary 60.0% Sperian Protection India Private Ltd Office No. 513, 5th Floor Bezzola Complex, Opp Suman Nagar, Sion- Trombay Road, Chembur, Mumbai , Maharashtra India 100.0% Sperian Protection Workwear Dorno Srl Piazza IV Noviembre 4, Milano Italy 100.0% Sperian Protection Gloves Torino Srl Via E. Reycend 51, Torino Italy 100.0% Sperian Protection Italia Srl Piazza IV Noviembre 4, Milano Italy 100.0% Animac Route côtière 110 Km. 12, Bernoussi, Morocco 70.0% Casablanca Sperian Protection Gloves Morocco Rue El Haouza Oukacha, Casablanca Morocco 54.5% Sperian Hearing Protection de Mexico, S. de R.L. de C.V. Respiratory Protection de Sperian S. de R.L. de C.V. Blvd. Insurgentes No A, Parque Industrial El Florido, Delegaion La Presa, Tijuana, BC Blvd. Insurgentes No A, Parque Industrial El Florido, Delegacion La Presa, Tijuana, BC Mexico 100.0% Mexico 100.0% Combisafe Norge AS Nydalsveien 33, 0484 Oslo Norway 100.0% Nacre AS Sluppenvegen 12E No Trondheim Norway 100.0% Sperian Protection New Zealand Ltd 70 Kerrs Road, Manukau City, Auckland New Zealand 100.0% Sperian Protection Netherlands BV Laan Copes van Cattenburch 52, 2585 GB The Hague Netherlands 100.0% Combisafe Nederland BV 1 Februariweg 13, 4794 SM Heijningen Netherlands 100.0% Sperian Protection Holding Netherlands BV Pulsafe Europe Holding BV Laan Copes van Cattenburch 52, 2585 GB The Hague Locatellikade 1, Parnassustoren, 1076 AZ Amsterdam Netherlands 99.0% Netherlands 100.0% Sperian Protection Respiratory Polska ul. Boleslawa 5, Lodz Poland 98.0% FINANCIAL REPORT P. 59

62 Name Address Country % holding SIREN no. (French companies) Bacou UK Sperian Protection Holding (UK) Ltd Advanced Scaffold Products Ltd Combisafe International: Ltd Oldham - Dalloz Fall Protection Ltd Logandene Ltd Sperian Protection (UK) Ltd ITK Safety LTD Pulsafe Safety Product Ltd Safety Eyewear Ltd Sperian Safety LLC Safety Technologies Ltd Sperian Protection Footwear Slovakia Sro Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Safety Centre, Unit 1, Cheaney Drive, Grange Park, Northampton, Northamptonshire NN4 5FB Safety Centre, Unit 1, Cheaney Drive, Grange Park, Northampton, Northamptonshire NN4 5FB Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY Heathrow Business Centre, 65 High Street, Egham, Surrey, TW20 9EY United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Business Center Sokol Digalta, Russia 100.0% Leningradsky, Prospekt 80-5, Office 202, Moscow Business Center Sokol Digalta, Leningradsky, Prospekt 80-5, Office 202, Moscow Nitrianska cesta 503/60, Partizanske Russia 60.0% Slovakia 100.0% Sperian Protection Slovakia Sro Nitrianska cesta 503/60, Slovakia 100.0% Partizanske Combisafe International AB Storsjöstråket 15, Östersund Sweden 100.0% Sperian Protection Sweden AB Strandbadsvagen 15, Helsingborg Sweden 100.0% Sperian Protection Nordic AB Strandbadsvagen 15, Helsingborg Sweden 100.0% Sperian Welding Protection AG Industriestrasse 2, 9630 Wattwil/SG Switzerland 100.0% Sperian Protection Tunisia Zone industrielle de Dar Châabane El Tunisia 100.0% Féhri, 8011 Nabeul Sperian Protection Nordic AB Strandbadsvagen 15, Helsingborg Sweden 100.0% Sperian Welding Protection AG Industriestrasse 2, 9630 Wattwil/SG Switzerland 100.0% Sperian Protection Tunisia Zone industrielle de Dar Châabane El Féhri, 8011 Nabeul Tunisia 100.0% P. 60 FINANCIAL REPORT

63 1.5.6 Statutory Auditor s Report on the consolidated financial statements To the Shareholders, In compliance with the assignment entrusted to us by your annual general meetings, we hereby report to you, for the year ended December 2009, on: the audit of the accompanying consolidated financial statements of Sperian Protection; the justification for our assessments; the specific verification required by French law. These consolidated financial statements have been approved by the board of directors. Our role is to express an opinion on these financial statements based on audit. I Opinion on the consolidated financial statements We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, by audit sampling and other selective testing method, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used, the significant estimates made by management and the overall financial statements presentation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets, liabilities and of the financial position of the group as of December 31, 2009 and of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Without qualifying the opinion expressed above, we draw your attention to note 1.1 to the consolidated financial statements, which describes the impact of new standards and interpretations applicable for annual periods beginning on or after January 1, II Justification of assessments In accordance with the requirements of article L of the French commercial code (Code de Commerce) relating to the justification of our assessments, we bring to your attention the following matters: As disclosed in notes and 4.3 to the consolidated financial statements, the group performs an impairment test on goodwill and intangible assets whenever there is an indication that long-term assets may be impaired, or systematically at each balance sheet date. As part of our assessment of the significant estimates used to prepare the financial statements, we assessed the assumptions used for the determination of the recoverable value of these assets so as to compare it with their carrying value. This recoverable value is assessed in particular on the basis of cash-flow forecasts prepared by the group s management in October We verified the reasonableness of the information contained in the notes to the consolidated financial statements relating to the cash-flow forecasts used and to the assumptions adopted for the determination of the recoverable value. As disclosed in note 4.10 to the consolidated financial statements, at each balance sheet date, the group conducts a fresh estimation of the risks and expenses incurred and for which a provision must be recognized. Where possible, the group FINANCIAL REPORT P. 61

64 calls upon the services of outside lawyers and actuaries to evaluate these provisions. As part of our assessment, of the significant estimates used to prepare the financial statements, we reviewed the reports and correspondence of these outside experts, in particular as regards the assessment of the risks relating to product warranties. In this respect, we verified the reasonableness of the information contained in the notes to the consolidated financial statements regarding the assumptions used to estimate the provision. As disclosed in note to the consolidated financial statements, the deferred tax assets relating to the losses previously generated in France are recognized insofar as it is probable that the group will have future taxable profits against which these tax losses may be used. As part our assessment of the significant estimates used to prepare the consolidated financial statements, we reviewed the assumptions for the French tax group s forecast results and we verified the reasonableness of these assumptions. These assessments were made as part of our audit of the consolidated fi nancial statements taken as a whole and, therefore, contributed to our audit opinion expressed in the first part of this report. III Specific verification We have also verified the information given in the group management report as required by French law. We have no matters to report regarding its fair presentation and consistency with the consolidated financial statements. Dijon et Paris-La Défense, March 2, 2010 The Statutory Auditors EXPERTISE COMPTABLE ET AUDIT Claude Cornuot ERNST & YOUNG Audit Jean-François Ginies P. 62 FINANCIAL REPORT

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67 2. BUSINESS REVIEW 2.1. History P Sperian Protection P The Christian Dalloz and Bacou Groups P The Personal Protective Equipment (PPE) Market P Market segments P Market growth drivers P PPE market regulations P Competition P Main suppliers and customers P Business Segments P Head Protection P Body Protection P Strategy P Differentiating the Sperian offering P Improving competitiveness P Motivating and developing human potential P Development and capital expenditure P Development P Capital expenditures P. 76 BUSINESS REVIEW P. 65

68 2. BUSINESS REVIEW 2.1. History Sperian Protection On August 20, 2007, Bacou-Dalloz changed its name to Sperian Protection. This new, more international identity underlines the Group s vision as the world reference leader in personal protective equipment, at work or in any hazardous environment. It symbolizes the trust embodied in the Group s name. Since the September 2001 merger between the Bacou and Christian Dalloz groups, which created a new world leader, the Group has successfully optimized its production, commercial and logistics organizations. It has also broadened and adapted its product portfolio to focus increasingly on personal protective equipment for use in hazardous environments, through the following transactions: Acquisition in 2003 of Securitex, a large North American manufacturer of protective garments for first responders, thus expanding its offering in the regional public safety market. Disposal in July 2004 of Abrium (former Bacou Development), a French distribution company. Disposal in September 2006 of Sunoptics, a designer and manufacturer of premium solar lenses for manufacturers of fashion and sports eyewear. Acquisition in December 2006 of Epicon, a Brazilian company that manufactures and distributes disposable respiratory masks, enabling the Group to establish a manufacturing base in South America. Acquisition in June 2007 of Nacre, which designs and makes intelligent earplugs, thereby expanding its hearing protection product line and improving its access to the military market. Acquisition in August 2008 of Combisafe, a leading designer and supplier of collective fall protection systems. Acquisition in September 2008 of technologies with dosebusters (United States), a pioneer in personal noise dosimetry technology. Expansion in the Mercosur emerging markets with the acquisition in December 2008 of Musitani S.A., the fall protection leader in Argentina. Disposal in November 2009 of the image wear business. In 2009, the Group decided to suspend its acquisition policy and focus on managing the impacts of the crisis and delivering renewed organic growth The Christian Dalloz and Bacou Groups Christian Dalloz The Christian Dalloz group was founded by Christian Dalloz in France in 1957 to manufacture industrial components produced using injection-molded plastics. By 1980, the Group had become a leading producer of polycarbonate injection-molded eyewear. Christian Dalloz S.A. was listed on the French stock market in The same year, it entered the North American market with eye protection products and, in 1989, acquired WGM Safety Corp., a manufacturer of fall protection and head protection equipment that also distributed eye protection equipment in the United States. After the death of its founder in 1991, the Group pursued its worldwide growth in the head protection industry through the acquisition of several companies: Bilsom (hearing) in Sweden in 1994, Pulsafe (eye and face) and Troll (fall protection) in the UK in 1996, Komet (fall protection) in France in 1997, Moxham (fall protection) in Australia in 1998, and Fendall (eye and face) in the US and Söll (fall protection) in Germany in P. 66 BUSINESS REVIEW

69 Bacou The Bacou group was founded by Henri Bacou in 1974, initially as a manufacturer of safety footwear in France. In the years following its creation, the Group made a succession of acquisitions in France: Fernez (respiratory) in 1997, Comoditex and Commeinhes-Remco (clothing) in 1980, Sofraf (gloves) in 1984, Delta Protection and Mutexil (clothing) in 1986, Antec (fall protection) in 1989, Ox bridge (clothing) in 1993, Fenzy (respiratory) in 1997 and Optrel (welding) in Over the same period, the Group gradually acquired French distributors that were consolidated in 1999 under the name Bacou Développement. In March 1993, the Group created the subsidiary Bacou USA, which acquired Uvex Safety Inc. (eye and face) in In 1996, Bacou USA was listed on the New York Stock Exchange, where it traded until the merger with Christian Dalloz in September After the death of its founder in 1996, the company continued its acquisitions strategy in the United States with the purchases of Survivair (respiratory) and Biosystems (gas detection equipment) in 1997, Howard Leight (hearing) in 1998, Perfect Fit (gloves) in 1999 and Whiting & Davis and Platinum (gloves) in The Personal Protective Equipment (PPE) Market The term PPE applies to any device or product worn, carried or held by a person with the intent of providing protection against a range of hazards capable of endangering his or her health or safety. The PPE industry supplies personal protective equipment and services designed to protect users from the risk of illness or injury in the workplace or in a hazardous environment Market segments The PPE market can be divided into two main segments: Body protection, which represents approximately two-thirds of the market and includes fall protection, protective gloves, protective clothing and safety footwear. Head protection, which represents one-third of the market and includes eye and face protection, hearing protection and respiratory protection. The equipment is primarily used in the following sectors: Industry: chemical, oil, oil services, steel, metallurgy, automotive, aerospace, shipyards, food processing and pharmaceutical. Construction. Mining. Armed forces and public safety: fire fighting, city governments, security forces and law enforcement. Energy, telecommunications and utilities. Transportation. Consumer Market growth drivers The worldwide market for PPE was estimated by Sperian Protection to be worth approximately 11 billion in After growing by about 3% in 2007, the market was affected by trends in the world economic environment from the final quarter of The main sectors hit by the escalating recession were the automobile, steel and chemicals industries, which are heavy consumers of personal protective equipment. This led to a downturn in the PPE market in both 2008 and BUSINESS REVIEW P. 67

70 Demand for personal protective equipment depends on the world economic environment but is also driven by the following key factors: Employment level in main countries. Regulations in force and changing regulations in developed countries. The introduction of regulations in some emerging economies, such as China and Brazil. The need for replacement equipment due to wear and tear or obsolescence. Government investment in building up stocks of protective equipment as a precaution against the risk of pandemics and natural disasters. Government stimulus packages for a broad spectrum of sectors such as automobile, infrastructure and new energies. A change in attitudes, demands by insurance companies and growing concern for safety. Recognition by PPE manufacturers of the need for comfort, ergonomics and styling. Innovations offered by PPE manufacturers. Cost of accidents and pressure by insurance companies PPE market regulations The PPE market is subject to numerous regulations that vary by region. North America US regulations require the use of personal protective equipment when performing certain jobs and in certain workplaces. The main regulatory authority is the Occupational Safety and Health Administration (OSHA), which is responsible for defining minimum workplace health and safety requirements for workers using PPE as well as PPE compliance standards. PPE must also comply with non-governmental standards issued by such bodies as the American National Standards Institute (ANSI) and the Canadian Standards Association (CSA). To ensure full compliance with US standards, all of the required tests are performed in the Group s certified laboratories. Europe The minimum heath and safety requirements for PPE and the conditions under which PPE products may be sold are defined by two EU directives. The directives also provide the framework for free trade in PPE products within the European Union and the basic safety requirements that these products must fulfill. These requirements govern the design and manufacture of PPE and are intended to protect the health and safety of PPE users. These directives were transposed into French law by Act no of December 31, 1991, which defines the principles of prevention. Decree no of January 11, 1993 specifies the minimum regulatory requirements related to the use of PPE, especially in terms of training and inspection. The essential PPE safety requirements have been integrated into the harmonized EU standards prepared in collaboration with all PPE stakeholders under the aegis of the European Committee for Standardization and other standards organizations. In compliance with the applicable regulations, the Group ensures that its new PPE products meet the essential requirements necessary for regulatory approval prior to their market introduction. Other jurisdictions where the Group s products are manufactured and/or sold PPE products manufactured by the Group are subject to various regulations in each geographic market. Each Sperian Protection division is responsible for taking appropriate steps to ensure compliance with regulations applicable to its products Competition Historically, the PPE industry has consisted of small regional manufacturers specialized in specific products or market segments. In recent years, however, industry consolidation has created larger players offering a broader range of products to several market segments or regions. P. 68 BUSINESS REVIEW

71 Since 2007, there have been a number of major market deals, including: In May 2007, Electra Private Equity Fund s sale of Capital Safety (fall protection) to Candover Investments. In June 2007, Sperian Protection s acquisition of Nacre, a Norwegian manufacturer of intelligent earplugs. In April 2008, 3M s acquisition of Aearo. 3M is the world leader in disposable respiratory masks. Aearo operates mainly in the hearing and eye and face protection segments. In May 2008, Honeywell s acquisition of Norcross (United States), its first foray into in the PPE sector. In August 2008, Sperian Protection s acquisition of Combisafe, a leader in fall protection systems. In December 2008, Sperian Protection s expansion in Latin American markets with the acquisition of Musitani, fall protection leader in Argentina. In April 2009, Kimberly-Clark s acquisition of Jackson Safety, a PPE and road safety equipment manufacturer Main suppliers and customers Purchasing The Group spends about 300 million a year on direct purchases, primarily raw materials (almost 30%), and finished or semi-finished goods (50%). Sperian Protection markets a wide range of products and manufactures many different types of personal protective equipment. As a result, it purchases a variety of raw materials, such as plastics (polyamide, polycarbonate, polypropylene, etc.) for eye and face protection, hearing protection and respiratory protection; steel and zinc for fall protection; latex for protective gloves; leather and rubber for safety footwear and protective gloves; and cotton for protective clothing and respiratory protection. In general, Sperian Protection uses a limited number of suppliers for each raw material, but does not consider itself dependent on any one supplier because all of these materials can be easily sourced from other companies. The Group also buys finished goods, primarily from Asian suppliers. A local team of purchasing and sub-contracting specialists has been set up to oversee and monitor these suppliers. Customers Sperian Protection makes up to 85% to 90% of its sales through industrial distributors that buy products for resale to PPE end-user companies. There are several types of distributor: Specialized PPE distributors such as Intersafe/Abrium and Bunzl in Europe. Distributors specialized in vertical markets such as Point P (Saint Gobain group) for the construction market in Europe and Fastenal in the United States. General distributors such as Grainger and Airgas in the United States and Descours et Cabaud in France. Direct sales to end-users mainly concern certain sales of fall protection equipment used in public services and in the telecommunications industry, and specific markets serving public safety organizations and governments. In 2009, about 10% of revenue was derived from the top five distributor clients and almost 15% from the top ten. On this basis, the Group does not consider this situation to be a major risk factor. BUSINESS REVIEW P. 69

72 2.3. Business Segments Revenue amounted to 660 million in 2009 and can be analyzed by market segment and region as follows: Gloves 8.5 % Footwear 7.5 % Respiratory 25.5 % Clothing 8.5 % Hearing 12.5 % Eye and face 15.5 % Fall protection 22 % Americas 276 M 42 % EMEA* 335 M 50.5 % Asia-Pacific 49 M 7.5 % * Europe, Middle East, Africa Head Protection 355 million, i.e. 54% Body Protection 305 million, i.e. 46% Head Protection Eye and face protection Eye and face protection equipment protects the eyes, eyesight and face against impact, splashes, specks, projectiles and ultraviolet and infrared radiation. Sperian Protection is the world market leader with about 20% share (Group estimate) and offers a comprehensive range of products from protective eyewear through to emergency eyewash stations. The largest segment comprises protective eyewear, goggles and face shields. These products compete with Aearo and Crews in the American market and with Uvex in Europe. The Group also markets a line of protective eyewear in the United States under the Harley-Davidson brand, a legendary brand licensed to Sperian Protection for the sale of work safety products. Sperian Protection is also the US leader in prescription safety glasses. In addition, the Group manufactures premium welding helmets, and more particularly helmets with self-darkening filter lenses. These products compete worldwide with Hornell (3M group). The Group also manufactures and markets laser protection eyewear used in the defense, aerospace, health, dermatology and scientific research sectors. Lastly, Sperian Protection is the US leader in emergency eyewash stations, used for cleaning eyes that have been exposed to harmful liquids or gases. These stations distribute saline solutions either in refillable bottles or throwaway cartridges. Since mid-2007, most eye and face protection products have been sold under the Uvex by Sperian brand in the Americas and the Sperian brand in Europe and Asia-Pacific. In 2009, Sperian Protection completed the development of its Specifix eyewear line, which incorporates the latest innovations in anti-fog and anti-scratch coatings. The new collection is available in several styles, each adapted to a specific work environment. It will be marketed from early P. 70 BUSINESS REVIEW

73 Respiratory protection Respiratory protection products enable workers to breathe in all types of contaminated environment, either by filtering air or by providing a separate air supply: Air purifying respirators are composed of sophisticated filters that purify contaminated air before it is inhaled. The Group offers a range of products that includes disposable respirators, filtering devices (full masks or half masks), and electrical devices that draw air mechanically through a filter. These devices filter or absorb particles or toxic gases present in the ambient air and are mainly used in manufacturing, construction and the pharmaceutical industry. Supplied air respirators are used when the ambient air cannot be purified. They are also used when the work environment presents a very high level of contamination or lack of oxygen and requires an independent source of clean air. Supplied air respirators include self-contained breathing apparatus (SCBA) which consist of a face-piece attached to an oxygen source, generally a cylinder of compressed air, and air line respirators, consisting of a face-piece and a fixed air supply hose which connects to an existing compressed air supply. They are mainly used by firefighters and in the petrochemical industry. Sperian Protection operates accredited technical centers on both sides of the Atlantic to maintain this type of device. The Group also manufactures portable and fixed gas detection and monitoring systems. Available in single-or multi-gas versions, these systems are used in confined spaces such as tunnels or gas pipelines and in hazardous sectors such as the oil industry. Most breathing devices manufactured by Sperian Protection are fitted with a liquid crystal display that shows the user the concentration of gas in the air. The Group s products compete worldwide with 3M, MSA, Scott Technologies (Tyco) and Draeger. Since mid-2007, they have been sold under the Sperian brand. In 2009, the Group increased production capacity at its disposable respiratory mask plant in France to meet the growing demand caused by fear of flu pandemics. In the United States, Sperian began to deliver its new Warrior SBCA to firefighters in southern California. Lastly, a new research laboratory was opened in France early in the year. Hearing Protection Every day, up to 275 million workers throughout the world are exposed to high noise levels that present a risk to their health. Hearing protection products, which protect users from hearing loss caused by exposure to loud noise, include earplugs (disposable, reusable and intelligent), banded earplugs and earmuffs (passive and communication enabled): Earplugs are small devices that fit into the outer ear canal and reduce ambient noise. Approximately two-thirds of the plugs sold throughout the world are disposable and one-third are reusable. The reusable plugs are generally more costly and are considered less comfortable. Intelligent earplugs combine adaptive in-ear hearing protection with audio communication terminal capabilities designed for use in variable noise environments. This patented technology was developed by Nacre, which was acquired by Sperian Protection in June The range is initially intended for military use but will subsequently be extended to heavy industries exposed to high noise levels. Earmuffs are most often used when the wearer is required to communicate with ease (at airports, shooting ranges, etc.), and can be fitted with an integral radio or telephone. They can also be used with earplugs when there is exposure to extreme noise levels. Banded earplugs offer an alternative to earplugs and earmuffs in the form of a headband with foam that does not penetrate into the ear canal, and are generally worn by people who cannot tolerate earplugs. Banded earplugs are especially appropriate for low or medium noise level work environments. According to Group estimates, Sperian Protection is the world s second largest hearing protection products manufacturer, with about 27% of the market. Its main competitor in this segment is Aearo (3M group). Since mid-2007, hearing protection products have been sold worldwide under the Howard Leight by Sperian brand and in Asia under the Sperian brand. In 2009, Sperian continued to roll out its hearing protection-related services, notably VeriPro which measures and tracks the on-site effectiveness of devices worn by employees. BUSINESS REVIEW P. 71

74 Body Protection Safety at height Falls represent the second largest cause of serious or fatal accidents in the workplace, just after vehicle-related accidents. Personal fall arrest systems are designed to make working at height safer and to protect users from falls, and are primarily used in the construction industry, by public services (power, utilities), and in the logging industry. Personal fall protection systems include: Harnesses that hold workers securely if they fall. Anchoring systems that provide a reliable attachment point. Connecting devices that attach the harness to the anchoring point to limit the free-fall zone. Collective protection systems such as barriers, nets, etc. Sperian Protection is the global leader in fall protection, with an estimated 22% of the market (Group estimate). The Group offers a worldwide comprehensive range of personal fall protection solutions and permanently installed height access systems. Fall protection equipment is used in three main industries: construction and manufacturing; telecommunications, utilities and tree pruning; and rope access and rescue. Fall arrest systems are built around ladders, cables and rails that provide secured access when working at height, as well as horizontal lifelines that can be easily installed in any environment and adapted to any working configuration. The main competitor in this market is Capital Safety, which markets products under the Protecta brand in the United States and the Sala brand in Europe. Since mid-2007, Group fall protection systems have been sold worldwide under the Miller by Sperian brand and in Asia under the Sperian brand. In 2009, Sperian received the product of the year award from US magazine «Occupational Health & Safety» for its Twin Turbo Light lifeline, which is perfectly adapted to the construction market. The award underlines the recognition of Sperian s innovative capabilities. Protective gloves Hand protection is a priority for workers who perform potentially hazardous tasks, as hand injuries can be severely disabling. Disposable or reusable protective gloves are used to protect against cuts and abrasions, chemical and biological agents, extreme temperatures and electrical burns or a combination of these risks. They are also used to protect against difficult weather conditions and risks associated with specific industries. Sperian Protection mainly serves the market for reusable gloves intended for industrial use to protect against exposure to: Minor or serious abrasion (surface abrasion due to friction), with growing use of knitted palm coated gloves. Medium to serious cuts, by using advanced synthetic fibers such as Kevlar or Dyneema with or without coating. Metal mesh gloves still provide the best protection against cuts and perforation in slaughterhouses and meat processing plants. Chemicals, using materials that are non-permeable and highly resistant to prevent contact with corrosive or hazardous products. These gloves, supported (textile-lined) or non-supported, are fully dipped in a protective material that varies according to the chemicals used (e.g. PVC, natural or synthetic latex and polychloroprene). Electrical current, with a range of insulated gloves used for high-voltage work (500 to 36,000 volts). All of these products compete with Ansell, the worldwide market leader, as well as with Marigold (Comasec group) in Europe, Memphis and Wells Lamont in the United States, and Showa in both Europe and the United States. Sperian Protection is the world leader in metal mesh gloves and the European leader in insulated dipped electrical current gloves (Group estimates). Since mid-2007, the entire range has been sold under the Sperian brand. In 2009, Sperian completed a major industrial restructuring of its protective gloves business. Three production plants in the United States and Europe were closed down and some production was transferred to the recently acquired Nantong plant in China. Pursuant to these initiatives, Sperian now has a solid manufacturing base for its protective gloves business. P. 72 BUSINESS REVIEW

75 Safety footwear Safety footwear protects users against shocks and the risks of skidding and falling by means of protective soles specifically designed to provide stability, absorb shocks and ensure good grip. Comfort and style are also important factors influencing the user s purchasing decision. The main markets for safety footwear are the manufacturing, metal, chemical, automotive, construction, transportation and food service industries, and the armed forces. Sperian Protection manufactures safety shoes and boots using both highly automated manufacturing processes (injected or vulcanized soles) and manual assembly methods (sewn soles and ankle shank production). These products are primarily marketed in Europe, where the Group believes that it is one of the market leaders, and in China. The main competitors in Europe are Jalatte-Almar and Cofra. Leveraging its long experience in this field, Sperian Protection has been renewing its safety footwear line-up in Europe since 2004, by introducing new ranges that fully meet user expectations and by developing its Timberland PRO brand products. The latter s new line of innovative, robust yet stylish footwear is specially designed for people who spend long hours on their feet, including logistics and transportation workers, messengers and tradesmen. It features the latest technological developments, such as nonmetallic reinforced toecaps and nitrile soles, to give an exceptional level of comfort and maximum protection in all working environments. Since mid-2007, the majority of range has been sold under the Sperian brand. Thanks to its investment in innovation over the past few years, in 2009 Sperian won first prize in the French Etoile du Design awards for its new Temptation Elite range of safety footwear for women. These awards are presented for the best innovations resulting from cooperation between manufacturers and designers. Protective clothing Combining high technology and attractive styling, the clothing division offers workwear adapted for use in hazardous environments. Customers choose standards-compliant protective clothing primarily based on an analysis of workplace risks and workstation characteristics, although comfort and ergonomics are also important criteria. Sperian Protection offers clothing designed to resist various aggressive environments, in particular: Anti-contamination suits for the nuclear and pharmaceutical industries. Protective garments for first responders, mainly used by municipal, industrial and military firefighters and paramedics. Disposable suits, mainly for the chemical and pharmaceutical industries. Stylish, comfortable outdoor workwear that provides protection for people working in difficult weather conditions. The group s disposable and reusable workwear are marketed only in Europe, where their main competitors are Dupont (disposable workwear) and Kansas (outdoor workwear). Protective garments for first responders are sold mainly in North America and compete with products made by Morning Pride, Globe and Lion Apparel. Since mid-2007, all Group products have been sold under the Sperian brand, except for the Timberland PRO range which is licensed to Sperian Protection in Europe. Sperian sold its image wear business in BUSINESS REVIEW P. 73

76 2.4. Strategy Sperian Protection has defined a strategy that aims to make it the world reference leader in PPE and the benchmark authority on personal protection and safety in the workplace. This entails strengthening its focus on end-user satisfaction by providing innovative, competitive solutions. Sperian is therefore building on three core growth drivers in which it has specific strengths innovation, focus on buoyant vertical markets and high-potential emerging countries, and providing products closely adapted to end-user needs. The Group must also remain flexible and versatile in order to maintain its competitive edge. This strategy clearly requires a high degree of commitment and enthusiasm across the entire organization Differentiating the Sperian offering Focusing on end-users Sperian Protection s strategy is built on an intimate knowledge of its markets, which allows it to focus on high-potential market segments, develop innovative solutions that closely meet user needs, and offer companies services to help prevent and manage risk in the workplace. Sperian also leverages its four power brands, which are key to building confidence and promoting a reputation for safety, style, comfort and reliability. These brands are Uvex in eye protection in the Americas, Howard Leight in hearing protection, Miller in fall protection and Sperian for all other product ranges. Focusing on buoyant vertical markets and high-potential emerging countries To speed up its organic growth, Sperian has chosen to focus on a few high-potential sectors where it believes it has a real competitive edge, such as public works and infrastructure, oil and oil services, and energy production and transportation. These are all sectors where awareness of risk and safety issues is very high. Demand for safe, effective protection therefore supports the Group s policy of offering broad ranges of high added-value products. In addition, these sectors will be main medium-term recipients of government support under economic stimulus plans. Sperian Protection has built up close relationships with leading groups in these sectors, such as Vinci Construction France in the construction industry and Total in the oil industry, by developing product lines geared to their specific needs. In the emerging countries, Sperian s expansion strategy is concentrated on Brazil and China, two countries with strong manufacturing capability. They both have a well-developed industrial infrastructure and a well-established distribution network. Thanks to its manufacturing facilities in these countries, the Group is well placed to provide products tailored to market demand. Increasing innovation The Group is developing its offering through selected innovation, supported by the expertise it has acquired over time, especially through its intimate knowledge of end-users. Over the years, it has gained an in-depth understanding of the risks involved in each environment and how to prevent them, and advanced technological knowledge of the different products. Sperian Protection is building on these strengths to provide appropriate, innovative solutions that provide performance, comfort, ease of use and stylish design, that fit end-user needs and that help them to comply with safety guidelines. These innovations not only involve new technologies, comfort and design, but also Sperian s ability to provide end-users with enhanced offerings that are more closely adapted to their working environment. To support these developments, Sperian Protection also works to enhance its expertise by developing partnerships or associations with various universities and research centers that have specific skills. For example, in France, the Group s decontamination suits division has financed a research program with the engineering school Les Mines d Alès. In the United States, the Group has forged a partnership with the House Ear Institute in Los Angeles, an NGO dedicated to advanced hearing science. In late 2008, the Group set up a research laboratory specifically for the protective gloves business with the aim of differentiating its offering in the buoyant dipped gloves market. In 2009, it opened a new research laboratory for respiratory protection equipment. P. 74 BUSINESS REVIEW

77 2.4.2 Improving competitiveness The Group s industrial structure is based on three geographical segments. It has upstream design and automated production facilities in each segment (Americas, Europe and Asia), but most downstream manufacturing takes place in low-cost countries. In 2009, Sperian had to react quickly to the decline in activity caused by the world economic crisis. Production was scaled back significantly at all plants by decreasing production shifts and reducing labor. Sperian also continued to restructure its protective gloves business by combining some production activities at the Slovakian plant and transferring others to the Nantong plant in China, acquired at end The Group will continue to restructure its industrial operations by improving industrial and logistics processes and further expanding its purchasing policy, mainly through continued globalization of sourcing Motivating and developing human potential Sperian Protection is pursuing its policy of developing and enhancing employee skills. This involves training programs tailored to each environment, sharing best practices through cross-functional projects and developing internal mobility. These crossfunctional networks enable certain action plans to be implemented more easily and effectively. The Group s human resources policy is described in section Development and capital expenditure Development As described in the section on strategy, innovation is a core driver of the Group s development. Dedicated to building customer loyalty, the Group s R&D commitment is based on careful attention to user expectations, in-depth knowledge of customer industries, proficiency in leading-edge technologies and partnerships with outside experts. Each product division tracks the emergence of new technologies and materials, develops new products and improves existing ones, and develops new production processes, with emphasis on automation. Knowledge-sharing between divisions means that all the product ranges can leverage the advanced technologies used by Sperian Protection. The Group also maintains the secrecy of production processes that are not protected by intellectual property rights, through the use of confidentiality agreements that require certain employees, consultants, suppliers, customers, agents and advisors to commit to maintaining the confidentiality of such information. In general, confidentiality agreements used by the Group stipulate that all confidential information developed by or communicated to the signer must remain confidential and cannot, with certain exceptions, be disclosed to third parties. Sperian Protection owns patents on certain PPE production processes. The company believes that it is not dependent on third party patents for the manufacture of its products. In addition, it believes that the legal expiration of any of its patents will not have a material adverse impact on its business or results. Sperian Protection believes that its brands and patents are an important component of its marketing strategy. Consequently, it practices a policy of protecting its intellectual property rights and, where possible, registers its brands and patents in France, Europe, the United States and other countries (such as China), as well as within the framework of international and European treaties. In addition, Sperian Protection believes that obtaining licenses to use well-known brands is a complementary aspect of its marketing strategy and, as a consequence, it actively seeks licenses that are certain to add value to the manufacturing and distribution of its products. BUSINESS REVIEW P. 75

78 Capital expenditure Capital expenditure amounted to 18.2 million in 2009, down from 29 million in 2008, which was a year of high expenditure mainly due to the acquisition of a dipped glove plant in China and a new manufacturing plant in Brazil. In 2009, ERP, CRM and other IT projects accounted for 4.5 million. Nearly 1 million was also spent on completing the relocation and consolidation of the two respiratory protection facilities in France and 2.5 million on increasing production capacity of the disposable respiratory mask plant in France. Other capital expenditure mainly concerned innovation ( 4.6 million) and industrial optimization projects. In all, the EMEA region accounted for 63% of total expenditure, the Americas for 31% and Asia-Pacific for 6%. Research and development costs totaled 13 million, or 2.04% of revenue, versus 1.85% in Marketing expenditure another key driver of innovation alongside the R&D commitment came to 3.7% of revenue in 2009, compared with 3.8% the year before. P. 76 BUSINESS REVIEW

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81 3. SOCIAL AND ENVIRONMENTAL REPORT 3.1. The Sperian Spirit P Corporate mission P Corporate values P The social responsibility process P Human Resources Policies P Human resources organization P Putting people first P Fostering personal growth and motivation P Labor agreements concerning the French companies P Workforce and Production Plants P Employees by region at December 31 P Employees by function at December 31 P Employee profile at December 31, 2009 P Production plants P Environmental Policies P Challenges P Raising employee awareness P Resource use P. 87 RAPPORT SOCIAL P. 79

82 3. SOCIAL AND ENVIRONMENTAL REPORT 3.1. The Sperian Spirit Corporate mission Sperian Protection s corporate mission is to contribute to ongoing improvements in workplace safety and productivity everywhere around the world. It is therefore deeply committed to deploying policies that effectively address social responsibility and environmental issues Corporate values The Group s corporate culture is based on four values that help to forge a mindset and common language around shared processes: teamwork and a commitment to team performance; mutual respect that encourages information and experience sharing; creativity, continuous improvement and risk taking for innovation; and a strong focus on customer satisfaction The social responsibility process Around the world, Sperian Protection plants and offices have long been locally involved in measures to protect people and the environment and in outreach programs to support host communities. In 2008, a new analysis and discussion phase was initiated to define a dedicated social responsibility process shared by every Group unit. A cross-functional working group was formed under the responsibility of the Executive Committee and tasked with defining a strategic vision that addresses the three key aspects of social responsibility: employee relations, corporate citizenship and environmental stewardship. The Group is defining the priority challenges, standards and Groupwide metrics that will enable it to steer, coordinate and optimize the process in every plant, sales office and logistical platform Human Resources Policies Human resources organization Sperian Protection has a global human resources organization backed by a local network of experts, based near its plants and local offices. This local presence means that policies and practices can be carefully aligned with the specific challenges of each region or business. Human resources policies have been designed around two fundamental objectives: putting people first and fostering the personal growth of employees, which enhances efficiency and motivation Putting people first A healthy workplace Sperian Protection is dedicated to offering employees a healthy, risk-free place to work. It therefore pays careful attention P. 80 RAPPORT SOCIAL

83 to regularly improving working and safety conditions in every facility worldwide, in accordance with host-country workplace safety legislation. For example, safety audits are regularly performed in the production plants to identity pathways to improvement. The frequency and severity of workplace accidents involving employees are measured on the following basis: Total recordable injury rate (TRIR) = Number of accidents involving lost time per million hours worked. Lost time injury rate (LTIR) = Number of days lost through temporary disability per thousand hours worked. In 2009, the worldwide TRIR rose to 14.6 from 13.3 in The Group is working to reduce repetitive stress injuries which are the main cause of this increase. The LTIR stood at 0.36 versus 0.30 in There were no fatal accidents in the Group in either 2009 or In a commitment to fostering employee well-being in France and other host countries, a working group comprising employee representatives, human resources representatives and managers was set up in late 2009 to assess the psychosocial risk factors that may affect employees and to recommend targeted action plans for Social dialogue In France, working hours have been reduced and reorganized in accordance with legislation and various collective agreements. Overtime, flextime and other working hours arrangements are managed according to French legislation and collective agreements. The Group is committed to encouraging ongoing social dialogue with employee representatives, both at Group level in France and in each local unit. On December 10, 2008, for example, a common wage negotiation framework was defined for all of the French sites. In addition, every year, discussions are held with employee representatives to define a common position for the year concerning non-managerial employees, in order to support fair treatment and enhance employee pride in working for Sperian. In the rest of the world, local negotiations with employee representatives (where they exist) and the management of working hours and overtime comply with local legislation and European Union regulations in Europe. Diversity Sperian Protection is an equal opportunity employer, committed to avoiding discrimination on the grounds of race, creed, national origin, ancestry, gender, age, health conditions or any other reason. In addition, the Group is committed to acting as a responsible corporate citizen wherever it operates. In particular, it supports host communities by reinvesting in the local economy, both by creating direct and indirect jobs and by implementing corporate social responsibility programs. These principles are expressed in the Group s Code of Business Conduct, which has been widely distributed to employees around the world. In France, the Group pledged in 2009 to implement recent French legislation concerning employees over 45, with measures deployed locally and discussed as part of a local action plan. All of the sites in France signed and/or implemented an agreement or action plan for older employees, with results measured every year. To secure the sustainability of its diversity process and make diversity a reality in the workplace, the Group also partnered with AGEFIPH, a private sector association that supports the French government s commitment to helping the disabled to find and remain in employment. In 2009, AGEFIPH conducted an audit of the integration and employment of disabled people in Group facilities in France, which found that 3.8% of employees in France qualified as disabled. A dedicated action plan will be rolled out in France and gradually extended to other host countries worldwide. RAPPORT SOCIAL P. 81

84 Other programs will be undertaken in 2010 to introduce indicators to encourage gender equality and, more generally, equal opportunity in the workplace Fostering personal growth and motivation Attracting the best talent Aware that people are its most valuable asset, Sperian Protection has strengthened its organization and resources to attract the best candidates and offer them career plans, based in particular on personal and team performance, a project culture, international mobility and the Sperian Spirit. New hires are systematically offered an individual integration plan and a special integration seminar. Training programs In a commitment to developing its human capital and retaining talented employees, Sperian Protection applies a variety of policies to encourage personal growth and improve employee skills. These policies are reflected in a program of targeted training, known collectively as the Sperian University, and in the increasingly prevalent sharing of best practices. Since 2008, the emphasis has been on training programs for the marketing and sales teams, to enable them to recommend products and solutions seamlessly aligned with end-user needs, and on management courses to encourage integration and cross-fertilization among the teams. The partnership with CEDEP-INSEAD is enabling Group managers to acquire the latest managerial techniques by attending the General Management Program and the Achieving Managerial Excellence course. In 2009, the dedicated Leadership You Can Trust program was organized for senior executives. It uses team exercises and a shared vocabulary to foster the emergence of new ideas and practical action plans to express what makes Sperian different. For the marketing and sales teams, a Key Accounts training and support program was launched at CEPED-INSEAD in November. In France, particular attention is being paid to training and development programs for non-managerial employees, particularly unskilled production operators. A Human Resources Planning and Development agreement was signed on March 10, 2009 and pilot programs are being deployed on most of the Sperian sites in France. Increasing job mobility Managers are actively encouraged to devise individual career development plans, which play a critical role in motivating performance. Thanks to internal mobility between units and countries, employees can enrich their work and life experience through contact with different cultures and methods, and distill their best practices for future use. In 2009, indicators were defined to guide the development of internal mobility paths for managers. In addition, vacant managerial positions are posted on the local intranet and recruitment managers are encouraged to consider internal as well as external job candidates. Compensation policies To reward personal as well as team performance and the demonstration of the Group s corporate values, an attractive compensation policy has been put in place, comprising: The People Performance First program, which aligns personal career objectives with Group priorities, assesses personal P. 82 RAPPORT SOCIAL

85 performance, and ensures that all employees have a personal career development plan. A variable compensation policy that rewards both personal and team performance, based on performance metrics geared to each job type and country. Management compensation is based on the principle that after around three years in a position, basic salaries should be about equal to the median reported in pay surveys in the country concerned. Pay rises are awarded individually on merit, based on personal performance. Workers and administrative employees also receive a negotiated general increase based on local pay surveys. Total payroll amounted to 185 million in Giving employees a stake in the Group s success Non-discretionary profit-sharing plans A non-discretionary profit-sharing plan was signed in June 2006, covering all of the French companies except Annic S.A., which has had its own plan since March The sums set aside for the special profit-sharing reserve are calculated as follows: (0.36 x payroll x taxable income)/value added In all, 1,261 people benefited from the plan in Discretionary profit-sharing plans Discretionary profit-sharing plans were signed in March 2005 by Annic S.A.S. and in June 2006 by Sperian Fall Protection France, Sperian Protection Armor and Sperian Respiratory Protection France. In 2005, Annic S.A.S. and Sperian Protection Gloves Autun were the only companies to benefit from discretionary profit-sharing plans. The total annual amounts paid under discretionary and non-discretionary profit-sharing plans over the past five years are as follows: (in thousands of euros) Non-discretionary profit-sharing plans 1, , , , Discretionary profit-sharing plans Employee savings plan In 2007, an agreement was signed with employee representatives to set up a Group Savings Plan for French employees. Until 2009, non-discretionary profit-shares were automatically paid into the Plan. Currently, profit-shares are paid either into the Plan or directly to the employee, who retains the possibility of investing in the Plan at any time. In 2009, employee contributions to the Plan were matched in amounts of up to 270 per employee. The Plan is managed by Amundi (formerly Crédit Agricole Asset Management), which offers participating employees four possible investment formats, ranging from the most conservative (money-market fund) to the most growth-oriented (equity fund). The annual management fees are paid by Sperian Protection. Employee stock ownership plans Other than the stock option and performance share plans described in chapter 1, there are no other employee stock ownership plans currently in place. However, as part of the Group Savings Plan described above, employees can elect to invest in a fund fully invested in Company shares. Pension plans In 2005, a supplementary defined contribution pension plan was introduced for French managers, with the employer and employee each contributing 2% of total salary. RAPPORT SOCIAL P. 83

86 Health and Disability Insurance In recent years, the Group has upgraded healthcare and insurance benefits for its French employees in a commitment to optimizing coverage for employees and their loved ones. Since January 1, 2010, for example, all of the French employees have been covered by a single healthcare insurance plan and optimized death and disability coverage. The plans have been harmonized to ensure that entitlements are aligned across the organization. Decisions concerning the choice of insurer and the amount of coverage were guided by the goal of offering employees innovative, high-quality benefits while maintaining competitive costs. In 2010, working in close collaboration with employee representatives, the Group will enhance the management of these disability and healthcare policies, with the aim of making each employee an active, informed participant in the system. Ultimately, the objective is to foster a more responsible approach to healthcare expenditure. Stock option plans and performance share grants Stock option plans and performance share grants are described in chapter 1, note Labor agreements concerning the French companies Collective bargaining agreements The Group s French companies are subject to various collective bargaining agreements, depending on their business. These include: (i) National collective bargaining agreement for the wholesale industry, extended by decree on June 15, 1972, amended on September 27, 1984 and again extended by decree dated February 4, (ii) National collective bargaining agreement for the footwear industry, revised and recodified by agreement on March 7, 1990 and extended by decree on June 9, (iii) National collective bargaining agreement for the textile industry, extended by decree on December 17, 1951, amended on May 29, 1979 and again extended by decree on October 23, (iv) National collective bargaining agreement for the apparel industry, extended by decree on July 23, (v) National collective bargaining agreement for the rubber industry dated March 6, 1953 and extended by decree on May 29, (vi) National collective bargaining agreement for engineers and executives in the metals industry, extended by decree on April 27, (vii) Regional collective bargaining agreement for the metals, mechanical engineering and associated industries in the Paris region, extended by decree on August 11, 1965, amended on July 13, 1973 and again extended by decree on December 10, (viii) Regional collective bargaining agreement for the metals industry in the Aisne region. (ix) Regional collective bargaining agreement for the metals industry in the Haute-Saône region. (x) National collective bargaining agreement for the chemical industry dated December 30, 1952 and extended by decree on November 13, (xi) National collective bargaining agreement for the plastic industry, extended by decree on May 14, Employee representatives and working hours Most of the French subsidiaries have employee representatives, who may be union delegates and/or elected members of representative institutions. Agreements on the 35-hour working week are in place in all of the companies concerned, and cover almost all employees in the French companies. The March 2009 Human Resources Planning and Development agreement expresses the Group s commitment to ensuring that union delegates and other employee representatives elected at sites in France enjoy equal access to training and career development opportunities. P. 84 RAPPORT SOCIAL

87 Redundancy plans, outplacement, re-hiring and other support measures In the event of plant closures or redundancy plans, employees concerned are systematically supported with a wide range of programs. In particular, a placement unit is set up to help employees find jobs inside and outside the Group and to obtain government assistance for re-hiring, training or creating a company. The downturn in the global economy and its impact on the Group since fourth-quarter 2008 have led to the implementation of a number of workforce adjustment and competitive differentiation plans, particularly in the first half of These plans have involved restructuring at certain sites, with the employees concerned systematically offered opportunities for outplacement, workforce re-entry assistance and training Workforce and Production Plants Employees by region at December 31 Sperian Protection is an international organization, with 5,887 employees in 25 countries at December 31, The workforce adjustment and competitive differentiation plans implemented in late 2008 reduced the workforce in 2009, particularly in the multi-product manufacturing plants in developing markets. In addition, compared with December 31, 2008, the following tables include the employees of the plants in Nantong, China and Buenos Aires, Argentina. December 31, 2009 December 31, 2008 Change France 1,145 1, Western Europe excl. France North America 1,427 1, Australia ,044 3, Latin America 1,386 1, Eastern Europe North Africa Asia ,843 2, Total 5,887 6, Employees by function at December 31 December 31, 2009 December 31, 2008 Change Production 3,434 3, Marketing and Sales 1,081 1, Production/Management Administration Research & Development Information Systems Human Resources Total 5,887 6, The increase in production and production management employees reflects the entry of the Nantong and Buenos Aires plants in the scope of reporting. RAPPORT SOCIAL P. 85

88 Employee profile at December 31, 2009 Total of whom women % of employees Of whom managers % of employees Of whom women managers % of employees Average age Average length of service France 1, % % 90 8% Western Europe excl. France % % 16 4% 42 8 United States and Canada 1, % % 63 4% 47 9 Australia % 6 9% 1 1% 44 7 Latin America 1, % 22 2% Eastern Europe % 29 6% 11 2% 37 4 Africa % 18 3% 4 1% 29 5 Asia % 30 8% 8 2% 33 2 Total 5,887 3,024 51% % 198 3% In France, the Group employs 37 disabled people and makes financial contributions to various organizations as required by law. In 2009, a audit of the Group s disability performance in France was conducted in partnership with AGEFIPH, a private sector association that supports the French government s commitment to helping the disabled to find and remain in employment. An action plan has been implemented in 2010 to raise employee awareness of disability issues and to deploy on two or three pilot sites dedicated programs to hire, train and retain disabled employees Production plants Sperian Protection manufactures most of the products sold under its brand names. In 2009, the Group pursued programs to optimize the manufacturing base, which have led or will lead to the closure or sale of five plants. On the other hand, it integrates three plants in Buenos Aires, Argentina and Nantong China. The following table shows the location of production plants by geography and business as of December 31, Head protection Body protection Multi-product Total North America Western Europe Other Total As of December 31, 2009, 15 of the 27 plants were owned outright, 10 were rented and one was leased. In addition, at the Villers-Cotterêts plant, the Group uses one building under an operating lease and another under a finance lease. The Group also sources products from other manufacturers, mainly in Eastern Europe and Southeast Asia. As early as 2003, an outsourcing team was set up in China to review opportunities for more extensive sourcing with producers of labor-intensive products. The team is also responsible for quality control over these products. It is particularly strict about ethical standards when choosing subcontracting partners. P. 86 RAPPORT SOCIAL

89 3.4. Environmental Policies Challenges Sperian Protection is committed to acting as a responsible corporate citizen in all its dealings with financial and business partners, employees and host communities. By their very nature, its production processes have little impact on the surrounding ecosystems. As a responsible corporate citizen however, the Group plans and rationalizes the use of all production resources, including water, energy and raw materials, before their transformation into finished products. Three manufacturing plants are ISO certified Höf (fall protection) in Germany, Plaintel (respiratory protection) and Autun (protective gloves) and two others are in the process of being certified. Policies for identifying, monitoring, measuring, controlling and reducing risks are based on best international practices and recognized standards. All production plants comply with national and local legislation. No accident involving air, water or soil pollution or contamination was reported in No provisions have been set aside for environmental risk. Expenditure on preventing environmental damage from the Group s business activities amounted to 85,000 in 2009, versus 81,000 in Raising employee awareness Several local initiatives were undertaken in 2009 to raise employee awareness of environmental stewardship issues, in particular the need for energy conservation in both office facilities and production plants. Regular information on the corporate intranet is helping to instill best practices across the organization and increase employee interest in this area Resource use In addition to complying with environmental legislation, Sperian is committed to reducing the use of natural resources in its production processes. The data presented below cover the manufacturing plants in Western Europe, North America and Mexico, or 20 of the total 27 plants worldwide. Water and energy As a responsible corporate citizen, Sperian Protection continuously works on reducing the use of non-renewable resources (especially water and energy) in its production processes. Manual assembly is the main activity at production sites, and consumes minimal natural resources. Product manufacturing processes are analyzed on a qualitative and quantitative basis, particularly their use of resources and raw materials, to assess whether there is any potential for further improvement. Water and energy use data for 2008 and 2009 are as follows: Water (utilities and production): 2009: 73,643 cubic meters. 2008: 84,352 cubic meters. Energy In 2009, natural gas represented 96% of total energy used, electricity 4%. Natural gas: 2009: 890,815 cubic meters. 2008: 1,393,210 cubic meters. RAPPORT SOCIAL P. 87

90 The decrease in natural gas consumption was primarily due to the decline in output at most of the plants during the year, as well as to improved insulation and greater employee awareness of the need to conserve energy. Waste management Industrial waste, both hazardous and non-hazardous, is collected and disposed of by accredited recycling specialists that provide suitable processing and storage facilities. Following the slowdown in production output, waste volumes decreased to 2,446 tonnes in 2009, broken down as follows: Hazardous waste: 253 tonnes, of which 79% was incinerated, 17% sent to landfill sites and 4% recycled. Non-hazardous waste: 2,194 tonnes, of which 61% was recycled, 37% sent to landfill sites and 2% incinerated. Noise and odors The Group s business activities generated minimal noise and no odors in P. 88 RAPPORT SOCIAL

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92

93 SOMMAIRE 4. CORPORATE GOVERNANCE 4.1. Board of Directory P Directors P Board management P Board practices P Prevention of insider trading P Director s interests P Shareholdings P Stock options and performance shares held by members of the Board P Stock options and performance shares held by executive officers P Directors compensation P Directors compensation in 2009 P Summary of compensation, stock options and performance shares received by executive officers P Summary of total compensation received by executive officers P Directors fees received by non-executive directors (1) P Other information about the directors P Loans and guarantees P Summary information P Agreements with directors P Statutory Auditors report on related-party agreements P Organization structure P A global organization structure P Senior management P Services provided by Sperian Protection S.A. to its subsidiaries P Simplified Group legal structure as of December 31, 2009 P Chairman s Report P Corporate governance code P Corporate governance P Principles and rules for Executive Officers compensation approved P. 110 by the Board of Directors on March 3, Compensation and agreements between the company and the executive officers P Preparation and organization of the Board of Directors work P Report on the Board s work in 2009 P Restrictions on the Chief Executive Officer s powers P Attendance at shareholders meetings P Disclosure of information liable to have an influence on the outcome of a public offer (article L of the French Commercial Code). P Internal control procedures P Statutory Auditors Report prepared in accordance with article L of the French commercial code (Code de commerce) on the report prepared by P. 121 the Chairman of the Board of Directors of Sperian Protection CORPORATE GOVERNANCE P. 91

94 4. CORPORATE GOVERNANCE 4.1. Board of Directors On March 3, 2009, in accordance with the law and the provisions of article 17 of the by-laws, the Board of Directors elected to separate the office of Chairman of the Board of Directors from that of Chief Executive Officer, re-appointed Henri-Dominique Petit as Chairman of the Board of Directors and appointed Brice de La Morandière as Chief Executive Officer. These changes became effective on April 14, Directors The following table shows the composition of the Board of Directors as of January 2, 2010: Name and age or corporate name Date first elected Current term expires Main position in the Company Other positions outside the Group Number of shares held in the Company Philippe Alfroid, 64 Director: April 8, 1991 Annual meeting held to approve the 2011 financial statements Director 456 Philippe Bacou, 52 Director: September 6, 2001 Co-Executive Officer: since September 3, 2003 for a term running concurrently with his term as director Annual meeting held to approve the 2009 financial statements Director, Co-Executive Officer 596 Patrice Hoppenot, 65 Director: May 21, 2003 Annual meeting held to approve the 2011 financial statements Director Chairman, Investisseur & Partenaire 200 Brice de La Morandière, 44 Director: May 6, 2009 Chief Executive Officer: since April 14, 2009 for a term running concurrently with his term as director Annual meeting held to approve the 2011 financial statements Director Chief Executive Officer 200 François de Lisle, 63 Director: May 10, 2006 Annual meeting held to approve the 2009 financial statements Director 800 Gunther Mauerhofer, 71 Director: May 21, 2003 Annual meeting held to approve the 2011 financial statements Director 801 P. 92 CORPORATE GOVERNANCE

95 Name and age or corporate name Date first elected Current term expires Main position in the Company Other positions outside the Group Number of shares held in the Company Henri-Dominique Petit, 61 Director: May 18, 2004 Annual meeting held to approve the 2009 financial statements Chairman 201 Philippe Rollier, 67 Director: May 10, 2007 Annual meeting held to approve the 2009 financial statements Director 200 André Talmon, 70 Director: May 16, 2002 Annual meeting held to approve the 2009 financial statements Director Chairman, Carrières Degan S.A. 201 Laurent Vacherot, 53 Director: Co-opted on July 7, 2009 following the resignation of Patrick Boissier To be ratified at the annual shareholders meeting held to approve the 2009 financial statements Director Chief Financial Officer, Essilor International 200 Other positions held by Brice de La Morandière within the Group: USA Sperian Protection USA, Inc. Director Other positions held by Henri-Dominique Petit within the Group: None CORPORATE GOVERNANCE P. 93

96 Positions held by members of the Board outside the Group Name Philippe Alfroid Philippe Bacou Patrice Hoppenot Brice de La Morandière François de Lisle France Director: Essilor International* Faiveley S.A* Faiveley Transport International Chairman and Director: Essilor Of America Inc. (USA), Omega Optical Holding, Inc. (USA), Director: Gentex Optics Inc. (USA), Visionweb Inc. (USA), EOA Holding Co Inc. (USA), EOA Investment Inc. (USA), Essilor Canada LTEE/ Ltd (Canada) Pro-Optic Canada Inc. (Canada) Shanghai Essilor Optical Company Ltd (China) France Director: Holding Trophy S.A. Dieau Edafim S.A. France Member of the Supervisory Board: Elior Director: Rolot Lemesson Burelle (S.A.) France Director: Essilor International* Faiveley S.A* Faiveley Transport International Chairman and Director: Essilor Of America Inc. (USA), Omega Optical Holding, Inc. (USA), Director: Gentex Optics Inc. (USA), Visionweb Inc. (USA), EOA Holding Co Inc. (USA), EOA Investment Inc. (USA), Essilor Canada LTEE/ Ltd (Canada) Pro-Optic Canada Inc. (Canada) Shanghai Essilor Optical Company Ltd (China) France Director: Holding Trophy S.A. Dieau Edafim S.A. France Member of the Supervisory Board: Elior Director: Burelle (S.A.) France Director: Essilor International* Faiveley S.A* Faiveley Transport International Chairman and Director: Essilor Of America Inc. (USA), Omega Optical Holding, Inc. (USA), Director: Gentex Optics Inc. (USA), Visionweb Inc. (USA), EOA Holding Co Inc. (USA), EOA Investment Inc. (USA), Essilor Canada LTEE/ Ltd (Canada) Pro-Optic Canada Inc. (Canada) Shanghai Essilor Optical Company Ltd (China) France Director: Holding Trophy S.A. France Member of the Supervisory Board: Ideal Connaissances S.A. Director: Burelle (S.A.) France Director: Essilor International* Faiveley S.A* Faiveley Transport International Director: Essilor Of America Inc. (USA), Gentex Optics Inc. (USA), EOA Holding Co Inc. (USA), EOA Investment Inc. (USA), Omega Optical Holding, Inc. (USA), Essilor Canada LTEE/ Ltd (Canada) Pro-Optic Canada Inc. (Canada) Shanghai Essilor Optical Company Ltd (China) None France Member of the Supervisory Board: Ideal Connaissances S.A. Director: Burelle (S.A.) France Chief Operating Officer: Essilor International * until June 30, 2009 Director: Essilor International Eurogerm Chairman of the Supervisory Board: Faiveley Transport International Chairman and Director: Essilor Of America Inc. (USA), Omega Optical Holding, Inc. (USA),** Director: Gentex Optics Inc. (USA),** EOA Holding Co Inc. (USA),** EOA Investment Inc. (USA),** Essilor Canada LTEE/ Ltd (Canada),** Pro-Optic Canada Inc. (Canada),** Shanghai Essilor Optical Company Ltd (China),** None None None None None None France Permanent Rep. of CAPE Holding: Groupe Gascogne, Director: Groupe SMP France Director: Groupe SMP S2M France Director: S2M France Director: S2M France Member of the Supervisory Board: Ideal Connaissances S.A. Director: Burelle (S.A.) France Director: S2M Chairman: Scots mutual fund P. 94 CORPORATE GOVERNANCE

97 Name Gunther Mauerhofer France Director: Groupe Gascogne France Director: Groupe Gascogne France Director: Groupe Gascogne France Director: Gascogne France Director: Gascogne Henri- Dominique Petit International Member of the Supervisory Board: Danone GmbH (Germany) Danone Holding AG (Germany) International Member of the Supervisory Board: Danone GmbH (Germany) Danone Holding AG (Germany) International Member of the Supervisory Board: Danone GmbH (Germany) Danone Holding AG (Germany) France Director: Carbone Lorraine* International Member of the Supervisory Board: Danone GmbH (Germany) Danone Holding AG (Germany) France Director: Carbone Lorraine* International Member of the Supervisory Board: Danone GmbH (Germany) Danone Holding AG (Germany) France Vice Chairman of the Supervisory Board: Carbone Lorraine* International Director: Chesapeake* Corp. (USA) International Director: Chesapeake* Corp. (USA) International Director: Chesapeake* Corp. (USA) International Director: Chesapeake* Corp. (USA) International Director: Canal Corporation Philippe Rollier France Director: Moria SA France Director: Moria SA France Director: Moria SA Carbone Lorraine* Monier SA Member of the Supervisory Board: Financière Gregoire France Director: Moria SA Carbone Lorraine* Monier SA Member of the Supervisory Board: Financière Gregoire France Director: Moria SA Carbone Lorraine* Monier SA Member of the Supervisory Board: Financière Gregoire André Talmon Laurent Vacherot *Listed company International President and CEO: Lafarge North America France Chairman: Carrières Degan Association IMA Director: ARD International President and CEO: Lafarge North America France Chairman: Carrières Degan Association IMA Director: ARD International Director: Sonoco Products* France Chairman: Degan S.A. International Director: Sonoco Products* France Chairman: Degan S.A. None None None International: Director: Transitions Optical Ltd Transitions Optical Property Ltd Transitions Optical Holdings BV Transitions Optical Thailand Ltd Transitions Optical India Private Ltd International Director: Sonoco Products* France Chairman: Degan S.A. International: Director: Transitions Optical Ltd Transitions Optical Property Ltd Transitions Optical Holdings BV Transitions Optical Thailand Ltd Transitions Optical India Private Ltd ** Term ended during the year. CORPORATE GOVERNANCE P. 95

98 Director information (1) Philippe Alfroid is the Chairman of the Board of Faiveley Transport and was a Director and Chief Operating Officer of Essilor International from May 6, 1996 until his retirement on June 30, He has been a Director of the Group since 1991 and was alternating Chairman with Philippe Bacou from the time of the Bacou/Christian Dalloz merger in September 2001 until January 11, Since that date he has been Chairman of the Nominations and Remuneration Committee. He is an engineering graduate from ENSEHRMA, Grenoble, and has a Master of Science degree from MIT. Philippe Bacou an accountant by profession, joined the Bacou Group in He was Chairman of Bacou from 1996 until the merger with Christian Dalloz. He was then Chairman of the Bacou-Dalloz group from 2001 to 2003 and is now Co-Executive Officer and was Chairman of the Strategy Committee until December 31, Patrice Hoppenot worked mainly in finance positions in the food and pharmaceuticals industries from 1971 to 1985, when he was appointed Chairman of Géladour, a frozen foods retailer. In 1988, he was one of four founders of BC Partners, an independent European financial investor specializing in LMBOs. In 2001, he left BC Partners to found and become Chairman of Investisseur & Partenaire pour le Développement, a Mauritius-based company that finances business investments in developing countries. He is a civil engineering graduate of the École Nationale des Mines, Paris and has an MBA from the University of Chicago. Brice de La Morandière joined the Christian Dalloz Group as Chief Financial Officer in 1997 following ten years with CarnaudMetalbox. He became Chief Financial Officer of Sperian Protection in 2001, on the merger of Christian Dalloz and Bacou. He was appointed Executive Vice-President of the Body Protection SBU in June 2006, Chief Operating Officer in August 2008, and then Chief Executive Officer of Sperian Protection on March 3, He is a graduate of the Institut d Études Politiques de Paris and has a post-graduate degree in strategic management. François de Lisle spent his entire career with the Crédit Agricole group, which he joined in In 1988, he became Investment Director at CAPE Holding (formerly Union d Études et d Investissement), the parent company of Crédit Agricole Capital Investissement (formerly Idia Participations). In this capacity, he was permanent representative of Crédit Agricole Capital Investissement on the Board of Bacou-Dalloz from March 18, 2003 until his departure from the Crédit Agricole group at the end of January He is a graduate of the École des Hautes Études Commerciales. Gunther Mauerhofer began his career with Kimberly-Clark in In 1984, he joined the Danone group as Head of Business Development for all divisions, subsequently becoming Head of International Operations for the biscuits division. When he left in February 2002, he was Vice-President, Central and Eastern Europe for the dairy products division. He is a graduate of the University of Vienna, the Johns Hopkins School of Advanced International Studies (SAIS) and the University of Bologna, Italy. He also has an MBA from INSEAD, France. Henri-Dominique Petit joined Kodak in 1975 where he held several operational and management positions in France, the United States and England. In February 2001, he became Chairman & President, Asia-Pacific region, based in Shanghai. He was appointed Chief Executive Officer of the Bacou-Dalloz group for a term from May 2004 through April 14, 2009 and has been Chairman of the Board of Directors since January 11, He is an engineering graduate of the École Supérieure de Physique et Chimie, Paris, and has a post-graduate degree in nuclear physics and a doctorate in molecular electronics. He has also completed the Advanced Management Program at INSEAD, France.. (1) Independent directors: see Chairman s report in section 4.4. P. 96 CORPORATE GOVERNANCE

99 Philippe Rollier spent his entire career with Lafarge, where, until he left in late 2006, he served as President and Chief Executive Officer of Lafarge North America and as Chief Operating Officer of Lafarge since January Between 2003 and 2006, he was also a director of the Wolf Trap Foundation for the Performing Arts and the National Building Museum in the United States. He is a graduate of INA Paris-Grignon and Institut de Sciences Politiques de Paris. André Talmon began his career with Exxon Chemicals before moving into management with the Rio Tinto group, where he remained until He is a graduate of the École Polytechnique Fédérale, Zurich, and has an MBA from INSEAD, France. Laurent Vacherot has been Chief Financial Officer of the Essilor International group since July He spent ten years with Accenture before joining Essilor International in 1992, where he held various executive positions in France and North America before being appointed to his current position. He is a graduate of the Ecole Nationale Supérieur des Télécommunications de Paris. Information on candidates nominated for election as director at the annual shareholders meeting scheduled for May 19, 2010 At the annual shareholders meeting scheduled for May 19, 2010, the Board will invite the shareholders to: Ratify the Board s cooptation of Laurent Vacherot on July 7, 2009 to replace Patrick Boissier who has resigned, for the remainder of his predecessor s term, that is until the annual shareholders meeting held to approve the 2009 financial statements. The shareholders will also be invited to re-elect: Philippe Bacou, Henri-Dominique Petit and Laurent Vacherot for a term of one year ending at the annual shareholders meeting held to approve the 2010 financial statements. The reason for re-electing these directors for a term of only one year is to comply with the Afep-Medef corporate governance code adopted by the Company, which recommends staggering terms to avoid a block re-election of the Board and to promote the smooth rotation of directors. François de Lisle and Philippe Rollier for a term of three years ending at the annual shareholders meeting held to approve the 2012 financial statements. Statements regarding the directors and executive officers To the Company s knowledge: 1) None of the directors or executive officers has been convicted of fraud in the past five years. 2) None of the directors or executive officers has been implicated in a bankruptcy, receivership or liquidation as a director, senior executive, supervisory board member or company officer in the past five years. 3) None of the directors or executive officers has been barred from acting as a director, senior executive or supervisory board member or from participating in the management of a listed company in the past five years. 4) None of the directors or executive officers has been charged with any other offence or had any official public disciplinary action taken against them by the legal or regulatory authorities (including any professional bodies) in the past five years. 5) There are no potential conflicts of interest between the directors duties towards the company and their own personal interests or other duties Board management At its meeting of March 3, 2009, in accordance with the law and Article 17 of the by-laws, the Board elected to separate the offices of Chairman of the Board and Chief Executive Officer. The Board also reappointed Henri-Dominique Petit as Chairman and appointed Brice de La Morandière as Chief Executive Officer for a term running concurrently with his term of office as director. These changes became effective on April 14, In accordance with Article 17 of the by-laws, the Board of Directors may, on the recommendation of the Chief Executive Officer, appoint one or more persons as Co-Executive Officer(s) to assist the Chief Executive Officer in his duties. They do not need to be directors. On March 3, 2009, the Board confirmed CORPORATE GOVERNANCE P. 97

100 the appointment of Philippe Bacou as Co-Executive Officer for a term running concurrently with his term of office as director. The main role of the Co-Executive Officer is to support the Chief Executive Officer in his duties by carrying out assignments delegated to him. He also provides continuity of management in the event the Chief Executive Officer is unable to fulfill his duties. He therefore has the same powers as the Chief Executive Officer and, unless otherwise decided by the Board of Directors, he remains in office with full powers until a new Chief Executive Officer is appointed Board practices As required by article L of the French Commercial Code (Code de commerce), the Chairman will report to shareholders on corporate governance and internal control at the annual meeting scheduled for May 19, 2010, and on any restrictions on the Chief Executive Officer s powers. Detailed information on Board practices is provided in section 4.6 of this report. The restrictions on the Chief Executive Officer s powers are described in section Prevention of insider trading In 2002, the Board introduced an internal procedure to reduce the risk of insider trading, which applies to directors and employees alike. This procedure was updated in 2007 to comply with new European Union regulations, particularly the Market Abuse Directive. The company maintains an updated list of permanent insiders, which includes the Chairman of the Board, Chief Executive Officer, Directors, members of the Executive Committee and certain employees working in the finance, legal and communication departments. They are prohibited from dealing in the company s shares for a period of two weeks before the Group announces its annual and half-yearly earnings and its quarterly revenues. The Finance Department publishes the dates of these blackout periods on the Group intranet. In addition, any permanent insider or employee who becomes aware of inside information may not deal in the company s shares until the first trading day after the publication of a press release disclosing the information. In this case, the Group draws up a list of employees classified as temporary insiders. P. 98 CORPORATE GOVERNANCE

101 4.2. Directors interests Shareholdings The table below shows directors shareholdings in the company as of March 2, 2010: Director Number of shares Percentage capital Percentage voting rights Philippe Alfroid 456 nm nm Philippe Bacou 596 nm nm Patrice Hoppenot 200 nm nm Brice de La Morandière 200 nm nm François de Lisle 800 nm nm Gunther Mauerhofer 801 nm nm Henri-Dominique Petit 201 nm nm Philippe Rollier 200 nm nm André Talmon 201 nm nm Laurent Vacherot 200 nm nm TOTAL 3,855 nm nm As of December 31, 2009, none of the directors had any significant holdings in Sperian Protection subsidiaries Stock options and performance shares held by members of the Board No directors other than Henri-Dominique Petit and Brice de La Morandière held stock options or performance shares as of December 31, No stock options or performance shares were granted to directors other than Brice de La Morandière during 2009: Stock options or performance shares granted to directors and stock options exercised Number of options/ performance shares granted/exercised Exercise price ( ) Expiration Options granted in 2009 to Brice de La Morandière None N/A N/A N/A Performance shares granted to Brice de La Morandière 5,796 N/A Dec. 15, 2013** 33 Options exercised by executive officers in Plan* * See Note 4.20 of the notes to the consolidated financial statements in section 1 of this report for details of stock option and performance share plans. ** Expiration of the vesting period: December 12, 2011; Expiration of the lock-up period: December 12, CORPORATE GOVERNANCE P. 99

102 The directors held 119,308 stock options and performance shares as of December 31, Director Instrument Number Exercise price ( ) Plan Expiration Henri-Dominique Petit SO 40, September 7, 2004 September 7, 2010 Henri-Dominique Petit SO 14, December 7, 2005 December 7, 2013 Henri-Dominique Petit SO 15, December 7, 2006 December 7, 2014 Henri-Dominique Petit SO 8, December 6, 2007 December 6, 2015 Henri-Dominique Petit PS 7,452 N/A December 12, 2008 December 12, 2012 Brice de La Morandière SO 5, December 7, 2005 December 7, 2013 Brice de La Morandière SO 8, December 7, 2006 December 7, 2014 Brice de La Morandière SO 4, December 6, 2007 December 6, 2015 Brice de La Morandière PS 10,260 N/A December 12, 2008 December 12, 2012 Brice de La Morandière PS 5,796 N/A December 15, 2009 December 15, 2013 Total 119, Stock options and performance shares held by executive officers Options granted to directors in Name No. and date of plan Type of option (on new or existing shares) Valuation of stock options based on method used in the consolidated financial statements Number of options granted in the year Exercise price Henri-Dominique Petit Brice de La Morandière Philippe Bacou Exercise period Options exercised by directors in 2009 Name No. and date of plan Number of options exercised in the year Exercise price Henri-Dominique Petit Brice de La Morandière Philippe Bacou P. 100 CORPORATE GOVERNANCE

103 Performance shares granted to executive officers in 2009 Name No. and date of plan Number of performance shares granted in the year Valuation of performance shares based on method used in the consolidated financial statements Vesting date End of lock-up period Performance conditions Henri-Dominique Petit Brice de La Morandière Plan 33 Dec. 5, , ,111 Dec. 15, 2011 Dec. 15, 2013 Chap 1, note Philippe Bacou Performance shares that vested in 2009 Name No. and date of plan Number of performance Vesting conditions shares that vested in 2009 Henri-Dominique Petit Brice de La Morandière Philippe Bacou Directors compensation Directors compensation in 2009 During 2009, the total amount of direct and indirect compensation and benefits received by the directors was 1,188,123, including 176,430 in directors fees. Details per director are provided in note 5 of the notes to the financial statements in chapter 1. The rules governing the allocation of directors fees adopted by the Board for 2009 are described in section In 2009, the Chairman, Chief Executive Officer, Co-Executive Officer and Ginette Dalloz, Co-Executive Officer until March 31, 2009, received a salary. Details are given in the Chairman s report in section The total provision for post-employment benefits due to executive officers was not material Summary of compensation, stock options and performance shares received by executive officers Henri-Dominique Petit - In Compensation due for the year 594, ,334 Valuation of options granted in the year 0 0 Valuation of performance shares granted in the year 152,842 - CORPORATE GOVERNANCE P. 101

104 Brice de La Morandière - In Compensation due for the year - 652,189 Valuation of options granted in the year - 0 Valuation of performance shares granted in the year - 253,111 Philippe Bacou - In Compensation due for the year 42,757 38,839 Valuation of options granted in the year - - Valuation of performance shares granted in the year - - Ginette Dalloz - In Compensation due for the year 33,899 11,081 Valuation of options granted in the year - - Valuation of performance shares granted in the year Summary of total compensation received by executive officers Henri-Dominique Petit In Amount due (3) Amount paid (4) Amount due (3) Amount paid (4) Fixed salary 570, , , ,000 Performance-related compensation (1) 0 439, Exceptional bonus Directors fees 12,424 12,424 10,329 10,329 Benefits (2) 11,654 11,654 4,005 4,005 Total 594,078 1,033, , ,334 Brice de La Morandière In Amount due (3) Amount paid (4) Amount due (3) Amount paid (4) Fixed salary , ,208 Performance-related compensation (1) ,600 - Exceptional bonus Directors fees - - 4,902 4,902 Benefits (2) - - 9,479 9,479 Total 652, ,589 P. 102 CORPORATE GOVERNANCE

105 Philippe Bacou In Amount due (3) Amount paid (4) Amount due (3) Amount paid (4) Fixed salary 30,000 30,000 30,000 30,000 Performance-related compensation (1) Exceptional bonus Directors fees 12,757 12,757 8,839 8,839 Benefits (2) Total 42,757 42,757 38,839 38,839 Ginette Dalloz (5) In Amount due (3) Amount paid (4) Amount due (3) Amount paid (4) Fixed salary 20,004 20,004 5,001 5,001 Performance-related compensation (1) Exceptional bonus Directors fees 13,895 13,895 6,080 6,080 Benefits (2) Total 33,899 33,899 11,081 11,081 (1) The method of calculation is described in section (2) Benefits include a company car and contributions to the unemployment insurance scheme. (3) Compensation determined by the Board, due regardless of the actual date of payment. (4) Total compensation actually paid in the year. (5) Ginette Dalloz has no longer been an Executive Officer since March 31, Directors fees received by non-executive directors (1) Director Directors fees paid in 2008 ( ) Directors fees paid in 2009 ( ) (5) Philippe Alfroid 11,040 11,040 Patrick Boissier (2) 19,360 5,120 Ginette Dalloz (3) 13,895 6,080 François de Lisle 28,560 26,320 Patrice Hoppenot 23,400 22,280 Gunther Mauerhofer 27,240 27,240 Philippe Rollier 27,040 25,920 André Talmon 26,560 25,440 Laurent Vacherot (4) - 2,920 Total 177, ,360 (1) Non-executive directors do not receive any compensation other than directors fees. (2) Patrick Boissier has no longer been a director since July 7, (3) Ginette Dalloz has no longer been a director since May 6, (4) Laurent Vacherot was co-opted by the Board on July 7, (5) Ginette Dalloz s fees are included. She was an Executive Officer until March 31, 2009 (see above). CORPORATE GOVERNANCE P. 103

106 4.4. Other information about the directors Loans and guarantees No loans or guarantees have been granted to directors Summary information Executive officers Henri-Dominique Petit Chairman Elected: May 18, 2004 Term expires: Annual meeting held to approve the 2009 financial statements Brice de La Morandière Chief Executive Officer Elected: April 14, 2009 Term expires: Annual meeting held to approve the 2011 financial statements Philippe Bacou Co-Executive Officer Elected: September 6, 2001 Term expires: Annual meeting held to approve the 2009 financial statements Employment contract Supplementary pension plan Loss of office benefits Non-competition benefits Yes No Yes No Yes No Yes No * * * * * * * * Agreements with directors On March 3, 2009, in line with new legislation on commitments to executive officers with respect to compensation, indemnities or benefits payable on loss or change of office, the Board of Directors authorized the agreements described in section of this report in respect of the non-competition clause and loss of office compensation. The agreements were approved at the annual shareholders meeting held on May 6, No amendments were made to this agreement during No other agreements have been entered into directly with the directors other than ordinary business agreements on competitive terms, and more particularly no service contract has been entered into with the executive officers Statutory Auditors report on related-party agreements This is a free translation into English of a report issued in the French language and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and construed in accordance with French law and professional standards applicable in France. P. 104 CORPORATE GOVERNANCE

107 To the shareholders, In our capacity as statutory auditors of your company, we hereby report on certain related-party agreements and commitments. As required by article L of the French Commercial Code (Code de commerce), we have been advised of those agreements and commitments authorized by the Board of Directors. We are not required to ascertain the existence of any other agreements and commitments but to inform you, on the basis of the information provided to us, of the terms and conditions of those agreements and commitments indicated to us. We are not required to comment as to whether they are beneficial or appropriate. It is your responsibility, in accordance with the provisions of article R of the French Commercial Code, to evaluate the benefits resulting from these agreements and commitments prior to their approval. We performed those procedures which we considered necessary to comply with professional guidance issued by the national auditing body (Compagnie Nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying that the information provided to us is consistent with the documentation from which it has been extracted. Provisions defining the new status of Mr. Henri-Dominique Petit and Mr. Brice de La Morandière, following the restructuring of the executive management of your company, authorized by your Board of Directors in its meeting on March 3, 2009 (separation of the functions of Chairman of the Board of Directors and of Chief Executive Officer, retention of Mr. Henri-Dominique Petit in his role as Chairman of the Board of Directors, nomination of Mr. Brice de La Morandière as Chief Executive Officer as from April 14, 2009). 1. With Mr. Henri-Dominique Petit In its meeting of March 3, 2009, your Board of Directors authorized the items of remuneration for Mr. Henri-Dominique Petit. Thus, the undertakings made with the Chairman of the Board of Directors concerning the items of remuneration, indemnities or benefits due or that could become due firstly by reason of the termination of his functions, or secondly in respect of the termination indemnity, are as follows: The company may terminate this term of office, under the conditions stipulated by law. Mr. Henri-Dominique Petit shall have the right to a contractual termination indemnity, if the company terminates his term of office due to a change of control or strategy within twelve months after the occurrence of the event. In this event, Mr. Henri-Dominique Petit shall receive, by way of indemnity, a fixed amount equal to twelve months of the remuneration he is paid in respect of his functions as Chairman of the Board of Directors. No indemnity shall be due to Mr. Henri-Dominique Petit from Sperian Protection in the event of serious or willful misconduct, resignation, or departure to claim a pension. In all events, the contractual indemnity shall be subject to the following performance conditions: - Performance measurement: corresponds to the average performance of Mr. Henri-Dominique Petit during the three calendar years preceding his departure. Performance shall be measured by the rate of achievement of the annual objectives fixed by your Board of Directors which have been used for the calculation of the variable annual remuneration of Mr. Henri-Dominique Petit during his term as Chairman and Chief Executive Officer, and for the subsequent years performance shall be measured by the rate of achievement of the annual objectives fixed by your Board of Directors which shall be used for the calculation of the annual variable remuneration of the Chief Executive Officer. Your Board of Directors shall decide, by explicit decision, on whether or not these performance objectives have been achieved, within two months of the date of the termination of Mr. Henri-Dominique Petit s functions as Chairman of the Board of Directors. M. Henri-Dominique Petit de sa fonction de président du conseil d administration. CORPORATE GOVERNANCE P. 105

108 - The performance conditions are as follows: for an average performance rate that ranges from 50% to 100% and over, the indemnity shall be paid strictly proportionally to its amount. For a performance rate below 50%, no indemnity shall be paid. This agreement, applicable as from March 3, 2009, replaces the agreement in force until this date and detailed hereabove. 2. With Mr. Brice de La Morandière In its meeting of March 3, 2009, your Board of Directors authorized the items of remuneration of Mr. Brice de La Morandière. Thus, the undertakings made with the Chief Executive Officer concerning the items of remuneration, indemnities or benefits due or that could become due firstly by reason of the termination or change of his functions and secondly in respect of the non-competition clause and the termination indemnity are as follows a) Performance-based termination indemnities or severance payments Mr. Brice de La Morandière shall have the right to a contractual termination indemnity or severance payment, if the company terminates his term of office due to a change of control or strategy within twelve months after the occurrence of the event. In this case, Mr. Brice de La Morandière shall receive, by way of indemnity, a fixed amount equal to fifteen months of his total remuneration (fixed and variable based on objectives achieved). No indemnity shall be due to Mr. Brice de La Morandière from Sperian Protection in the event of serious or willful misconduct, resignation, or departure to claim a pension. In all events, the contractual indemnity shall be subject to the following performance conditions: - Performance measurement: corresponds to the average performance of Mr. Brice de La Morandière in the three calendar years for which the results have been published preceding his departure. If this clause should be applied in the three years following the appointment of Mr. Brice de La Morandière to the position of Chief Executive Officer, the three years for which the results have been published preceding his appointment shall serve as reference years for the calculation of this average. Performance shall be measured by the rate of achievement of the annual objectives fixed by your Board of Directors, which have been used to calculate the variable annual remuneration. Your Board of Directors shall rule, by explicit decision, on whether or not these performance objectives have been achieved, within two months of the date of the termination of Mr. Brice de La Morandière s functions. - The performance conditions are as follows: for an average performance rate that ranges from 50% to 100% and over, the indemnity shall be paid strictly proportionally to its amount. For a performance rate below 50%, no indemnity shall be paid. b) Non-competition agreement In the event of the termination of his term as Chief Executive Officer, and in consideration of the non-competition commitment undertaken by Mr. Brice de La Morandière (undertaking made for a period of eighteen months), the latter shall receive an indemnity (paid monthly) equal to nine months of his total annual remuneration (fixed and variable based on the objectives achieved). In the event of the termination of this term of office upon the initiative of Mr. Brice de La Morandière or in the event of Mr. Brice de La Morandière s departure for retirement, the company may waive this non-competition clause and release itself from its obligation to pay the monthly indemnity by informing Mr. Brice de La Morandière of its decision within two months as from the termination of the corporate office. Dijon and Paris-La Défense, March 2, 2010 The Statutory Auditors EXPERTISE COMPTABLE ET AUDIT Claude Cornuot ERNST & YOUNG Audit Jean-François Ginies P. 106 CORPORATE GOVERNANCE

109 4.5. Organization structure A global organization structure The Group s world operations are organized into Strategic Business Units (SBUs), which correspond to its key product groups and respond directly to the requirements of globalization, together with Market Business Units (MBUs), which are organized on a geographical basis to provide a local response to customer needs. The SBUs are Head Protection (eye, respiratory and hearing) and Body Protection (gloves, clothing, footwear and fall protection). They are responsible for strategic marketing, product range management, research & development and manufacturing. There are three MBUs based in the main host regions: Americas (North and South), EMEA (Europe, Middle East and Africa) and Asia-Pacific. Their responsibilities include operational marketing, sales, and logistics. These units book most of the revenue for the various product lines Senior management The senior managers other than Brice de La Morandière, Chief Executive Officer, are: Francis Allirot, a French national, joined the Group in 2003 as Senior Vice President, Asia-Pacific, based in Shanghai, China. He began his career with Hewlett-Packard, before joining Schneider Electric where he held various management positions, including chief executive officer of a joint venture between Schneider Electric and Chinese partners. He is a graduate of the Ecole Nationale Supérieure des Arts and Métiers de Paris, holds a Masters of Science degree from the Institut National Polytechnique de Grenoble and an MBA from the Institut Supérieur de Gestion de Paris. Marc Beaufils, a French national, joined Sperian Protection in March 2007 as Senior Vice-President, Europe, Middle East and Africa (sales, logistics and marketing). He was previously based in Switzerland as Vice-President Europe for the Savory Food Flavor division of Firmenich S.A. He formerly held global operational management positions with SICPA, and marketing and sales positions for International Paper. Marc Beaufils is a graduate of the Ecole des Hautes Etudes Commerciales and the Institut d Etudes Politiques, Paris. Janet Dekker, a Dutch national, joined Sperian Protection in May 2004 as Senior Vice-President, Human Resources. She previously worked in human resources for Honeywell and Sodexho Alliance in both Europe and the United States. She has a degree in psychology from the University of Amsterdam. Mark Hampton, an American national, joined Sperian Protection in July 2002 as Senior Vice-President, Hearing Protection, following an international career with the Nike group where he was Chairman of Nike Team Sports, Inc. In November 2004, he assumed responsibility for all Head Protection businesses. In early 2008, he also assumed responsibility for the teams dedicated to the public safety market. Mark Hampton has a degree in mathematics and economics from the University of Wisconsin, in Oshkosh, USA. Christophe Lamoine, a French national, joined the Group in February 2007 as Senior Vice-President in charge of the Gloves business for Europe, the Middle East, Africa and Asia. In September 2008, his responsibilities were extended to the Gloves and Footwear businesses worldwide. He previously held positions in Sales and Marketing and then General Management with the Xerox and Bolloré Groups. He is a graduate of the École des Mines d Alès and has completed management programs at INSEAD and Cranfield. Mike Moorefield, an American national, joined Sperian Protection in June 2002 as Senior Vice-President Americas (sales, logistics and marketing). He was previously Chairman of the Commercial Products Division with Rubbermaid, after a career in sales. He has a degree from Virginia Tech and an MBA from Nova-Southeastern University, in Florida. CORPORATE GOVERNANCE P. 107

110 Joe Reimer, an American national, joined the Christian Dalloz group in January Since then, he has notably been in charge of sales and marketing for the US head protection business, and is currently Senior Vice-President, Fall Protection, the same position he held for five years within the Christian Dalloz group. Joe Reimer has a Bachelor of Science in Marketing from State University of New York at Oswego. Jérôme Ronze, a French national, joined Sperian Protection in May 2007 as Chief Financial Officer. He is now Chief Administrative and Financial Officer. He was previously financial controller for Gemalto, the world leader in smart cards. Before that, he had an international career with the Schlumberger group, where he held various finance positions in South America, the United States and China. Jérôme Roze is a graduate of the Ecole Supérieure de Commerce in Paris. Philippe Suhas, a French national, joined Sperian Protection in March 2002 as Senior Vice-President for Europe, Middle East and Africa (sales, logistics and marketing). In the first half of 2007, he took over responsibility for the Eye Protection business. Philippe Suhas earlier held various management positions with Valeo. He is a graduate of the Institut National Polytechnique, Grenoble and the École des Hautes Études Commerciales Services provided by Sperian Protection S.A. to its subsidiaries Sperian Protection S.A. provides various services to other group companies. They are billed on the basis of cost plus 6% on an arm s length principle basis. The total amount of intragroup billings amounted to 27.4 million in These services mainly cover the following areas: Management: general strategy in terms of products, business and geographical expansion. Administration and finance: finance and cash management, shared service centers. Legal affairs. Business development: analyzing and setting up operations in new countries or expansion in existing countries, negotiating and closing acquisition and partnership deals, and technical, commercial and financial feasibility studies prior to the deals. Information systems: cost of data centers and general information systems services, cost of implementing ERP. P. 108 CORPORATE GOVERNANCE

111 Simplified Group legal structure as of December 31, 2009 Sperian Fall Protection France SAS Sperian Protection Armor SAS Sperian Protection Tunisia (Tunisia) Sperian Protection (UK) Ltd (Great Britain) 89 % Sperian Protection Holding (UK) Ltd (UK) Combisafe International AB (Sweden) Sperian Protection Sweden AB (Sweden) 11 % Sperian Fall Protection Deutschland GmbH & Co Kg (Deutschland) Combisafe Denmark APS (Denmark) Sperian Protection New Zealand Ltd (New Zealand) Sperian Fall Protection Autralia Pty Ltd (Australia) Sperian Protection Footwear Slovakia SRO (Slovakia) Combisafe Deutschland GmbH (Deutschland) Sperian Protection Slovakia s.r.o. (Slovakia) Sperian Safety LLC (Russia) Combisafe Norge AS (Norway) Sperian Protection Hong Kong Limited (Hong Kong) Sperian Personal Protective Equipment (Nantong) Co. (China) Combisafe Nederland BV (Netherland) Sperian Protection Australia Pty Ltd (Australia) Combisafe Gulf LLC (Dubaï) Sperian Protection Nordic AB (Sweden) Combisafe Suomi Oy (Finland) Combisafe International Ltd (UK) Advanced Scaffold Products Ltd (UK) Sperian Protection Logistique Systems SNC Sperian Welding Protection AG (Switzerland) CEP (Belgium) Sperian Protection Footwear Valence SAS Sperian Protection Holding Netherlands BV (Netherland) Sperian Protection Clothing SAS Musitani SA (Argentina) Sperian Protection Footwear Givors SAS 99 % Sperian Protection SA Sperian Protection Europe SAS Sperian Protection France SAS Sperian Protection Gloves Autun SAS Sperian Protection Respiratory Polska SP zoo Sperian Protection Iberica SA (Spain) Sperian Respiratory Protection France SAS 98 % Sperian Protection Défense SAS Sperian Protection Italia SRL (Italia) Sperian Protection Gloves Plancher Bas SAS Sperian Protection Deutschland GmbH & Co Kg (Deutschland) Sperian Protection Gloves Franche Comté SAS Annic SAS Sperian Protection Netherlands BV (Netherland) 70 % ANIMAC SARL Sperian Protective Apparel Ltd (Canada) 54,54 % Sperian Protection Gloves Torino SRL (Italia) Combisafe France SAS 60 % Sperian Protection Hungaria Kft (Hungaria) Sperian Protection India Private Ltd (India) Sperian Protection Co. Ltd (China) Sperian Protection USA, Inc. Sperian Protection Instrumentation, LLC Sperian Eye & Face Protection, Inc. Sperian Hearing Protection, LLC Sperian Hearing Protection de Mexico, S.A. de C.V. (Mexico) SP Assurance Vermont Co.Ltd. Sperian Protection Americas, Inc. Sperian Protective Gloves USA, LLC Sperian Protection Optical, Inc. Sperian Metal Mesh Protection USA, Inc. SP USA Finance, Inc. Bacou Dalloz Safety inc Sperian Fall Protection, Inc. Nacre US Inc. (Etats-Unis) Nacre (Norway) 99 % Sperian Protection Distribution de Mexico SA de CV (Mexico) Sperian Produtos de Seguranca Ltda (Brazil) Protection Sales de Mexico SA de CV (Mexico) Sperian Protection Respiratory USA, Inc. 40 % Glendale Protective Technologies Inc BMP I, Inc Sperian Protection Investment, Inc. Sperian Fall Protection Canada Ltd. (Canada) Sperian Protective Apparel USA, LLC Sperian Fall Arrest Systems, Inc. Sperian Protection, S.de R.L. de C.V. (Mexico) French Subsidiaries US Subsidiaries Other Subsidiaries 100% owned by the Group either directly or indirectly unless otherwise stated See section for a list of positions held by directors of the parent company in its subsidiaries CORPORATE GOVERNANCE P. 109

112 4.6. Chairman s Report Corporate governance code In accordance with law no of July 3, 2008, the Board of Directors has adopted and refers to the AFEP-MEDEF corporate governance code published in December The code is available at The Governance Committee reviewed the code in a special meeting held for that purpose and concluded that current practices are line with its recommendations Corporate governance On March 3, 2009, the Board of Directors elected to separate the offices of Chairman of the Board and Chief Executive Officer. Henri-Dominique Petit was re-appointed Chairman and Brice de La Morandière was appointed Chief Executive Officer Principles and rules for Executive Officers compensation approved by the Board of Directors on March 3, 2009 First recommendation: termination of employment contract on appointment to executive office. The Company has applied this principle since May 18, 2004, when Henri-Dominique Petit was appointed Chairman and Chief Executive Officer. He does not have an employment contract with the company. The same principle was applied when Brice de La Morandière was appointed Chief Executive Officer on March 3, Second recommendation: compensation policy. The Board applies the principle of granting measured, balanced, fair compensation for the level of responsibility attached to the executive office. The Nominations and Remuneration Committee is responsible for carrying out a clear, comprehensive analysis of all components of compensation and for recommending to the Board a level of compensation consistent with the executive officers annual performance appraisal and with the company s medium-term strategy. This policy is defined as follows: - The variable component is related to the company s performance and represents a maximum percentage of the fixed component. - Stock options and performance shares granted to executive officers are subject to performance conditions. No stock options or performance shares are granted to executive officers upon departure. Stock option and performance share plans are not open to all employees but employees are involved in the company s performance through the Group corporate savings plan. When the most recent performance share plan was set up in December 2009, the Company applied the provisions of the new French legislation on compensation passed at the end of 2008 by increasing the profit-sharing entitlement for Group employees. On March 3, 2009 the Board set the maximum amount of compensation payable to the executive officers in stock options and performance shares at 60% of the total. It also decided that the executive officers may not receive more than 20% of the aggregate amount of stock options and performance shares approved by the shareholders. - The Board has not yet taken a position on the AFEP-MEDEF corporate governance code recommendation that the award of «performance shares to executive officers should be conditional on the acquisition of a defined quantity of shares when the performance shares vest». The Board reviews its application of this recommendation for each plan in light of market conditions and the requirement for executive officers to hold registered shares. P. 110 CORPORATE GOVERNANCE

113 - There are no discounts or option hedging instruments on stock option awards. Their exercise is contingent on performance conditions. The company has implemented a procedure to prevent the risk of insider trading (see section of this report), which includes the definition of blackout periods. It also intends to implement a specific procedure for executive officer. - The company has adopted the recommendation that termination benefits should be contingent on performance conditions and paid only in the event of a forced departure caused by a change of control or strategy. Termination benefits payable to executive officers (see below) are capped at two years fixed and variable compensation, including any benefits payable under a non-competition agreement. - Executive officers do not benefit from any supplementary pension arrangements Compensation and agreements between the company and the executive officers Executive officers direct and indirect compensation are decided by the Board, based on recommendations by the Nominations and Remuneration Committee. The commitments made to the Chairman and the Chief Executive Officer subject to the rules on related-party agreements were authorized by the Board on March 3, 2009 and ratified at the annual shareholders meeting of May 6, No new related-party agreements were entered into in Compensation and other benefits granted to executive officers in 2009 were as follows: Agreement with Henri-Dominique Petit a) Direct and indirect compensation: Henri-Dominique Petit received the following compensation and benefits in 2009: - For the first four months of 2009, during which Henri-Dominique Petit was Chairman and Chief Executive Officer, he received the same gross monthly salary as in 2008, plus performance-related compensation on a pro rata basis, making a total compensation of 304,000 for the first four months. - From May 1, 2009, as Chairman of the Board, Henri-Dominique Petit received: - Gross monthly compensation of 19,000, making a total of 152,000 in He no longer receives any performancerelated compensation. - Company car with driver, for business travel only. This does not constitute a benefit in kind liable to tax and social security contributions. - Reimbursement of justifiable business expenses incurred upon presentation of invoices or other supporting documents according to company rules. - No further stock options or performance shares are awarded to Henri-Dominique Petit in his capacity as Chairman of the Board of Directors. b) Termination benefits: - Henri-Dominique Petit will be entitled to severance benefits if he is removed from office due to a change of control or strategy, payable within twelve months of the triggering event. In this case he will receive a fixed sum equal to twelve months of his compensation as Chairman of the Board of Directors, subject to the following performance conditions: CORPORATE GOVERNANCE P. 111

114 - Performance measurement: average performance over the three calendar years preceding departure. Performance will be measured by reference to the percentage achievement of the annual targets set by the Board of Directors for the purpose of calculating annual performance-related compensation payable during his term as Chairman and Chief Executive Officer. Thereafter, performance will be measured by reference to the percentage achievement of the annual targets set by the Board of Directors for the purpose of calculating the Chief Executive Officer s annual performancerelated compensation. The Board of Directors will be required to announce expressly whether or not these performance conditions have been met no later than two months after Henri-Dominique Petit is removed from office as Chairman of the Board of Directors. - Performance conditions: if performance is between 50% and 100% or more of target, the benefits payable are strictly proportional (e.g. for a 90% performance, the benefit will be 90% of the total). No benefits will be paid if performance is less than 50% of target. The benefi ts will be paid no later than sixty (60) days after the date of the Board meeting that duly noted achievement of the underlying performance conditions. Agreement with Brice de La Morandière. a) Direct and indirect compensation: Brice de La Morandière received the following compensation and benefits in 2009: - Gross compensation of 507,208, comprising 178,819 for the first four months of the year as Chief Operating Officer, and 328,389 since his appointment as Chief Executive Officer on March 3, On March 3, 2009, the Board of Directors agreed to pay Brice de La Morandière an annual salary of 460,000. On December 15, 2009, the Board approved an increase of 3,120 a year to compensate for the fact that technically Brice de La Morandière can no longer benefit from the supplementary group retirement savings plan («Article 83») to which he was previously entitled as an employee and which the Board had agreed to maintain on March 3, On March 2, 2010, the Board approved an annual increase of 2.5% from July 2010, raising Brice de La Morandière s annual salary from 463,120 to 475,000 as of that date. - Performance-related compensation due under the executive incentive policy, paid in one installment in the first quarter of the following year. The minimum entitlement if targets are met is 60% of gross annual salary and the maximum is 120% if targets are exceeded. The practical terms and conditions (particularly the targets) are proposed annually by the Nominations and Remuneration Committee. For 2008 payable in 2009, Brice de La Morandière did not receive any performance-related compensation. For 2009 payable in 2010, the criteria were organic growth and free cash fl ow (75% of performance-related compensation for achievement of targets), and service rate and innovation (25%). The rate of achievement of the targets determining the Group s annual performance was 47%. Performance-related compensation paid in 2010 amounted to 130,600. For 2010, the criteria are unchanged: organic growth and free cash flow (70%) and service rate and innovation (30%). - A company car in accordance with the company s rules. This constitutes a benefit in kind and is liable to tax and social security contributions. - Unemployment insurance paid for by the company, providing benefits for up to twenty-four months. This constitutes a benefit in kind and is liable to tax and social security contributions. - Reimbursement of justifiable business expenses incurred upon presentation of invoices or other supporting documents according to company rules. - Brice de La Morandière has received 5,796 performance shares. On December 15, 2009, in accordance with the AFEP-MEDEF corporate governance code, the Board of Directors confirmed that he would be required to hold the following shares in registered form: (i) 50% of the balance of shares arising on the exercise of stock options after the immediate sale of sufficient shares to cover the exercise price and pay the capital gains tax on the sale proceeds and (ii) 50% of any vested performance share grants, until such time as the aggregate sum of (i) and/or (ii) above reaches the equivalent of two years compensation (gross fixed salary only). Thereafter, the requirement is reduced to 20%. P. 112 CORPORATE GOVERNANCE

115 b) Other benefits: - Termination benefits. Brice de La Morandière will be entitled to severance benefits if he is removed from office due to a change of control or strategy, payable within twelve months of the triggering event. In this case, he will receive a fixed sum equal to fifteen months of his total annual compensation (fixed salary and minimum performance-related compensation). No benefits will be due if he is dismissed for gross professional misconduct, resigns or retires. In any event, payment will be subject to the following performance conditions: - Performance measurement: average performance over the three calendar years for which results have been published preceding his departure. Should the benefit become payable in the three years after Brice de La Morandière s appointment as Chief Executive Officer, the three years for which results have been published prior to his appointment shall be used as the base for calculation. Performance will be measured by reference to the percentage achievement of the annual targets set by the Board of Directors for the purpose of calculating annual performance-related compensation. The Board of Directors will be required to announce expressly whether or not these performance conditions have been met no later than two months after Brice de La Morandière is removed from office. - Performance conditions: if performance is between 50% and 100% or more of target, the benefits payable are strictly proportional (e.g. for a 90% performance, the benefit will be 90% of the total). For a performance rate below 50%, no indemnity shall be paid. The benefits will be paid no later than sixty days after the date of the Board meeting that duly noted achievement of the underlying performance conditions. - Non-competition agreement. Brice de La Morandière has given the company an eighteen-month non competition undertaking in view of the importance of his position, the confidential information to which he has access and his long experience in the industry. He has agreed not to take part in or acquire or hold an interest in directly or directly, for whatever reason, regardless of capacity or position (executive officer, director, shareholder, partner, investor, employee, consultant or other), any company that may compete with the Company or any of its related companies anywhere in the world, even if solicited to do so. In exchange, Brice de La Morandière will be entitled to a payment on termination of his office for whatever reason equal to nine months total compensation (fixed salary and minimum performance-related compensation). Should Brice de La Morandière leave voluntarily or retire, the company can waive this non-competition commitment and release itself from its obligation to pay the monthly allowance by informing Brice de La Morandière of its decision within two months from the end of his corporate appointment. Agreement with the Co-Executive Officer. Philippe Bacou received 30,000 in annual compensation in He is also reimbursed for all travel, entertainment and other business expenses incurred while working for the company, as justified by invoices or other supporting documents Preparation and organization of the Board of Directors work On March 2, 2010, the Board had ten directors, five of whom are classified as independent (Patrice Hoppenot, François de Lisle, Gunther Mauerhofer, Philippe Rollier and André Talmon). Definition of independent directors In accordance with the recommendations made in the corporate governance code, the Nominations and Remuneration Committee reviews the definition of independent directors and determines which directors meet this definition based on the criteria set out below. On January 28, 2010, at the proposal of the Nominations and Remuneration committee, the Board of CORPORATE GOVERNANCE P. 113

116 Directors reviewed the definition of independent director and made some slight amendments to the wording. Directors are not considered to be independent if: They are or have in the last five financial years been an employee of the Group or a director, executive officer or legal representative of a company related to the Group. They are or have in the last five financial years been a legal representative of a company in which the Group or a legal representative or employee of the Group is a director or executive officer. They have a material business relationship with the company (e.g. supplier, customer or banker). They are closely related to a director or executive officer. They are former auditors to, or partners or employees of a firm that was auditor to the company in the last five financial years. They have been a director of the company for more than twelve years. In the case of directors who own more than 10% of the capital, or who are proposed by or represent such a shareholder, the Board of Directors determines whether their interest prevents them from being classified as an independent director. Internal rules of procedure and Board Charter As required by the Financial Security Act of August 1, 2003, the Board of Directors is formalizing rules of procedure for the Board and its special committees. As part of its annual work, the Governance Committee has harmonized the Company s various written rules and procedures regarding corporate governance. As a result, on March 2, 2010 the Board of Directors adopted a revised version of the internal rules of procedure including: (i) the new rules of procedure for the Audit Committee adopted by the Board on August 25, 2009 to take account of the Audit Committee s new responsibilities following the recent legislation transposing the 8th European Directive; and (ii) rules of procedure for the Governance Committee. The key provisions are: The Directors represent the interests of all shareholders. They undertake to respect the rights and obligations defined in the Board Charter and rules of procedure and to act at all times in the Company s interests. Directors must own at least 200 shares. The Board meets regularly and at least four times a year. Directors attending Board meetings and voting on resolutions by videoconferencing or electronic communications are deemed to be present for calculating the quorum and majority, except for resolutions concerning the appointment, dismissal and compensation of the Chairman, Chief Executive Officer and Co- Executive Officers, approval of the consolidated and separate financial statements and management report, and approval of the budget. Three special committees Audit, Nominations and Remuneration, and Governance have been created to deal with and report to the Board on specific issues. Other ad hoc committees may be created as needed. The Chief Executive Officer reports to the Board on the company s management. The Chief Executive Officer is a member of the Board. Board duties The Board of Directors is responsible for setting the company s broad strategic objectives and overseeing their implementation. Except for those powers expressly vested in shareholders meetings, the Board of Directors considers and decides on all matters involving the company s affairs, subject to compliance with its corporate purpose. Its key duties are: I Overseeing senior management - Appointing and removing the Chairman, Chief Executive Officer and Co-Executive Officers; - Assessing the performance of the Chief Executive Officer and Co-Executive Officers, and setting their compensation at the proposal of the Nominations and Remuneration Committee. II Strategy - Approving the Company s medium and long-term strategy based on recommendations made by the Chief Executive Officer, calling on internal or external resources where necessary. P. 114 CORPORATE GOVERNANCE

117 - Approving the short-term and medium-term quantitative and qualitative targets presented by the Chief Executive Officer and ensuring their consistency with the Company s strategy as approved by the Board. - Approving the annual budget resulting from those targets. - Approving decisions to acquire or divest companies or businesses. - Approving all investments that exceed the amount delegated to the Chief Executive Officer. III Shareholder relations - Ensuring equal treatment of all shareholders. - Calling shareholders meetings. - Presenting a management report to the annual shareholders meeting. IV - Financial statements - Approving the separate and consolidated financial statements, business plans and forecasts. Directors fees At their annual meeting on May 6, 2009, the shareholders fixed the total amount of directors fees for the year at 240,000. The sum of 176,430 was actually allocated. The rules governing the allocation of directors fees remain unchanged from previous years. 1. Directors attending a meeting in person or by videoconferencing or conference call will receive a fee of 1,120 per meeting. 2. Independent directors receive an additional fee of 16,000. In 2009, this sum was paid to Patrick Boissier (pro rata to the time served on the Board), Patrice Hoppenot, François de Lisle, Gunther Mauerhofer, Philippe Rollier and André Talmon. 3.Additional fees are paid to members of a committee that meets at least once during the year. Members of the Nominations and Remuneration and the Governance committees receive a fee of 1,600 a year. The Chairman of the Audit Committee receives a fee of 3,600 a year and the other members of the Audit Committee receive a fee of 1,800 a year. At the annual shareholders meeting scheduled for May 19, 2010, the Board will recommend raising the total amount of directors fees to 250,000 to take account of the increasing number of Board and/or Committee meetings Report on the Board s work in 2009 Number of meetings and attendance rate The Board met seven times in The attendance rate was 90% for four meetings, 80% for one meeting and 70% for two meetings. Issues addressed The following issues were addressed at all meetings held in 2009: Review and approval of the minutes of previous Board meetings. Financial review (budget and results). Business review (past and outlook). Review and approval of recommendations made by Committees that met between two Board meetings. Review of strategy. The Board meetings of March, July and October were entirely or largely devoted to reviewing and approving strategy for the company as a whole and by business segment. CORPORATE GOVERNANCE P. 115

118 The following issues were addressed at one or more meetings: Approval of annual financial statements and review of interim financial statements. Dividend payment. Group refinancing. Restructuring of the Sperian group, including closing subsidiaries, internal share transfers and industrial restructuring. Acquisitions or disposals of assets and/or companies. Material capital expenditure. Material commercial contracts. Litigation. Grant of guarantees and surety bonds. Group human resources policy. Corporate governance assessment of the Board and its committees, adoption of the Audit Committee s rules of procedure. Reorganization of senior management: separation of the offices of Chairman of the Board and Chief Executive Officer, reappointment of Henri-Dominique Petit as Chairman and appointment of Brice de La Morandière as Chief Executive Officer, compensation of the Chairman and the Chief Executive Officer, approval of related-party agreements, resignation of a director, cooptation of Laurent Vacherot, directors fees. General organization of the Group, Executive Committee compensation policy. Grant of stock options and performance shares; grant of an increased profit-sharing entitlement. Preparation and calling of the annual shareholders meeting in May Preparatory work Prior to Board meetings, directors receive a notice of meeting, the agenda, background documents on the issues to be addressed, and the minutes of the previous Board meeting. Other documents presented at Board meetings are distributed during the meeting. Board committees Audit Committee As of March 2, 2010, members were François de Lisle (Committee Chairman), Gunther Mauerhofer and Laurent Vacherot (coopted as director at the Board meeting of July 7, 2009). The Committee s role is to give an opinion on the accounting policies used to prepare the financial statements and the organization of the internal audit function. In accordance with recent legislation transposing the provisions of the 8th European Directive of July 3, 2008 into French law, the Committee has revised its rules of procedures to take account of its new responsibilities. The law now requires it to ensure that the Board of Directors has the resources to identify and manage the economic, financial and legal risks to which the Group is exposed in France or abroad as a result of its ordinary or exceptional operations. Its duties include overseeing (i) the financial reporting process, (ii) the effectiveness of internal control and risk management systems, (iii) the statutory auditors work on the separate and consolidated financial statements, and (iv) the independence of the statutory auditors. It also determines and reviews the procedures for appointing and reappointing the statutory auditors. The Committee may consult any of the Group s managers, including the Chief Financial Officer, the managers of internal audit, financial control and treasury, and the statutory auditors. It received the statutory auditors reports on the separate and consolidated financial statements and ensured that the statutory auditors were provided with the information and resources required to fulfill their engagement. The Committee met four times in The attendance rate was 100% for one meeting and 66% for the other three. Apart from reviewing the financial statements, other key issues addressed were the internal audit and control program, impairment testing, the Group s financial policy and more specifically debt structure and refinancing, organization and procedures of the treasury department, policy for control over exchange rates, the Statutory Auditors work, the impact of major projects on the financial statements, litigation, recent acquisitions, disposal of the image wear business, review of acquisition and disposal projects, revision of the internal rules of procedures, and risk mapping. P. 116 CORPORATE GOVERNANCE

119 Nominations and Remuneration Committee As of March 2, 2010, members were Philippe Alfroid (Committee Chairman), Philippe Rollier and Gunther Mauerhofer. The Committee s main role is to nominate candidates for election as directors, to review the qualification of independent directors, to review and provide an opinion on the proposed executive compensation, the performance-related compensation policy for other employees, terms and conditions of stock option and share performance plans, long-term incentive plans for employees, senior management succession planning and, generally, to give an opinion on proposed significant organizational changes within the Group. The Committee met four times in The attendance rate was 100% for all four meetings. The main issues addressed were the senior management reorganization (separation of the offices of Chairman and Chief Executive), preparation of agreements with directors subject to Board authorization, directors and executive committee members compensation, the Company s performance-related compensation policy and, especially, setting performance targets and conditions, senior management succession planning, terms and conditions of the new performance share plan, grant of performance shares in 2009, grant of an increased profit-sharing entitlement, defining the profiles of new directors, cooptation of a new director and directors compensation. Governance Committee As of March 2, 2010, members were Philippe Rollier (Committee Chairman replacing André Talmon as of October 15, 2009), Philippe Alfroid, Philippe Bacou, Henri-Dominique Petit and André Talmon. The Committee s role is to oversee the Group s business operations in accordance with the AFEP-MEDEF Corporate Governance Code and with internal governance rules and procedures in total transparency and cooperation with the Company s senior management team. It assesses the performance of the Board and the Board Committees and recommends amendments or changes to existing rules. The Committee met three times in The attendance rate was 100% for all three meetings. The main issues addressed were an analysis of the results of the Board assessment carried out in 2009, harmonization of internal governance rules and procedures, a review of corporate governance, and the group s sustainable development and corporate social responsibility strategy, particularly with regard to safety issues (workplace accidents) and specific actions taken at certain Group facilities. Assessment of Board performance The Committees report to the Board on their work and resulting proposals. The performance of the Board and its committees was assessed in On October 15, 2009, the Governance Committee recommended a two-year cycle alternating an assessment of the Board with a full assessment of the Board and its Committees. This proposal was accepted by the Board Restrictions on the Chief Executive Officer s powers At its meeting on January 11, 2005, the Board revised the restrictions adopted on January 23, 2003 and amended on May 22, These restrictions concern the Chief Executive Officer s powers with respect to acquisitions, disposals, borrowings, loans, guarantees, unusual spending commitments and recruitment of executive personnel. The Chief Executive Officer is notably required to obtain the Board s prior approval for the following: Strategic commitments (mergers, acquisitions or disposals) in excess of 1 million and any non-budgeted expenditure in excess of 500,000. Borrowings in excess of 5,000,000. Granting guarantees in excess of 4,000,000. Entering into or terminating ordinary consultancy agreements with an annual financial commitment in excess of 500,000 per agreement. Entering into or terminating ordinary business contracts in excess of 5,000,000 per contract. Initiating legal proceedings committing the company to more than 1,000,000. Should an emergency arise that requires an immediate decision, these restrictions do not apply and the Chief Executive Officer is authorized to act in the Group s best interests. He is required to report any such decisions to the Chairman of the Board immediately in writing. CORPORATE GOVERNANCE P. 117

120 Attendance at shareholders meetings The rules are described in section of the reference document, of which this report forms an integral part Disclosure of information liable to have an influence on the outcome of a public offer (article L of the French Commercial Code). This information is described in this chapter, in the section on shareholder structure in chapter 4 and in the notes to the consolidated financial statements (chapter 1) Internal control procedures Since Group operations are conducted through subsidiaries, this report covers all controlled companies included in the scope of the consolidated financial statements. Introduction In the normal course of its business activities and strategy, the Sperian Protection Group is exposed to various risks and uncertainties from both internal and external sources. To help prevent these risks, the Group has put in place an appropriate organization, as well as procedures designed to identify and measure risks and to ensure that the Group has adequate means of prevention. The organization is also designed to help the company achieve its operational and strategic targets. Internal control objectives Internal control is an integral part of the Group s corporate governance strategy and applies to all the subsidiaries. Internal control is defined in line with the principles set out by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). To ensure that business risks are effectively identified and managed, a Group-level internal control framework has been established, with policies and procedures designed to: Ensure that management, operations and personal conduct comply with applicable legislation and regulations and with the company s own values, standards and internal rules. Safeguard the Group s assets. Guarantee reliable financial, accounting and management reporting to the Board of Directors, the supervisory or regulatory bodies, shareholders and the general public. Nonetheless, no control system can provide absolute assurance that all risk of error or fraud has been eliminated or controlled. Components of the internal control system Internal control environment The Group s internal control environment is based on: A clear internal organization that is appropriate to the Group s business model. The matrix structure reflects the way in which the Group is managed, that is, by product family (strategic business units) and by geographical market (marketing business units). The SBUs are Body Protection and Head Protection. The MBUs are Europe, Middle East and Africa (EMEA), Americas and Asia-Pacific. The production managers report directly to the SBUs, since the latter are responsible for strategic marketing and product development and manufacturing. The MBUs are responsible for operational sales and marketing. Support functions (human resources, financial control, consolidation, internal audit, treasury and legal affairs) have the resources required to support and control all of the Group s operations. Information systems adapted to the Group s business activities and organization. Human resources management tools and processes to ensure that the Group has the skills required to conduct its business activities and meet its objectives, and to provide all employees with personal career development plans and training. A corporate culture based on mutual respect, teamwork, innovation and a customer focus. A set of internal standards including the Code of Business Conduct. This code sets out responsible and civic practices applicable across the organization, and reflects the Group s commitment to international principles concerning human rights and business practices. It also helps nurture the corporate culture by encouraging ethical behavior at all times, as P. 118 CORPORATE GOVERNANCE

121 well as accountability, transparency, exemplary leadership, and the integrity of information supplied as well as individual commitments. It has been distributed to every employee and provides guidance on appropriate conduct regardless of nationality or culture. Communications and reporting Communications and reporting policies are based on a clear organization and appropriate communications tools. Internal corporate communication aims to provide employees with relevant, reliable and timely information, through the network of local communications officers and the Group s intranet. In addition, efficient information systems have been set up to plan and manage operations on a day-to-day basis. For several years, the Group has been rolling out a strategic plan for upgrading and harmonizing ERP systems within its subsidiaries.. Risk management The Board of Directors has a detailed analysis of the Group s risks as well as a prioritized overview of the main risk factors based on a risk mapping process. Group senior management is tasked with defining and implementing key actions to prevent identified risks. The key risks are described in chapter 1 of this report. The various business unit heads are also responsible for identifying key risks (market, manufacturing and environmental risk) during regular business reviews. Any change or incident that might have a significant impact on the achievement of targets is reported to the Executive Committee, which analyzes the information and decides on any action to be taken and/or change of strategy. In addition, as part of its assignments, the Internal Audit department continuously identifies and assesses the control and risk management systems used by the audited units. The resulting audit reports are systematically sent to senior management. Control activities The Group s main internal control tools are: - The internal control manual, which was completed in 2004 and presented to the Audit Committee and the Statutory Auditors. It has since been distributed to all business units by senior management and is also available through the Group s Intranet. The manual identifies the main risks inherent in the Group s key processes and describes the appropriate internal controls and processes for managing them. It describes all the key underlying principles and internal control procedures in place to ensure the reliability of financial and accounting information and the smooth operation of the Group s business processes. The main processes covered are: Capital expenditure. Purchasing. Inventory management. Revenue. Human resources and payroll. Cash management. Information systems. At the end of 2008, senior management initiated an action plan to strengthen control procedures over foreign exchange transactions and Group Treasury operations. A complete revision of all treasury procedures took place in the first half of The new rules governing the Treasury Department s operations and control were presented to the Audit Committee on December 1, 2009 and are now operational. - Clear, consistent rules for delegating signature authorities throughout the Group. These rules set out uniformly the level of authorization required for each type of transaction. Transactions covered include, among others, acquisitions and disposals, restructurings, commercial commitments (purchasing, sales), production contracts and legal obligations. - All the procedures and rules documented and implemented by most units as part of an ISO certification process. These conform with and complement the procedures in the internal control manual and cover operations such as production management and purchasing. CORPORATE GOVERNANCE P. 119

122 - Information systems controls developed by the IT department, concerning in particular: The development, upgrading and maintenance of information systems, programs and applications. The archiving and backup of programs and data. The security of systems, databases and applications. As part of the Group s continuous progress approach to internal control, training sessions were organized during 2009 for European and US financial controllers. The training included an overview of the Group s internal control systems and a presentation of its strategy to strengthen internal control and the resources devoted to it. Internal control management Senior management has a variety of tools available to oversee the Group s operations on an ongoing basis, including: - A monthly reporting system to permanently track and analyze the performance of business units and make the necessary decisions. This system is described in more detail below. - The various management indicators measuring the performance of the divisions or departments. - Monthly reviews of business operations and financial performance for each SBU and MBU take place involving the heads of each Business Unit, Chief Executive Officer, Chief Financial Officer and Financial Controller. These reviews are designed to analyze variances against budget and to determine short-term remedial actions. - Monitoring of certain transactions by the Investment Committee, whose role is to ensure that resources are allocated in accordance with Group strategy. Members of the committee are the Chief Executive Officer, Chief Financial Officer and Financial Controller. Expenditure commitments, investments, asset disposals, acquisitions and divestments, creation of new entities, major disputes and sale or purchase contracts are reviewed in detail on the basis of profitability, risk analysis and strategic consistency. A maximum level has been set for each of these transaction types beyond which the Investment Committee s authorization is required. In addition, senior management periodically assesses performance and the strict application of the internal control system in the operating units and support departments. In 2009, the Group performed a self-assessment of internal control in all its subsidiaries. This was done by means of a questionnaire adapted to the Group s needs and organization structure, covering both financial reporting and operating processes. The results were presented to the Audit Committee on February 26, 2010, and this assessment process will be carried out annually to continue the improvement of internal control. Lastly, the Internal Audit department also plays a key role in the internal control assessments carried out by senior management and the Audit Committee. Internal audit organization and work in 2009 Created in 2004, the Internal Audit Department has three members. Its key roles are to: Ensure the organization is able to meet efficiently the objectives set by the Group. Analyze the effectiveness of internal control procedures, ensure their strict application and define improvement plans. More generally, identify risks inherent in the business and assess processes in place for providing solutions. The Internal Audit Department has unlimited access to members of the Audit Committee and to all information sources within the Group. It is also responsible for training future finance and/or operating executives. Each year, an Audit Plan is prepared and approved by senior management and the Audit Committee. The 2009 internal audit plan was approved by the Audit Committee on February 26, Nine internal audit assignments were carried out during the year, mainly covering operational and financial issues. The conclusions of these audits were presented to the Audit Committee. The Statutory Auditors are advised of the conclusions of all audits throughout the year. Control of accounting and financial information Controlling accounting and financial information is a critical aspect of the internal control system. Apart from the general tools described above, this control is based on: P. 120 CORPORATE GOVERNANCE

123 - Group accounting rules: Financial Accounting Policies (FAPs) define the accounting treatment for each item of the income statement and balance sheet, notably non-current assets, inventories, trade receivables, trade payables, cash, taxes, provisions, equity, dividends, revenue, cost of goods sold, R&D expenses, marketing expenses, general & administrative expenses and human resources expenses. These policies are applied uniformly by the units and are in line with international financial reporting standards (IFRS). The FAPs were updated in Organization of accounting departments: Given its international operation, the Group s accounting function is organized on a combined local and regional basis. In addition to the units own accounting departments, two shared service centers have been set up in Roissy (France) and Smithfield (USA) to process accounting data that can be handled on a centralized basis. For several years now, the Group has been pursuing its strategy of centralizing the accounting function for its European and US business units within these two centers. - Balance sheet review: A balance sheet review process was introduced in The financial controllers of each legal entity undertake a detailed review of balance sheet accounts in association with their divisional financial controller. The results are reported to the Chief Financial Officer and the Group Financial Controller. The process began in the second half of 2009 with the aim of covering all Group entities on an annual basis. - Preparation of the consolidated financial statements: The consolidation manager reports to the Group Financial Controller. Consolidations take place twice a year for the half-yearly and annual financial statements. The consolidated financial statements are prepared from consolidation packages completed by the Accounts department of each business unit in line with instructions issued by the Consolidation department. The packages are sent to the consolidation manager, who checks the data for consistency. The consolidation procedure is designed to ensure: Consistency with of financial information with legal requirements (IFRS, Group chart of accounts and AMF instructions). Reliability of financial information. Data integrity. The SBU and MBU management and their financial controllers check their unit s financial statements and sign a letter of compliance with the Group s accounting policies. - Accounting and financial information management: Monthly reporting is the main tool for managing accounting and financial information. Results are compared to budget and prior year performance on a monthly basis. The budget process begins when senior management sets budget assumptions for the year such as inflation and foreign exchange rates, sets targets and defines sales budgets. In November, sessions are arranged to present the budgets by product family (SBU) and geographical market (MBU), as well as budgets for the support functions. Consolidation of budget information is finalized at the end of November for presentation to the Board in early December. In 2009, the Group introduced a simplified procedure adapted to the economic crisis conditions. The reporting process is based on a monthly review of sales and key balance sheet and income statement items. Monthly reporting is based on the same accounting policies as the half-yearly and annual financial statements. The financial statements are produced by the financial controller of each business unit, who presents an analysis to the unit head. The Group s financial results are presented monthly at the Executive Committee meeting. Every two months, senior management receives a report from each unit head and financial controller on major factors affecting business activity and on all major variances compared with the previous year Statutory Auditors Report prepared in accordance with article L of the French commercial code (Code de commerce) on the report prepared by the Chairman of the Board of Directors of Sperian Protection This is a free translation into English of a report issued in the French language and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with and construed in accordance with French law and professional auditing standards applicable in France. CORPORATE GOVERNANCE P. 121

124 To the Shareholders, In our capacity as statutory auditors of Sperian Protection and in accordance with article L of the French commercial code (Code de commerce), we hereby report on the report prepared by the Chairman of your company in accordance with the provisions of article L of the French commercial code (Code de commerce) for the year ended December 31, It is the Chairman s responsibility to prepare and submit for the Board of Directors approval a report on the internal control and risk management procedures implemented by the company and to provide the other information required by article L of the French commercial code (Code de commerce) relating to matters such as corporate governance. Our role is to: report on the information contained in the Chairman s report in respect of the internal control procedures relating to the preparation and processing of the accounting and financial information, confirm that the report also includes the other information required by article L of the French commercial code (Code de commerce). It should be noted that our role is not to verify the fairness of this other information. We conducted our work in accordance with professional standards applicable in France. Information on internal control procedures relating to the preparation and processing of accounting and financial information Professional standards require that we perform the necessary procedures to assess the fairness of the information provided in the Chairman s report in respect of the internal control procedures relating to the preparation and processing of the accounting and financial information. These procedures consist mainly in: obtaining an understanding of the internal control procedures relating to the preparation and processing of the accounting and financial information on which the information presented in the Chairman s report is based and of the existing documentation; obtaining an understanding of the work involved in the preparation of this information and the existing documentation; determining if any material weaknesses in the internal control procedures relating to the preparation and processing of the accounting and financial information that we would have noted in the course of our engagement are properly disclosed in the Chairman s report. On the basis of our work, we have nothing to report on the information in respect of the company s internal control procedures relating to the preparation and processing of the accounting and financial information contained in the report prepared by the Chairman of the Board of Directors in accordance with article L of the French commercial code (Code de commerce). Other information We confirm that the report prepared by the Chairman of the Board of Directors also contains the other information required by article L of the French commercial code (Code de commerce). Dijon and Paris-La Défense, March 2, 2010 The Statutory Auditors EXPERTISE COMPTABLE ET AUDIT Claude Cornuot ERNST & YOUNG Audit Jean-François Ginies P. 122 CORPORATE GOVERNANCE

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127 SOMMAIRE 5. INVESTOR INFORMATION 5.1. Information about the Company P Name and registered office P Legal form and governing law P Date of incorporation and term P Corporate purpose P Trade Registry P Consultation of corporate documents P Fiscal year P Appropriation of income P Dividends P Corporate governance P Shareholders Meetings P Information about the Company s capital P Changes in capital stock or rights attached to shares P Form and registration of shares P Registrar P Transfer of shares P Disclosure thresholds provided for in the Bylaws P Changes in the Company s capital over the last five years P Share buyback program P Authorized, unissued capital P Ownership structure P Current ownership structure P Changes in ownership structure over the past three years P Treasury stock P Shareholders agreements P Shareholders with a controlling interest P Market for the Company s shares P Listing P Share performance P Dividends and dividend policy P Information policy P Person responsible for the information P Provisional 2010 financial calendar P. 140 INVESTOR INFORMATION P. 125

128 5. INVESTOR INFORMATION 5.1. Information about the Company Name and registered office Company name: Sperian Protection Registered office: ZI Paris Nord II, 33 rue des Vanesses Villepinte, France Legal form and governing law The company is a société anonyme with a Board of Directors governed by French company law, notably Book II of the French Commercial Code, and prevailing stock market regulations, particularly with regard to public disclosure requirements Date of incorporation and term Incorporated on June 8, 1983 for a term of 99 years from the date of registration in the Trade and Companies Registry. To be dissolved on June 24, 2082 unless wound up early or the term is extended by resolution of an extraordinary shareholders meeting Corporate purpose (Article 3 of the Bylaws) The Company s purpose in France and other countries is to: Acquire by any method equity interests and investments in any and all companies, consortia or other undertakings engaged in manufacturing, purchasing, selling and marketing personal protective equipment for professional, sports or leisure use including but not limited to eyewear, earplugs, fall arrest systems, clothing, footwear, gloves and respiratory protection devices, as well as the provision of all services, advice and recommendations in the field of personal protection. More generally, undertake any and all forms of commercial or financial transactions, including transactions involving securities and real property, that are directly or indirectly related to the above purpose or which may facilitate the fulfillment of said purpose. The Company may act directly or indirectly, on its own behalf or on behalf of third parties, alone or with other persons or companies within a partnership, joint venture, consortium or other form of entity, specifically by means of creation of companies, subscription, partnership, merger or consolidation, advances, purchases or sale of shares and corporate rights, or the sale or lease of all or part of its real property, securities or rights Trade Registry Registered with the Bobigny Trade and Companies Registry, number Business Identification (NAF) code 7010 Z Consultation of corporate documents Legal documents concerning the Company that, by law, must be available to shareholders, may be consulted at the registered office, ZI Paris Nord II, 33 rue des Vanesses, Villepinte, France. P. 126 INVESTOR INFORMATION

129 Fiscal year January 1 to December Appropriation of income Revenues and expenses for the year are presented in the income statement. The difference between revenues and expenses, less any depreciation, amortization and provisions, constitutes the net income for the year. At least five percent of net income for the year, less any prior-year losses, is appropriated to the legal reserve. This appropriation ceases to be compulsory once the legal reserve represents one-tenth of the share capital. However, if for any reason, the legal reserve falls to below one-tenth of the share capital, it must be restored to the required level by the same method. The net income remaining, less any amounts to be credited to reserves pursuant to the law, plus any appropriated retained earnings brought forward from prior years, constitutes the year s distributable income. It is used to pay a first dividend on common shares, in an amount equal to five percent of the paid-in unredeemed portion of their par value. This first dividend is not cumulative and may not be carried forward to subsequent years. The Annual Meeting may resolve to appropriate any surplus to a discretionary, ordinary or special reserve account, or to retained earnings, in the proportions it deems appropriate. The remainder is then distributed to shareholders as an additional dividend. The Annual Meeting may also decide to pay all or part of the dividend out of revenue reserves or to effect an exceptional distribution of revenue reserves. In this case, the reserves against which the dividend is to be charged must be designated in the related resolution. However, no distributions of reserves may be decided if distributable income for the year has not been fully distributed. Except in the event of a capital reduction, no distribution may be decided if the Company s equity is or, as a result of the distribution, would be lower than the amount of its capital stock plus any reserves that are not distributable by law. The revaluation reserve may not be distributed, but may be fully or partially incorporated in capital stock. These clauses are valid provided that no non-voting preferred stock is issued Dividends The Annual Meeting may offer shareholders the option to reinvest all or part of the interim or final dividend in new shares. Cash dividends may be paid by check, bank transfer or postal transfer, sent to the shareholder at the address indicated in the Company s records. If the Company has requested information about a shareholder s identity under the provisions of Articles L to L of the French Commercial Code, and the information has not been provided within the statutory time period or is incomplete or inaccurate, payment of the dividend on the corresponding shares will be deferred until such time as the information has been properly received Corporate governance On March 3, 2009, the Board of Directors appointed Brice de La Morandière as Chief Executive Officer effective April 14, This appointment concluded the transition phase announced in August 2008 to prepare for Henri-Dominique Petit s succession as Chief Executive Officer. Mr. Petit continues to serve as Chairman of the Board of Directors. At the same meeting, the Board elected to separate the offices of Chairman of the Board of Directors and Chief Executive Officer Shareholders Meetings The shareholders take collective decisions by passing resolutions at meetings qualified either as ordinary, extraordinary or special depending on the nature of the decisions they are called to make. Special shareholders meetings comprising all holders of a particular class of shares are held to vote on any resolutions proposing to alter the rights of that class of shares. INVESTOR INFORMATION P. 127

130 The quorum and voting conditions are the same as those required for extraordinary meetings. Any properly convened and constituted meeting represents the entire body of shareholders. Any resolutions passed at such meetings are binding on all shareholders, including absent, dissenting or incapacitated shareholders. Notice of meeting Shareholders meetings are called and conduct their deliberations pursuant to applicable legislation. They are held on the day and at the time and venue indicated in the notice of meeting. They may be held at the registered office or at any other location specified in the notice of meeting. Attendance and representation In accordance with the legislation introduced in France in 2007, all shareholders are entitled to attend or be represented at Annual Meetings regardless of the number of shares held, simply by providing proof of identity and ownership of their shares in the form of: Registration in the Company s share register, or A certificate of ownership from their custodian institution. These requirements must be fulfilled no later than midnight (Paris time) on the third business day before the date of the meeting. However, the Board of Directors may reduce or eliminate this time period, provided that it applies to all shareholders alike. Shareholders may give proxy only to their spouse or another shareholder. Meeting organization Meetings are chaired by the Chairman of the Board of Directors or, in his absence, by the eldest Vice-Chairman of the Board, if the Board has appointed one or more Vice-Chairmen, or by the Director empowered to replace the Chairman. Failing that, the meeting elects its own Chairman. The two shareholders holding the largest number of votes either personally or by proxy, who are present at the meeting and willing to act, are appointed scrutineers. The officers of the meeting appoint a secretary, who need not be a shareholder. An attendance sheet is kept for each meeting containing the information required by law. Minutes of the meetings are kept and copies or excerpts thereof are issued and certifi ed in accordance with the provisions of the law. Quorum - Voting The quorum for ordinary and extraordinary meetings is calculated on the basis of all the shares comprising the share capital. The quorum for special shareholders meetings is calculated on the basis of all shares without voting rights pursuant to the provisions of the law. Shareholders attending the meeting by videoconferencing or other electronic means that permit their identification are counted as present for the purpose of calculating the quorum and majority. Shareholders may vote by mail in accordance with the provisions of the law. Ordinary meetings The shareholders meet at least once a year in ordinary meeting, in the form and within the time periods set out by law. In addition to the Annual Meeting, the Board of Directors may call other ordinary meetings in exceptional circumstances when it deems necessary. All shareholders are entitled to participate in ordinary meetings, regardless of the number of shares held. Extraordinary meetings Extraordinary meetings are called to approve any proposed modifications to the Bylaws authorized by law. All shareholders with at least one voting right are entitled to participate in extraordinary meetings. The presence in person or by proxy of the holders of at least one-quarter of the shares eligible to vote constitutes a quorum, or of the holders of at least-one fifth of the shares eligible to vote in the case of an adjourned meeting. If a quorum is still not present, the meeting may be adjourned a second time to a date no more than two months after the first adjournment. Extraordinary resolutions are passed by a twothirds majority vote of those shareholders present in person or by proxy. An extraordinary meeting may, in accordance with the provisions of the law, decide to abolish double voting rights, subject to ratification by a special shareholders meeting of all shareholders with double voting rights. P. 128 INVESTOR INFORMATION

131 Double voting rights (Article 25 of the Bylaws pursuant to a resolution passed at the Extraordinary Meeting of December 13, 1985) The voting rights of each shareholder are proportional to the amount of capital stock held, with no limitation. However, double voting rights are attached to: All fully paid-up shares that have been registered in the name of the same shareholder for at least two years. Bonus shares paid up by capitalizing reserves, retained earnings or share premiums that are issued in respect of shares entitled to double voting rights. The double voting rights cease ipso jure if the shares are converted to bearer shares or transferred to another name, save in the case of inheritance, division of estate between divorcing spouses or gifts inter vivos to a spouse or other person of an eligible degree of relationship. Shareholders who are not resident in France within the meaning of Article 102 of the French Civil Code may be represented for voting purposes by any intermediary that meets the requirements set out in paragraphs 7 and 8 of Article L of the French Commercial Code, provided that the intermediary transmits a list of all the non-resident shareholders represented to the Company or its agent on request, in accordance with the provisions of the law. Any votes cast or proxies submitted by an intermediary that fails to announce that it is acting as a nominee in accordance with paragraph 8 of Article L or paragraph 2 of Article L of the French Commercial Code, or that has not disclosed the identity of the shareholders as required by Articles L or L of the French Commercial Code, will not be counted. On February 28, 2010, the total number of theoretical voting rights amounted to 10,031,579 and total exercisable voting rights came to 9,925,870, including 2,376,556 in respect of double voting rights. The number of exercisable voting rights is equal to the total number of theoretical voting rights less the number of voting rights attached to shares disqualified for voting purposes. As required under the AMF s General Regulations, the company makes a monthly disclosure of the number of shares comprising the share capital and the number of voting rights. This information is available on the Group s website at in the section on regulated information. Shareholders right to information All shareholders have the right to obtain the documents required for them to vote in full knowledge of the facts and to make an informed judgment of the Company s management and operations. The nature of these documents and the terms under which they shall be made available are set out by law. INVESTOR INFORMATION P. 129

132 5.2. Information about the Company s capital When this Reference Document was filed with the Autorité des Marchés Financiers (AMF), the Company s capital stock amounted to 15,310,046 divided into 7,655,023 fully paid-up shares all of the same class, each with a par value of Changes in capital stock or rights attached to shares Changes in capital stock or rights attached to shares are governed by the provisions of the law, as the bylaws do not contain any specific provisions in this respect Form and registration of shares Shares may be held in either registered or bearer form at the shareholder s option. Both of these categories are governed by the specific legal provisions applicable to them. All securities issued by the Company are in either registered or identifiable bearer form. All bearer shares are therefore identifiable bearer shares Registrar Securities services are provided by: CACEIS Corporate Trust Issy-les-Moulineaux Cedex 9, France Telephone: Fax: ct-contact@caceis.com Transfer of shares Shares are freely transferable inter vivos or by inheritance. They are transferred to third parties or the Company from account to account by way of a stock transfer order. Shares that are not fully paid-up are not transferable Disclosure thresholds provided for in the Bylaws (Article 6 of the Bylaws) In addition to legal disclosure thresholds, any natural person or company that holds or acquires a number of shares representing 2.5% of the capital stock or any multiple thereof, is required to disclose to the Company the number of shares and voting rights held directly or indirectly, no later than fifteen days after the disclosure threshold is crossed. This disclosure must be made under the conditions stipulated above, every time a new threshold is crossed. In the event of failure to comply with these disclosure rules, the shares exceeding the disclosure threshold will be stripped of voting rights for a period of three months from the date on which the omission is remedied. P. 130 INVESTOR INFORMATION

133 5.2.6 Changes in the Company s capital over the last five years Year Transaction Capital increases or decreases Total shares Total issued Par value Share premium outstanding capital (in ) 2006 Exercise of stock options 61,286 2,214, ,658,030 15,316, Exercise of stock options 184,538 7,008, ,750,299 15,500, Exercise of stock options 2,220 71, ,751,409 15,502, Cancellation of shares 195,372 7,021, ,653,723 15,307, Exercise of stock options 2,600 83, ,655,023 15,310, None Share buyback program At the Annual Meeting of May 6, 2009, shareholders authorized the Board of Directors to set up a share buyback program governed by Articles L et seq. of the French Commercial Code. The program was described in a document published on April 6, Under the program, the Company may trade in its own shares, within the limits set in the program, for a maximum period of eighteen months from the date of the Annual Meeting. The maximum authorized purchase price is 90. As of February 28, 2010, the Group held 105,709 shares in treasury. During 2009, the share buyback program was implemented as follows: Between January 1, 2009 and February 28, 2010, Exane BNP Paribas, an independent provider of investment services authorized under a liquidity agreement to make a market and ensure liquidity in Sperian Protection shares, purchased 142,834 shares and sold 151,434 shares under this agreement. In addition, on September 20, 2007 and January 22, 2008, the Board of Directors authorized the Company to buy back shares for the purpose of (i) allocating them to employees and executive officers authorized by the Company under stock option or performance share plans; (ii) canceling them to improve return on equity and earnings per share; or (iii) using them at a later date to pay for acquisitions. Between March 6, 2008 and April 3, 2009, the Group purchased 82,902 shares of which 10,000 were cancelled and 72,902 were allocated to employee stock option or performance share plans. The average purchase price for these shares was Purchases, sales or transfers of treasury shares under the share buyback program from April 3, 2009 through February 28, Percentage of Sperian Protection shares held directly or indirectly by the Company: 1.38% Number of treasury shares cancelled in the past 24 months: 97,686 Number of shares held in treasury: 105,709 Carrying amount of shares held in treasury: 7,408,928 Market value of shares held in treasury (as of February 26, 2010): 5,005,653 INVESTOR INFORMATION P. 131

134 Aggregate transaction volumes Open positions at the filing date of this Reference Document Purchases Sales/ Transfers Open buy positions Open sell positions Number of shares 120, ,410 Call options written Forward purchases Call options sold Forward sales Annual maximum maturity Average transaction price ( ) Average exercise price ( ) Amounts ( ) 5,285,608 5,541,558 At the Annual Meeting scheduled for May 19, 2010, shareholders will be asked to cancel this authorization and replace it with a new authorization, as described in the Proposed Resolutions, which should be read in conjunction with this Reference Document. Under the proposed authorization, the maximum number of shares purchased by the Company may not exceed 10% of the capital stock as of March 2, 2010, that is 765,502 shares based on the capital stock as of that date, representing a maximum theoretical cost of 68,895,207. The maximum number of shares that may be purchased by the Company to pay for merger, spin-off or transfer transactions may not exceed 5% of the capital stock, in accordance with the provisions of the law. The maximum purchase price will be set at 90 per share. The authorization is sought for a period of 18 months, for the following purposes: granting stock to employees, implementing stock option plans, making a market in the shares using an independent investment services provider acting under the terms of a liquidity agreement, paying for acquisitions, allocating shares on exercise of rights attached to share equivalents, and canceling the shares to improve return on equity and earnings per share. At the Annual Meeting on May 6, 2009, shareholders also authorized the Board of Directors to reduce the capital by canceling shares acquired by the Company under the buyback program. This authorisation was not used in At the Annual Meeting scheduled for May 19, 2010, shareholders will also be asked to cancel this authorization and replace it with a new authorization, as described in the Proposed Resolutions document which should be read in conjunction with this Reference Document. P. 132 INVESTOR INFORMATION

135 5.3 Authorized, unissued capital At the Annual Meeting of May 6, 2009, shareholders granted the Board of Directors the following authorizations to issue new shares and/or share equivalents: Authorization Authorization to issue shares and share equivalents with pre-emptive subscription rights Authorization to issue shares paid up by capitalizing reserves, earnings or share premiums Authorization to issue shares representing a maximum of 10% of the capital stock in payment of contributed assets Maximum authorized par value of shares issued ( ) Maximum authorized par value of shares equivalents issued ( ) Date of authorization Expiry date Utilization in ,000, ,000,000 May 6, 2009 July 11, 2011 None May 6, 2009 July 11, 2011 None May 6, 2009 July 11, 2011 None These authorizations superseded and replaced the authorizations granted at the Annual Meeting of May 10, INVESTOR INFORMATION P. 133

136 5.4. Ownership structure Current ownership structure At December 31, 2009, the Euroclear survey of financial intermediaries holding at least 8,000 Sperian Protection shares identified approximately 6,133 bearer shareholders representing 98.9% of all bearer shares in issue. Based on the survey and the Company s Share Register, the Company s ownership structure is as follows: Mrs. Dalloz 13.2% Individuals and treasury shares 6.3% Other institutional investors 12.9% Essilor 15.0% French institutional investors 19.3% US and UK institutional investors 33.3% To the best of the Company s knowledge, ownership of the capital and voting rights as at February 2010, was as follows: Main shareholders Number of shares % capital Single voting rights Double voting rights Total voting rights (2) % voting rights Essilor International 1,151, % 0 1,151,800 2,303, % Ginette Dalloz (1) 1,011, % 0 1,011,368 2,022, % Governance for owners LLP 752, % 559, , , % Harris Associates 592, % 592, , % Bestinver Gestion S.A. SGIIC 389, % 389, , % Aviva PLC 376, % 376, , % JP Morgan Chase and Co 333, % 333, , % Columbia Wanger 287, % 287, , % Caisse des Dépôts et 250, % 250, , % Consignations Lazard 218, % 218, , % Tocqueville Finance 182, % 182, , % Treasury shares 105, % % Other public 2,003, % 1,982,502 20,547 2,023, % Total 7,655, % 5,172,758 2,376,556 9,925, % (1) Shares held directly (387,224) and through Société Familiale Civile Dalloz (624,144). (2) Exercisable voting rights, i.e. theoretical voting rights less voting rights attached to treasury shares. P. 134 INVESTOR INFORMATION

137 During 2009, the Company was informed of the following changes in shareholdings: On March 18, 2009, Bestinver Gestion S.A. SGIIC, acting on behalf of funds (including SICAV funds) that it manages, disclosed that on March 11, 2009 it had increased its interest to more than 5% of the Company s capital and that it held 389,688 shares on behalf of said funds. On June 25, 2009, Harris Associates L.P., acting on behalf of funds that it manages, disclosed that it had increased its interest to more than 7.5% of the Company s capital and that it held 592,800 shares as part of its mutual fund management business. On August 6, 2009, Tocqueville Finance disclosed that it had reduced its interest to less than 2.5% of the Company s capital and that it held 182,220 shares as part of its mutual fund management business. On August 27, 2009, Governance For Owners LLP, acting on behalf of funds that it manages, disclosed that i) on January 10, 2008 it had increased its interest to more than 5% of the Company s voting rights and that it held 589,611 shares at that date, and ii) on July 13, 2009, it had increased its interest to more than 10% of the Company s voting rights and that it held 752,524 shares on behalf of said funds. On September 7, 2009, Bestinver Gestion S.A. SGIIC, acting on behalf of funds (including SICAV funds) that it manages, disclosed that on August 31, 2009 it had reduced its interest to less than 5% of the Company s capital and that it held 379,899 shares on behalf of said funds. On September 10, 2009, Lazard Frères Gestion, acting on behalf of its mutual funds invested in small and mid-cap stocks, disclosed that it had increased its interest to more than 2.5% of the Company s capital and that it held 218,000 shares on behalf of said mutual funds, ie 2.85%. During 2010, the Company was informed of the following changes in shareholdings: On January 21, 2010, Bestinver Gestion S.A. SGIIC, acting on behalf of funds (including SICAV funds) that it manages, disclosed that on January 15, 2010 it had increased its interest to more than 5% of the Company s capital and that it held 389,510 shares on behalf of said funds. On February 26, 2010, Governance For Owners LLP, acting on behalf of funds that it manages, disclosed that on January 6, 2010 its interest had decreased to less than 10% of the Company s voting rights, following the transfer of Sperian Protection shares held in one fund to another fund it managed by Governance For Partners LLP. This caused the shares to lose their double voting rights, thereby reducing the total number of Sperian Protection voting rights held by Governance For Owners LLP. To the best of the Company s knowledge, no other shareholder owns 2.5% or more of the capital or voting rights, either directly, indirectly or in concert. Information on Directors interests as of March 2, 2010 is provided in Chapter Changes in ownership structure over the past three years March 6, 2007 Number of shares % capital Voting rights Essilor International 1,151, Ginette Dalloz 387, Société Familiale Civile Dalloz 624, Caisse des Dépôts et Consignations (1) 192, Governance For Owners LLP (2) 383, JP Morgan Chase and Co 333, Tocqueville Finance (3) 247, Other public 4,337, ,658, INVESTOR INFORMATION P. 135

138 March 5, 2008 Number of shares % capital Voting rights Essilor International 1,151, Ginette Dalloz 387, Société Familiale Civile Dalloz 624, Caisse des Dépôts et Consignations (1) 250, Governance For Owners LLP (2) 589, JP Morgan Chase and Co 333, Tocqueville Finance (3) 245, Harris Associates (4) 385, Columbia Wanger (5) 287, Other public 3,309, Treasury shares 88, ,653, March 3, 2009 Number of shares % capital Voting rights Essilor International 1,151, Ginette Dalloz 387, Société Familiale Civile Dalloz 624, Caisse des Dépôts et Consignations (1) 250, Aviva PLC 376, Governance For Owners LLP (2) 727, JP Morgan Chase and Co 333, Tocqueville Finance (3) 245, Harris Associates (4) 395, Columbia Wanger (5) 287, Other public 2,756, Treasury shares 119, ,655, (1) On March 4, 2008, Caisse des Dépôts et Consignations disclosed that it had raised its interest held in the Company through CDC Entreprises Valeurs to more than 2.5% of the voting rights and that it held 250,259 shares. (2) On January 10, 2008, Governance For Owners LLC disclosed that it had increased its interest to more than 7.5% of the capital and that it held 589,611 shares. On August 27, 2009, Governance For Owners LLP, acting on behalf of funds that it manages, disclosed that i) on January 10, 2008 it had increased its interest to more than 5% of the Company s voting rights and that it held 589,611 shares at that date, and ii) on July 13, 2009, it had increased its interest to more than 10% of the Company s voting rights and that it held 752,524 shares. On February 26, 2010, Governance For Owners LLP, acting on behalf of funds that it manages, disclosed that on January 6, 2010 its interest had decreased to less than 10% of the Company s voting rights, following the transfer of Sperian Protection shares held in one fund to another fund managed by Governance For Partners LLP. This caused the shares to lose their double voting rights, thereby reducing the total number of Sperian Protection voting rights held by the company. (3) On January 29, 2008, Tocqueville Finance S.A. disclosed that it had reduced its interest to below 2.5% of the Company s voting rights and that it held 245,582 shares. On August 6, 2009, it disclosed that it had reduced its interest to less than 2.5% of the Company s capital and that it held 182,220 shares. (4) On September 5, 2007, Harris Associates L.P. disclosed that it held 196,200 shares on August 2, On December 20, 2007, it disclosed that its interest had risen to more than 5% of the Company s capital and that it had held 385,738 shares since December 18, On October 13, 2008, Harris Associates L.P, acting on behalf of its clients and funds it manages, disclosed that on October 9, 2008 it had reduced its interest to below 5% of the Company s capital and that it held 374,400 shares on behalf of said clients and funds. On December 18, 2008, it disclosed that on December 17, 2008 its interest had risen to more than 5% and that it held 395,144 shares on behalf of said clients and funds. On June 25, 2009, Harris Associates L.P disclosed that it had increased its interest to more than 7.5% of the Company s capital and that it held 592,800 shares. (5) On August 31, 2007, Wanger Columbia (Bank of America Corporation), acting in its own name and in the name of its subsidiaries Columbia Wanger Asset Management, L.P. and Columbia Management Advisors, LLC, disclosed that as of August 28, 2007, it held 287,648 shares on behalf of its clients. Information on employee share ownership is provided in Chapter 3. P. 136 INVESTOR INFORMATION

139 Treasury stock As of February 28, 2010, the Group held 105,709 shares in treasury, which were purchased under the liquidity agreement and the share buyback program referred to in section Shareholders agreements The only agreement in effect as of the date of this Reference Document is the Preemption Agreement ( Pacte de Préférence ) between Essilor International and Mrs. Ginette Dalloz, which was entered into on September 6, 2001 for an initial term of three years and renewable automatically for further terms of two years. This agreement basically renews the reciprocal rights of first refusal already existing between Essilor International and Ginette Dalloz over shares in Financière Christian Dalloz. Its key provisions are: Termination as of its effective date of the existing memorandum of understanding providing for reciprocal rights of first refusal. Grant of reciprocal rights of first refusal over any shares sold by one of the parties, save for shares transferred by Essilor International to a controlled company within the meaning of Article L of the French Commercial Code, and shares donated by Ginette Dalloz to a foundation recognized as being in the public interest. Special conditions for exercising the rights in the event of a public offering for the Company s shares. An undertaking by Ginette Dalloz, on her own behalf and on behalf of her heirs, to sell all the shares she may own in the company to Essilor International or its assigns and successors, at Essilor International s discretion, in the event of her death during the term of the Preemption Agreement Shareholders with a controlling interest As of the date of filing of this Reference Document, there were no shareholders agreements in existence. In addition, neither the Company s Bylaws nor any of its contractual arrangements contain any clauses providing for rights of first refusal in the event of a sale or transfer of shares, other than the reciprocal rights of first refusal existing between Essilor International and Ginette Dalloz described in section above. INVESTOR INFORMATION P. 137

140 5.5. Market for the Company s shares Listing Sperian Protection shares are traded on the NYSE Euronext Paris stock exchange (compartment B). Name: Sperian Protection FTSE classification: 2727 AFC: 6089 ISIN: FR Symbol: SPR Sperian Protection (formerly Bacou-Dalloz) shares joined the SBF120 index on March 7, 2003 and are eligible for the deferred settlement (SRD) system. On January 3, 2005, Euronext introduced a new range of indices as part of its commitment to creating a single regulated market. Since then, Sperian Protection has been part of the CAC Mid100 and CAC Mid & Small190 indices Share performance The table below shows trends in share price and trading volumes over the past 18 months: Low ( ) High ( ) Average closing price ( ) Minimum daily trading volume Maximum daily trading volume Average daily trading volume Average daily value of shares traded ( millions) 2008 September ,855 32,447 9, October ,577 68,228 22,680 1, November ,817 27,054 9, December ,054 10, , January ,073 46,717 16, February ,948 68,918 17, March , ,795 34, April , ,984 72,119 2, May , ,082 35,600 1, June , ,823 50,132 1, July , ,829 48,212 1, August , ,632 38,253 1, September ,829 38,990 18, October ,715 55,874 22,282 1, November ,275 42,369 18, December ,088 23,238 8, January ,014 18,008 9, February ,494 3, P. 138 INVESTOR INFORMATION

141 5.6. Dividends and Dividend Policy The table below shows the dividend paid per share over the past five years. (in ) (in ) Dividend Under Article 93 of the French Finance Act of December 30, 2003, dividends are no longer entitled to a tax credit. However, individual shareholders are entitled to 40% tax relief on their dividend income. Note as well that: In accordance with article 117 quater of the French General Tax Code, individuals who are tax residents of France may elect to pay 18% withholding tax instead of including the dividend in their personal income tax. If so, the shareholder must inform his or her bank or broker before the date when the dividend income is received. The CSG, CRDS, 2% prélèvement social and contribution additionnelle taxes, which together represent 12.1% of the dividend amount since January 1, 2009, are withheld at source when the dividend is paid. On March 2, 2010, the Board of Directors approved the financial statements for the year ended December 31, 2009 and agreed to recommend to shareholders at the Annual Meeting scheduled for May 19, 2010 to allocate net income for 2009 i.e. 1,800,373, plus retained earnings brought forward from prior years amounting to 146,834,309, representing total distributable income of 148,634,682 as follows: Payment of a dividend of 7,655,023 (plus any amount payable in relation to shares issued on exercise of stock options up to the dividend payment date). The balance of 140,979,659 to retained earnings. The Board of Directors will therefore recommend a dividend of 1.00 per share, payable from July 2, Shareholders of record on July 1st, 2010 will be entitled to receive the dividend. The ex-dividend date is June 29, 2010 (in accordance with ESES regulations). Dividends that have not been claimed within five years are statute-barred and paid to the Caisse des Dépôts et Consignations. INVESTOR INFORMATION P. 139

142 5.7. Information Policy Shareholders can obtain information on request or from the Company s website (Investors section). The main documents are Reference Documents, presentations prepared for results announcements, press releases and information memoranda filed with the AMF. Information qualified as regulated (as defined by the AMF) is available on the Group s website at www. sperian.com under the Investors section. The Group also publishes an annual information document (in French only), as required by Article of the AMF s General Regulations. This document is also available on the website Person responsible for the information Jérôme Ronze Chief Financial Officer Immeuble Édison, Paris Nord II, 33, rue des Vanesses, BP Villepinte, Roissy Charles-de-Gaulle Cedex, France Telephone: Fax: (Investors section) investorrelations@sperian.com Provisional 2010 financial calendar Revenue and earnings announcements are released after the close of trading. April 28: First-quarter 2010 revenue May 19: Annual Shareholders Meeting July 21: Second-quarter 2010 revenue August 25: 2010 interim earnings October 27: Third-quarter 2010 revenue P. 140 INVESTOR INFORMATION

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