Safety Products 10K 2007 Annual report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


for the fiscal year ended December 31, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


for the transition period from to .

COMMISSION FILE NUMBER: 333-127781

SAFETY PRODUCTS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		34-2051198
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2001 Spring Road, Suite 425 Oak Brook, Illinois		60523
(Address of Principal Executive Offices)		(Zip Code)

(630) 572-5715

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes x No o

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o

Accelerated Filer o

Smaller Reporting Company o

Non-accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

None of the Registrant’s units are held by non-affiliates of the Registrant.

As of March 13, 2008, Safety Products Holdings, Inc. had 11,023,384 common shares outstanding.

Documents Incorporated by Reference

None

TABLE OF CONTENTS

PART I						3

			ITEM 1.	BUSINESS		3
			ITEM 1A.	RISK FACTORS		11
			ITEM 1B.	UNRESOLVED STAFF COMMENTS		15
			ITEM 2.	PROPERTIES		15
			ITEM 3.	LEGAL PROCEEDINGS		17
			ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		20

PART II						21

		ITEM 5.			MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	21
		ITEM 6.			SELECTED FINANCIAL DATA	21
		ITEM 7.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
		ITEM 7A.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
		ITEM 8.			CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
		ITEM 9.			CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	83
		ITEM 9A.			CONTROLS AND PROCEDURES	83
		ITEM 9B.			OTHER INFORMATION	85

PART III						86

	ITEM 10.				DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	86
	ITEM 11.				EXECUTIVE COMPENSATION	87
	ITEM 12.				SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	101
	ITEM 13.				CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	103
	ITEM 14.				PRINCIPAL ACCOUNTANT FEES AND SERVICES	104

PART IV						106

	ITEM 15.				EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	106

EXHIBIT INDEX						108

PART I

ITEM 1. BUSINESS

Company Overview

Safety Products Holdings, Inc. (the “Company”, “We” or “Safety Products”) is a leading designer, manufacturer and marketer of branded products in the fragmented personal protection equipment industry. We manufacture and market a full line of personal protection equipment for workers in the general safety and preparedness, fire service and electrical safety industries. Our broad product offering includes, among other things, respiratory protection, protective footwear, hand protection, eye, head and face protection, turnout gear for firefighters and linemen equipment for utility workers.

We sell our products under trusted, long-standing and well-recognized brand names, including North, KCL, Fibre-Metal, NEOS, Morning Pride, Ranger, Servus, Pro-Warrington, American Firewear, Salisbury and Safety Line. We believe these brand names have a strong reputation for excellence in protecting workers from hazardous and life-threatening environments, which is a key purchasing consideration for personal protection equipment. We believe our brand names, reputation, history of developing innovative products and a comprehensive line of high-quality, differentiated products and high levels of customer service have enhanced our relationships with our distributors and end-users. These factors have enabled us to achieve strong market share positions in key product lines. In addition, the non-discretionary and consumable nature of our products provides us with stable and recurring revenues.

We are one of the largest participants in the personal protection equipment industry with approximately 3,100 employees in 30 primary facilities worldwide. We market and sell our products through three distinct sales forces dedicated to our three target markets. Our sales representatives work closely with third-party distributors, while simultaneously calling on end-users to generate “pull-through” demand for our products. We manufacture or assemble the majority of the products we sell. Approximately 82% of our net sales in 2007 were to customers in North America, with the remainder to customers primarily in Europe. We generated net sales of $462.3 million, $537.7 million and $608.9 million for the combined year ended December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

We classify our diverse product offerings into three primary operating segments:

General Safety and Preparedness. We offer a diverse portfolio of leading products for a wide variety of industries, including the manufacturing, agriculture, construction, food processing, pharmaceutical and automotive industries and the military, under the North, Ranger, Servus, KCL, Fibre-Metal and NEOS brand names. Our product offering is one of the broadest in the personal protection equipment industry and includes respiratory protection, protective footwear, hand protection, eye, head and face protection, first aid, hearing protection and fall protection. We sell our general safety and preparedness products primarily through industrial distributors. Our general safety and preparedness segment generated net sales of $313.7 million, $370.9 million and $411.0 million for the combined year ended December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Fire Service. We manufacture and market one of the broadest lines of personal protection equipment for the fire service market, offering firefighters head-to-toe protection. Our products include turnout gear, fireboots, helmets, gloves and other accessories. We market our products under our Total Fire Group umbrella, using the brand names of Morning Pride, Ranger, Servus, Pro-Warrington and American Firewear. We are widely known for developing innovative equipment; for example, our turnout gear, which alone has more than 100 patented features, and our urban search and rescue products are certified by third-party testing labs as meeting all of the requirements of the National Fire Protection Agency (“NFPA”) and other regulatory bodies. We are the vendor of choice for many of the largest fire departments in North America. We sell our fire service products primarily through specialized fire service distributors. Our fire service segment generated net sales of $87.9 million, $87.9 million and $100.6 million for the combined year ended December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Electrical Safety. We manufacture and market a broad line of personal protection equipment for the electrical safety market under the Salisbury, Safety Line and Servus brands. Our products include linemen equipment, gloves, sleeves, footwear and arc flash protection. Our products either meet or exceed the applicable standards of the American National Standards Institute (“ANSI”), the American Society for Testing of Materials (“ASTM”) and the International Electrotechnical Commission (“IEC”). We sell our electrical safety products through specialized distributors, test labs, utilities and electrical

contractors. Our electrical safety segment generated net sales of $60.6 million, $78.8 million and $97.3 million for the combined year ended December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

For income (loss) from continuing operations, interest expense, income tax expense (benefit), depreciation and amortization and purchase of property, plant and equipment for each of our segments for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 and total assets for each of our segments as of December 31, 2006 and 2007, see Note 16 to our audited financial statements.

Acquisitions

In May 2005, Safety Products was formed to effect the acquisition from NSP Holdings L.L.C. (“NSP Holdings”) of all the issued and outstanding equity interests of Norcross Safety Products L.L.C. (“Norcross”) and NSP Holdings Capital Corp. (“NSP Capital”) in a transaction valued at approximately $481.0 million. To execute this transaction, Safety Products, NSP Holdings and Norcross entered into a purchase and sale agreement whereby Safety Products acquired all of the equity interests of Norcross and NSP Capital. As a result of the acquisition, Safety Products became the sole unit holder of Norcross. The acquisition was completed in July 2005 and was funded with proceeds to Safety Products from the issuance and sale of $25.0 million of senior pay in kind notes as well as an equity investment by affiliates of Odyssey Investment Partners, LLC, or Odyssey, and General Electric Pension Trust, or GEPT, and certain members of management of Norcross. Concurrently with the acquisition, Norcross also entered into a new senior credit facility consisting of an $88.0 million term loan and a $50.0 million revolving credit facility.

In November 2005, we completed the acquisition of all of the issued and outstanding capital stock of The Fibre-Metal Products Company (“Fibre-Metal”). The purchase price of $68.7 million (including acquisition costs of $0.7 million) was financed through additional term borrowings under the senior credit facility and cash on the balance sheet.

In February 2006, we completed the acquisition of all of the issued and outstanding capital stock of American Firewear, Inc. (“American Firewear”). The purchase price consisted of $4.5 million in cash (including acquisition costs of $0.2 million and net of cash acquired of $0.2 million) and a $1.0 million subordinated seller note. In addition, the purchase price may be increased by $0.8 million over a four year period from the date of the acquisition based on American Firewear achieving certain financial and operating objectives. We financed the acquisition through cash on the balance sheet and the issuance of the $1.0 million subordinated seller note.

In June 2006, we completed the acquisition of all of the issued and outstanding capital stock of The White Rubber Corporation (“White Rubber”). The purchase price of $22.2 million (including acquisition costs of $0.6 million and gross of outstanding checks of $0.8 million) was financed through additional term borrowings under the senior credit facility and cash on the balance sheet.

In September 2006, we completed the acquisition of all of the issued and outstanding capital stock of The New England Overshoe Company, Inc. (“NEOS”). The purchase price consisted of $3.6 million in cash (including acquisition costs of $0.1 million and net of cash acquired) and a $0.8 million subordinated seller note. In addition, the purchase price may be increased over a five year period from the date of the acquisition based on NEOS achieving certain net sales targets. We financed the acquisition through cash on the balance sheet and the issuance of the $0.8 million subordinated seller note.

We refer herein to the acquisition of Norcross as the “Norcross Transaction”, the acquisition of Fibre-Metal as the “Fibre-Metal Transaction”, the acquisition of American Firewear as the “American Firewear Transaction”, the acquisition of White Rubber as the “White Rubber Transaction” and the acquisition of NEOS as the “NEOS Transaction.”

Discontinued Operations

In June 2007, we completed the sale of all of the issued and outstanding capital stock of North Safety Products (Africa) (Proprietary) Limited (“South Africa”), a subsidiary of the Company. We received net cash proceeds of $3.2 million and recorded a net loss related to the transaction of $3.0 million. In accordance with Financial Accounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we have reflected South Africa’s results of operations through the date of the sale and transaction loss as discontinued operations for all periods presented. Assets and liabilities of South Africa were not material and as a result have not been reclassified as discontinued operations in our consolidated statement of financial position as of December 31, 2006. We have

combined cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category as the cash flows from discontinued operations are not material to our consolidated results.

Industry Overview

The worldwide personal protection equipment industry, which we estimate to be over $20 billion in size, is highly fragmented with few market participants offering a broad line of products. Demand for personal protection equipment is relatively stable, as purchases of these products are generally non-discretionary due to their use in protecting workers from bodily harm in hazardous and life-threatening work environments and as a result of government and industry regulations mandating their use. Furthermore, many of our products have limited life spans due to normal course wear and tear or because they are one-time use products by design, which results in consistent replacement and recurring revenues for industry participants. Additionally, we sell products, such as our respiratory line, which has both a durable component, in this case the face-piece, and a disposable component, in this case the cartridge. Ordinary-course usage of the disposable component of our equipment creates recurring revenues.

In recent years, several trends have reshaped the market for personal protection equipment, including the following:

Heightened Compliance and Commitment to Worker Safety. Demand for personal protection equipment is driven largely by regulatory standards and recognition by companies of the economic and productivity benefits of a safer workplace. Regulatory bodies and standard-setting entities, such as Occupational Safety & Health Administration (“OSHA”), National Institute for Occupational Safety and Health (“NIOSH”), the NFPA, ANSI and ASTM, require and enforce businesses’ compliance with worker safety regulations and establish strict performance and product design requirements for personal protection equipment. Similarly, while the required standards for worker protection are generally lower outside of North America and parts of Western Europe, many countries have been increasing safety regulations in recent years, creating opportunities for manufacturers to increase sales internationally. In addition, the litigious environment in which companies operate compels many businesses to provide personal protection equipment for their employees and in some cases causes businesses to provide more personal protection equipment than is mandated.

Focus on Domestic Preparedness. In the aftermath of the terrorist attacks of September 11, 2001 and other incidences of terrorism worldwide, governments have significantly increased their focus and their spending on preparedness for conventional and nuclear, biological and chemical attacks. The U.S. government, for example, created a separate cabinet-level Department of Homeland Security and allocated significant funding to further its mission. The 2008 budget for the Department of Homeland Security is approximately $46.4 billion, including approximately $8.0 billion of funds allocated to the Federal Emergency Management Agency and Emergency Preparedness.

Industrial Distributor Trends. The industrial distribution channel has experienced consolidation over the past several years as distributors have attempted to realize economies of scale. In addition, product procurement trends have shown that distributors are increasing their purchases from large, multi product vendors, thereby simplifying the management of their supply chain, reducing their procurement costs and improving their selling efficiency. Distributors, therefore, have an explicit preference for vendors with broad product offerings and comprehensive services, including consolidated shipping and invoicing, direct marketing to end-users and salesforce training.

Operating Structure

Our operations are organized into three primary operating segments: general safety and preparedness, fire service and electrical safety. Each segment has a sales force, a marketing team, manufacturing facilities, distribution facilities and customer service functions.

The following table sets forth the percentage of our net sales generated by each of our operating segments for the combined year ended December 31, 2005 and the years ended December 31, 2006 and 2007. The data have been derived from our audited consolidated financial statements.

	Combined Year ended December 31,		Year ended December 31,
Segment	2005		2006		2007
General Safety and Preparedness	67.9	%	69.0	%	67.5	%
Fire Service	19.0	%	16.3	%	16.5	%
Electrical Safety	13.1	%	14.7	%	16.0	%

Principal Products

We market one of the broadest offerings of personal protection equipment in the industry. The following is a brief description of each of our principal product categories, organized by each of our three primary operating segments:

General Safety and Preparedness. Our general safety and preparedness products include respiratory protection, protective footwear, hand protection, eye, head and face protection, first aid, fall protection and hearing protection.

Respiratory Protection. Our respiratory product offering is one of the broadest and deepest in the industry and includes disposable and reusable masks and face-pieces, filtration cartridges, powered air purifying respirators, self-contained breathing apparatuses and airline respirators. We produce respirators for use in a variety of applications, including protection against dust, fumes, micro-organisms, fibers, odors, mists and gases. In addition, we offer respirators for nuclear, biological and chemical protection. Our traditional strength is in air purifying systems, which utilize cartridges to filter ambient air as opposed to self-contained breathing apparatus which supply fresh air from a portable cylinder. Our 7700 Series half-mask face-piece is among the world’s best selling face-pieces due to its superior fit and comfort.

Protective Footwear. Protective footwear is required to protect workers’ feet from falling objects, objects piercing the sole, electrical hazards, hazardous materials, chemicals and extreme temperatures. We produce rubber, injection molded and other footwear to protect against such threats, using a variety of techniques for diverse applications, including meat and food processing, chemical processing, commercial fishing, agricultural work, construction and cold storage. With our origins as a footwear company, we have long held dominant positions within the footwear segments of the personal protection equipment industry through our Ranger and Servus brands. We believe we are the largest manufacturer of both neoprene safety and hand-laid rubber protective footwear for the industrial market in North America.

Hand Protection. Hand protection is required for workers exposed to hazardous substances, vulnerable to severe cuts, abrasions or chemical burns, and exposed to extreme temperatures. We manufacture and source gloves designed to protect workers against each of these threats and for a variety of specific applications, including use in material handling, automotive, construction, meat and food processing and controlled environments. Our products range from basic protection provided by imported cotton gloves to highly-engineered, patented gloves designed to withstand dangerous chemicals present in many workplaces. We market a full range of gloves with performance characteristics tailored to each user’s application or hazardous situation.

Eye, Head and Face Protection. We offer a wide variety of protective eyewear and face shields that through innovative design and state of the art materials provide what we believe to be a high degree of optical quality, comfort and fit. Many of our products are offered with coatings that provide anti-fog, anti-scratch, anti-UV or anti-static protection. Our hard hats and accessories provide comfortable and dependable head protection, featuring stylish, lightweight shell designs, suspension height adjustment and comfort padding. Our 2005 acquisition of Fibre-Metal significantly increased the breadth of products in our head and face protection product line and added a new line of welding helmets and accessories.

First Aid. We market a wide range of products, including unitized and bulk first aid supplies, nonprescription medicinals, dermatologicals, eye wash and body flush kits. Regulations require that first aid products be available to workers throughout the workplace, thereby creating stable demand for first aid kits.

Fall Protection. We manufacture and market harnesses, lanyards, confined space retrieval equipment, self-retracting lifeliners and engineered fall protection systems. This product category often requires customized solutions to meet end-user needs.

Hearing Protection. We provide a broad line of both disposable and reusable hearing protection products used in a variety of industries. All of our hearing protection products are designed to be as comfortable as possible while protecting against hazardous noise in the workplace. Many of these products are tested for us at an independent third-party National Voluntary Laboratory Accreditation Program certified laboratory.

Fire Service. Our fire service products include turnout gear, fireboots, helmets, gloves and other accessories.

Turnout Gear. Turnout gear is protective clothing worn by firefighters that must meet the strict design specifications set by the NFPA, including resistance to heat and fire, chemicals, viruses and tears. All of our turnout gear meets or exceeds the NFPA’s or other regulatory body specifications. Turnout gear is made-to-order, with custom measurements for each firefighter. We sell turnout gear under the Morning Pride brand name, which has been in existence since 1921 and has high distributor and end-user loyalty. Morning Pride products are made with proprietary designs, are protected by more than 100 patents, and use state-of-the-art materials such as Kevlar™, W.L. Gore’s Crosstech™, PBI™, PBO™ and P-84™. Our sales force traditionally has been successful in creating demand for critical safety features for which we have a patent. Our unique, patented and field-tested features, such as dead air panels, liner inspection ports and heat channel knee technologies, combined with our awareness of end-users’ needs for function and comfort, differentiate our turnout gear from that of our competitors. These proprietary designs and specialized materials have allowed us to improve the performance of turnout gear products and have increased the growth rate of our sales of these products.

Fireboots. Fireboots typically must meet the strict design specifications set by the NFPA, including specifications for heat and flame resistance, compression, sole puncture resistance, electrical hazards and water protection. Leather fireboots are generally lighter in weight and provide firefighters with increased comfort and agility. Rubber fireboots are hand-made using state-of-the-art specialized materials such as Kevlar™, which is more durable than felt, the traditional fireboot material, while providing enhanced wear and flame resistance. Over the last five years, either Ranger, Servus or Pro-Warrington fireboots have been selected by the majority of the major metropolitan fire departments in the U.S.

Helmets, Gloves and Other Accessories. Helmets, gloves and other firefighting accessories typically must meet the strict design specifications set by the NFPA or other regulatory bodies, including those noted above for turnout gear as well as impact resistance, force transmission dissipation and burst strength. Helmets are made using state-of-the-art specialized materials such as the Fyrglass fiberglass helmet shell, which offers improved strength while being lightweight. Unique features, such as bloodborne pathogen interface capable technologies, differentiate our products from those of our competitors. Over the last decade, we have been selected as the vendor of choice to supply helmets, gloves and other accessories to numerous major metropolitan fire departments in the U.S. Our 2006 acquisition of American Firewear significantly expanded our glove and hood product line offering.

Electrical Safety. Our electrical safety products include linemen equipment, gloves, sleeves, footwear and arc flash protection. We also provide electrical safety equipment for industrial applications.

Linemen Equipment. Linemen equipment encompasses an array of products that enable utility workers to work with “live” energized or de-energized electrical equipment and power lines. Products include insulating blankets, grounding equipment, linehose and covers, and guards that protect the worker, valuable equipment and reduce outages. Our products are required to meet ANSI and ASTM standards and OSHA regulations.

Gloves, Sleeves and Footwear. We manufacture insulating gloves, sleeves and dielectric footwear, which protect electrical workers against electrical hazards. These products also must meet ANSI and ASTM standards.

Arc Flash Protection. We offer a full line of protective gear and clothing to protect electrical workers against the hazards of arc flash. This product line meets ASTM standards and is designed to comply with NFPA Standard 70E, “Standard for Electrical Safety in the Workplace.”

Manufacturing Processes

The majority of our net sales are from products manufactured or assembled by us, with the remainder sourced from a variety of low-cost countries. The majority of our manufacturing occurs in North America, though many labor intensive or hand-fabricated products are assembled in China, Mexico and the Caribbean.

We manufacture our general safety and preparedness products using a variety of techniques. Respirators and

cartridges are injection molded from silicone or plastics. Our protective footwear products serving the general safety and preparedness market are manufactured using a variety of methods, including hand-laid rubber, dipped neoprene latex, slush and injection molding. Other coated fabric gloves are manufactured with water-based latex polymers. We use automated glove knitters as well as hand-sewn and dipped processes in our work glove product offering. Head protection products are injection molded from high density polyethylene. A portion of eye and ear protection products are molded and assembled by us. First aid products are bought and packaged. Certain fall protection products are cut and sewn.

We manufacture turnout gear through a made-to-order process, as both pants and coats are constructed to meet an end-user’s individual specifications. Outer-shell and liner fabrics are cut, assembled with other components, including pockets, hardware, trim and lettering, and extensively inspected to ensure quality control. We have installed Gerber material cutters and a Gerber mover, which automates the handling of turnout gear materials. Every fire service product we sell meets or exceeds the standard of the NFPA or other regulatory bodies. Rubber fireboots are assembled by both hand-laid and automated dipping techniques.

We manufacture our electrical safety products using a variety of techniques. We manufacture our electrical insulating gloves and sleeves using a multiple layering process of natural rubber and synthetic polymers. These processes are relatively automated and operate in closely controlled environments. We manufacture utility linemen products, other than gloves, using injection, transfer or compression molding of natural rubber and synthetic polymers. The manufacturing processes utilize extensive in-line and post-manufacturing quality assurance because these products are designed to protect workers from hazardous and life-threatening environments.

Customers

The majority of our sales are to industrial, fire service and utility distributors. The balance of our products is sold directly to end-users and the U.S. government. None of our customers accounts for more than 10% of our net sales.

Our general safety and preparedness products are utilized in a variety of industries, including the manufacturing, agriculture, automotive, construction, food processing, pharmaceutical, construction, petrochemical, nuclear, fishing and biotechnology industries and the military. The primary end-users of our fire service products are professional fire departments and the primary end-users of our electrical safety products are utility companies.

Set forth below is a summary of our net sales by geographic region for the combined year-ended December 31, 2005 and the year ended December 31, 2006 and 2007:

	Combined Year Ended December 31,		Year ended December 31,
Region	2005		2006		2007

United States	67.7	%	66.7	%	65.9	%
Canada	15.7		16.9		15.9
Europe	16.6		16.4		17.9
Other	—		—		0.3
Total	100.0	%	100.0	%	100.0	%

For net sales by geographic region for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 and total long-lived assets by geographic region as of December 31, 2006 and 2007, see Note 18 to our audited financial statements.

In general, we do not experience a significant backlog of customer orders. We do, however, have a backlog of orders from certain customers, such as the U.S. government, who tend to order products less frequently and in greater quantities, and our fire service customers, who tend to custom order products which require greater lead time. The timing of these orders results in some backlog variability. As of December 31, 2007, there was approximately $45.7 million of such backlog that management believed to be firm, as compared to $34.6 million of backlog as of December 31, 2006. The majority of this backlog will ship by the end of the first quarter of 2008.

Competition

The personal protection equipment market is highly competitive, with participants ranging in size from small companies which focus on a single type of personal protection equipment to a few large multinational corporations which manufacture and supply many types of personal protection equipment. Our main competitors vary by region and product. We believe that participants in this industry compete primarily on the basis of product characteristics (such as functional performance, comfort and durability), price, brand name trust and recognition and service. Set forth below is a brief summary of our most significant competitors by operating segment.

General Safety and Preparedness. Sperian Protection; 3M; Mine Safety Appliances Company; Ansell Occupational Healthcare; LaCrosse Footwear, Inc.; Aearo Company; Pac-Kit Safety Equipment Co.; Jackson Products, Inc.; and Scott Technologies.

Fire Service. Sperian Protection; Mine Safety Appliances Company; Globe Manufacturing Company; Lion Apparel, Inc.; LaCrosse Footwear, Inc.; and E.D. Bullard Co., Inc.

Electrical Safety. Hubbell Inc.; Hastings Fiber Glass Products, Inc.; MacLean Fogg Co.; and The Oberon Company.

We believe we compete favorably within each of our operating segments as a result of the breadth of our product offering, high product quality and strong brand name trust and recognition.

Sales and Marketing

We maintain a distinct sales force for each of our three operating segments. While the majority of our sales are through distributors, we have developed and employ a sales and marketing strategy designed to drive demand at both the distributor and the end-user levels. As part of this strategy, our sales forces call on the end-users of our products in their respective segments to generate demand using a “pull-through” effect whereby end-users of our products seek out our brands from distributors. Our dedicated sales forces achieve this pull-through effect by educating both distributors and end-users on the specific performance characteristics of our products, which provides significant positive differentiation relative to competing products. Customer training and education are particularly important with respect to our fire service and electrical safety products, which tend to be more technical in their design and use. Our product research and development teams work closely with our dedicated sales forces. By working closely with the end-users of our products, our sales forces gain valuable insight into our customers’ preferences and needs and the ways in which we can further differentiate our products from those of our competitors.

Distribution Channels

Our products are sold through three distinct distribution channels:

General Safety and Preparedness. We distribute our general safety and preparedness products primarily through specialized personal protection equipment and industrial distributors, as well as maintenance, repair and operations equipment distributors for whom personal protection equipment products are a core line of business. Vendor relationships with distributors tend to be non-exclusive. Our customer base includes national, regional and local distributors. Some of our key distributors include W.W. Grainger, Inc., Airgas, Inc., Thermo Fisher Scientific and Hagemeyer North America, Inc. In addition, selected footwear products are distributed through work-wear retailers. These retailers primarily serve farmers and agricultural workers. Our average relationship with our key general safety and preparedness customers is in excess of ten years.

Fire Service. The fire service segment’s primary channel of distribution is through specialized fire service distributors. As a result of the breadth of our product offering and our reputation for quality, we have long-standing relationships with the premier fire service distributors in the U.S., many of whom carry our products exclusively. Our average relationship with our largest ten fire service distributors is in excess of ten years.

Electrical Safety. The electrical safety segment primarily markets its products through specialized distributors, test labs, utilities and electrical contractors. Sales to utilities are typically made pursuant to one-year contracts, while sales to distributors are typically open-ended purchase contracts. As a result of the breadth of our product offering and our reputation for quality, the electrical safety segment has long-standing relationships with many large utilities, contractors and the premier utility distributors. Our average relationship with our largest ten electrical safety customers is in excess of ten years.

Intellectual Property

It is our policy to protect our intellectual property through a range of measures, including trademarks, patents and confidentiality agreements. We own and use trademarks and brand names to identify ourselves as a proprietary source of certain goods. The following brand names of certain of our products and product lines are registered in the U.S.: North, Fibre-Metal, NEOS, Morning Pride, Ranger, Servus, Pro-Warrington, American Firewear, Safety Line and Salisbury. Certain of our fire service products are marketed under the registered trademark Total Fire Group.

Whenever possible, our intellectual property rights are protected through the filing of applications for and registrations of trademarks and patents. Our Morning Pride line of products, for example, is protected by more than 100 patents, including patents for such unique features as dead air panels, liner inspection ports and heat channel knee technologies. We also rely upon unpatented trade secrets for the protection of certain intellectual property rights, which trade secrets are also material to our business. We protect our trade secrets by requiring certain of our employees, consultants and other suppliers, customers, agents and advisors to execute confidentiality agreements upon the commencement of employment or other relationships with us. These agreements provide that all confidential information developed by, or made known to, the individual or entity during the course of the relationship with us is to be kept confidential and not to be disclosed to third parties except under certain limited circumstances.

Raw Materials and Suppliers

The primary raw materials we use in manufacturing our products include natural rubber, PVC, fabrics, nitrile, latex, moisture barriers and knitting yarns. We purchase these materials both domestically and internationally, and we believe our supply sources are both well established and reliable. We have close vendor relationship programs with the majority of our key raw material suppliers. Although we generally do not have long-term supply contracts, we have not experienced any significant problems in obtaining adequate raw materials.

Environmental Matters

As with all manufacturers, our facilities and operations are subject to federal, state, local and foreign environmental requirements. We do not currently anticipate any material adverse effect on our operations or financial condition as a result of our efforts to comply with, or our liabilities under, these requirements. We will, from time to time, incur costs to attain or maintain compliance with evolving regulatory requirements under environmental law, but do not currently expect any such costs to be material.

We were required by the South Carolina Department of Health and Environmental Control (“DHEC”) to conduct a RCRA Facility Investigation pursuant to the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) at our glove manufacturing plant in Charleston, South Carolina. Based upon soil and groundwater assessment work conducted in connection with such investigation, we have proposed to DHEC that conditions of soil and groundwater contamination at the Charleston site be addressed through a “monitored natural attenuation” approach. DHEC required additional soil and groundwater investigation, which was concluded in 2007. We submitted a report and proposal to DHEC recommending that conditions of soil and groundwater contamination at the Charleston site continue to be addressed through a “monitored natural attenuation” approach. Invensys plc (“Invensys”), a successor to Siebe plc (“Siebe”), the former owner of North Safety Products L.L.C. (“North Safety Products”), has paid for the investigation and remediation at the site. We do not currently expect the liability associated with this matter to be material.

Our Clover, South Carolina facility has been the subject of the “corrective action” requirements of RCRA, including investigation and cleanup of areas of the Clover site where regulated wastes have historically been managed. Such investigation and cleanup has been conducted by (and at the sole expense of) Invensys, a successor to Siebe, the former owner of North Safety Products, pursuant to an Administrative Order from the United States Environmental Protective Agency (“EPA”) dated September 29, 1998. By letter dated September 16, 2005, the EPA confirmed that the investigation of all but one of the Areas of Concern had been satisfactorily completed. Invensys is conducting additional groundwater sampling in the area of the burn pit, which is located on property owned by Invensys, before a remediation alternative for the area is selected. EPA has required that North Safety Products obtain a deed restriction at the Clover facility, to restrict access to possible chromium-impacted soil beneath the concrete floor in the area of the form wash tank. With the obligations of the EPA Administrative Order nearly completed, the EPA letter notes that a State Consent Agreement will be required for the selection of the remediation alternative for the burn pit groundwater and for continued environmental monitoring of the facility. Completion of the investigation and any related cleanup is the contractual responsibility of Invensys and we do not

currently expect to incur material liability in connection with this matter. In the unlikely event that Invensys does not continue to fulfill its contractual obligations, we could incur costs in connection with this matter. We do not currently expect such costs to be material.

We have been named as a potentially responsible party under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) with regard to waste disposal in the 1980s at the Seaboard Chemical Corporation site in Jamestown, North Carolina. Wastes sent by North Safety Products, now part of the Company, to the Seaboard Chemical Corporation site are believed to comprise less than 1% of the total volume of all wastes sent to the site. Invensys has paid for costs associated with this matter. Because liability under CERCLA is strict (i.e., without regard to the lawfulness of the disposal) and retroactive, and under some circumstances joint and several, we may incur liability with respect to other historical disposal locations in the future. We do not currently expect our share of the liability, if any, for the Seaboard site or for other such sites to be material.

We may be subject to wastewater categorical pre-treatment regulations for wastewater discharges at our Clover, South Carolina, North Charleston, South Carolina and Rock Island, Illinois facilities. Compliance with wastewater categorical pre-treatment regulations may require the installation of additional treatment equipment.

Compliance with “maximum achievable control technology” air regulations may require our facilities at Clover, South Carolina, North Charleston, South Carolina and Rock Island, Illinois to install additional air emissions control equipment.

Employees

As of December 31, 2007, we had 3,055 full-time employees throughout the world. The following sets forth the number of employees by operating segment:

Operating Segment		Number of Employees
General Safety and Preparedness		2,192
Fire Service		504
Electrical Safety		351
Corporate		8
Total		3,055

Approximately 624 of our 2,615 North American employees are represented by various unions, and the majority of our 440 non-North American employees are represented by unions. We believe we have maintained good relationships with our unionized employees and we have not experienced any material disruptions in operations on account of our employees in the past five years.

Available Information

Through our Internet website www.nspusa.com, we provide a link to the SEC Internet website that makes available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

ITEM 1A. RISK FACTORS

In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company.

If we are unable to retain senior executives and other qualified professionals our growth may be hindered.

Our success depends in part on our ability to attract, hire, train and retain qualified managerial, sales and marketing

personnel. Competition for these types of personnel is intense. We may be unsuccessful in attracting and retaining the personnel we require to conduct and expand our operations successfully. Our results of operations could be materially and adversely affected if we are unable to attract, hire, train and retain qualified personnel. Our success also depends to a significant extent on the continued service of our management team. The loss of any member of the management team could have a material adverse effect on our business, results of operations and financial condition.

The markets in which we compete are highly competitive, and some of our competitors have greater financial and other resources than we do. The competitive pressures faced by us could materially and adversely affect our business, results of operations and financial condition.

The personal protection equipment market is highly competitive, with participants ranging in size from small companies which focus on single types of safety products, to large multinational corporations which manufacture and supply many types of safety products. Our main competitors vary by region and product. We believe that participants in this industry compete primarily on the basis of product characteristics (such as functional performance, design and style), price, brand name recognition and service. Some of our competitors have greater financial and other resources than we do and our cash flows from operations could be adversely affected by competitors’ new product innovations and pricing changes made by us in response to competition from existing or new competitors. Individual competitors have advantages and strengths in different segments of the industry, in different products and in different areas, including manufacturing and distribution systems, geographic market presence, customer service and support, breadth of product, delivery time, costs of labor and price. We may not be able to compete successfully against current and future competitors and the competitive pressures faced by us could materially and adversely affect our business, results of operations and financial condition. See “Item 1. Business—Competition.”

Many of our products are subject to existing regulations and standards, changes in which could materially and adversely affect our results of operations.

Our net sales may be materially and adversely affected by changes in safety regulations and standards covering industrial workers, firefighters and utility workers in the U.S. and Canada, including safety regulations of OSHA and standards of the NFPA, ANSI and ASTM. Our net sales could also be adversely affected by a reduction in the level of enforcement of such regulations. Changes in regulations could reduce the demand for our products or require us to reengineer our products, thereby creating opportunities for our competitors.

A reduction in the spending patterns of government agencies could materially and adversely affect our net sales.

We sell a significant portion of our products in the U.S. and Canada to various governmental agencies. In addition, a portion of our products are sold to government agencies through fixed price contracts awarded by competitive bids submitted to state and local agencies. Many of these governmental agency contracts are awarded on an annual basis. Accordingly, notwithstanding our long-standing relationship with various governmental agencies, we may lose our contracts with such agencies to lower bidders in the competitive bid process. Moreover, the terms and conditions of such sales and the government contract process are subject to extensive regulation by various federal, state and local authorities in the U.S. and Canada.

In most markets in which we compete, there are frequent introductions of new products and product line extensions. If we fail to introduce successful new products, we may lose market position and our financial performance may be negatively impacted.

If we are unable to identify emerging consumer and technological trends, maintain and improve the competitiveness of our products and introduce these products on a global basis, we may lose market position, which could have a material adverse effect on our business, financial condition and results of operations. Continued product development and marketing efforts have all the risks inherent in the development of new products and line extensions, including development delays, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.

Our international operations are subject to various uncertainties and a significant reduction in international sales of our products could have a material adverse effect on our results of operations.

Our international operations are subject to various political, economic and other uncertainties which could adversely

effect our business. A significant reduction of our international business due to any of these risks would adversely affect our revenues. In 2007, approximately 34.1% of our net sales were outside the U.S. These risks include:

· unexpected changes in regulatory requirements;

· currency exchange rate fluctuations;

· changes in trade policy or tariff regulations;

· customs matters;

· longer payment cycles;

· higher tax rates and potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of “double taxation”;

· additional tax withholding requirements;

· intellectual property protection difficulties;

· difficulty in collecting accounts receivable;

· complications in complying with a variety of foreign laws and regulations, many of which conflict with U.S. laws;

· costs and difficulties in integrating, staffing and managing international operations; and

· strains on financial and other systems to properly administer VAT and other taxes.

In addition, foreign operations involve uncertainties arising from local business practices, cultural considerations and international political and trade tensions. In addition, a portion of our manufacturing and outsourcing relationships involve China. If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations internationally, it could have a material adverse effect on our business, financial condition or results of operations.

We may incur restructuring or impairment charges that would reduce our earnings.

We have in the past and may in the future restructure some of our operations, including our recently acquired subsidiaries. In such circumstances, we may take actions that would result in a charge related to discontinued operations, thereby reducing our earnings. These restructurings have or may be undertaken to realign our subsidiaries, eliminate duplicative functions, rationalize our operating facilities and products, and reduce our staff. In conjunction with the Fibre-Metal Transaction, we recorded an accrual of $1.7 million, comprised of $1.4 million in severance costs and $0.3 million in facility closure and other exit costs. In conjunction with the White Transaction, we recorded an accrual of $1.0 million in severance costs. We carry a very significant amount of goodwill and intangible assets and SFAS No. 142, Goodwill and Other Intangible Assets, requires us to perform an annual assessment for possible impairment. As of December 31, 2007, we had goodwill and other intangible assets of approximately $439.6 million.

We may be unable to successfully execute or effectively integrate acquisitions, which may adversely affect our results of operations.

One of our key operating strategies is to selectively pursue acquisitions. Acquisitions involve a number of risks including:

· failure of the acquired businesses to achieve the results we expect;

· diversion of our management’s attention from operational matters;

· our inability to retain key personnel of the acquired businesses;

· risks associated with unanticipated events or liabilities;

· the potential disruption of our existing business; and

· customer dissatisfaction or performance problems at the acquired businesses.

If we are unable to integrate or successfully manage any business that we may acquire in the future, we may not realize anticipated cost savings, improved manufacturing efficiencies and revenue growth, which may result in reduced profitability or operating losses. In addition, we expect to face competition for acquisition candidates, which may limit the number of our acquisition opportunities and may lead to higher acquisition prices. Moreover, acquisitions of businesses may require additional debt financing, resulting in additional leverage. The covenants in our senior credit facility and the indenture governing the senior subordinated notes may further limit our ability to complete acquisitions. The realization of all or any of the risks described above could materially and adversely affect our reputation and our results of operations.

Our continued success depends on our ability to protect our intellectual property. If we are unable to protect our intellectual property, our sales could be materially and aversely affected.

Our success depends, in part, on our ability to obtain and enforce patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. We have been issued patents and have registered trademarks with respect to many of our products, but our competitors could independently develop similar or superior products or technologies, duplicate any of our designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may obtain patents or trademark protection. In addition, it is possible that third parties may have or acquire licenses for other technology or designs that we may use or desire to use, so that we may need to acquire licenses to, or to contest the validity of, such patents or trademarks of third parties. Such licenses may not be made available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of third-party rights.

In addition to patent and trademark protection, we also protect trade secrets, know-how and other confidential information against unauthorized use by others or disclosure by persons who have access to them, such as our employees, through contractual arrangements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our sales could be materially adversely affected. See “Item 1. Business—Intellectual Property.”

We do not have long-term contracts with many of our customers and they may terminate their relationship with us at any time, which could have a material adverse effect on our operating results.

A significant portion of our contracts are not long-term contacts and are terminable at will by either party. If a significant number of our customers choose to terminate their contracts or to not renew their contracts with us upon expiration, it would have a material adverse effect on our business, financial condition and results of operations.

We face an inherent business risk of exposure to product liability claims which could have a material adverse effect on our operating results.

We face an inherent business risk of exposure to product liability claims arising from the claimed failure of our products to prevent the types of personal injury or death against which they are designed to protect. We have not experienced any material uninsured losses due to product liability claims, but it is possible that we could experience material losses in the future. For more information, see “Item 3. Legal Proceedings.”

We are subject to various environmental laws and any violation of these laws could adversely affect our results of operations.

We are subject to federal, state and local laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, hazardous substance contamination and the maintenance of a safe workplace. These laws impose penalties for noncompliance and liability for response costs and certain damages resulting from past and current spills, disposals or other

releases of hazardous materials. We could incur substantial costs as a result of noncompliance with or liability pursuant to these environmental laws and to attain and maintain compliance with evolving regulatory requirements under environmental laws. Environmental laws continue to evolve and we may be subject to more stringent environmental laws in the future. If more stringent environmental laws are enacted, these future laws could have a material adverse effect on our results of operations. See “Item 1. Business—Environmental Matters.”

We have a significant amount of indebtedness, which makes us more vulnerable to adverse economic and competitive conditions.

We have a significant amount of indebtedness. As of December 31, 2007, we had outstanding long-term indebtedness of $489.3 million (excluding original issue premium) and shareholders’ equity of $163.3 million. This amount of debt is substantial and could:

· require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

· limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

· place us at a competitive disadvantage compared to our less leveraged competitors; or

· increase our vulnerability to both general and industry-specific adverse economic conditions; and

· limit, among other things, our ability to borrow additional funds.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We conduct our operations through 30 primary facilities, eight of which are owned as of December 31, 2007. We believe we have sufficient capacity in the majority of our facilities to support the projected growth in our business for the next five years.

We manufacture respiratory, head and face and hearing products in Cranston, Rhode Island. In this facility, we have implemented lean manufacturing process improvements and continue to invest in automated equipment. The Cranston facility also serves as a distribution center for the general safety and preparedness segment in the U.S.

We manufacture fireboots and other protective footwear in our Rock Island, Illinois and Nashua, New Hampshire facilities. Our 110,000 square foot distribution center for protective footwear products is located in Davenport, Iowa, approximately five miles from the Rock Island, Illinois manufacturing plants, facilitating timely delivery of customer orders.

We perform injection molding and assemble our first aid and various other products at our Mexicali, Mexico facility, utilizing lower cost labor. Products manufactured in Mexicali are distributed through our Reno, Nevada warehouse and our Cranston, Rhode Island distribution facility.

We operate hand protection facilities for the general safety and preparedness market. Our Maiden, North Carolina facility manufactures knitted and coated hand protection products, while butyl and dry-box hand protection lines are manufactured at our Clover, South Carolina facility. In addition, our Clover, South Carolina facility has the ability to produce nuclear, biological and chemical resistant gloves, utilizing a highly technical manufacturing process.

In our Etobicoke, Canada facility, we manufacture our fall protection product line. In our Rawdon, Canada and Montreal, Canada facilities, we produce numerous general safety and preparedness products, including eye, ear and head protection. Canadian distribution is coordinated through our Montreal, Canada facility and an additional facility in Edmonton, Canada.

In our Middelburg, Holland facility, we manufacture fall, eye and head and face protection products.

In Eichenzell, Germany, we manufacture and distribute a variety of liquid-proof and cut-resistant gloves in an owned facility.

We manufacture turnout gear in a leased facility in Dayton, Ohio. We have installed Gerber material cutters and a sophisticated Gerber mover, which automated the handling of turnout gear materials and improved the productivity of the division. In addition, we manufacture gloves and other accessories in our Ohatchee, Alabama facility.

Linemen gloves and sleeves are manufactured at two plants in Charleston, South Carolina. In addition, linemen sleeves are currently manufactured in our Addison, Illinois facility. We are in the process of closing the Addison, Illinois facility and moving manufacturing to existing facilities. Other products serving the electrical safety market, including linemen equipment, are manufactured at our Chicago, Illinois facility.

Due to the nature of product use, quality systems are of paramount importance. The vast majority of our U.S. plants are, or will become shortly, certified to the ISO 9000:2000 standard.

The following table sets forth a list of our primary facilities:

Facility	Products	Locations	Approx. Sq. Ft.	Owned/ Leased
*General Safety and Preparedness:*
Offices and manufacturing facility	Footwear(1)	Rock Island, IL	319,000	Leased
Offices, manufacturing facility and warehouse	Various	Cranston, RI	240,000	Leased
Offices, manufacturing facility and warehouse	Various	Montreal, Canada	128,000	Leased
Warehouse	Footwear	Davenport, IA	110,000	Leased
Offices, manufacturing facility and warehouse	Hand Protection	Eichenzell, Germany	108,000	Owned
Offices, manufacturing facility and warehouse	Various	Middelburg, Holland	86,000	Leased
Warehouse	Footwear	Rock Island, IL	80,000	Leased
Manufacturing facility	Hand Protection	Clover, SC	63,000	Owned
Manufacturing facility and warehouse	Various	Mexicali, Mexico	57,000	Leased
Manufacturing facility	Hand Protection	Maiden, NC	51,000	Leased
Manufacturing facility	Footwear	Rock Island, IL	45,000	Leased
Manufacturing facility	Footwear	Nashua, NH	38,000	Leased
Offices and warehouse	Various	Edmonton, Canada	37,000	Leased
Offices, manufacturing facility and warehouse	Hearing, Head Protection	Rawdon, Canada	33,000	Owned
Manufacturing facility(2)	Respiratory	Venlo, Holland	30,000	Leased
Warehouse	Various	Houston, TX	28,000	Leased
Offices, manufacturing facility and warehouse	Fall Production	Etobicoke, Canada	28,000	Leased
Warehouse	Various	Reno, NV	24,000	Leased
Offices, manufacturing facility and warehouse	Hand Protection	Ostrava, Czech Republic	20,000	Owned
Offices, manufacturing facility and warehouse	Hand Protection	Budapest, Hungary	20,000	Owned
*Fire Service:*
Offices, manufacturing facility, laboratory and warehouse	Various	Dayton, OH	88,000	Leased
Manufacturing facility and warehouse	Various	Ohatchee, AL	36,000	Leased
Warehouse	Various	Dayton, OH	26,000	Leased
*Electrical Safety:*
Offices, manufacturing facility and warehouse	Linemen Gloves	Charleston, SC	105,000	Owned
Manufacturing facility	Linemen Equipment	Chicago, IL	79,000	Owned
Offices, manufacturing facility and warehouse	Linemen Equipment	Skokie, IL	44,000	Leased
Manufacturing facility	Linemen Sleeves	North Charleston, SC	43,000	Owned
Manufacturing facility(2)	Linemen Sleeves	Addison, IL	26,000	Leased
Warehouse	Linemen Gloves	Charleston, SC	24,000	Leased
*Other:*
Executive Suite	Not Applicable	Oak Brook, IL	6,100	Leased

(1) Also produces fireboots for the fire service segment and dielectric footwear for the electrical safety segment.

(2) In process of transferring operations to other existing facilities.

ITEM 3. LEGAL PROCEEDINGS

We are subject to various claims arising in the ordinary course of business. Most of these lawsuits and claims are product liability matters that arise out of the use of respiratory product lines manufactured by our North Safety Products subsidiary. As of December 31, 2007, our North Safety Products subsidiary, along with its predecessors and/or the former owners of such business were named as defendants in approximately 629 lawsuits involving respirators allegedly manufactured and sold by it or its predecessors. We are also monitoring an additional two lawsuits in which we feel that North Safety Products, its predecessors and /or the former owners of such businesses may be named as defendants. Collectively, these 631 lawsuits represent approximately 8,396 (excluding spousal claims) plaintiffs. Approximately 85% of these lawsuits involve plaintiffs alleging injury resulting from

exposure to silica dust, with the remainder alleging injury from exposure to other particles, including asbestos. These lawsuits typically allege that the purported injuries resulted in part from respirators that were negligently designed and/or manufactured. The defendants in these lawsuits are often numerous, and include, in addition to respirator manufacturers, employers of the plaintiffs and manufacturers of sand (used in sand blasting) and asbestos. We acquired our North Safety Products subsidiary on October 2, 1998 from Siebe plc. In connection with the acquisition, Siebe, which was subsequently merged with BTR plc (now known as “Invensys plc”), contractually agreed to indemnify us for any losses, including costs of defending claims, resulting from respiratory products manufactured or sold prior to our acquisition of North Safety Products in October 1998.

In addition, our North Safety Products subsidiary is contractually entitled to indemnification from Norton Company, an affiliate of Saint-Gobain, which owned the North Safety Products business prior to Invensys. Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc., a newly formed wholly-owned subsidiary of Norton Company, acquired the assets of Norton’s Safety Products Division and the stock of this company was in turn acquired by Siebe Gorman Holdings plc. Under the terms of the agreement, Siebe Norton, Inc. did not assume any liability for claims relating to products shipped by Norton Company prior to the closing date. Moreover, Norton Company covenanted in the agreement to indemnify Siebe Norton, Inc. and its successors and assigns against any liability resulting from or arising out of any state of facts, omissions or events existing or occurring on or before the closing date, including, without limitation, any claims arising from products shipped by Norton Company or any of its affiliates prior to the closing date. Siebe Norton, Inc., whose name was subsequently changed to Siebe North Inc., was subsequently acquired by us as part of the 1998 acquisition of the North Safety Products business from Invensys.

Despite these indemnification arrangements, we could potentially be liable for losses or claims relating to products manufactured prior to the October 1998 acquisition date if Invensys fails to meet its obligations to indemnify us and we could potentially be liable for losses and claims relating to products sold prior to January 10, 1983 if both Invensys and Norton Company fail to meet their obligations to indemnify us. We could also be liable if the alleged exposure involved the use of a product manufactured by us after our October 1998 acquisition of the North Safety Products business.

Effective July 1, 2006, we entered into a joint defense agreement through December 31, 2008 with the former owners of the North Safety Products business (the “Joint Defense Agreement” or “JDA”). Under the terms of the Joint Defense Agreement, we agreed to pay a weighted average percentage of defense costs (including legal fees, expert witnesses and out of pocket expenses) associated with defending ourselves and the prior owners of the North Safety Products business subject to a cap of $525,000, $960,000 and $1.0 million for the period from July 1, 2006 through December 31, 2006, the year ended December 31, 2007 and the year ended December 31, 2008, respectively. The cap excludes settlement costs and other costs incurred exclusively by us (including trial costs and special requests of counsel), which we will be required to pay under the JDA. Separately, we agreed to pay Invensys $200,000 related to settled cases through June 30, 2006 in which Invensys claims that the period of alleged exposure included periods after October 1998.

Although the JDA expires on December 31, 2008, we expect to incur additional defense and settlement costs beyond this date. We will consider our alternatives for defending the claims as the JDA nears expiration and determine the appropriate course of action, which could include an extension of the JDA.

Based upon information provided to the Company by Invensys, the Company believes activity related to these lawsuits was as follows for the periods indicated:

	2005				2006				2007
	Plaintiffs		Cases		Plaintiffs		Cases		Plaintiffs		Cases
Beginning lawsuits	25,944		858		18,459		1,148		8,746		644
New lawsuits	2,226		587		653		498		38		35
Settlements	24		(32	)	(5	)	(5	)	(6	)	(2	)
Dismissals and other	(9,735	)	(265	)	(10,361	)	(997	)	(382	)	(46	)
Ending lawsuits	18,459		1,148		8,746		644		8,396		631

little more than the parties’ names and some standard pleading language. More specifically, the legislatures of at least seven states — including former hotbeds of silica litigation such as Texas, Florida and Ohio — passed impairment-criteria legislation that redefined injury. These acts force plaintiffs to prove impairment as a result of their exposure to qualify for judicial treatment. The same legislation requires that each silica claimant be tried individually, and not in the multiple plaintiff format in which the potential for large verdicts resulted from increased plaintiffs and where a few meritorious claims could increase the value of unmeritorious ones. Further tort reform in Texas created a state-wide multi-district litigation (“MDL”) wherein one judge presides over the pretrial of all Texas-silica cases. In Mississippi, the Supreme Court changed the venue rules making it much more difficult to file out-of-state plaintiffs there. The Mississippi court also changed the pleading requirements making the plaintiffs’ attorneys include plaintiff-specific allegations against each defendant sued, instead of the vague allegations against hundreds of defendants.

Plaintiffs have asserted specific dollar claims in approximately 30% of the approximately 629 cases pending as of December 31, 2007 in which North Safety Products, its predecessors and/or the former owners of such businesses have been named as defendants. A majority of jurisdictions prohibit specifying damages in tort cases such as these, and most of the remaining jurisdictions do not require such specification. In those cases in which plaintiffs choose to assert specific dollar amounts in their complaints, the amounts claimed are typically not meaningful as an indicator of a company’s potential liability. This is because (1) the amounts claimed typically bear no relation to the level of the plaintiff’s injury, (2) the complaints typically assert claims against numerous defendants, and (3) many cases are brought on behalf of plaintiffs who have not suffered any medical injury, and ultimately are resolved without any payment or payment of a small fraction of the damages initially claimed. Of the 629 complaints maintained in our records, 439 do not specify the amount of damages sought, 25 generally allege damages in excess of $50,000, one alleges compensatory damages in excess of $50,000 and an unspecified amount of punitive damages, 103 allege compensatory damages and punitive damages, each in excess of $25,000, two generally allege damages in excess of $100,000, two allege compensatory damages and punitive damages, each in excess of $50,000, 20 generally allege damages in excess of $15.0 million, one generally alleges damages of $23.0 million, one alleges compensatory damages and punitive damages, each in excess of $10,000, four allege general damages of $18.0 million and punitive damages of $10.0 million, two allege general damages of $13.0 million and punitive damages of $10.0 million, one alleges compensatory and punitive damages, each in excess of $15,000, one alleges punitive damages in excess of $50,000, one generally alleges damages in excess of $15,000, 12 generally allege damages in excess of $25,000, one alleges compensatory damages of $18.0 million and punitive damages of $10.0 million, one alleges punitive damages of $13.5 million and compensatory damages of $10.0 million, one alleges punitive damages of $13.0 million and compensatory damages of $10.0 million, eight allege compensatory damages of $13.0 million and punitive damages of $10.0 million, one alleges compensatory and punitive damages, each of $15,000 and two allege compensatory and punitive damages, each in excess of $15.0 million. We currently do not have access to the complaints with respect to the previously mentioned additional two monitored cases, and therefore we do not know whether these cases allege specific damages, or if so, the amount of such damages, but are in the process of seeking to obtain such information. Due to the reasons noted above and to the indemnification arrangements benefiting us, we do not believe that the damage amounts specified in these complaints are a meaningful factor in any assessment of our potential liability.

Bankruptcy filings of companies with asbestos and silica-related litigation could increase our cost over time. If we were found liable in these cases and either Invensys or Norton Company failed to meet its indemnification obligations to us or the suit involved products manufactured by us after our October 1998 acquisition of North Safety Products, it would have a material adverse effect on our business.

The Predecessor recorded a $1.25 million reserve for respiratory claims during the year ended December 31, 2004. The Predecessor re-evaluated this reserve in its first and second quarter 2005 financial statements and concluded the $1.25 million recorded reserve continued to be its best estimate of the probable loss for the respiratory contingency.

In the July 2005 acquisition purchase accounting (as first reported in the Form 10-Q for the third quarter of 2005), we carried forward the $1.25 million liability for this pre-acquisition contingency. Although management concluded that it was likely their estimate of this pre-acquisition contingent liability would be increased during the purchase accounting allocation period as the new ownership finalized their strategy for addressing the liability and gathered information (primarily related to case information and the working relationship among the prior owners of North Safety Products), it was unlikely the amount would be lower than the $1.25 million. Thus, the $1.25 million amount represented the low end of a probable loss range, subject to further adjustment during the allocation period.

In December 2005, we began negotiations with the former owners of the North Safety Products business to enter into the JDA. We determined that the liability should be increased to $5.0 million as of December 31, 2005 as part of the purchase price

allocation process. The $5.0 million reserve as of December 31, 2005 represented management’s best estimate of the liability based on the current status of negotiations. As of December 31, 2005, the estimate was still preliminary as we were awaiting finalization of the JDA negotiation process.

As discussed above, we entered into the JDA effective July 1, 2006 and completed our evaluation of the reserve. After all information was obtained, we adjusted the reserve to $7.0 million as part of the purchase price allocation process during the permitted “allocation period”.

The final estimated amount recorded in purchase accounting related entirely to losses incurred before the July 2005 acquisition. Our final estimate of the probable loss for the respiratory contingency incorporated the new ownerships’ decision to enter into the JDA. The decision represented a significantly different plan as new ownership agreed to assume losses related to claims with unknown years of exposure. In addition, the decision to enter into the JDA was being considered from the date of the acquisition and the ultimate decision was made during the allocation period.

In the fourth quarter 2007, we re-evaluated the reserve based on the favorable impact of the new rules and the significant decline in new and existing claims (as discussed above) using a five-year projection of claims and related defense cost approach and concluded that the best estimate of the probable loss for the respiratory contingency was $5.0 million. The reserve was reduced by $1.8 million through a credit to operating expenses. As of December 31, 2007, the reserve balance is $5.0 million.

We believe that this reserve represents a reasonable estimate of our probable and estimable liabilities for product claims alleging injury resulting from exposure to silica dust and other particles, including asbestos. We believe that a five-year projection of claims and related defense costs is the most reasonable approach. This reserve will be re-evaluated periodically and additional charges or credits will be recorded to operating expenses as additional information becomes available.

It is possible that we may incur liabilities in an amount in excess of amounts currently reserved. However, taking into account currently available information, historical experience, and our indemnification from Invensys, but recognizing the inherent uncertainties in the projection of any future events, we believe that these suits or claims should not result in final judgments or settlements in excess of our reserve.

In connection with an ongoing dispute, one of our competitors has filed a complaint against us alleging that we have made a series of misrepresentations concerning this competitor and its products. The complaint seeks a retraction of all statements alleged to have been made by us and unspecified damages, including legal fess. A bench trail on the issue of liability was held in February 2006 and the matter is now awaiting ruling by the court. We intend to vigorously defend against these claims.

We historically have not been required to pay any material liability claims. We maintain insurance against product liability claims (with the exception of asbestosis and silicosis cases, for which coverage is not commercially available), but it is possible that insurance coverage will not continue to be available on terms acceptable to us or that such coverage will not be adequate for liabilities actually incurred.

We are subject to legal proceedings and claims that arise in the ordinary course of our business. In our opinion, the outcome of these actions will not have a material adverse effect on our financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no public trading market for our units. As of December 31, 2007, there were 14 holders of record of our units.

There were no sales made of the Company’s equity securities during the fourth quarter.

Safety Products has not paid any dividends on its common stock since its formation in 2005 in connection with the Norcross Transaction. We do not anticipate paying any dividends on our common stock in the foreseeable future. Our senior credit facility and the indentures governing our senior pay in kind notes and the Norcross senior subordinated notes restrict our ability to declare or pay dividends on our common stock. We intend to retain future earnings to finance the ongoing operations and growth of our business. Any future determination relating to our dividend policy will be made at the discretion of the board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors the board of directors may deem relevant.

There were no repurchases made of the Company’s equity securities during the fourth quarter.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected historical consolidated statements of operations, balance sheet and other data for the periods presented and should only be read in conjunction with our audited consolidated financial statements and the related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K. In the following table, Safety Products, following the Norcross Transaction, is referred to as the “Successor” and NSP Holdings, prior to the Norcross Transaction, is referred to as the “Predecessor.” The historical financial data for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 have been derived from our historical audited consolidated financial statements included elsewhere in this Form 10-K. The historical financial data for the two years ended December 31, 2004 have been derived from our historical consolidated financial statements, which are not included in this Form 10-K.

	Predecessor									Successor
	Year ended December 31,						January 1, 2005 through July 19,			July 20, 2005 through December 31,				Year ended December 31,
	2003			2004			2005			2005				2006			2007
	(dollars in thousands)
Statement of Operations Data:
Net sales	$	358,299		$	421,477		$	260,832		$	201,439		$		537,675		$	608,897
Cost of goods sold	231,274			269,720			163,691			133,910			336,633				375,924
Gross profit	127,025			151,757			97,141			67,529			201,042				232,973
Operating expenses:
Selling	34,062			38,535			24,469			18,405			49,974				55,250
Distribution	18,008			21,597			14,036			10,930			31,589				37,080
General and administrative	33,215			40,654			40,653			19,417			46,505				55,068
Amortization of intangibles	2,583			517			329			7,216			11,508				11,485
Seller transaction expenses	—			—			4,646			—			—				—
Strategic alternatives	—			616			—			—			—				—
Restructuring and merger-related charges	—			—			—			—			1,539				3,696
Total operating expenses	87,868			101,919			84,133			55,968			141,115				162,579
Income from operations	39,157			49,838			13,008			11,561			59,927				70,394
Other expense (income):
Interest expense	33,447			35,958			24,583			17,644			46,857				49,624
Interest income	(72		)	(160		)	(872		)	(132		)	(605			)	(1,549		)
Other, net	(916		)	1,771			748			(48		)	(1,132			)	639
Income (loss) from continuing operations before income taxes and minority interest	6,698			12,269			(11,451		)	(5,903		)	14,807				21,680
Income tax expense (benefit)	1,843			3,140			3,445			(1,052		)	6,140				6,064
Minority interest	(3		)	25			13			(2		)	23				22
Income (loss) from continuing operations	4,858			9,104			(14,909		)	(4,849		)	8,644				15,594
(Income) loss from discontinued operations, net of income tax	(1,062		)	(1,537		)	(446		)	(83		)	(220			)	2,813
Net income (loss)	5,920			$	10,641		$	(14,463	)	$	(4,766	)	$		8,864		$	12,781
Preferred unit dividends	12,973
Net loss attributable to common unitholders	$	(7,053	)

Other Financial Data and Ratios:
Depreciation and amortization(1)	$	12,749		$	12,371		$	6,506		$	12,361		$		25,835		$	26,598
Capital expenditures	7,432			6,423			4,250			5,037			11,573				12,023
Net cash provided by operating activities	22,696			29,911			19,564			26,691			35,005				57,227
Net cash used in investing activities	(25,611		)	(6,378		)	(4,903		)	(278,762		)	(42,818			)	(9,768		)
Net cash provided by (used in) financing activities	13,753			(8,621		)	20,622			264,475			13,686				(4,713		)

Balance Sheet Data (at period end):
Cash and cash equivalents	$	16,341		$	35,731					$	20,819		$		26,796		$	70,811
Working capital(2)	103,804			120,526						131,791			146,832				188,133
Total assets	362,718			389,191						693,656			744,082				789,650
Long-term obligations	258,248			253,566						443,239			474,960				488,713
Mandatorily redeemable preferred units	120,817			134,310						—			—				—
Total members’ deficit/shareholders’ equity	(89,241		)	(75,097		)				106,891			126,886				163,305

(1) Depreciation includes depreciation expense of $59, $74, $49, $45, $122 and $71 for the years ended December 31, 2003 and 2004, the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively, related to discontinued operations.

(2) Working capital is defined as current assets less current liabilities.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Form 10-K. Some of the statements set forth below include forward-looking statements that involve risks and uncertainties.

Overview

We are a leading designer, manufacturer and marketer of branded products in the fragmented personal protection equipment industry. We manufacture and market a full line of personal protection equipment for workers in the general safety and preparedness, fire service and electrical safety industries. We sell our products under trusted, long-standing and well-recognized brand names, including North, KCL, Fibre-Metal, NEOS, Morning Pride, Ranger, Servus, Pro-Warrington, American Firewear, Salisbury and Safety Line. Our broad product offering includes, among other things, respiratory protection, protective footwear, hand protection, turnout gear and linemen equipment.

We classify our diverse product offerings into three operating segments:

General Safety and Preparedness. We offer a diverse portfolio of leading products for a wide variety of industries, including manufacturing, agriculture, automotive, construction, food processing and pharmaceutical industries and the military, under the North, KCL, Fibre-Metal, NEOS, Ranger and Servus brand names. Our product offering is one of the broadest in the personal protection equipment industry and includes respiratory protection, protective footwear, hand protection, eye, head and face protection, first aid, hearing protection and fall protection. We sell our general safety and preparedness products primarily through industrial distributors.

Electrical Safety. We manufacture and market a broad line of personal protection equipment for the utility market under the Salisbury, Safety Line and Servus brands. Our products, including linemen equipment, gloves, sleeves, footwear and arc flash protection, are designed to protect workers from up to 36,000 volts of electricity. We distribute our electrical safety products through specialized distributors, test labs, utilities and electrical contractors.

Predecessor and Successor

In May 2005, Safety Products entered into a purchase and sale agreement with NSP Holdings and Norcross to purchase from NSP Holdings all of the outstanding equity interests of Norcross and NSP Capital for an aggregate purchase price of approximately $481.0 million, which included the assumption or repayment of indebtedness but excluded payment of fees and expenses. The acquisition closed on July 19, 2005 and was funded with proceeds to Safety Products from the issuance and sale of senior pay in kind notes as well as an equity investment from affiliates of Odyssey and GEPT and certain members of management of Norcross. Concurrently with the acquisition, Norcross entered into a new senior credit facility, consisting of a revolving credit facility that provides for up to $50.0 million of borrowings and an $88.0 million term loan. As a result of the acquisition, Safety Products became the sole unit holder of Norcross. Safety Products, following the Norcross Transaction, is referred to as the “Successor.” NSP Holdings, prior to the Norcross Transaction, is referred to as the “Predecessor.”

In accordance with the accounting principles generally accepted in the United States (“GAAP”), our historical financial results for the Predecessor and the Successor are presented separately. The separate presentation is required under GAAP in situations when there is a change in accounting basis, which occurred when purchase accounting was applied to the Norcross Transaction. Purchase accounting requires that the historical carrying value of assets acquired and liabilities assumed be adjusted to fair value, which may yield results that are not comparable on a period-to-period basis due to the different, and sometimes higher, cost basis associated with the allocation of the purchase price. There have been no material changes to the operations or customer relationships of our business as a result of the Norcross Transaction.

In evaluating our results of operations and financial performance, our management has used combined results for the year ended December 31, 2005 as a single measurement period. Due to the Norcross Transaction, we believe that comparisons between the year ended December 31, 2006 and either the Predecessor’s results for the period from January 1, 2005 to July 19, 2005 or the Successor’s results for the period from July 20, 2005 to December 31, 2005 may impede the ability of users of our financial information to understand our operating and cash flow performance.

Consequently, in order to enhance an analysis of our operating results and cash flows, we have presented our operating results and cash flows on a combined basis for the year ended December 31, 2005. This combined presentation for the year ended December 31, 2005 simply represents the mathematical addition of the pre-acquisition results of operations of the Predecessor for the period from January 1, 2005 to July 19, 2005 and the results of operations of the Successor for the period from July 20, 2005 to December 31, 2005. We believe the combined presentation provides relevant information for investors. These combined results, however, are not intended to represent what our operating results would have been had the Norcross Transaction occurred at the beginning of the period. A reconciliation showing the mathematical combination of our operating results for such periods is included below under “—Results of Operations.”

Acquisitions

We made four acquisitions during the three year period ended December 31, 2007. As a result, comparability of periods has been affected by these acquisitions.

In November 2005, we completed the acquisition of all of the issued and outstanding capital stock of Fibre-Metal. The purchase price of $68.7 million (including $0.7 million of acquisition costs) was financed through $65.0 million of additional term borrowings under the senior credit facility and cash on the balance sheet.

In February 2006, we completed the acquisition of all of the issued and outstanding capital stock of American Firewear. The purchase price consisted of $4.5 million in cash (including acquisition costs of $0.2 million and net of cash acquired of $0.2 million) and a $1.0 million subordinated seller note. In addition, the purchase price may be increased by $0.8 million over a four year period from the date of the acquisition based on American Firewear achieving certain financial and operating objectives. We financed the acquisition through cash on the balance sheet and the issuance of the $1.0 million subordinated seller note.

In June 2006, we completed the acquisition of all of the issued and outstanding capital stock of White Rubber. The purchase price of $22.2 million (including $0.6 million of acquisition costs and gross of outstanding checks of $0.8 million) was financed through $15.0 million of additional term borrowings under the senior credit facility and cash on the balance sheet.

In September 2006, we completed the acquisition of all of the issued and outstanding capital stock of NEOS. The purchase price consisted of $3.6 million in cash (including acquisition costs of $0.1 million and net of cash acquired) and a $0.8 million subordinated seller note. In addition, the purchase price may be increased over a five year period from the date of the acquisition based on NEOS achieving certain net sales targets. We financed the acquisition through cash on the balance sheet and the issuance of the $0.8 million subordinated seller note.

Discontinued Operations

In June 2007, we completed the sale of all of the issued and outstanding capital stock of South Africa. We received net cash proceeds of $3.2 million and recorded a net loss related to the transaction of $3.0 million. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we have reflected South Africa’s results of operations through the date of the sale and transaction loss as discontinued operations for all periods presented. Assets and liabilities of South Africa were not material and as a result have not been reclassified as discontinued operations in our consolidated statement of financial position as of December 31, 2006. We have combined cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category as the cash flows from discontinued operations are not material to our consolidated results.

Restructuring Plans

In conjunction with the Fibre-Metal Transaction, we initiated and completed a restructuring plan to close the Fibre-Metal manufacturing facility located in Concordville, Pennsylvania and move production to our Cranston, Rhode Island and

Mexicali, Mexico facilities. In addition, we closed certain Fibre-Metal distribution centers and integrated Fibre-Metal distribution into our existing distribution facilities. We initiated this plan in order to increase profitability through the utilization of excess capacity at our existing plants and the movement of manufacturing to locations with favorable labor costs. As of the date of the Fibre-Metal Transaction, we recorded an accrual for costs associated with the plan of $1.7 million, comprised of $1.4 million in severance costs and $0.3 million in facility closure and other exit costs.

In conjunction with the White Rubber Transaction, we initiated and completed a restructuring plan to move certain production and distribution functions located in Ohio and Washington to our Charleston, South Carolina, Skokie, Illinois and Chicago, Illinois facilities. The Company initiated this plan in order to increase profitability by utilizing excess capacity and consolidating distribution functions. As of the date of the White Rubber Transaction, the Company recorded an accrual for severance costs associated with the plan of $1.0 million.

Critical Accounting Policies

Certain of our accounting policies as discussed below require the application of significant judgment by management in selecting the appropriate estimates and assumptions for calculating amounts to record in our financial statements. Actual results could differ from those estimates and assumptions, impacting our reported results of operations and financial position. However, we do not believe the differences between the actual amounts and our estimates will be material to our financial statements. Our significant accounting policies are more fully described in the notes to our audited financial statements included elsewhere in this Form 10-K. Certain accounting policies, however, are considered to be critical in that they are most important to the depiction of our financial condition and results of operations and their application requires management’s most subjective judgment in making estimates about the effect of matters that are inherently uncertain.

Allowance for Doubtful Accounts. We evaluate the collectibility of our trade receivables based on a combination of factors. We regularly analyze our significant customer accounts and, when we become aware of a specific customer’s inability to meet its financial obligations to us, we record a specific reserve for bad debts to reduce the related receivable to the amount we reasonably believe is collectible. We also record allowances for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. Historically, our allowance for doubtful accounts has been adequate to cover our bad debts. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted. However, due to our diverse customer base and lack of credit concentration, we do not believe our estimates would be materially impacted by changes in our assumptions.

Inventory. We perform a detailed assessment of inventory which includes a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing and quality issues. Based on this analysis, we record adjustments to inventory for excess, obsolescence or impairment when appropriate to reflect inventory at net realizable value. Historically, our inventory reserves have been adequate to reflect our inventory at net realizable values. Revisions to our inventory adjustments to record additional reserves may be required if actual demand, component costs or product life cycles differ from our estimates. However, due to our diverse product lines and end-user markets, we do not believe our estimates would be materially impacted by changes in our assumptions.

Goodwill and Other Intangibles. Purchase accounting requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market value of the assets purchased and liabilities assumed. We have accounted for our acquisitions using the purchase method of accounting.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we performed a goodwill impairment test on the first day of the fourth quarter. We determined that SFAS No. 142 allowed us to carry forward the detailed determination of the fair value from the prior year due to the following: a) the assets and liabilities of each reporting unit had not changed significantly from prior year, b) the carrying amount of each reporting unit in the prior year significantly exceeded the fair value and c) the likelihood that the carrying value of each reporting unit this year would be less than the fair value was remote.

In determining the fair value for the prior year, we utilized the discounted cash flow (“DCF”) approach that estimates the projected future cash flows to be generated by each reporting unit (including an estimate of terminal cash flows), discounted to present value at our estimated cost of capital. An absolute 1% increase or decrease in cash flow projections would have produced an average 0.9% increase or 0.9% decrease, respectively, in the overall value of our reporting units. An absolute 1% increase or decrease in the terminal cash flow growth rate would have produced an average

9.8% increase or 7.6% decrease, respectively, in the overall value of our reporting units. An absolute 1% decrease or increase in the discount rate would have produced an average 12.7% increase or 9.9% decrease, respectively, in the overall value of our reporting units.

Based on the results of the first step of the annual goodwill impairment test, we determined that the fair value of each of the reporting units exceeded their carrying amounts and, therefore, no goodwill impairment existed. As a result, the second step of the annual goodwill impairment test was not required to be completed. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill as of December 31, 2007. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or a material negative change in our relationships with significant customers. We will continue to perform a goodwill impairment test on an annual basis and on an interim basis, if certain conditions exist.

We also performed an impairment test related to our indefinite life brand names on the first day of the fourth quarter using a relief from royalty method. This method is a specific discounted cash flow approach to analyze cash flows attributable to the brand names based on projected revenues associated with each brand name and an estimated royalty rate. This method is based on the assumption that, in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of the trade name and that the inherent economic value of each trade name is directly related to the cash flows (royalties saved) in the future. We did not combine our brand names into a single “unit of accounting” with the exception of our footwear brands in our general safety and preparedness segment. An absolute 1% increase or decease, in the revenue base would produce an 1.0% increase or 1.0% decrease, respectively, across the portfolio of brand names. An 1% increase or decease, in the royalty rates would produce an 1.0% increase or 1.0% decrease, respectively, across the portfolio of brand names. An absolute 1% decrease or increase in the discount rate would produce an average 12.3% increase or 9.8% decrease, respectively, across the portfolio of brand names.

Based on the results of our annual indefinite life brand name impairment test, we determined that the fair value of each of the brand names exceeded their carrying amounts and, therefore, no impairment existed. The Company cannot predict the occurrence of certain future events that might adversely affect the reported value of its indefinite life brand names as of December 31, 2007. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or a material negative change in our relationships with significant customers. We will continue to perform an indefinite life brand name impairment test on an annual basis and on an interim basis, if certain conditions exist.

Long-Lived Assets. We evaluate our long-lived assets on an ongoing basis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If the asset is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value. Our estimates of future cash flows could be impacted if we underperform relative to historical or projected future operating results. However, due to our diverse product lines and end-user markets, we do not believe our estimates would be materially impacted by changes in our assumptions.

Defined Benefit Pension Plans. The costs and obligations of our defined benefit pension plans are dependent on actuarial assumptions. Three critical assumptions used, which impact the net periodic pension expense and two of which impact the benefit obligation, are the discount rate, expected return on plan assets and rate of compensation increase.

We determined the discount rate by matching the projected benefit payments from our pension plans with the Citigroup corporate pension discount rate index. The discount rate for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 was 5.25%, 5.50%, 5.90% and 6.48%, respectively.

The long-term rate of return on plan assets assumption is reviewed annually. We use an investment model to determine an expected rate of return based on current investment allocation. The investment model considers past performance and forward looking assumptions for each asset class based on current market indices, key economic indicators and assumed long-term rate of inflation. The long-term rate of return assumption is adjusted, as needed, such that it falls between the 25^th and 75^th percentile expected return generated from the model.

The rate of compensation increase represents the long-term assumption for expected increases to salaries. We froze our U.S. defined benefit plans with pay-related benefits as of December 31, 2006, and therefore assumptions related to the rate of compensation increase no longer impact our obligation.

Changes in these assumptions can result in different expense and liability amounts. The effects of the indicated increase and decrease in selected assumptions for our pension plans as of December 31, 2007 assuming no changes in benefit levels and no amortization of gains or losses, is shown below (in thousands):

	Increase (Decrease) in PBO			Increase (Decrease) in Pension Expense

Discount rate change:
Increase 100 basis points	$	(7,236	)	$	(456	)
Decrease 100 basis points	8,762			(138		)

Expected rate of return change:
Increase 100 basis points	N/A			(552		)
Decrease 100 basis points	N/A			552

Respiratory Liability. As of December 31, 2007, our North Safety Products subsidiary, along with its predecessors and/or the former owners of such business were named as defendants in approximately 629 lawsuits involving respirators allegedly manufactured and sold by it or its predecessors. We are also monitoring an additional two lawsuits in which we believe that North Safety Products, its predecessors and /or the former owners of such businesses may be named as defendants.

We have recorded a $5.0 million reserve associated with the lawsuit as of December 31, 2007. This reserve will be re-evaluated periodically and additional charges or credits will be recorded to operating expenses as additional information becomes available. The calculation of the reserve involved several key assumptions including the following:

· We have used a five-year projection of claims to calculate the reserve. We believe a five-year projection of claims and related defense and settlement costs was the most meaningful as we could not estimate future activity beyond a five year period due to the uncertainty of future events, including future legislation regarding tort reform. Changes in the projection period could impact our estimate of the reserve.

· We have estimated future claim activity based on historical claim activity and expectations of future activity. Our estimate did not assume enactment of proposed legislation regarding tort reform at the federal or state level. Changes in legislation could impact our estimate of future claim activity.

· We have estimated our share of defense costs under the JDA based on the historical defense costs paid to our legal counsel and the historical portion of claims that allege use during the post-October 1998 exposure period. These estimates could change as more information regarding case specifics becomes available.

· We have estimated our share of settlement costs based on historical settlement amounts and the historical portion of claims that allege use during the post-October 1998 exposure period. These estimates could change as more information regarding case specifics becomes available.

· We have estimated our share of future defense costs beyond the expiration of the JDA consistent with the current JDA. These estimates could change if the manner in which we handle the defense of cases beyond December 31, 2008 is not consistent with the current JDA.

Other Contingencies. In the ordinary course of business, we are involved in legal proceedings involving contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. We record contingent liabilities resulting from claims against us when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will

exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, we do not believe that any of our pending legal proceedings or claims will have a material impact on our financial position or results of operations. However, if actual or estimated probable future losses exceed our recorded liability for such claims, we would record additional charges as other operating expense during the period in which the actual loss or change in estimate occurred.

Gross Profit

We calculate gross profit as the difference between our net sales and cost of goods sold. We do not include certain purchasing and distribution costs as a component of cost of goods sold. As a result, our gross profit may not be comparable to other entities who may present all of purchasing and distribution costs as a component of cost of goods sold.

Expense Classifications

We include the following in each of the major expense categories:

Cost of Goods Sold. Primarily includes all direct and indirect costs related to our products including the following: raw materials, direct and indirect labor, including related benefits, overhead costs, inbound freight charges, receiving costs, inspection costs, purchasing costs, other internal transfer costs and cost of resale products.

Selling. Primarily includes all payroll and related benefits associated with sales and marketing employees, internal and external sales commission payments, marketing costs, advertising expenses and other miscellaneous selling expenses.

Distribution. Primarily includes all direct and indirect labor associated with distribution and related benefits, warehousing and freight-out costs and other miscellaneous distribution expenses.

General and Administrative. Primarily includes the following: finance and accounting, certain purchasing costs, information systems, human resources, legal, corporate overhead expenses and other miscellaneous administrative expenses.

Results of Operations

The following tables set forth our results of operations in dollars and as a percentage of net sales for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007. The data for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 have been derived from our audited consolidated financial statements. Although the Predecessor and Successor results are not comparable by definition in certain respects due to the Norcross Transaction and the resulting revaluation, the 2005 information is presented on a combined basis for comparative purposes. For the year ended December 31, 2005, the Predecessor (January 1, 2005 through July 19, 2005) and Successor (July 20, 2005 through December 31, 2005) results of operations are combined.

	Predecessor			Successor						Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Combined Year ended December 31,			Year ended December 31,
	2005			2005			2005			2006			2007
	(dollars in thousands)
Net sales:
General safety and preparedness	$	175,572		$	138,146		$	313,718		$	370,931		$	410,962
Fire service	51,702			36,213			87,915			87,902			100,607
Electrical safety	33,558			27,080			60,638			78,842			97,328
Total net sales	260,832			201,439			462,271			537,675			608,897
Cost of goods sold	163,691			133,910			297,601			336,633			375,924
Gross profit	97,141			67,529			164,670			201,042			232,973
Operating expenses	84,133			55,968			140,101			141,115			162,579
Income from operations:
General safety and preparedness	19,361			7,511			26,872			45,702			51,691
Fire service	9,332			2,574			11,906			8,364			12,438
Electrical safety	8,442			4,352			12,794			14,853			18,042
Corporate	(24,127		)	(2,876		)	(27,003		)	(8,992		)	(11,777		)
Total income from operations	13,008			11,561			24,569			59,927			70,394
Other expense (income):
Interest expense	24,583			17,644			42,227			46,857			49,624
Interest income	(872		)	(132		)	(1,004		)	(605		)	(1,549		)
Other, net	748			(48		)	700			(1,132		)	639
(Loss) income from continuing operations before income taxes and minority interest	(11,451		)	(5,903		)	(17,354		)	14,807			21,680
Income tax expense (benefit)	3,445			(1,052		)	2,393			6,140			6,064
Minority interest	13			(2		)	11			23			22
(Loss) income from continuing operations	(14,909		)	(4,849		)	(19,758		)	8,644			15,594
(Income) loss from discontinued operations, net of income tax	(446		)	(83		)	(529		)	(220		)	2,813
Net (loss) income	$	(14,463	)	$	(4,766	)	$	(19,229	)	$	8,864		$	12,781

	Predecessor		Successor				Successor
	January 1, 2005 through July 19,		July 20, 2005 through December 31,		Combined Year ended December 31,		Year ended December 31,
	2005		2005		2005		2006		2007
Net sales:
General safety and preparedness	67.3	%	68.6	%	67.9	%	69.0	%	67.5	%
Fire service	19.8	%	18.0	%	19.0	%	16.3	%	16.5	%
Electrical safety	12.9	%	13.4	%	13.1	%	14.7	%	16.0	%
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	62.8	%	66.5	%	64.4	%	62.6	%	61.7	%
Gross profit	37.2	%	33.5	%	35.6	%	37.4	%	38.3	%
Operating expenses	32.2	%	27.7	%	30.3	%	26.2	%	26.7	%
Income from operations:
General safety and preparedness	7.4	%	3.7	%	5.8	%	8.5	%	8.5	%
Fire service	3.6	%	1.3	%	2.6	%	1.6	%	2.0	%
Electrical safety	3.2	%	2.2	%	2.8	%	2.8	%	3.0	%
Corporate	(9.2	)%	(1.4	)%	(5.9	)%	(1.7	)%	(1.9	)%
Total income from operations	5.0	%	5.8	%	5.3	%	11.2	%	11.6	%
Other expense (income):
Interest expense	9.4	%	8.8	%	9.1	%	8.7	%	8.2	%
Interest income	(0.3	)%	(0.1	)%	(0.2	)%	(0.1	)%	(0.3	)%
Other, net	0.3	%	(0.0	)%	0.2	%	(0.2	)%	0.1	%
(Loss) income from continuing operations before income taxes and minority interest	(4.4	)%	(2.9	)%	(3.8	)%	2.8	%	3.6	%
Income tax expense (benefit)	1.3	%	(0.5	)%	0.5	%	1.2	%	1.0	%
Minority interest	0.0	%	(0.0	)%	0.0	%	0.0	%	0.0	%
(Loss) income from continuing operations	(5.7	)%	(2.4	)%	(4.3	)%	1.6	%	2.6	%
(Income) loss from discontinued operations, net of income tax	(0.2	)%	(0.0	)%	(0.1	)%	(0.0	)%	0.5	%
Net (loss) income	(5.5	)%	(2.4	)%	(4.2	)%	1.6	%	2.1	%

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006

Net sales. Net sales increased by $71.2 million, or 13.2%, from $537.7 million in 2006 to $608.9 million in 2007. In our general safety and preparedness segment, net sales increased by $40.0 million, or 10.8%, from $371.0 million in 2006 to $411.0 million in 2007. The increase reflects a combination of the following: overall organic growth in our North American non-government business of $17.0 million, which offset a decrease in government contract shipments of $3.3 million, combined organic growth in our international operations of $11.9 million and favorable exchange rates, which had an impact of $14.4 million. In our fire service segment, net sales increased by $12.7 million, or 14.5%, from $87.9 million in 2006 to $100.6 million in 2007, due in part to a more normalized pattern of fire act grants when compared to 2006. In addition, the issuance of the new NFPA standard is creating increased demand for our patented products. In our electrical safety segment, net sales increased by $18.5 million, or 23.4%, from $78.8 million in 2006 to $97.3 million in 2007, primarily driven by strong market demand, new product penetration and incremental White Rubber net sales.

Gross profit. Gross profit increased by $32.0 million, or 15.9%, from $201.0 million in 2006 to $233.0 million in 2007, primarily due to the $71.2 million, or 13.2%, increase in net sales. Our gross profit margin of 38.3% in 2007 was favorable to our gross profit margin of 37.4% in 2006. In our general safety and preparedness segment, gross profit increased by $20.3 million, or 14.0%, from $144.5 million in 2006 to $164.8 million in 2007. This increase was primarily due to the overall net sales increase of $40.0 million, or 10.8%, improved margin realization and the favorable impact of $1.3 million of lower inventory purchase accounting adjustments and LIFO adjustments in 2007 relative to 2006. In our fire service segment, gross profit increased by $5.7 million, or 21.6%, from $26.3 million in 2006 to $32.0 million in 2007, primarily due to the increase in net sales of $12.7 million, or 14.5%, and favorable margin realization. In our electrical safety segment, gross profit increased by $6.0 million, or 19.9%, from $30.2 million in 2006 to $36.2 million in 2007, as result of the increase in net sales of $18.5 million, or 23.4%, and the favorable impact of $0.2 million of lower inventory purchase accounting adjustments and LIFO adjustments in 2007 relative to 2006, partially offset by lower margin realization primarily due to White Rubber product line integration costs and the impact of product mix.

Operating expenses. Operating expenses increased by $21.5 million, or 15.2%, from $141.1 million in 2006 to $162.6 million in 2007. In our general safety and preparedness segment, operating expenses increased by $14.3 million, or 14.4%, from $98.8 million in 2006 to $113.1 million in 2007, driven by increased variable selling and distribution expenses associated with the $40.0 million, or 10.8%, increase in net sales, unfavorable exchange rates, which had an impact of $3.5 million, higher payroll expenses and an $1.1 million increase in restructuring and merger-related charges, associated with plant relocations, personnel reorganization and acquisition integration activities. In addition, the increase over prior year was driven by a $6.8 million non-recurring curtailment gain recognized in 2006 as a result of freezing our U.S. defined benefit plans, which did not occur in 2007. These increases were partially offset by an $1.8 million credit to operating expenses associated with reduction in the reserve for respiratory claims. In our fire service segment, operating expenses increased by $1.6 million, or 8.9%, from $17.9 million in 2006 to $19.5 million in 2007, primarily due to increased variable selling expenses related to the $12.7 million, or 14.5%, increase in net sales and higher administrative expenses. In our electrical safety segment, operating expenses increased by $2.8 million, or 18.3%, from $15.4 million in 2006 to $18.2 million in 2007, due to increased variable selling and distribution expenses related to the $18.5 million, or 23.4%, increase in net sales, higher amortization expense of $0.2 million associated with intangible assets recorded as part of purchase accounting, incremental White Rubber operating expenses and $0.9 million increase in restructuring and merger related charges, associated primarily with White Rubber integration costs. Corporate expenses in 2006 consisted of $7.4 million of general and administrative expenses and $1.6 million of management incentive compensation expense. Corporate expenses in 2007 consisted of $10.1 million of general and administrative expenses and $1.7 million of management incentive compensation expense. The increase in corporate general and administrative expenses of $2.7 million was primarily due to higher payroll, administrative expenses and professional fees. The increase in professional fees was partially due to $1.6 million of fees associated with the engagement of a supply-chain improvement consulting firm.

Income from operations. Income from operations increased by $10.5 million, or 17.5%, from $59.9 million in 2006 to $70.4 million in 2007. In our general safety and preparedness segment, income from operations increased by $6.0 million, or 13.1%, from $45.7 million in 2006 to $51.7 million in 2007. In our fire service segment, income from operations increased by $4.1 million, or 48.7%, from $8.4 million in 2006 to $12.5 million in 2007. In our electrical safety segment, income from operations increased by $3.2 million, or 21.5%, from $14.8 million in 2006 to $18.0 million in 2007. Corporate expenses in 2006 consisted of $7.4 million of general and administrative expenses and $1.6 million of management incentive compensation expense. Corporate expenses in 2007 consisted of $10.1 million of general and administrative expenses and $1.7 million of management incentive compensation expense. These segment variances were the result of the reasons discussed above.

Included in income from operations for 2006 and 2007 were depreciation and amortization expenses of $25.7 million and $26.5 million, respectively. Of these amounts, $16.7 million, $4.6 million and $4.4 million were attributable to the general safety and preparedness, fire service and electrical safety segments, respectively, in 2006 and $16.7 million, $4.7 million and $5.1 million were attributable to these segments in 2007.

Interest expense. Interest expense increased by $2.7 million, or 5.9%, from $46.9 million in 2006 to $49.6 million in 2007, primarily due to higher outstanding debt balances related the senior pay in kind notes. Included in interest expenses in 2007 and 2006 were non-cash interest charges associated with the senior pay in kind notes of $18.8 million and $16.7 million, respectively.

Interest income. Interest income increased by $0.9 million from $0.6 million in 2006 to $1.5 million in 2007, primarily due to interest earned on higher cash balances during 2007.

Other, net. Other, net increased by $1.7 million from $(1.1) million in 2006 to $0.6 million in 2007, primarily due to unrealized foreign exchange rate losses.

Income tax expense. Income tax expense remained consistent at $6.1 million in 2006 and 2007, as higher income taxes associated with improved operating performance were offset by the benefit from a reduction in the German and Canadian statutory tax rates.

(Income) loss from discontinued operations. Loss from discontinued operations in 2007 included a $3.0 million loss related to the sale of South Africa and $(0.2) million of income associated with South Africa discontinued operations. Income from discontinued operations in 2006 included $(0.2) million of income associated with South Africa discontinued operations.

Net (loss) income. Net income increased by $3.9 million, or 44.2%, from $8.9 million in 2006 to $12.8 million in 2007 as a result of the reasons discussed above.

Year Ended December 31, 2006 as Compared to Combined Year Ended December 31, 2005

Net sales. Net sales increased by $75.4 million, or 16.3%, from $462.3 million in 2005 to $537.7 million in 2006. In our general safety and preparedness segment, net sales increased by $57.2 million, or 18.2%, from $313.8 million in 2005 to $371.0 million in 2006. The increase reflects a combination of the following: incremental combined Fibre-Metal and NEOS net sales of $36.1 million, combined organic growth in our international operations of $10.9 million, overall organic growth in our North American non-government business of $11.3 million, favorable exchange rates, which had an impact of $6.0 million, and a decrease in government contract shipments of $7.1 million. In our fire service segment, net sales were consistent at $87.9 million in 2005 and 2006 as incremental American Firewear net sales of $6.4 million were offset by postponed customer orders due in part to the combined impact of government grant holdups and the delayed issuance of the new NFPA standard. In our electrical safety segment, net sales increased by $18.2 million, or 30.0%, from $60.6 million in 2005 to $78.8 million in 2006 primarily driven by strong market demand, new product penetration and incremental White Rubber net sales of $9.0 million.

Gross profit. Gross profit increased by $36.3 million, or 22.1%, from $164.7 million in 2005 to $201.0 million in 2006, primarily due to the $75.4 million, or 16.3%, increase in net sales. Our gross profit margin of 37.4% in 2006 was favorable to the 35.6% gross profit margin in 2005. In our general safety and preparedness segment, gross profit increased by $31.1 million, or 27.5%, from $113.4 million in 2005 to $144.5 million in 2006. This increase was primarily due to the overall net sales increase of $57.2 million, or 18.2%, improved margin realization in our North American operations (in part due to the favorable contribution of Fibre-Metal) and the favorable impact of lower inventory purchase accounting adjustments and LIFO charges from $4.5 million in 2005 to $1.7 million in 2006. In our fire service segment, gross profit decreased $1.1 million, or 4.0%, from $27.4 million in 2005 to $26.3 million in 2006 due to lower margin realization (in part due to the inherent lower margin of American Firewear products and product line integration costs), which was partially offset by the favorable impact of $1.3 million of lower inventory purchase accounting adjustments in 2006 relative to 2005. In our electrical safety segment, gross profit increased by $6.3 million, or 26.6%, from $23.9 million in 2005 to $30.2 million in 2006, primarily due to the $18.2 million, or 30.0%, increase in net sales, which was partially offset by lower margin realization in part due to the White Rubber plant integration and the unfavorable impact of $0.3 million of inventory purchase accounting adjustments in 2006.

Operating expenses. Operating expenses increased by $1.0 million, or 0.7%, from $140.1 million in 2005 to $141.1 million in 2006. In our general safety and preparedness segment, operating expenses increased by $12.3 million, or 14.2%, from $86.5 million in 2005 to $98.8 million in 2006, primarily due to higher amortization expense of $1.9 million associated with the intangible assets recorded as part of purchase accounting, incremental combined Fibre-Metal and NEOS operating expenses of $7.3 million, higher foreign exchange rates, which had an impact of $1.5 million, $1.4 million of restructuring charges related to plant relocations and acquisition integration activities, increased variable distribution and selling expenses associated with the $57.2 million, or 18.2%, increase in net sales and higher payroll and administrative expenses. These increases were partially offset by a $6.8 million non-cash curtailment gain recorded as a result of freezing our U.S. defined benefit plans. In our fire service segment, operating expenses increased $2.4 million, or 15.8%, from $15.5 million in 2005 to $17.9 million in 2006, primarily due to higher amortization expense of $1.6 million associated with intangible assets recorded as part of purchase accounting and incremental American Firewear operating expenses of $0.6 million. In our electrical safety segment, operating expenses increased by $4.4 million, or 38.7%, from $11.0 million in 2005 to $15.4 million in 2006, primarily due to higher amortization expense of $0.5 million associated with intangible assets recorded as part of purchase accounting, incremental White Rubber operating expenses of $1.8 million, $0.1 million of restructuring charges related to White Rubber acquisition integration activities and increased variable selling and distribution expenses related to the $18.2 million, or 30.0%, increase in net sales. Corporate expenses in 2005 consisted of $6.1 million of general and administrative expenses, $16.4 million of management incentive compensation expense related to the Norcross Transaction and $4.6 million in seller transaction expenses (primarily related to professional services) which were funded by the Predecessor from proceeds realized upon the consummation of the Norcross Transaction. Corporate expenses in 2006 consisted of $7.4 million of general and administrative expenses and $1.6 million of management incentive compensation expense. The increase in corporate general and administrative expenses of $1.3 million was primarily due to higher payroll, administrative expenses and professional fees.

Income from operations. Income from operations increased by $35.4 million, or 143.9%, from $24.5 million in 2005 to $59.9 million in 2006. In our general safety and preparedness segment, income from operations increased by $18.8

million, or 70.1%, from $26.9 million in 2005 to $45.7 million in 2006. In our fire service segment, income from operations decreased by $3.5 million, or 29.7%, from $11.9 million in 2005 to $8.4 million in 2006. In our electrical safety segment, income from operations increased by $2.0 million, or 16.1%, from $12.8 million in 2005 to $14.8 million in 2006. Corporate expenses in 2005 consisted of $6.1 million of general and administrative expenses, $16.4 million of management incentive compensation expense related to the Norcross Transaction and $4.6 million in seller transaction expenses. Corporate expenses in 2006 consisted of $7.4 million of general and administrative expenses and $1.6 million of management incentive compensation expense. These segment variances were the result of the reasons discussed above.

Included in income from operations in 2005 and 2006 were depreciation and amortization expenses of $18.8 million and $25.7 million, respectively. Of these amounts, $12.7 million, $3.0 million, and $3.1 million were attributable to the general safety and preparedness, fire service and electrical safety segments, respectively, in 2005 and $16.7 million, $4.6 million and $4.4 million were attributable to these segments in 2006.

Interest expense. Interest expense increased by $4.6 million, or 11.0%, from $42.2 million in 2005 to $46.8 million in 2006 primarily due to higher outstanding debt balances related to the Fibre-Metal and White Rubber Transactions and higher variable interest rates on our senior credit facility. Included in interest expense in 2005 were non-cash interest charges associated with the senior pay in kind notes and redeemable preferred units of NSP Holdings of $18.0 million. Included in interest expense in 2006 were non-cash interest charges associated with the senior pay in kind notes of $16.7 million.

Other, net. Other, net decreased by $1.8 million from $0.7 million in 2005 to $(1.1) million in 2006, primarily due to unrealized foreign exchange rate gains.

Income tax expense. Income tax expense increased by $3.7 million, from $2.4 million in 2005 to $6.1 million in 2006, primarily as a result of higher domestic income tax expense.

(Income) loss from discontinued operations. Income from discontinued operations in 2006 decreased by $0.3 million from $(0.5) million in 2005 to $(0.2) million in 2006. This decrease was associated with South Africa discontinued operations.

Net (loss) income. Net (loss) income increased by $28.1 million from $(19.2) million in 2005 to $8.9 million in 2006. This was the result of the reasons discussed above.

Liquidity and Capital Resources

We have historically used internal cash flow from operations, commercial borrowings on our lines of credit, seller notes, investments from our equityholders and capital markets transactions to fund our operations, acquisitions, capital expenditures and working capital requirements.

In 2007, net cash provided by operating activities was $57.2 million. The favorable contribution was driven primarily by income from operations of $70.4 million, which was partially offset by the impact of working capital changes and pension contributions.

In 2006, net cash provided by operating activities was $35.0 million. The favorable contribution was driven primarily by income from operations of $59.9 million, which was partially offset by an increase in accounts receivables due to higher net sales and higher inventory in part due to pending plant consolidations.

In 2005, net cash provided by operating activities was $46.3 million. The favorable contribution was driven primarily by income from operations of $24.5 million and the impact of favorable changes in working capital.

Historically, our principal uses of cash have been capital expenditures, acquisitions and working capital. Investing activities for the year ended December 31, 2007 include: (1) $0.9 million of royalty payments to the sellers of Arbin, (2) $0.5 million for the purchase of Hungarian subsidiary and (3) $3.2 million of cash proceeds from the sale of South Africa. In addition, we received cash proceeds of $0.4 million related to the sale of property, plant and equipment.

For the year ended December 31, 2006, investing activities include: (1) $22.2 million for the White Rubber Transaction; (2) $4.5 million for the American Firewear Transaction; (3) $3.6 million for the NEOS Transaction; and (4) $1.1

million for royalty payments to the sellers of Muck Boot and Arbin. We received cash proceeds of $0.1 million related to the sale of property, plan and equipment.

For the Predecessor period from January 1, 2005 through July 19, 2005, we made royalty payments to the sellers of Muck Boot and Arbin totaling $0.7 million. Successor period investing activities for the period from July 20, 2005 through December 31, 2005 include: (1) $204.5 million of cash purchase price related to the Norcross Transaction; (2) $68.7 million of cash purchase price related to the Fibre-Metal Transaction; and (3) $0.5 million for royalty payments to the sellers of Muck Boot and Arbin.

Our capital expenditures were $12.0 million in 2007, $11.6 million in 2006 and $9.3 million in 2005.

As of December 31, 2007, we had working capital of $188.1 million and cash of $70.8 million. We maintain inventory levels sufficient to satisfy customer orders, with generally a three month supply on hand. Turnout gear is an exception and is generally made to order. Our accounts receivable terms are generally 30 days, net.

For the year ended December 31, 2007, net cash used in financing activities was $4.7 million consisting of payments on long-term obligations (including an excess cash flow sweep payment of $2.3 million under the terms of our senior credit facility).

For the year ended December 31, 2006, net cash provided by financing activities was $13.7 million, consisting of the following: proceeds from additional term borrowings of $15.0 million under the New Credit Facility (as defined below) related to the White Rubber Transaction, $1.8 million of payments on long-term obligations, $0.7 million of capital contributions and $0.2 million of payments for deferred financing costs.

For the Predecessor period from January 1, 2005 through July 19, 2005, net cash used in financing activities was $20.6 million, representing payments of deferred financing fees of $3.2 million; proceeds from the issuance of the 11¾% senior pay in kind notes of $100.0 million (the “Existing Holdings Notes”); payments on long-term obligations of $13.6 million, including an excess cash flow sweep payment under the terms of the former senior credit facility of $12.2 million; payment in respect of preferred units of $60.0 million; and distributions in respect of the common units of certain members of management of $2.5 million. For the Successor period from July 20, 2005 through December 31, 2005, net cash provided by financing activities was $264.5 million, including $153.0 million of borrowings under our New Credit Facility (as defined below) used to fund the Norcross and Fibre-Metal Transactions, $23.6 million of proceeds from the issuance of senior pay in kind notes and $109.7 of capital contributions. Additionally, we paid $21.1 million in deferred financing costs consisting of expenses associated with the New Credit Facility (including incremental borrowings for the Fibre-Metal Transaction), the Norcross senior subordinated notes and the senior pay in kind notes which are further discussed below.

On January 7, 2005, NSP Holdings and NSP Capital issued the Existing Holdings Notes. The proceeds were used to: (i) make a payment in respect of preferred units of $60.0 million, $58.0 million of which were payments in respect of accrued preferred yield and $2.0 million of which was the return of a portion of the original capital contribution made by holders of NSP Holdings’ preferred units, (ii) make distributions in respect of the common units of certain members of management of $2.5 million, and (iii) pay fees and expenses. The remainder of the net proceeds was used for general corporate purposes, including potential acquisitions and/or distributions to NSP Holdings’ unit holders.

On July 19, 2005, in conjunction with the Norcross Transaction, Norcross entered into a new Senior Credit Facility (the “New Credit Facility”) which provides for aggregate borrowings of $138.0 million, consisting of (a) a term loan in the amount of $88.0 million, payable in twenty-eight consecutive quarterly installments which commenced on September 30, 2005 and (b) a revolving credit facility in an aggregate principal amount of $50.0 million. The New Credit Facility is comprised of a U.S. revolving facility and a Canadian subfacility. The amount of the total U.S. revolving facility is an amount equal to $50.0 million less the amount at such time outstanding under the Canadian subfacility. The amount of the total Canadian subfacility is an amount denominated in Canadian dollars having a U.S. dollar equivalent of $25.0 million less the amount at such time outstanding under the U.S. revolving facility. At any time upon the request of us or the U.S. Subsidiary Borrowers (as defined in the New Credit Facility), one or more new term loan facilities may be added in any aggregate amount of up to $100.0 million (and not less than $10.0 million for any such additional term loan), subject to certain conditions, the proceeds of which shall be used to finance permitted acquisitions, pay fees and related expenses thereto and to refinance indebtedness of the entity or associated with the assets to be so acquired. The New Credit Facility is subject to certain mandatory prepayments upon the occurrence of certain events, subject to certain exceptions set forth in the

credit agreement. The proceeds of the New Credit Facility were used primarily to refinance the then existing senior credit facility.

On November 1, 2005, Norcross entered into the Incremental Facility Amendment to the New Credit Facility (the “Amendment”) in order to complete the acquisition of all of the issued and outstanding capital stock of Fibre-Metal. Under the terms of the Amendment, Norcross, the U.S. borrowers and the lenders agreed to a total incremental term commitment of $65.0 million. Additionally, the Amendment required, among other things, that the proceeds of the incremental term loans be used for permitted acquisitions and the consolidated senior leverage ratio, after giving effect to the use of the proceeds, not exceed 3.25 to 1.00. Norcross financed the Fibre-Metal Transaction with these additional term borrowings and cash on the balance sheet.

On June 9, 2006, Norcross entered into the Second Incremental Facility Amendment to the New Credit Facility (the “Second Amendment”) in order to complete the acquisition of all of the issued and outstanding capital stock of White Rubber. Under the terms of the Second Amendment, Norcross, the U.S. borrowers and the lenders agreed to a total incremental term commitment of $15.0 million. Additionally, the Second Amendment required, among other things, that the proceeds of the incremental term loans be used for permitted acquisitions and the consolidated senior leverage ratio, after giving effect to the use of the proceeds, not exceed 3.25 to 1.00. Norcross financed the White Transaction with these additional term borrowings and cash on the balance sheet.

As of December 31, 2007, borrowings under the New Credit Facility bore interest at a weighted average rate of 7.3%. Prior to June 30, 2010, we may borrow, repay and re-borrow under the revolving facilities without payment of penalty or premium. The term loan is payable in quarterly installments totaling $1.7 million per annum, with the remainder due in four quarterly installments ending June 30, 2012. As of December 31, 2007, there was approximately $161.7 million of outstanding indebtedness under the New Credit Facility and approximately $47.6 million of available borrowings under the revolving credit facility.

Borrowings under the U.S. revolving facility and term loan portion of the New Credit Facility bear interest at a rate per annum equal to our choice of (a) an alternate base rate (which is equal to the higher of (i) the rate of interest announced by Credit Suisse as its prime rate in effect and (ii) the federal funds rate plus 0.50%) or (b) the Eurodollar rate, plus an applicable margin. Borrowings under the Canadian subfacility of the New Credit Facility bear interest at a rate per annum equal to the Canadian prime rate (which is the higher of (i) the rate of interest announced by Credit Suisse, Toronto Branch, as its reference rate then in effect for determining interest rates on Canadian dollar denominated commercial loans in Canada or (ii) the CDOR rate plus 0.50% per annum), plus an applicable margin, or with respect to banker’s acceptances or their equivalents, the discount rate (as defined in the credit agreement) plus an applicable margin.

Initially, the applicable margin with respect to the revolving credit facility is (a) 1.25% in the case of alternate base rate loans and Canadian dollar prime loans and (b) 2.25% in the case of Eurodollar rate loans and bankers’ acceptance rate loans. With respect to the term loan, the applicable margin will be (a) 1.00% in the case of alternate base rate loans and (b) 2.00% in the case of Eurodollar rate loans. After our fiscal quarter ended December 31, 2005, the margins applicable to the revolving credit facility and the U.S. swing line loans adjust on a sliding scale based on the total leverage ratio of Norcross and its subsidiaries. In addition, we are required to pay to the lenders under the revolving credit facility an initial commitment fee in respect of the unused commitments thereunder at a per annum rate of 0.50%. After our fiscal quarter ended December 31, 2005, the commitment fee rate adjusts on a sliding scale based on the total leverage ratio of Norcross and its subsidiaries.

Norcross’ domestic subsidiaries (including any future or indirect subsidiaries that may be created or acquired by us) and Safety Products guarantee the U.S. subsidiary borrowers’ and Norcross’ obligations under the New Credit Facility. The guarantees in respect of the New Credit Facility are secured by a perfected first priority security interest in all of our equity securities, the equity securities of our direct and indirect domestic subsidiaries, substantially all of the guarantors’ tangible and intangible assets and 65% of the equity securities of, or equity interest in, certain of our foreign first-tier subsidiaries, subject to certain exceptions. All of the Canadian Borrower’s obligations under the New Credit Facility are be secured by all of the assets of our present and future Canadian subsidiaries, and are guaranteed by all of our present and future Canadian subsidiaries.

The New Credit Facility contains certain customary covenants, including among other things:

· affirmative covenants requiring us to provide certain financial statements to the Administrative Agent for distribution to its lenders and to pay material obligations when due, maintain its legal existence, keep its

material properties in good working order and condition, provide certain notices to the Administrative Agent for distribution to its lenders, comply in all material respects with environmental laws and maintain at all times ratings for the New Credit Facility;

· restrictive covenants including limitations on other indebtedness, liens, fundamental changes, asset sales, restricted payments, capital expenditures, investments, prepayments, transactions with affiliates, sales and leasebacks, negative pledges, lines of business; and

· financial covenants requiring us to maintain a maximum total leverage ratio of total debt over EBITDA (as defined therein) for the period, a minimum fixed charge coverage ratio of EBITDA (as defined therein) less capital expenditures over fixed charges for the period and a minimum interest coverage ratio of EBITDA (as defined therein) over interest expense for the period.

The New Credit Facility contains certain customary representations and warranties and events of default, including failure to pay interest, principal or fees, any material inaccuracy of any representation and warranty, failure to comply with covenants, material cross-defaults, bankruptcy and insolvency events, ERISA events, change of control, failure to maintain first priority perfected security interest, material judgments, invalidity of guarantee and loss of subordination. Certain of the events of defaults are subject to exceptions, materiality qualifiers and baskets.

On July 19, 2005, we sold $25.0 million in principal amount of 11¾% senior pay in kind notes due 2012 (the “New Notes”). The New Notes were sold pursuant to a purchase agreement, dated June 28, 2005 (the “Purchase Agreement”), by and between us and Credit Suisse First Boston, LLC (the “Initial Purchaser”). The New Notes were issued pursuant to the Indenture. Pursuant to the term of the Purchase Agreement, the New Notes were sold to the Initial Purchaser and were resold to qualified institutional buyers in compliance with the exemption from registration.

In connection with the closing of the Norcross Transaction, we entered into a second supplemental indenture dated as of July 19, 2005 (the “Second Supplemental Indenture”) among NSP Holdings, NSP Capital, us and Wilmington Trust Company, as trustee (the “Trustee”) under the indenture dated as of January 7, 2005 (the “Indenture”) by and among NSP Holdings, NSP Capital and the Trustee providing for the issuance of the New Notes and the assumption by us of all of the rights, powers, commitments, obligations and liabilities of NSP Holdings under the Indenture and the Existing Holdings Notes.

In connection with the closing of the Norcross Transaction, Norcross entered into a supplemental indenture dated as of July 19, 2005 (the “Supplemental Indenture”) by and among us, Norcross Capital Corp. (“Capital”), the guarantors listed on the signature pages thereto and Wilmington Trust Company, as trustee (the “Trustee”) under the indenture dated as of August 13, 2003 (the “Indenture”) providing for the issuance by Norcross and Capital of $152.5 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011. Pursuant to the terms of the Supplemental Indenture, the definition of Permitted Holders was amended and the parties confirmed that the Requisite Consents (as defined in the Supplemental Indenture) had been delivered in order to waive our obligations under the Change in Control covenant of the Indenture in connection with the Norcross Transaction.

Safety Products is a holding company with no business operations or assets other than the equity interests it holds in its subsidiaries. Its subsidiaries do not guarantee Safety Products’ obligations under the senior pay in kind notes and do not have any obligation with respect to the notes. Consequently, Safety Products is dependent on dividends and other payments from its subsidiaries, none of which have guaranteed the notes, to make payments of principal and, when they elect to or are required to pay interest in cash interest on the notes. Its subsidiaries are separate and distinct legal entities, and they will have no obligation, contingent or otherwise, to pay the amounts due under the notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments.

The terms of Norcross’ senior credit facility significantly restrict Norcross from paying dividends and otherwise transferring assets to Safety Products. Further, the terms of the indenture governing the Norcross senior subordinated notes significantly restrict Norcross and Safety Products’ other subsidiaries from paying dividends and otherwise transferring assets to Safety Products, except for taxes and ordinary course corporate operating expenses. Safety Products cannot assure you that the agreements governing the current and future indebtedness of its subsidiaries will permit its subsidiaries to provide Safety Products with sufficient dividends, distributions or loans to make the mandatory partial redemption of the senior pay in kind notes on July 1, 2010 or to fund the cash interest payments on the notes that are required to begin thereafter. The ability of

Safety Products’ subsidiaries to make dividends and other payments to it will depend on their cash flows and earnings which, in turn, will be affected by all of the factors discussed under the heading “Item 1A. Risk Factors.”

Given the restrictions in our debt instruments, we currently anticipate that, in order to pay the principal amount of the senior pay in kind notes at maturity or to repurchase the notes upon a change of control as defined in the indentures governing the notes, we will be required to adopt one or more alternatives, such as refinancing our indebtedness at or before maturity, selling our equity securities or the equity securities or assets of Norcross, seeking capital contributions or loans from our affiliates or reducing or delaying business activities and capital expenditures. There can be no assurance that any of the foregoing actions could be effected on satisfactory terms, or at all, or that any of the foregoing actions would enable us to refinance our indebtedness or pay the principal amount or interest of the notes or that any of such actions would be permitted by the terms of the indentures governing the notes or any debt instruments of our subsidiaries then in effect.

We believe that our internal cash flows and borrowings under the revolving portions of the New Credit Facility will provide us with sufficient liquidity and capital resources to meet our current and future financial obligations for the foreseeable future, including funding our operations, debt service and capital expenditures. Our future operating performance will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If our future cash flow from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, on or before maturity. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing and future indebtedness, including our senior subordinated notes and the New Credit Facility, may limit our ability to pursue any of these alternatives.

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking information. These statements reflect management’s expectations, estimates, and assumptions based on information available at the time of the statement. Forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives, and expectations. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intent,” “likely,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors, including those set forth below, which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: (i) our high degree of leverage and significant debt service obligations; (ii) the impact of current and future laws and governmental regulations affecting us or our product offerings; (iii) the impact of governmental spending; (iv) our ability to retain existing customers, maintain key supplier status with those customers with which we have achieved such status, and obtain new customers; (v) the highly competitive nature of the personal protection equipment industry; (vi) any future changes in management; (vii) acceptance by consumers of new products we develop or acquire; (viii) the importance and costs of product innovation; (ix) unforeseen problems associated with international sales, including gains and losses from foreign currency exchange and restrictions on the efficient repatriation of earnings; (x) the unpredictability of patent protection and other intellectual property issues; (xi) cancellation of current orders; (xii) the outcome of pending product liability claims and the availability of indemnification for those claims; (xiii) general risks associated with the personal protection equipment industry; and (xiv) the successful integration of acquired companies on economically acceptable terms. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

Contractual Obligations

The following table summarizes our contractual obligations and commitments, as of December 31, 2007 (dollars in thousands):

	Payment Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 Years		More than 5 years
Long-term debt obligations	$	489,311	$	11,569	$	53,016	$	424,726	$	—
Interest payments (1)	181,460		26,362		94,656		60,442		—
Operating lease obligations	35,099		7,759		11,713		5,921		9,706
Purchase obligations (2)	54,536		54,536		—		—		—
Other long-term liabilities (3)	2,154		2,154		—		—		—
Total	$	762,560	$	102,380	$	159,385	$	491,089	$	9,706

(1)		Interest payments for variable rate obligations are calculated using the interest rate as of December 31, 2007.

(2)		Purchase obligations exclude our accounts payable of $20.3 million and include open purchase orders of $53.0 million and all other contractual obligations of $1.5 million pursuant to which we are obligated to purchase good or services.

(3)		Represents obligations under pension and other post-retirement plans.

The contractual obligations table excludes $6.4 million in unrecognized tax benefits because we cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority. See Note 10 to the consolidated financial statements.

Off-balance Sheet Arrangements

As of December 31, 2007, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Effect of Inflation

Inflation has generally not been a material factor affecting our business. Our general operating expenses, such as wages and salaries, employee benefits and materials and facilities costs, are subject to normal inflationary pressures.

Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes. The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 at the beginning of fiscal year 2007, as required. See Note 10 to the consolidated financial statements for related disclosures.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the Company as of the beginning of its fiscal year ending December 31, 2008. The Company does not expect a material impact to its financial statements as a result of the adoption of SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R). SFAS No. 158 requires an employer to recognize the funded status of defined benefit pension and postretirement plans as an asset or liability in its consolidated balance sheets and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 does not change the amount of net periodic benefit cost included in net earnings. SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end

consolidated balance sheets (with limited exceptions). The Company adopted the recognition and disclosure provisions of SFAS No. 158 effective December 31, 2006 (see Note 11 to the consolidated financial statements). The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end consolidated balance sheets will be effective in fiscal year 2008.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. This statement is intended to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value and it does not establish requirements for recognizing dividend income, interest income or interest expense. It also does not eliminate disclosure requirements included in other accounting standards. The provisions of SFAS No. 159 are effective for the Company as of the beginning of its fiscal year ending December 31, 2008. The Company does not expect a material impact to its financial statements as a result of the adoption of SFAS No. 159.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of the assets acquired and liabilities assumed in the transaction at the acquisition date; the immediate expense recognition of transaction costs; and accounting for restructuring plans separately from the business combination among others. SFAS No. 141(R) is effective for the Company’s fiscal year beginning 2009 and the majority of the adoption is prospective only. SFAS No. 141(R) fundamentally changes many aspects of existing accounting requirements for business combinations. As such, if the Company enters into any business combinations after the adoption of SFAS No. 141(R), a transaction may significantly impact the Company’s financial position and earnings, but not cash flows, compared to the Company’s recent acquisitions, accounted for under existing GAAP requirements, due to the reasons described above.

SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also apply the provisions of SFAS No. 141(R), and therefore and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. The Company is in the process of determining the effects, if any, the adoption of SFAS No. 141(R) will have on its financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. SFAS No. 160 requires entities to report noncontrolling (minority) interests as a component of shareholders’ equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS No. 160 is effective for the Company’s fiscal year beginning 2009 and adoption is prospective only; however, presentation and disclosure requirements described above must be applied retrospectively. The Company does not expect a material impact to its financial statements upon the adoption of SFAS No. 160.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. Our policy is to not enter into derivatives or other financial instruments for trading or speculative purposes. We may enter into financial instruments to manage and reduce the impact of changes in interest rates.

For fixed rate debt, interest rate changes affect the fair market value, but do not impact earnings or cash flows. Conversely for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant.

At December 31, 2007, we had total debt (excluding original issue premium) of $489.3 million. This debt is comprised of fixed rate debt of $327.6 million and floating rate debt of $161.7 million. The pre-tax earnings and cash flow impact in 2007 resulting from a one percentage point increase in interest rates on our variable rate debt would be approximately $1.6 million, holding other variables constant.

A portion of our net sales was derived from manufacturing operations in Canada, Europe, Mexico and the Caribbean. The results of operations and financial position of our foreign operations are principally measured in their respective currency and translated into U.S. dollars. The effects of foreign currency fluctuations in these countries are somewhat mitigated by the fact that expenses are generally incurred in the same currency in which revenues are generated. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency.

A portion of our assets are based in our foreign operations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected as a separate component of shareholders’ equity. Accordingly, our consolidated shareholders’ equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency.

Our strategy for management of currency risk relies primarily upon conducting our operations in a country’s respective currency and may, from time to time, also involve hedging programs intended to reduce our exposure to currency fluctuations. Management believes the effect of an absolute 1% increase in the strength of the Canadian dollar and the Euro relative to the U.S. dollar from December 31, 2006 to December 31, 2007 would have resulted in an $192,000 and $145,000 increase in our income from operations, respectively. During 2007, the Canadian dollar strengthened approximately 5.9% relative to the U.S. dollar and the Euro strengthened approximately 9.0% relative to the U.S. dollar.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Safety Products Holdings, Inc.

Audited Consolidated Financial Statements for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	42
Consolidated Balance Sheets	43
Consolidated Statements of Operations	44
Consolidated Statements of Changes in Members’ Deficit/Shareholders’ Equity	45
Consolidated Statements of Cash Flows	46
Notes to Audited Consolidated Financial Statements	47

Report of Independent Registered Public Accounting Firm

Shareholders

Safety Products Holdings, Inc.

We have audited the accompanying consolidated balance sheets as of December 31, 2007 and 2006, of Safety Products Holdings, Inc., (Company), a Delaware corporation, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years ended December 31, 2007 and 2006 and the period from July 20, 2005 to December 31, 2005 (Successor), and the related consolidated statements of operations, changes in member’s deficit, and cash flows for the period from January 1, 2005 to July 19, 2005 of NSP Holdings L.LC. (Predecessor). Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and schedule referred to above present fairly, in all material respects, the consolidated balance sheets of Safety Products Holdings, Inc. as of December 31, 2007 and 2006, and the consolidated results of its operations and cash flows for the years ended December 31, 2007 and 2006 and the period from July 20, 2005 to December 31, 2005 (Successor), and the consolidated results of NSP Holdings L.L.C. (Predecessor) operations and cash flows for the period from January 1, 2005 to July 19, 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 5 and 10 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007. As discussed in Notes 5 and 11, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of FASB Statements Nos. 87, 88, 106 and 132(R), as of December 31, 2006. The Company also adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 123(R), Share-based Payment, as of January 1, 2006.

/s/ Ernst & Young LLP

Chicago, Illinois
March 13, 2008

SAFETY PRODUCTS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands)

	December 31,
	2006		2007
Assets
Current assets:
Cash and cash equivalents	$	26,796	$	70,811
Accounts receivable, less allowance of $2,323 and $2,332 in 2006 and 2007, respectively	73,306		76,359
Inventories	108,270		108,415
Deferred income taxes	2,143		1,762
Prepaid expenses and other current assets	3,624		3,665
Total current assets	214,139		261,012
Property, plant and equipment, net	69,627		68,676
Deferred financing costs, net	16,517		13,149
Goodwill	157,242		164,254
Other intangible assets, net	281,438		275,325
Other noncurrent assets	5,119		7,234
Total assets	$	744,082	$	789,650

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	21,891	$	20,283
Accrued expenses	40,596		40,942
Current maturities of long-term obligations	4,820		11,654
Total current liabilities	67,307		72,879
Long-term liabilities:
Pension, postretirement and deferred compensation	17,082		13,792
Long-term obligations	470,140		477,059
Other noncurrent liabilities	7,008		12,163
Deferred income taxes	55,460		50,231
Total long-term liabilities	549,690		553,245

Minority interest	199		221

Shareholders’ equity:
Common shares	110		110
Contributed capital	111,883		113,527
Retained earnings	4,098		16,503
Accumulated other comprehensive income	10,795		33,165
Total shareholders’ equity	126,886		163,305
Total liabilities and shareholders’ equity	$	744,082	$	789,650

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands)

	Predecessor			Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Year ended December 31,
	2005			2005			2006			2007

Net sales	$	260,832		$	201,439		$	537,675		$	608,897
Cost of goods sold	163,691			133,910			336,633			375,924
Gross profit	97,141			67,529			201,042			232,973
Operating expenses:
Selling	24,469			18,405			49,974			55,250
Distribution	14,036			10,930			31,589			37,080
General and administrative (1)	40,653			19,417			46,505			55,068
Amortization of intangibles	329			7,216			11,508			11,485
Seller transaction expenses	4,646			—			—			—
Restructuring and merger-related charges	—			—			1,539			3,696
Total operating expenses	84,133			55,968			141,115			162,579
Income from operations	13,008			11,561			59,927			70,394
Other expense (income):
Interest expense	24,583			17,644			46,857			49,624
Interest income	(872		)	(132		)	(605		)	(1,549		)
Other, net	748			(48		)	(1,132		)	639
(Loss) income from continuing operations before income taxes and minority interest	(11,451		)	(5,903		)	14,807			21,680
Income tax expense (benefit)	3,445			(1,052		)	6,140			6,064
Minority interest	13			(2		)	23			22
(Loss) income from continuing operations	(14,909		)	(4,849		)	8,644			15,594
(Income) loss from discontinued operations (including loss on disposal of subsidiary of $3,022 in 2007), net of income tax (Note 3)	(446		)	(83		)	(220		)	2,813
Net (loss) income	$	(14,463	)	$	(4,766	)	$	8,864		$	12,781

(1) General and administrative expenses exclude amortization of intangibles and include $16,388, $1,610 and $1,679 of management incentive compensation for the period from January 1, 2005 through July 19, 2005 and for the years ended December 31, 2006 and 2007, respectively.

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ DEFICIT/SHAREHOLDERS’ EQUITY

(Amounts in Thousands, Except Units)

																Accumulated
																Other
																Comprehensive
	Class E			Class A			Class C			Class D			Accumulated			(Loss)
	Units	Amount		Units	Amount		Units	Amount		Units	Amount		Deficit			Income			Total
Predecessor Company
Balance at January 1, 2005	986	$	1	7,265,804	$	38,676	184,523	$	188	212,018	$	1,248	$	(118,739	)	$	3,529		$	(75,097	)
Foreign currency translation adjustments	—	—		—	—		—	—		—	—		—			(5,651		)	(5,651		)
Minimum pension liability	—	—		—	—		—	—		—	—		—			(3,684		)	(3,684		)
Net loss	—	—		—	—		—	—		—	—		(14,463		)	—			(14,463		)
Comprehensive loss																			(23,798		)
Capital contributions	—	—		—	—		—	—		—	—		—			—			—
Distributions to members	—	—		—	—		—	—		—	—		(2,509		)	—			(2,509		)
Balance at July 19, 2005	986	$	1	7,265,804	$	38,676	184,523	$	188	212,018	$	1,248	$	(135,711	)	$	(5,806	)	$	(101,404	)

	Share	Amount		Contributed Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Income			Total
Successor Company
Capital contribution	10,967,000	$	110	$	109,560	$	—		$	—		$	109,670
Foreign currency translation adjustments	—	—		—		—			1,987			1,987
Net loss	—	—		—		(4,766		)	—			(4,766		)
Comprehensive loss												(2,779		)
Balance at December 31, 2005	10,967,000	110		109,560		(4,766		)	1,987			106,891
Capital contribution	63,884	—		713		—			—			713
Management incentive compensation	—	—		1,610		—			—			1,610
Foreign currency translation adjustments	—	—		—		—			5,344			5,344
Net income	—	—		—		8,864			—			8,864
Comprehensive income												14,208
Adjustment to initially apply SFAS No. 158, net of tax of $2,208	—	—		—		—			3,464			3,464
Balance at December 31, 2006	11,030,884	110		111,883		4,098			10,795			126,886
Management incentive compensation	—	—		1,644		—			—			1,644
Pension and postemployment benefits liability, net of tax of $464	—	—		—		—			(726		)	(726		)
Foreign currency translation adjustments	—	—		—		—			23,096			23,096
Net income	—	—		—		12,781			—			12,781
Comprehensive income												35,151
Adjustment to initially apply FIN No. 48	—	—		—		(376		)	—			(376		)
Balance at December 31, 2007	11,030,884	$	110	$	113,527	$	16,503		$	33,165		$	163,305

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

	Predecessor			Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Year ended December 31,
	2005			2005			2006			2007
Operating activities
Net (loss) income	$	(14,463	)	$	(4,766	)	$	8,864		$	12,781
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation(1)	6,177			5,145			14,327			15,113
Amortization of intangibles	329			7,216			11,508			11,485
Amortization of deferred financing costs	1,311			1,441			3,353			3,368
Amortization of original issue discount (premium)	58			(76		)	(147		)	(120		)
Loss on sale of property, plant and equipment	—			—			131			522
Deferred income taxes	(86		)	(2,416		)	920			(2,827		)
Minority interest	13			(2		)	23			22
Noncash interest	11,167			6,877			16,733			18,760
Noncash management incentive compensation	—			—			1,610			1,644
Noncash pension curtailment gain	—			—			(6,751		)	—
Loss on sale of subsidiary	—			—			—			3,022
Changes in operating assets and liabilities:
Accounts receivable	(2,607		)	1,259			(2,206		)	(1,804		)
Inventories	(1,515		)	7,208			(10,855		)	2,595
Prepaid expenses and other current assets	467			(233		)	(116		)	616
Other noncurrent assets	(477		)	412			(559		)	(1,757		)
Accounts payable	(492		)	2,170			(1,317		)	(554		)
Accrued expenses	20,902			3,883			3,851			(1,458		)
Pension, postretirement and deferred compensation	(1,210		)	(1,431		)	(4,002		)	(4,513		)
Other noncurrent liabilities	(10		)	4			(362		)	332
Net cash provided by operating activities	19,564			26,691			35,005			57,227
Investing activities
Purchase of businesses, net of cash acquired	(653		)	(273,725		)	(31,358		)	(1,367		)
Proceeds from sale of subsidiary, net of cash disposed	—			—			—			3,223
Purchases of property plant and equipment	(4,250		)	(5,037		)	(11,573		)	(12,023		)
Proceeds from sale of property, plant and equipment	—			—			113			399
Net cash used in investing activities	(4,903		)	(278,762		)	(42,818		)	(9,768		)
Financing activities
Payments for deferred financing costs	(3,246		)	(21,110		)	(201		)	—
Proceeds from borrowings	100,000			176,646			15,000			—
Payments of debt	(13,623		)	(731		)	(1,826		)	(4,713		)
Capital contribution	—			109,670			713			—
Distributions on preferred units	(60,000		)	—			—			—
Distributions on common units	(2,509		)	—			—			—
Net cash provided by (used in) financing activities	20,622			264,475			13,686			(4,713		)
Effect of exchange rate changes on cash	(2,725		)	1,271			104			1,269
Net increase in cash and cash equivalents	32,558			13,675			5,977			44,015
Cash and cash equivalents at beginning of period	35,731			7,144			20,819			26,796
Cash and cash equivalents at end of period	$	68,289		$	20,819		$	26,796		$	70,811

(1) Depreciation includes depreciation expense of $49, $45, $122 and $71 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively, related to discontinued operations.

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PERIOD FROM JANUARY 1, 2005 THROUGH JULY 19, 2005,

THE PERIOD FROM JULY 20, 2005 THROUGH DECEMBER 31, 2005 AND

THE YEARS ENDED DECEMBER 31, 2006 AND 2007

(Amounts in Thousands, Except Units and Per Unit Data)

1. Formation of Safety Products Holdings, Inc.

Safety Products Holdings, Inc. (the “Company” or “Safety Products”) operates as a corporation in accordance with the General Corporation Law of the state of Delaware. The Company is a leading designer, manufacturer and marketer of branded products in the personal protection equipment industry. The Company manufactures and markets a full line of personal protection equipment for workers in the general safety and preparedness, fire service and electrical safety industries.

2. Transactions

On July 19, 2005, the Norcross Safety Products L.L.C. (“Norcross”) announced the closing of the transaction under which it was acquired by Safety Products, a new holding company formed by Odyssey Investment Partners, LLC (“Odyssey”) for the purpose of completing the acquisition. Pursuant to the terms of the purchase agreement, Safety Products purchased all of the outstanding membership units of Norcross and all of the outstanding common stock of NSP Holdings Capital Corp. (“NSP Capital”), a wholly-owned subsidiary of NSP Holdings L.L.C. (“NSP Holdings”), and pursuant to which Safety Products assumed all of the outstanding indebtedness of the Norcross and NSP Holdings, in exchange for a base purchase price to NSP Holdings of $472,000, plus the cash in the Norcross as of April 2, 2005 in the amount of approximately $16,900, less (1) the indebtedness of the Norcross and its subsidiaries as of April 2, 2005 and (2) certain transaction fees and expenses. The cash purchase price was $204,488 including direct costs of acquisition of $2,346, and excluding assumed debt of $260,523.

On November 1, 2005, the Company completed the acquisition of all of the issued and outstanding capital stock of The Fibre-Metal Products Company (“Fibre-Metal”). The purchase price was $68,723, including acquisition costs of $723. The Company financed the acquisition through additional term borrowings under the New Credit Facility and cash on the balance sheet. The results of operations of Fibre-Metal are included in the Company’s consolidated statement of operations from the date of acquisition.

On February 2, 2006, the Company completed the acquisition of all of the issued and outstanding capital stock of American Firewear, Inc. (“American Firewear”). The purchase price consisted of $4,453 in cash (including acquisition costs of $203 and net of cash acquired of $183) and a $1,000 subordinated seller note. In addition, the purchase price may be increased by $750 over a four year period from the date of the acquisition based on American Firewear achieving certain financial and operating objectives. The Company financed the acquisition through cash on the balance sheet and the issuance of the $1,000 subordinated seller note. The Company believes the acquisition of American Firewear will strengthen its hand protection product line in the fire service segment. The results of operations of American Firewear are included in the Company’s consolidated statement of operations from the date of acquisition.

On June 9, 2006, the Company completed the acquisition of all of the issued and outstanding capital stock of The White Rubber Corporation (“White Rubber”). The purchase price was $22,182 (including acquisition costs of $636 and gross of outstanding checks of $773). The Company financed the acquisition through additional term borrowings under the senior credit facility and cash on the balance sheet. The Company believes the acquisition of White Rubber will strengthen its product line offering in the electrical safety segment. The results of operations of White Rubber are included in the Company’s consolidated statement of operations from the date of acquisition.

On September 19, 2006, the Company completed the acquisition of all of the issued and outstanding capital stock of The New England Overshoe Company, Inc. (“NEOS”). The purchase price consisted of $3,639 in cash (including acquisition costs of $139 and net of cash acquired of $6) and a $750 subordinated seller note. In addition, the purchase price may be increased over a five year period from the date of the acquisition based on NEOS achieving certain net sales targets. The Company financed the acquisition through cash on the balance sheet and the issuance of a $750 subordinated seller note. The Company believes the acquisition of NEOS will broaden its footwear product portfolio in the general safety and preparedness segment. The results of NEOS are included in the Company’s consolidated statement of operations from the date of

acquisition.

The acquisition of Norcross is referred to as the “Norcross Transaction”, the acquisition of Fibre-Metal is referred to as the “Fibre-Metal Transaction”, the acquisition of American Firewear is referred to as the “American Firewear Transaction”, the acquisition of White Rubber is referred to as the “White Rubber Transaction” and the acquisition of NEOS is referred to as the “NEOS Transaction”. Collectively, the Norcross Transaction, the Fibre-Metal Transaction, the American Firewear Transaction, the White Rubber Transaction and the NEOS Transaction are referred to as the “Transactions”.

Assuming the American Firewear Transaction, the White Rubber Transaction and the NEOS Transaction had occurred on January 1, 2006, the pro forma net sales, income from operations and net income for the Company would have been $547,541, $60,873 and $8,198, respectively, for the year ended December 31, 2006.

3. Discontinued Operations

On June 29, 2007, the Company completed the sale of all of the issued and outstanding capital stock of North Safety Products (Africa) (Proprietary) Limited (“South Africa”), a subsidiary of the Company within the general safety and preparedness segment. The Company received net cash proceeds of $3,223 and recorded a net loss on disposal related to the transaction of $3,022 ($3,022 net of income tax). In accordance with Financial Accounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company has reflected South Africa’s results of operations through the date of the sale and transaction loss as discontinued operations for all periods presented. Assets and liabilities of South Africa were not material and as a result have not been reclassified as discontinued operations in the Company’s consolidated statement of financial position as of December 31, 2006. The cash flows from discontinued operations have been combined with cash flows from continuing operations within each cash flow statement category as the cash flows from discontinued operations are not material to the Company’s consolidated results.

The following table sets forth the net sales, net income from discontinued operations and net loss on disposal of subsidiary for South Africa for the periods presented:

	Predecessor		Successor
	January 1, 2005 through July 19,		July 20, 2005 through December 31,		Year ended December 31,
	2005		2005		2006		2007

Net sales	$	10,862	$	7,957	$	20,390	$	8,152
Net income from discontinued operations	446		83		220		209
Net loss on disposal of subsidiary	—		—		—		(3,022		)

Included in net income from discontinued operations for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 is income tax expense of $174, $57, $69 and $87, respectively.

4. Basis of Presentation

Predecessor — The consolidated financial statements of the Predecessor represent the consolidated results of operations of NSP Holdings L.L.C. prior to the Norcross Transaction.

Successor — The consolidated financial statements of the Successor represent the consolidated results of operations of Safety Products Holdings, Inc. subsequent to the Norcross Transaction.

The consolidated financial statements of the Successor reflect the Transactions under the purchase method of accounting, in accordance with the SFAS No. 141, Business Combinations.

The Company has allocated the purchase price related to the Norcross Transaction on the basis of its estimate of the fair value of the underlying assets acquired and liabilities assumed as follows:

	As of July 20, 2005
Cash and cash equivalents	$	7,144
Accounts receivable	63,774
Inventories	93,503
Prepaid expenses and other current assets	2,806
Property, plant and equipment	63,560
Goodwill	108,456
Other intangible assets	242,459
Other noncurrent assets	5,828
Total assets acquired	$	587,530

Accounts payable	$	17,379
Accrued expenses	28,991
Pension, post-retirement and deferred compensation	33,739
Other noncurrent liabilities	7,373
Deferred income taxes	34,887
Minority interest	148
Total liabilities assumed	122,517
Net assets acquired	$	465,013

The Company has allocated the purchase price related to the Fibre-Metal Transaction on the basis of its estimate of the fair value of the underlying assets acquired and liabilities assumed as follows:

	As of November 1, 2005
Cash and cash equivalents	$	—
Accounts receivable	5,770
Inventories	6,950
Prepaid expenses and other current assets	166
Property, plant and equipment	3,533
Goodwill	32,178
Other intangible assets	41,130
Total assets acquired	$	89,727

Accounts payable	$	1,680
Accrued expenses	3,026
Pension, post-retirement and deferred compensation	32
Deferred income taxes	16,266
Total liabilities assumed	21,004
Net assets acquired	$	68,723

The Company has allocated the purchase price related to the White Rubber Transaction on the basis of its estimate of the fair value of the underlying assets acquired and liabilities assumed as follows:

	As of June 10, 2006
Cash and cash equivalents	$	—
Accounts receivable	1,866
Inventories	2,682
Prepaid expenses and other current assets	285
Property, plant and equipment	2,974
Goodwill	10,677
Other intangible assets	9,530
Other noncurrent assets	127
Total assets acquired	$	28,141

Accounts payable	$	1,909
Accrued expenses	1,691
Pension, post-retirement and deferred compensation	26
Deferred income taxes	3,106
Total liabilities assumed	6,732
Net assets acquired	$	21,409

The Company determined the fair values of property, plant and equipment, inventories, and other intangible assets, including customer relationships, brand names, developed technology, favorable leaseholds and backlog. These fair values have been included in the above tables.

Approximately $108,456 of goodwill was recorded related to the Norcross Transaction (of which approximately $38,000 was tax deductible). The primary reasons for the Norcross Transaction and the primary factors that contributed to a purchase price that resulted in recognition of goodwill include:

· The Company’s leading market position as a designer, manufacturer and marketer of branded products in the fragmented personal protection equipment industry offers a competitive advantage in competing for new customers.

· The Company, being one of only a small number of companies that can provide complete head-to-toe protection, provides a competitive advantage when selling to new and existing customers.

· The diverse customer base and industries served minimizes the potential impact of volatility from any one customer or industry.

Other considerations affecting the value of goodwill include:

· The ability of the assembled workforce to develop future innovative technologies and products.

· The application of purchase accounting, particularly for such items as pension and deferred tax liabilities for which significant liability balances were recorded with no corresponding significant short-term cash outflows.

Of the $242,459 of acquired other intangible assets related to the Norcross Transaction, $89,579 was assigned to brand names that are not subject to amortization. The remaining $152,880 of acquired intangible assets have a weighted-average useful life of approximately 18.6 years. The intangible assets that make up this amount include customer relationships of $134,340 (20-year weighted-average useful life), technology of $15,180 (10-year weighted average useful life) and backlog of $3,360 (1-month weighted-average useful life).

Approximately $32,178 of goodwill was recorded related to the Fibre-Metal Transaction (none of which was tax deductible). The primary reasons for the Fibre-Metal Transaction and the primary factors that contributed to a purchase price that resulted in recognition of goodwill include:

· Fibre-Metal’s leading market position as a designer, manufacturer and marketer of branded products in the fragmented personal protection equipment industry offers a competitive advantage in competing for new customers.

· Expected cost savings associated with integrating Fibre-Metal manufacturing and distribution facilities into the Company’s existing facilities.

Other considerations affecting the value of goodwill include:

· The ability of the assembled workforce to develop future innovative technologies and products.

· The application of purchase accounting, particularly for deferred tax liabilities for which significant liability balances were recorded with no corresponding significant short-term cash outflows.

Of the $41,130 of acquired other intangible assets related to the Fibre-Metal Transaction, $10,740 was assigned to brand names that are not subject to amortization. The remaining $30,390 of acquired intangible assets have a weighted-average useful life of approximately 13.8 years. The intangible assets that make up this amount include customer relationships of $24,150 (15-year weighted-average useful life), technology of $5,730 (10-year weighted average useful life) and favorable leaseholds of $510 (18-month weighted-average useful life).

Approximately $10,677 of goodwill was recorded related to the White Rubber Transaction (none of which was tax deductible). The primary factor that contributed to a purchase price that resulted in recognition of goodwill was the expected cost savings associated with integrating White Rubber manufacturing and distribution facilities into the Company’s existing facilities. The other consideration affecting the value of goodwill was the application to purchase accounting, particularly for deferred tax liabilities for which significant liability balances were recorded with no corresponding significant short-term cash outflows.

Of the $9,530 of acquired other intangible assets related to the White-Rubber Transaction, $120 was assigned to brand names that are not subject to amortization. The remaining $9,410 of acquired intangible assets have a weighted-average useful life of approximately 15.7 years. The intangible assets that make up this amount include customer relationships of $9,200 (16-year weighted-average useful life) and brand names of $210 (1-year weighted-average useful life).

5. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Safety Products Holdings, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade receivables. Credit risk with respect to trade receivables is limited due to the diversity of customers comprising the Company’s customer base. The Company performs ongoing credit evaluations of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectibility of its accounts receivable based on the length of time the receivable is past due and the anticipated future write-offs based on historical experience. The Company’s policy is to not charge interest on trade receivables after the invoice becomes past due and to not require collateral. A receivable is considered past due if payments have not been received within agreed-upon invoice terms.

Revenue Recognition

Revenue from sales and related costs of sales of products is recognized at the time: (1) persuasive evidence of an arrangement exists, (2) ownership and all risks of loss have been transferred to the buyer, which is generally upon shipment, (3) the price is fixed and determinable, and (4) collectibility is reasonably assured.

Sales Rebates

The Company considers all discounts or other consideration provided to customers as a result of purchase volumes as sales rebates. The charges related to sales rebates are recognized as a reduction to sales. Sales rebates amounted to $3,223, $2,640, $6,747 and $9,876 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Freight-Out Costs

The Company records freight-out costs in distribution expenses. Such amounts were $6,579, $5,164, $15,248 and $18,572 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Purchasing

The Company records certain purchasing costs in operating expenses. Such amounts were $552, $381, $1,014 and $1,223 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Inventories

Inventories are stated at the lower of cost or market. The Company’s North Safety Products L.L.C. and Salisbury Electrical Safety L.L.C. legal entities account for its inventory under the last in, first out (“LIFO”) method. This was the method in place when these entities were acquired by the Company in October 1998 and was also the method adopted in connection with the Norcross Transaction. The Company has continued to use the LIFO method for these legal entities for tax purposes and accordingly, is required to use LIFO for financial reporting purposes. All of the other legal entities of the Company account for their inventory under the first in, first out (“FIFO”) method. Inventories valued at FIFO accounted for approximately 63% and 64% of the Company’s inventories at December 31, 2006 and 2007, respectively.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is determined by using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset, with the related amortization expense included in depreciation expense.

The useful lives of plant and equipment for the purpose of computing book depreciation are as follows:

Buildings and improvements		4 to 25 years
Machinery and equipment		4 to 15 years
Dies and tooling		1 to 15 years
Furniture and fixtures		1 to 10 years
Computers and office equipment		1 to 7 years

Intangible Assets

The amortizable lives of intangible assets for the purpose of computing amortization expense, which is recorded on a straight line basis, are as follows:

Brand names		Indefinite
Customer relationships		15 to 20 years
Technology		10 years
Favorable Leaseholds		1.5 years

Deferred Financing Costs

Deferred financing costs represent capitalized fees and expenses associated with obtaining financing. The costs are being amortized and recorded to interest expense using the straight-line method, which approximates the effective interest method, over the period of the related financing. Accumulated amortization of deferred financing costs at December 31, 2006 and 2007 was $4,794 and $8,162, respectively.

Goodwill and Other Intangibles

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The goodwill is allocated to the segments based on the result of the valuation completed upon completion of an acquisition. The Company performs an annual review on the first day of the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. The impairment review process for goodwill compares the fair value (calculated with the discounted cash flow approach) of the reporting unit in which goodwill resides to its carrying value. Based on the results of the first step of the annual impairment test, the Company determined that the fair value of each of the reporting units exceeded their carrying amounts and, therefore, the second step of the annual impairment test was not required to be completed and no goodwill impairment existed.

The following table summarizes goodwill by segment:

	General Safety and Preparedness			Fire Service		Electrical Safety		Total
Balance as of January 1, 2006	$	104,300		$	19,413	$	12,005	$	135,718
Goodwill acquired and other adjustments to purchase price allocation	7,086			2,089		10,676		19,851
Effect of foreign currency translation	1,673			—		—		1,673
Balance as of December 31, 2006	113,059			21,502		22,681		157,242
Goodwill acquired and other adjustments to purchase price allocation	(3		)	—		—		(3		)
Goodwill disposed as a result of the sale of South African subsidiary	(255		)	—		—		(255		)
Effect of foreign currency translation	7,270			—		—		7,270
Balance as of December 31, 2007	$	120,071		$	21,502	$	22,681	$	164,254

The Company’s other intangible assets with indefinite lives consist of $100,906 and $103,101 related to brand names as of December 31, 2006 and 2007, respectively. The Company determined that these brand names had indefinite lives due to their strong reputation for excellence in protecting workers from hazardous and life-threatening environments, their history of developing innovative and differentiated products and their strong market share positions in key product lines. In addition, these brand names have been in existence for multiple years and the Company has the ability and intent to continue supporting these brands. The impairment review for indefinite lived intangibles compares the fair value (calculated using a relief from royalty discounted cash flow approach) of each intangible to its carrying value. Based on the impairment test, the Company determined that no impairment of indefinite lived intangibles existed.

The Company’s other intangible assets with finite lives consist of brand names, customer relationships, technology and favorable leaseholds. The following table summarizes other intangible assets with finite lives:

	December 31, 2006							December 31, 2007
	Gross Amount		Accumulated Amortization			Net Carrying Amount		Gross Amount		Accumulated Amortization			Net Carrying Amount
Brand names	$	210	$	(123	)	$	87	$	210	$	(210	)	$	—
Customer relationships	174,296		(12,050		)	162,246		178,039		(21,808		)	156,231
Technology	20,910		(2,823		)	18,087		20,910		(4,917		)	15,993
Favorable Leaseholds	510		(398		)	112		510		(510		)	—
Total	$	195,926	$	(15,394	)	$	180,532	$	199,669	$	(27,445	)	$	172,224

Future amortization expense for other finite lived intangible assets held as of December 31, 2007, is as follows:

2008	$	11,533
2009	11,533
2010	11,533
2011	11,533
2012	11,533
Thereafter	114,559
	$	172,224

Income Taxes

The Company is a corporation. The Predecessor income is allocated to, and included in the individual returns of the unitholders of NSP Holdings which is treated as a partnership under federal tax law. The Successor income is included as part of the U.S. federal consolidated return of Safety Products. Certain of the Company’s subsidiaries are corporations which are subject to U.S. federal, state and local income taxes. For the Predecessor period the tax liability for these entities is calculated on a stand alone basis. For the Successor period, these entities are treated as filing as part of a consolidated group with the Company. Additionally, the Company’s foreign subsidiaries are subject to their respective foreign income tax reporting requirements.

Deferred income taxes are recognized for the difference in reporting of certain assets and liabilities for financial reporting and tax purposes. These temporary differences are determined by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Valuation allowances are provided against deferred tax assets which are not more likely than not to be realized. Deferred income taxes are not provided on the unremitted earnings of foreign subsidiaries because it has been the practice, and it is the intention, of the Company to continue to reinvest these earnings in the businesses outside the United States. The effect of a change in tax rates is recognized in the period that includes the enactment date. The Company records liabilities for income tax uncertainties in accordance with the recognition and measurement criteria described in Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes. The tax benefits and related reserves are measured throughout the year, taking into account new legislation, regulations, case law and audit results. The Company recognizes income tax-related interest and penalties within the income tax provision.

Advertising

The Company expenses advertising costs as incurred. Advertising expense was approximately $2,748, $1,609, $5,238 and $5,569 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Cooperative Advertising Programs

The Company takes part in cooperative programs with certain customers. The customers guarantee certain advertising based on the agreement between the Company and the customer in exchange for consideration from the Company. The expenses related to cooperative advertising programs are included within selling expenses. Cooperative advertising expense amounted to $1,419, $881, $2,468 and $3,068 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Foreign Currency Translation

The accounts of foreign operations are measured using local currency as the functional currency. For those operations, assets and liabilities are translated into U.S. dollars at the end of period exchange rates and income and expenses are translated at average exchange rates for the period. Net adjustments resulting from such translation are accumulated as a separate component of other comprehensive income included in shareholders’ equity. The accumulated balance of the foreign currency translation adjustments included as a component of the accumulated other comprehensive income amounted to $7,331 and $30,427 as of December 31, 2006 and 2007, respectively.

Long-Lived Assets

The Company evaluates its long-lived assets on an ongoing basis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If the asset is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, the New Senior Credit Facility, notes payable, the New Senior Subordinated Notes and the Senior Pay In Kind Notes (see Note 9). The fair values of the Company’s financial instruments were not materially different from their carrying values at December 31, 2006 and 2007, with the exception of the Senior Pay In Kind Notes which had a carrying value of $168,234 and a fair value of $182,977 as of December 31, 2007. The Company estimates the fair value of its obligations using the discounted cash flow method with interest rates currently available for similar obligations.

Insurance

U.S. employee medical costs are self-funded up to a specified individual claim limit. The Company purchases specific stop loss insurance to insure the excess claim risk over $150 per claimant per year. Insurance claim reserves for employee medical costs represent the estimated amounts necessary to settle outstanding claims, including claims that are incurred but not reported, based on the facts in each case and the Company’s experience with similar cases. These estimates are continually reviewed and updated, and any resulting adjustments are reflected in income from operations.

The liability related to medical self-insurance was $2,505 and $ 2,517 as of December 31, 2006 and 2007, respectively. Medical self-insurance expense was approximately $4,800, $3,109, $7,621 and $7,672 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

Use of Estimates in the Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation, including reclassifying results and amounts from South Africa to discontinued operations. The reclassifications did not have an impact on net (loss) income for the periods presented within the statement of operations.

Employee Benefit Plans

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year,

and recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes are reported in comprehensive income and as a separate component of shareholders’ equity. SFAS No. 158 does not change the amount of net periodic benefit cost included in net earnings. The requirement to recognize the funded status of defined benefit postretirement plans is effective for the Company as of December 31, 2007, with early adoption permitted. The Company adopted the recognition and measurement provisions of SFAS No. 158 for the year ended December 31, 2006 and recognized $3,464 of accumulated comprehensive income, net of tax. This represented the net impact of a $5,672 decrease to pension, post-retirement and deferred compensation and a $2,208 decrease to deferred tax assets (see Note 11). The Company’s measurement date for its defined benefit and post-retirement benefit plans was December 31, 2006 amd 2007.

Management Incentive Compensation

Prior to December 31, 2005, the Company accounted for stock-based compensation programs according to the provisions of Accounting Principles Board Opinion (“ABP”) No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payments. As a result of adopting SFAS No. 123(R) on January 1, 2006, income from continuing operations before income taxes and net income for the year ended December 31, 2006 are $1,610 and $984 lower, respectively, than if the Company had continued to account for share-based compensation under APB No. 25. Income from continuing operations before income taxes and net income for the year ended December 31, 2007 are $1,679 and $1,111 lower, respectively, than if the Company had continued to account for share-based compensation under APB No. 25. The application of the fair value provisions of SFAS No. 123(R) would not have had an impact on the Company’s results in 2005 (See Note 22).

Recent Accounting Pronouncements

In June 2006, the FASB issued FIN 48. The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 at the beginning of fiscal year 2007, as required (See Note 10).

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the Company as of the beginning of its fiscal year ending December 31, 2008. The Company does not expect a material impact to its financials statements as a result of the adoption of SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R). SFAS No. 158 requires an employer to recognize the funded status of defined benefit pension and postretirement plans as an asset or liability in its consolidated balance sheets and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 does not change the amount of net periodic benefit cost included in net earnings. SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end consolidated balance sheets (with limited exceptions). The Company adopted the recognition and disclosure provisions of SFAS No. 158 effective December 31, 2006 (see Note 11). The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end consolidated balance sheets will be effective in fiscal year 2008.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. SFAS No. 160 requires entities to report noncontrolling (minority) interests as a component of member’s equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between an entity and noncontrolling interest as equity transactions between the parties. SFAS No. 160 is effective for the Company’s fiscal year beginning 2009 and adoption is prospective only; however, presentation and disclosure requirements described above must be applied retrospectively. The Company does not expect a material impact to its financial statements upon the adoption of SFAS No. 160.

6. Property, Plant and Equipment

Property, plant and equipment consist of the following:

	December 31, 2006			December 31, 2007
Land	$	8,656		$	8,648
Buildings and improvements	18,264			22,429
Machinery and equipment	41,695			47,630
Dies and tooling	7,276			8,880
Furniture and fixtures	3,138			3,561
Computers and office equipment	6,878			8,745
Construction in progress	1,995			1,768
	87,902			101,661
Less: Accumulated depreciation	(18,275		)	(32,985		)
	$	69,627		$	68,676

7. Inventories

Inventories consist of the following:

	December 31, 2006			December 31, 2007
At FIFO cost:
Raw materials	$	24,823		$	26,967
Work in process	13,756			10,527
Finished goods	70,799			72,542
	109,378			110,036
Adjustment to LIFO cost	(1,108		)	(1,621		)
	$	108,270		$	108,415

8. Accrued Expenses

Accrued expenses consist of the following:

	December 31, 2006		December 31, 2007

Accrued payroll and benefits	$	14,500	$	14,504
Accrued selling incentives	5,288		7,515
Accrued interest	7,762		7,516
Accrued income taxes	3,119		1,998
Accrued restructuring	3,108		3,138
Other accruals	6,819		6,271
	$	40,596	$	40,942

9. Debt

The Company’s debt consists of the following:

	December 31, 2006			December 31, 2007
Revolving credit facilities	$	—		$	—
Term loan	165,720			161,711
Senior pay in kind notes	155,090			173,850
Senior subordinated notes	152,500			152,500
European term loans	173			—
Subordinated seller notes	1,750			1,250
Capital lease obligations	205			—
Unamortized discount on senior pay in kind notes	(6,626		)	(5,616		)
Unamortized premium on senior subordinated notes	6,148			5,018
	474,960			488,713
Less: Current maturities of long-term obligations	4,820			11,654
	$	470,140		$	477,059

On July 19, 2005, in conjunction with the Norcross Transaction, Norcross entered into a new Senior Credit Facility (the “New Credit Facility”) which provides for aggregate borrowings of $138,000, consisting of (a) a term loan in the amount of $88,000, payable in twenty-eight consecutive quarterly installments which commenced on September 30, 2005 and (b) a revolving credit facility in an aggregate principal amount of $50,000. The New Credit Facility is comprised of a U.S. revolving facility and a Canadian subfacility. The amount of the total U.S. revolving facility is an amount equal to $50,000 less the amount at such time outstanding under the Canadian subfacility. The amount of the total Canadian subfacility is an amount denominated in Canadian dollars having a U.S. dollar equivalent of $25,000 less the amount at such time outstanding under the U.S. revolving facility. At any time upon the request of the Company or the U.S. Subsidiary Borrowers (as defined in the New Credit Facility), one or more new term loan facilities may be added in any aggregate amount of up to $100,000 (and not less than $10,000 for any such additional term loan), subject to certain conditions, the proceeds of which shall be used to finance permitted acquisitions, pay fees and related expenses thereto and to refinance indebtedness of the entity or associated with the assets to be so acquired. The New Credit Facility is subject to certain mandatory prepayments upon the occurrence of certain events, subject to certain exceptions set forth in the credit agreement.

Borrowings under the U.S. revolving facility and term loan bear interest at a rate per annum equal to Norcross’ choice of (a) an alternate base rate (which is equal to the higher of (i) the rate of interest announced by Credit Suisse as its prime rate in effect and (ii) the federal funds rate plus 0.50%) or (b) the Eurodollar rate, plus an applicable margin. Borrowings under the Canadian subfacility bear interest at a rate per annum equal to the Canadian prime rate (which is the higher of (i) the rate of interest announced by Credit Suisse, Toronto Branch, as its reference rate then in effect for determining interest rates on Canadian dollar denominated commercial loans in Canada and (ii) the CDOR rate plus 0.50% per annum), plus an applicable margin, or with respect to banker’s acceptances or their equivalents, the discount rate (as defined in the credit agreement) plus an applicable margin.

Initially, the applicable margin with respect to the revolving credit facility was (a) 1.25% in the case of alternate base rate loans and Canadian dollar prime loans and (b) 2.25% in the case of Eurodollar rate loans and bankers’ acceptance rate loans. With respect to the term loan, the applicable margin will be (a) 1.00% in the case of alternate base rate loans and (b) 2.00% in the case of Eurodollar rate loans. After December 31, 2005, the margins applicable to the revolving credit facility and the U.S. swing line loans adjusted on a sliding scale based on the total leverage ratio of Norcross and its subsidiaries. In addition, the Company is required to pay to the lenders under the revolving credit facility an initial commitment fee in respect of the unused commitments thereunder at a per annum rate of 0.50%. After December 31, 2005, the commitment fee rate adjusted on a sliding scale based on the total leverage ratio of Norcross and its subsidiaries. As of December 31, 2007, the interest rate was 7.3% for the term loan.

The U.S. revolver also provides for the issuance of letters of credit of up to $5,000 or in an amount which, when added to the aggregate outstanding amount under the U.S. and Canadian revolvers, will not exceed $50,000. The Canadian revolver provides for the issuance of letters of credit of up to Canadian $1,000 or in an amount which, when added to the aggregate outstanding principal amount under the Canadian revolver, will not exceed the U.S. equivalent of $25,000. At December 31, 2007, total letters of credit outstanding were $2,446 under the U.S. revolver and the Company had aggregate unused credit available of $47,554 under the U.S. and Canadian revolver.

On November 1, 2005, Norcross entered into the Incremental Facility Amendment to the New Credit Facility (the “Amendment”). Under the terms of the Amendment, Norcross, the U.S. Borrowers and the Lenders agreed to a total incremental term commitment from the Increasing Lenders of $65,000. Additionally, the Amendment required, among other things, that the proceeds of the incremental term loans be used for permitted acquisitions and the consolidated senior leverage ratio, after giving effect to the use of the proceeds, not exceed 3.25 to 1.00.

On June 9, 2006, Norcross entered into the Second Incremental Facility Amendment to the New Credit Facility (the “Second Amendment”). Under the terms of the Second Amendment, Norcross, the U.S. Borrowers and the Lenders agreed to a total incremental term commitment from the Increasing Lenders of $15,000. Additionally, the Second Amendment required, among other things, that the proceeds of the incremental term loans be used for permitted acquisitions and the consolidated senior leverage ratio, after giving effect to the use of the proceeds, not exceed 3.25 to 1.00.

On August 13, 2003, Norcross and Norcross Capital Corp. (“Capital”) issued $152,500 of 9.875% Senior Subordinated Notes due 2011 (the “New Senior Subordinated Notes”). In connection with the Norcross Transaction, Norcross entered into a supplemental indenture dated as of July 19, 2005 (the “Supplemental Indenture”) by and among Norcross, Capital, the guarantors listed on the signature pages thereto and Wilmington Trust Company, as trustee (the “Trustee”) under the indenture dated as of August 13, 2003 (the “Indenture”) providing for the issuance of the New Senior Subordinated Notes. Pursuant to the terms of the Supplemental Indenture, the definition of Permitted Holders was amended and the parties confirmed that the Requisite Consents (as defined in the Supplemental Indenture) had been delivered in order to waive the Norcross’ obligations under the Change in Control covenant of the Indenture in connection with the Norcross Transaction.

On January 7, 2005, NSP Holdings and NSP Capital issued $100,000 of 11¾% senior pay in kind notes due 2012 the “Senior Notes”. The proceeds were used to: (i) make a payment in respect of preferred units of $60,000, $58,000 of which were payments in respect of accrued preferred yield and $2,000 of which was the return of a portion of the original capital contribution made by holders of NSP Holdings preferred units, (ii) make distributions in respect of the common units of certain members of management of $2,000, and (iii) pay fees and expenses. The remainder of the net proceeds was used for general corporate purposes, including potential acquisitions and/or distributions to NSP Holdings’ unitholders.

In connection with the closing of the Norcross Transaction, the Company entered into a second supplemental indenture dated as of July 19, 2005 (the “Second Supplemental Indenture”) among NSP Holdings, NSP Capital, the Company and Wilmington Trust Company, as trustee (the “Trustee”) under the indenture dated as of January 7, 2005 (the “Indenture”) by and among NSP Holdings, NSP Capital and the Trustee providing for the issuance of the Senior Notes. Pursuant to the terms of the Second Supplemental Indenture, the Company assumed all of the rights, powers, commitments, obligations and liabilities of NSP Holdings under the Indenture and the Senior Notes.

On July 19, 2005, the Company sold $25,000 in principal amount of 11¾% senior pay in kind notes due 2012 (the “New Notes”). The New Notes were sold pursuant to a purchase agreement, dated June 28, 2005 (the “Purchase Agreement”), by and between the Company and Credit Suisse First Boston, LLC (the “Initial Purchaser”). The New Notes were issued pursuant to the Indenture. Pursuant to the term of the Purchase Agreement, the New Notes were sold to the Initial Purchaser and were resold to qualified institutional buyers in compliance with the exemption from registration.

The New Credit Facility and New Senior Subordinated Notes contain certain covenants restricting the Company’s ability to: (i) incur additional indebtedness, (ii) dispose of property or issue capital stock, (iii) declare or pay dividends or redeem or repurchase capital stock, (iv) make capital expenditures, (v) make loans or investments, (vi) prepay, amend, or otherwise alter debt and other material agreements, (vii) transact with affiliates, and (viii) engage in sale and leaseback transactions. The Company is also subject to certain financial covenants including the maintenance of minimum interest and fixed charge coverage ratios and a total leverage ratio.

The New Credit Facility is secured by a first priority lien on substantially all of the Company’s property and assets. The New Senior Subordinated Notes are general unsecured obligations of the Company that are subordinate to borrowings under the New Credit Facility and European term loans. The New Credit Facility and the New Senior Subordinated Notes are guaranteed by the Company’s domestic subsidiaries and by Safety Products. In addition, borrowings under the Canadian revolver are guaranteed by the Canadian subsidiaries.

Revolving credit facilities in Europe permit borrowings of up to €2,128, of which €2,128 was available at December 31, 2007.

Aggregate maturities of long-term debt at December 31, 2007 are as follows:

2008	$	11,654
2009	2,497
2010	50,541
2011	231,665
2012	192,356
	$	488,713

Interest paid during the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 was $12,047, $9,406, $26,935 and $27,863, respectively.

10. Income Taxes

For the Predecessor, certain of the Company’s subsidiaries are subject to foreign and U.S. federal, state and local income taxes. The components of “Income from continuing operations before income taxes and minority interest,” for the C corporations subject to foreign and U.S. federal, state and local income taxes consist of U.S. income of $12,516 and foreign income of $4,624 for the period from January 1, 2005 through July 19, 2005.

For the Successor, Safety Products and its U.S. subsidiaries file a consolidated U.S. corporate income tax return. The income and losses attributable to all other subsidiaries and the U.S. and foreign income taxes attributable to such income or losses are reported in full. The components of “(Loss) income from continuing operations before income taxes and minority interest,” for the subsidiaries subject to foreign and U.S. federal, state and local income taxes consist of U.S. (loss) income of ($5,739), $2,889 and $3,280 and foreign (loss) income of $(164), $11,918 and $18,400 for the period from July 20, 2005 through December 31, 2005 and years ended December 31, 2006 and 2007, respectively.

The income tax expense (benefit) on (loss) income from continuing operations before income taxes and minority interest consists of the following:

	Predecessor		Successor
	January 1, 2005 through July 19,		July 20, 2005 through December 31,			Year ended December 31,
	2005		2005			2006			2007
Current:
Federal	$	185	$	33		$	(93	)	$	203
State and local	165		232			1,838			1,414
Foreign	2,712		1,262			4,774			7,162
Total current provision	3,062		1,527			6,519			8,779
Deferred:
Federal	—		(1,223		)	723			495
State and local	—		(210		)	304			156
Foreign	383		(1,146		)	(1,406		)	(3,366		)
Total deferred expense (benefit)	383		(2,579		)	(379		)	(2,715		)
Income tax expense (benefit)	$	3,445	$	(1,052	)	$	6,140		$	6,064

The income tax expense (benefit) differs from the amount of income tax (benefit) expense computed by applying the U.S. federal income tax rate to (loss) income from continuing operations before income taxes and minority interest. A reconciliation of the difference is as follows:

	Predecessor			Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Year ended December 31,
	2005			2005			2006			2007

Income tax (benefit) expense at statutory federal tax rate	$	(4,008	)	$	(2,066	)	$	5,182		$	7,588
Adjustment for limited liability company income included in the return of the unit holders of NSP Holdings	9,852			—			—			—
C corporation income tax expense at statutory federal tax rate	5,844			(2,066		)	5,182			7,588
Increase (decrease) resulting from:
State and local taxes, net of federal benefit	33			(60		)	1,179			750
Foreign subsidiaries’ tax rate differences	1,262			146			(151		)	(300		)
Change in valuation allowance—U.S.	(4,407		)	—			—			—
Change in valuation allowance—Foreign	—			(6		)	—			—
Change in deferred tax rate	—			—			(1,314		)	(2,548		)
Nondeductible depreciation, amortization and other expenses	46			68			—			—
Other	667			866			1,244			574
Income tax expense (benefit)	$	3,445		$	(1,052	)	$	6,140		$	6,064

The tax effect of temporary differences that gave rise to deferred tax assets and liabilities consist of the following:

	December 31,			December 31,
	2006			2007
Deferred tax assets:
United States net operating loss carryforwards	$	8,937		$	13,506
United States capital loss carryforwards	—			948
Inventories—Principally obsolescence reserves	3,000			3,657
Intangibles—Principally covenant not to compete	1,086			1,103
Pensions and deferred compensation	5,232			4,526
Allowance for doubtful accounts	279			441
Other—Principally accruals	7,066			5,945
Total deferred tax asset	25,600			30,126
Less: Valuation allowance	1,026			2,283
Net deferred tax asset	24,574			27,843
Deferred tax liabilities:
Property, plant, and equipment	11,712			10,005
LIFO reserve	2,824			2,873
Intangible assets	62,203			62,281
Other—Principally inventory step-up	1,152			1,153
Total deferred tax liabilities	77,891			76,312
Net deferred tax liability	$	(53,317	)	$	(48,469	)

The U.S. net operating losses expire beginning in 2020. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. For the period January 1, 2005 through July 19, 2005, the Predecessor generated taxable income and utilized a portion of its net operating loss carryforward; which resulted in a decrease in the valuation allowance. For the Successor, no valuation reserve is recorded, except related to a capital loss generated as a result of the sale of South Africa, due primarily to two factors: 1) the change in the Company’s tax structure which allows all U.S. subsidiaries to file a consolidated federal return and 2) the creation of significant deferred tax liabilities in purchase accounting which can be offset by the Company’s deferred tax assets, allowing full recognition of the assets.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $39,294 at December 31, 2007. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

The income tax expense for the Predecessor differs from the amount of income tax expense computed by applying the U.S. federal income tax rate to (loss) income from continuing operations before income taxes and minority interest primarily due to: 1) the tax structure of certain U.S. subsidiaries which requires income taxes to be distributed to and paid by the unitholders, 2) net operating loss carryforwards in the United States and 3) the settlement of income tax audits in Canada and the Netherlands.

The income tax expense for the Successor differs from the amount of income tax expense computed by applying the U.S. federal income tax rate to (loss) income from continuing operations before income taxes and minority interest primarily due to state income taxes and changes in enacted future tax rates in certain foreign jurisdictions which impacted our deferred tax assets and liabilities.

Income taxes paid during the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007 were $2,548, $3,895, $5,677 and $8,644, respectively.

Effective January 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes, which requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more

likely than not of being sustained on audit, based on the technical merits of the position. In addition, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

As a result of the implementation of FIN 48, the Company recorded at the date of adoption an additional liability of $5,961 for unrecognized tax benefits relating to uncertain tax positions. Of this amount, approximately $376 was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

At January 1, 2007, the Company had recorded total reserves under FIN 48 of $7,024 that included $6,558 for unrecognized tax benefits, $210 for underpayment interest and $256 for underpayment penalties. Future recognition of the unrecognized tax benefits recorded at January 1, 2007 would have an effect of $776 on the effective tax rate. At December 31, 2007, the Company had $6,396 in unrecognized tax benefits, the recognition of which would have an effect of $1,047 on the effective tax rate. In addition, $4,010 of unrecognized tax benefits would, if realized, reduce goodwill.

The Company cannot state with a reasonable degree of certainty that any amount included in the December 31, 2007 balance of unrecognized tax benefits is likely to change significantly during the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. At January 1, 2007, the Company had accrued $210 and $256 for the potential payment of interest and penalties related to unrecognized tax benefits, respectively. At December 31, 2007, the Company had accrued $357 and $287 for the potential payment of interest and penalties related to unrecognized tax benefits, respectively.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and international jurisdictions. As of December 31, 2007, the Company is subject to U.S. federal income tax examinations for the tax years 1998 through 2000 and 2002 through 2006 and to non-U.S. income tax examinations for the tax years of 2003 through 2006. In addition, the Company is subject to state and local income tax examinations for the tax years 1998 through 2006.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at January 1, 2007	$	6,558
Additions for tax positions related to the current year	492
Additions for tax positions of prior years	272
Reductions for tax positions of prior years	(452		)
Settlements	(474		)
Balance at December 31, 2007	$	6,396

11. Employee Benefit Plans

The Company sponsors a tax-qualified, defined-benefit pension plan covering certain U.S.-based employees. Effective December 31, 2006, the Company froze the plan and therefore, employees will no longer accrue benefits under the plan. Through December 31, 2006, the pension plan’s benefits were based on years of service, employment with the Company, retirement date, and compensation or stated amounts for each year of service. The Company’s funding policy is to annually contribute amounts sufficient to meet the minimum funding requirements under the Employee Retirement Income Security Act of 1974.

Additionally, the Company has a nonqualified defined-benefit pension plan covering certain employees who were highly compensated. Effective December 31, 2006, the Company froze this plan and therefore, employees will no longer accrue benefits under this plan.

Certain of the Company’s U.S.-based employees are covered by postretirement health insurance benefit plans. Effective December 31, 2006, participation in the plan was limited to employees over the age of 55 with ten years of service. The expected cost of these benefits is recognized during the years that employees render services. Retiree contributions are required depending on the year of retirement and the number of years of service at the time of retirement.

As a result of the amendments to the tax-qualified and nonqualified pension plans and postretirement health insurance benefit plans as discussed above, the Company recorded a non-cash curtailment gain of $6,751 in 2006, which is reflected in general and administrative expenses.

The following table sets forth the details of the funded status of the pension and post-retirement plans, the amounts recognized in the consolidated statements of financial position, the components of net periodic benefit cost, and the weighted-average assumptions used in determining these amounts:

	Year ended December 31,
	2006						2007
	Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits

Change in benefit obligation:
Benefit obligation at beginning of period	$	73,309		$	1,404		$	67,508		$	1,147
Service cost	2,170			25			23			11
Interest cost	4,018			72			3,942			59
Benefits paid	(2,950		)	(192		)	(3,048		)	(197		)
Actuarial gain	(2,413		)	(37		)	(1,031		)	—
Curtailment gain	(6,626		)	(125		)	—			—
Benefit obligation at end of period	$	67,508		$	1,147		$	67,394		$	1,020
Change in plan assets:
Fair value of plan assets at beginning of period	$	44,870		$	—		$	52,863		$	—
Actual return on plan assets	5,709			—			2,054			—
Employer contribution	5,234			192			3,985			197
Benefits paid	(2,950		)	(192		)	(3,048		)	(197		)
Fair value of plan assets at end of period	$	52,863		$	—		$	55,854		$	—
Reconciliation of amount recognized in the consolidated balance sheets:
Accumulated benefit obligation	$	(67,508	)	$	(1,147	)	$	(67,394	)	$	(1,020	)
Effect of salary projection	—			—			—			—
Projected benefit obligation	(67,508		)	(1,147		)	(67,394		)	(1,020		)
Market value of assets	52,863			—			55,854			—
Funded status	(14,645		)	(1,147		)	(11,540		)	(1,020		)
Unrecognized actuarial gain	(5,672		)	—			(4,482		)	—
Unrecognized prior service cost	—			—			—			—
Amount recognized at end of period	$	(20,317	)	$	(1,147	)	$	(16,022	)	$	(1,020	)
Net amount recognized in the consolidated balance sheets:
Accrued benefit liability	$	(20,317	)	$	(1,147	)	$	(16,022	)	$	(1,020	)
Intangible asset	—			—			—			—
Accumulated other comprehensive income	(5,672		)	—			(4,482		)	—
Net amount recognized at end of period	$	(14,645	)	$	(1,147	)	$	(11,540	)	$	(1,020	)

	Year ended December 31,
	2006						2007
	Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits

Change in accrued benefit cost:
Accrued benefit cost at beginning of year	$	29,662		$	1,367		$	20,317		$	1,147
Net periodic benefit cost (income)	2,515			97			(310		)	70
Contributions	(5,234		)	(192		)	(3,985		)	(197		)
Curtailment gain	(6,626		)	(125		)	—			—
Accrued benefit cost at December 31	$	20,317		$	1,147		$	16,022		$	1,020
Weighted average assumptions used to determine year end benefit obligation:
Discount rate	5.90		%	5.90		%	6.48		%	6.48		%
Rate of compensation increase	4.00		%	—			—			—

	Predecessor						Successor
	January 1, 2005 through July 19,						July 20, 2005 through December 31,						Year ended December 31,
	2005						2005						2006						2007
	Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits
Components of net benefit cost:
Service cost	$	903		$	14		$	855		$	12		$	2,170		$	25		$	23		$	11
Interest cost	1,961			43			1,692			34			4,018			72			3,942			59
Expected return on plan assets	(1,780		)	—			(1,633		)	—			(3,673		)	—			(4,275		)	—
Amortization of prior service cost	3			9			—			—			—			—			—			—
Amortization of actuarial loss	527			48			—			—			—			—			—			—
Net periodic expense (income)	1,614			114			914			46			2,515			97			(310		)	70
Curtailment gain	—			—			—			—			(6,626		)	(125		)	—			—
Net expense (income)	$	1,614		$	114		$	914		$	46		$	(4,111	)	$	(28	)	$	(310	)	$	70
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Discount rate	5.75		%	5.75		%	5.25		%	5.25		%	5.50		%	5.50		%	5.90		%	5.90		%
Expected return on plan assets	8.50		%	—			8.50		%	—			8.00		%	—			8.00		%	—
Rate of compensation increase	4.00		%	—			4.00		%	—			4.00		%	—			—			—

The long-term rate of return on plan assets assumption is reviewed annually. An investment model is used to determine an expected rate of return based on current investment allocation. The investment model considers past performance and forward looking assumptions for each asset class based on current market indices, key economic indicators and assumed long-term rate of inflation. The long-term rate of return assumption is adjusted, as needed, such that it falls between the 25^th and 75^th percentile expected return generated from the model.

The Company’s investment philosophy is to diversify the pension assets subject to a specified asset allocation policy. The Company rebalances the asset classes to stay within an acceptable range around the targeted allocation. The philosophy recognizes that the primary objective for the management of the assets is to maximize return commensurate with

the level of risk undertaken. With the understanding that investment returns are largely uncertain from year to year, the basic return objective is to be achieved over an averaging period no greater than three to five years in duration. The assets are invested in both indexed funds and actively managed funds, depending on the asset class.

The Company’s plan asset allocation at December 31, 2006 and 2007, and target allocation for 2008, by asset category are as follows:

									Target
	Actual								Allocation
	2006				2007				2008
	Pension Benefits		Post- Retirement Benefits		Pension Benefits		Post- Retirement Benefits		Pension Benefits		Post- Retirement Benefits
Equity securities	60	%	—	%	59	%	—	%	60	%	—	%
Debt securities	40	%	—	%	41	%	—	%	40	%	—	%

Future expected benefit payments as of December 31, 2007, is as follows:

2008	$	3,516
2009	3,688
2010	3,890
2011	4,159
2012	4,341
Thereafter	24,726
	$	44,320

The Company expects 2008 contributions for pension and post-retirement benefits to be approximately $2,154. The Company does not expect any amounts included in accumulated other comprehensive income as of December 31, 2007 to be recognized for the year ended December 31, 2008.

The Company also sponsors defined-contribution plans covering substantially all of its U.S.-based employees. The Company’s contribution to these plans ranges from 0% to 4% of a participant’s salary. In addition, the Company may elect to make discretionary contributions to some of the plans. The amount expensed for various match provisions of the plans was $558, $406, $1,104 and $1,641 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

12. Lease Commitments

The Company leases certain facilities under various noncancelable operating lease agreements. Future minimum lease payments under capital and noncancelable operating leases as of December 31, 2007, are as follows:

	Operating Leases
2008	$	7,759
2009	6,569
2010	5,144
2011	3,498
2012	2,423
Thereafter	9,706
Total minimum lease payments	$	35,099

Rent expense was $3,314, $2,544, $6,987 and $7,956 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively.

13. Legal Proceedings

The Company is subject to various claims arising in the ordinary course of business. Most of these lawsuits and claims are product liability matters that arise out of the use of respiratory product lines manufactured by the Company’s North Safety Products subsidiary. As of December 31, 2007, the Company’s North Safety Products subsidiary, along with its predecessors and/or the former owners of such business were named as defendants in approximately 629 lawsuits involving respirators allegedly manufactured and sold by it or its predecessors. The Company is also monitoring an additional two lawsuits in which it feels that North Safety Products, its predecessors and/or the former owners of such businesses may be named as defendants. Collectively, these 631 lawsuits represent a total of approximately 8,396 plaintiffs. Approximately 85% of these lawsuits involve plaintiffs alleging injury resulting from exposure to silica dust, with the remainder alleging injury resulting from exposure to other dust particles, including asbestos. These lawsuits typically allege that the purported injuries resulted in part from respirators that were negligently designed or manufactured. Invensys plc (“Invensys”), formerly Siebe plc, is contractually obligated to indemnify the Company for any losses, including costs of defending claims, resulting from respiratory products manufactured or sold prior to the acquisition of North Safety Products in October 1998.

In addition, the Company’s North Safety Products subsidiary is contractually entitled to indemnification from Norton Company, an affiliate of Saint-Gobain, which owned the North Safety Products business prior to Invensys. Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc., a newly formed wholly-owned subsidiary of Norton Company, acquired the assets of Norton’s Safety Products Division and the stock of this company was in turn acquired by Siebe Gorman Holdings plc. Under the terms of the agreement, Siebe Norton, Inc. did not assume any liability for claims relating to products shipped by Norton Company prior to the closing date. Moreover, Norton Company covenanted in the agreement to indemnify Siebe Norton, Inc. and its successors and assigns against any liability resulting from or arising out of any state of facts, omissions or events existing or occurring on or before the closing date, including, without limitation, any claims arising from products shipped by Norton Company or any of its affiliates prior to the closing date. Siebe Norton, Inc., whose name was subsequently changed to Siebe North Inc., was subsequently acquired by the Company as part of the 1998 acquisition of the North Safety Products business from Invensys.

Despite these indemnification arrangements, the Company could potentially be liable for losses or claims relating to products manufactured prior to the October 1998 acquisition date if Invensys fails to meet its obligations to indemnify the Company and the Company could potentially be liable for losses and claims relating to products sold prior to January 10, 1983 if both Invensys and Norton fail to meet their obligations to indemnify the Company. The Company believes that Invensys has the ability to pay these claims based on its current financial position, as publicly disclosed by Invensys. The Company could also be liable if the alleged exposure involved the use of a product manufactured by the Company after the October 1998 acquisition of the North Safety Products business.

Effective July 1, 2006, the Company entered into a joint defense agreement through December 31, 2008 with the former owners of the North Safety Products business (the “Joint Defense Agreement” or “JDA”). Under the terms of the Joint Defense Agreement, the Company agreed to pay a weighted average percentage of defense costs (including legal fees, expert witnesses and out of pocket expenses) associated with defending the Company and the prior owners of the North Safety Products business subject to a cap of $525, $960 and $1,000 for the period from July 1, 2006 through December 31, 2006, the year ended December 31, 2007 and the year ended December 31, 2008, respectively. The cap excludes settlement costs and other costs incurred exclusively by the Company (including trial costs and special requests of counsel), which it will be required to pay under the JDA. Separately, the Company agreed to pay Invensys $200 related to settled cases through June 30, 2006 in which Invensys claimed that the period of alleged exposure included periods after October 1998.

Although the JDA expires on December 31, 2008, the Company expects to incur additional defense and settlement costs beyond this date. The Company will consider its alternatives for defending the claims as the JDA nears expiration and determine the appropriate course of action, which could include an extension of the JDA.

Based upon information provided to the Company by Invensys, the Company believes activity related to these lawsuits was as follows for the year ended December 31, 2007:

	2005				2006				2007
	Plaintiffs		Cases		Plaintiffs		Cases		Plaintiffs		Cases
Beginning lawsuits	25,944		858		18,459		1,148		8,746		644
New lawsuits	2,226		587		653		498		38		35
Settlements	24		(32	)	(5	)	(5	)	(6	)	(2	)
Dismissals and other	(9,735	)	(265	)	(10,361	)	(997	)	(382	)	(46	)
Ending lawsuits	18,459		1,148		8,746		644		8,396		631

Both the rate of new filings and the number of existing claimants have declined dramatically since 2003 as courts and legislatures have tightened the rules on when and where the silica claims can be pursued in an effort to reduce the large number of unmeritorious claims. The new rules make bringing silica cases on a mass level much less attractive to the plaintiffs’ bar. Plaintiffs’ attorneys in many jurisdictions can no longer (1) find a worker with some stated exposure to silica, (2) take an X-ray of his chest, (3) have it interpreted as demonstrating lung shadows by a radiologist, (4) then file a single lawsuit in a dangerous venue with hundreds of other plaintiffs against hundreds of defendants with the pleading containing little more than the parties’ names and some standard pleading language. More specifically, the legislatures of at least seven states — including former hotbeds of silica litigation such as Texas, Florida and Ohio — passed impairment-criteria legislation that redefined injury. These acts force plaintiffs to prove impairment as a result of their exposure to qualify for judicial treatment. The same legislation requires that each silica claimant be tried individually, and not in the multiple plaintiff format in which the potential for large verdicts resulted from increased plaintiffs and where a few meritorious claims could increase the value of unmeritorious ones. Further tort reform in Texas created a state-wide multi-district litigation (“MDL”) wherein one judge presides over the pretrial of all Texas-silica cases. In Mississippi, the Supreme Court changed the venue rules making it much more difficult to file out-of-state plaintiffs there. The Mississippi court also changed the pleading requirements making the plaintiffs’ attorneys include plaintiff-specific allegations against each defendant sued, instead of the vague allegations against hundreds of defendants.

Plaintiffs have asserted specific dollar claims in approximately 30% of the approximately 629 cases pending as of December 31, 2007 in which North Safety Products, its predecessors and/or the former owners of such businesses have been named as defendants. A majority of jurisdictions prohibit specifying damages in tort cases such as these, and most of the remaining jurisdictions do not require such specification. In those cases in which plaintiffs choose to assert specific dollar amounts in their complaints, the amounts claimed are typically not meaningful as an indicator of a company’s potential liability. This is because (1) the amounts claimed typically bear no relation to the level of the plaintiff’s injury, (2) the complaints typically assert claims against numerous defendants and (3) many cases are brought on behalf of plaintiffs who have not suffered any medical injury, and ultimately are resolved without any payment or payment of a small fraction of the damages initially claimed. Of the 629 complaints maintained in the Company’s records, 439 do not specify the amount of damages sought, 25 generally allege damages in excess of $50, one alleges compensatory damages in excess of $50 and an unspecified amount of punitive damages, 103 allege compensatory damages and punitive damages, each in excess of $25, two generally allege damages in excess of $100, two allege compensatory damages and punitive damages, each in excess of $50, 20 generally allege damages in excess of $15,000, one generally alleges damages of $23,000, one alleges compensatory damages and punitive damages, each in excess of $10, four allege general damages of $18,000 and punitive damages of $10,000, two allege general damages of $13,000 and punitive damages of $10,000, one alleges compensatory and punitive damages, each in excess of $15, one alleges punitive damages in excess of $50, one generally alleges damages in excess of $15, 12 generally allege damages in excess of $25, one alleges compensatory damages of $18,000 and punitive damages of $10,000, one alleges punitive damages of $13,500 and compensatory damages of $10,000, one alleges punitive damages of $13,000 and compensatory damages of $10,000, eight allege compensatory damages of $13,000 and punitive damages of $10,000, one alleges compensatory and punitive damages, each of $15 and two allege compensatory and punitive damages, each in excess of $15,000. The Company currently does not have access to the complaints with respect to the previously mentioned additional two monitored cases, and therefore it does not know whether these cases allege specific damages, or if so, the amount of such damages, but is in the process of seeking to obtain such information. Due to the reasons noted above and to the indemnification arrangements benefiting the Company, it does not believe that the damage amounts specified in these complaints are a meaningful factor in any assessment of the Company’s potential liability.

The Predecessor recorded a $1,250 reserve for respiratory claims during the year ended December 31, 2004. The Predecessor re-evaluated this reserve in its first and second quarter 2005 financial statements and concluded the $1,250 recorded reserve continued to be its best estimate of the probable loss for the respiratory contingency.

In the July 2005 acquisition purchase accounting (as first reported in the Form 10-Q for the third quarter of 2005), the Company carried forward the $1,250 liability for this pre-acquisition contingency. Although management concluded that it was likely their estimate of this pre-acquisition contingent liability would be increased during the purchase accounting allocation period as the new ownership finalized their strategy for addressing the liability and gathered information (primarily related to case information and the working relationship among the prior owners of North Safety Products), it was unlikely the amount would be lower than the $1,250. Thus, the $1,250 amount represented the low end of a probable loss range, subject to further adjustment during the allocation period.

In December 2005, the Company began negotiations with the former owners of the North Safety Products business to enter into the JDA. The Company determined that the liability should be increased to $5,000 as of December 31, 2005 as part of the purchase price allocation process. The $5,000 reserve as of December 31, 2005 represented management’s best estimate of the liability based on the current status of negotiations. As of December 31, 2005, the estimate was still preliminary as the Company was awaiting finalization of the JDA negotiation process.

As discussed above, the Company entered into the JDA effective July 1, 2006 and completed its evaluation of the reserve. After all information was obtained, the Company adjusted the reserve to $7,000 as part of the purchase price allocation process during the permitted allocation period.

The final estimated amount recorded in purchase accounting related entirely to losses incurred before the July 2005 acquisition. The Company’s final estimate of the probable loss for the respiratory contingency incorporated the new ownerships’ decision to enter into the JDA. The decision represented a significantly different plan as new ownership agreed to assume losses related to claims with unknown years of exposure. In addition, the decision to enter into the JDA was being considered from the date of the acquisition and the ultimate decision was made during the allocation period.

In the fourth quarter 2007, the Company re-evaluated the reserve based on the favorable impact of the new rules and the significant decline in new and existing claims (as discussed above) using a five-year projection of claims and related defense cost approach and concluded that the best estimate of the probable loss for the respiratory contingency was $5.0 million. The reserve was reduced by $1.8 million through a credit to operating expenses. As of December 31, 2007, the reserve balance was $5.0 million.

The Company believes that this reserve represents a reasonable estimate of its probable and estimable liabilities for product claims alleging injury resulting from exposure to silica dust and other particles, including asbestos. The Company believes that a five-year projection of claims and related defense costs is the most reasonable approach. This reserve will be re-evaluated periodically and additional charges or credits will be recorded to operating expenses as additional information becomes available.

It is possible that the Company may incur liabilities in an amount in excess of amounts currently reserved. However, taking into account currently available information, historical experience, and the Company’s indemnification from Invensys, but recognizing the inherent uncertainties in the projection of any future events, the Company believes that these suits or claims should not result in final judgments or settlements in excess of its reserve.

In connection with an ongoing dispute, one of the Company’s competitors has filed a complaint against it alleging that the Company have made a series of misrepresentations concerning this competitor and its products. The complaint seeks a retraction of all statements alleged to have been made by the Company and unspecified damages, including legal fess. A bench trail on the issue of liability was held in February 2006 and the matter is now awaiting ruling by the court. The Company intends to vigorously defend against these claims.

The Company historically has not been required to pay any material liability claims. The Company maintains insurance against product liability claims (with the exception of asbestosis and silicosis cases, for which coverage is not commercially available), but it is possible that its insurance coverage will not continue to be available on terms acceptable to the Company or that such coverage will not be adequate for liabilities actually incurred.

14. Restructuring and Merger-Related Charges

In conjunction with the Fibre-Metal Transaction, the Company initiated a restructuring plan to close the Fibre-Metal manufacturing facility located in Concordville, Pennsylvania and move production to its Cranston, Rhode Island and Mexicali, Mexico facilities. In addition, the Company closed certain Fibre-Metal distribution centers and integrated Fibre-

Metal distribution into its existing distribution facilities. The Company implemented this plan in order to increase profitability through utilizing excess capacity at its existing plants and moving manufacturing to locations with favorable labor costs. The restructuring was completed in 2007. As of the date of the Fibre-Metal Transaction, the Company recorded an accrual for costs associated with the plan of $1,716, comprised of $1,383 in severance costs and $333 in facility closure and other exit costs. The restructuring liability was classified within the accrued expenses caption on the consolidated balance sheet.

In conjunction with the White Rubber Transaction, the Company initiated a restructuring plan to move certain production and distribution functions located in Ohio and Washington to its Charleston, South Carolina, Skokie, Illinois and Chicago, Illinois facilities. The Company initiated this plan in order to increase profitability by utilizing excess capacity and consolidating distribution functions. The restructuring was completed in 2007. As of the date of the White Rubber Transaction, the Company recorded an accrual for costs associated with the plan of $1,018, comprised of severance and severance related costs. The restructuring liability is classified within the accrued expenses caption on the consolidated balance sheet.

A rollforward of the restructuring liability associated with the Fibre-Metal Transaction and White Rubber Transaction is as follows:

	Severance and severance related costs			Facility closure and other exit costs			Total
Balance at January 1, 2006	$	1,383		$	333		$	1,716
White Rubber additions	1,018			—			1,018
Payments	(522		)	(163		)	(685		)
Effect of foreign currency translation	1			3			4
Balance as of December 31, 2006	1,880			173			2,053
Payments	(1,757		)	(174		)	(1,931		)
Effect of foreign currency translation	—			1			1
Balance as of December 31, 2007	$	123		$	—		$	123

For the years ended December 31, 2006 and 2007, the Company also recorded $1,539 and $3,696, respectively, of restructuring and merger-related charges related to plant relocations, personnel reorganization and acquisition integration activities. As of December 31, 2007, the restructuring liability associated with these restructuring and merger-related charges was $3,015 and is classified within the accrued expense caption on the consolidated balance sheet. The majority of this balance relates to severance and severance related costs which will be paid during the next twelve months period.

15. Related Party Transactions

The Company leases a facility in Dayton, Ohio from American Firefighters Cooperative, Inc., a corporation controlled by William L. Grilliot, President—Fire Service. The initial term of the lease ended on February 28, 2005, and was extended through April 30, 2009. The base rent is $348 per year, payable in monthly installments. In addition, the Company must also pay American Firefighters Cooperative, Inc. all general and special assessments of every kind, as additional rent during the term of the lease. The rent paid was $218, $155, $382 and $382 for the period from January 1, 2005 through July 19, 2005, the period from July 20, 2005 through December 31, 2005 and the years ended December 31, 2006 and 2007, respectively. In December 2007, an amendment to the lease was entered related to the expansion of the facility. The base rent under the amended lease is $587 per year, payable in monthly installments and begins upon the completion of the expansion. In addition, the lease is extended five years from the date of completion.

The Company leases a facility in Ohatchee, Alabama from WKDG Properties, LLC, a limited liability company controlled by Ernest Paffumi, our Vice President and General Manager-American Firewear and Robert Morgan, our Vice President of Production and Purchasing-American Firewear. The lease began February 2, 2006 and has a six year term with the option to renew the lease for two periods of three years. The base rent is $146 per year, payable in monthly installments. In addition, the Company must also pay WKDG Properties, LLC the actual amount of all real estate taxes and operating expenses of every kind, as additional rent during the term of the lease. The rent paid for the years ended December 31, 2006 and 2007 was $134 and $149, respectively.

16. Segment Data

The Company has three reporting segments (each of which are operating segments): general safety and preparedness, fire service, and electrical safety. General safety and preparedness offers products to a wide variety of industries, including manufacturing, agriculture, automotive, construction, food processing and pharmaceutical industries and the military, under the North, Ranger, Servus, KCL, Fibre-Metal and NEOS brand names. The product offering includes respiratory protection, protective footwear, hand protection, eye, head and face protection, first aid, hearing protection and fall protection. The Company sells its general safety and preparedness products primarily through industrial distributors. Fire service offers personal protection equipment for the fire service market, providing firefighters head-to-toe protection. The product offering includes turnout gear, fireboots, helmets, gloves and other accessories. The Company markets its products under the Total Fire Group umbrella, using the brand names of Morning Pride, Ranger, Servus, American Firewear and Pro-Warrington. The Company sells its fire service products primarily through specialized fire service distributors. Electrical safety offers personal protection equipment for the utility market under the Salisbury, Servus and Safety Line brands. The product offering includes linemen equipment, gloves, sleeves, footwear and arc flash protection. The Company distributes its electrical safety products through specialized distributors, test labs, utilities, and electrical contractors.

Corporate expenses include general and administrative expense such as administrative, finance, human resources and legal, which are not directly associated with one of the reporting segments. In addition, the interest expense associated with the 11¾% senior pay in kind notes due 2012 is included within corporate expenses. Corporate assets primarily include the deferred financing costs associated with the 11¾% senior pay in kind notes due 2012 and Safety Products investment in Norcross.

The elimination column includes the elimination of intercompany net sales among the three reporting segments and the elimination of investment in subsidiaries among Safety Products, Norcross and the various subsidiaries.

The following table presents information about the Company by segment:

	General Safety and Preparedness		Fire Service		Electrical Safety			Corporate			Eliminations			Total
Predecessor Company
Period from January 1, 2005 through July 19, 2005
Net sales—third parties	$	175,572	$	51,702	$	33,558		$	—		$	—		$	260,832
Net sales—intersegment	5,548		—		—			—			(5,548		)	—
Income (loss) from continuing operations	19,361		9,332		8,442			(24,127		)	—			13,008
Interest expense	13,111		14		—			11,458			—			24,583
Income tax expense	3,199		146		—			100			—			3,445
Depreciation and amortization	5,319		238		944			5			—			6,506
Purchase of plant, property and equipment	3,349		91		810			—			—			4,250
Successor Company
Period from July 20, 2005 through December 31, 2005
Net sales—third parties	138,146		36,213		27,080			—			—			201,439
Net sales—intersegment	3,750		—		—			—			(3,750		)	—
Income (loss) from continuing operations	7,511		2,574		4,352			(2,876		)	—			11,561
Interest expense	9,495		3		—			8,146			—			17,644
Income tax expense (benefit)	753		1,086		—			(2,891		)	—			(1,052		)
Depreciation and amortization	7,448		2,731		2,180			2			—			12,361
Purchase of plant, property and equipment	4,215		175		647			—			—			5,037
Year ended December 31, 2006
Net sales—third parties	370,931		87,902		78,842			—			—			537,675
Net sales—intersegment	9,307		—		—			—			(9,307		)	—
Restructuring and merger-related charges	1,417		—		122			—			—			1,539
Income (loss) from continuing operations	45,702		8,364		14,853			(8,992		)	—			59,927
Interest expense	27,136		71		—			19,650			—			46,857
Income tax expense (benefit)	10,251		3,190		(357		)	(6,944		)	—			6,140
Depreciation and amortization	16,796		4,571		4,455			13			—			25,835
Purchase of plant, property and equipment	9,294		285		1,994			—			—			11,573
Total assets	730,576		143,415		122,543			232,117			(484,569		)	744,082
Year ended December 31, 2007
Net sales—third parties	410,962		100,607		97,328			—			—			608,897
Net sales—intersegment	8,252		—		375			—			(8,627		)	—
Restructuring and merger-related charges	2,526		119		1,051			—			—			3,696
Income (loss) from continuing operations	51,691		12,438		18,042			(11,777		)	—			70,394
Interest expense	27,770		59		—			21,795			—			49,624
Income tax expense (benefit)	2,749		4,616		6,322			(7,623		)	—			6,064
Depreciation and amortization	16,719		4,629		5,138			112			—			26,598
Purchase of plant, property and equipment	7,786		615		3,622			—			—			12,023
Total assets	781,771		140,444		121,160			230,103			(483,828		)	789,650

17. Product Line Data

The following table presents net sales of the Company by product line:

	Predecessor		Successor
	January 1, 2005 through July 19, 2005		July 20, 2005 through December 31, 2005		Year ended December 31,
					2006		2007
Protective footwear	$	51,191	$	44,256	$	93,550	$	100,198
Hand protection	66,606		46,328		127,941		148,447
Eye, head and face	22,540		20,379		82,881		89,567
Respiratory	33,591		25,622		66,954		71,938
Protective garments	37,672		28,251		61,830		73,936
First aid	8,655		5,893		15,553		16,652
Hearing protection	4,095		2,802		7,209		7,414
Fall protection	9,283		6,934		18,978		22,879
Linemen equipment	17,613		14,418		42,999		55,273
Other	9,586		6,556		19,780		22,593
	$	260,832	$	201,439	$	537,675	$	608,897

18. Geographic Data

The following table presents information about the Company by geographic area:

	United States		Europe		Canada		Other		Total Foreign		Consolidated
Predecessor Company
Period from January 1, 2005 through July 19, 2005
Net sales	$	173,711	$	46,204	$	40,917	$	—	$	87,121	$	260,832
Successor Company
Period from July 20, 2005 through December 31, 2005
Net sales	139,405		30,380		31,654		—		62,034		201,439
Year ended December 31, 2006
Net sales	358,496		88,332		90,607		240		179,179		537,675
Long-lived assets	296,102		34,365		24,643		1,074		60,082		356,184
Year ended December 31, 2007
Net sales	401,077		109,254		96,707		1,859		207,820		608,897
Long-lived assets	286,210		38,025		26,913		87		65,025		351,235

19. Subsidiary Guarantors

Safety Products and NSP Capital are co-issuers of the 11¾% senior pay in kind notes due 2012. Both Safety Products and NSP Capital have no independent assets or operations. NSP Capital is a 100% owned finance subsidiary of Safety Products. The 11¾% senior pay in kind notes due 2012 are not guaranteed by any subsidiary of the Company. The terms of the New Credit Facility significantly restrict Norcross from paying dividends and otherwise transferring assets to the Company. Further, the terms of the indenture governing its 9 7/8 % senior subordinated notes due 2011 significantly restrict Norcross and the Company’s other subsidiaries from paying dividends and otherwise transferring assets to the Company, except for ordinary course operating expenses.

20. Quarterly Results (Unaudited)

The following tables contain selected unaudited consolidated statements of operations information for each quarter of 2006 and 2007. The Company believes that the following information reflects all normal recurring adjustments (except as noted) necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

	Year ended December 31, 2006
	Quarter ended December 31			Quarter ended September 30		Quarter ended July 1		Quarter ended April 1
Net sales	$	133,264		$	136,777	$	131,275	$	136,359
Gross profit	47,051			49,616		52,118		52,257
Net income	819		(1)	889		3,469		3,687

	Year ended December 31, 2007
	Quarter ended December 31			Quarter ended September 29		Quarter ended June 30		Quarter ended March 31
Net sales	$	152,934		$	151,406	$	156,406	$	148,151
Gross profit	55,259			58,245		62,027		57,442
Net income	2,095		(2)	4,514		2,389		3,783

(1)		Includes $6,751 of income associated with a non-cash curtailment gain recorded as a result of freezing the Company’s U.S. defined benefit plans (See Note 11).

(2)		Includes $1,800 of income associated with the reduction in the reserve for respiratory claims (See Note 13) and $2,966 of expense associated with plant relocations, personnel reorganization and acquisition integration activities (See Note 14).

21. Members’ Deficit/Shareholders’ Equity

Unit Options

As of January 1, 2002, the Predecessor had granted an aggregate of 21,124 options to purchase Class A units at $2.10 per unit, 31,239 options to purchase Class A units at $5.89 per unit, 313,640 options to purchase Class C units at $5.89 per unit, and 21,124 options to purchase preferred units at $3.90 per unit. Each issuance approximated fair market value at date of grant. As part of the Norcross Transaction, all outstanding options were exercised with a realized value of $1,580.

Unit Appreciation Rights Plan

The Predecessor had a unit appreciation rights plan (Rights Plan), whereby the Board of Managers or their designee may issue to key employees up to 476,700 of unit appreciation rights. As of the date of the Norcross Transaction, 441,264 appreciation rights were outstanding. Individuals vested in appreciated rights over four years (first year: 10%; second year: 20%; third year: 30%; and fourth year: 40%). Vesting accelerated upon certain events, including a participant’s death and the sale of the NSP Holdings or an initial public offering. All appreciation rights were issued at fair market value at the date of grant. As part of the Norcross Transaction, all outstanding unit appreciation rights were exercised with a realized value of $2,720. This amount was recognized as management incentive compensation by the Company in the period from January 1, 2005 through July 19, 2005.

Redeemable Preferred Units

In connection with the North acquisition on October 2, 1998, the Predecessor received $57,329 in exchange for the issuance of redeemable preferred units. The preferred units accrued dividends at a semiannual compound rate of 10%. The preferred units were nonvoting and were mandatorily redeemable by the Predecessor on September 30, 2013. In the event of any liquidation, sale, dissolution, or winding up of the affairs of the Predecessor, holders of the preferred units were to be paid the redemption price, plus all accrued dividends before any payment to other unit holders.

In connection with an acquisition, the Predecessor issued additional mandatorily redeemable preferred units for $1,950, respectively. These preferred units also accrued dividends at a semiannual compound rate of 10%, and were mandatorily redeemable by the Predecessor on September 30, 2013.

For the period from January 1, 2005 through July 19, 2005, the Predecessor classified $4,833 of preferred unit dividends as interest expense.

On January 7, 2005, the Predecessor made a payment in respect of the preferred units of $60,000, $58,000 of which were payments in respect of accrued preferred yield and $2,000 of which was the return of a portion of the original capital contribution made by holders of NSP Holdings preferred units (See Note 8). As part of the Norcross Transaction, all outstanding accrued preferred yield and capital was funded to the preferred unit holders.

Class E Units

The Predecessor authorized the issuance of 1,000 Class E Units, which vest 6.25% quarterly. As of the date of the Norcross Transaction, 986 Class E Units were issued to senior management of the Company for $1. The holders of Class E Units were entitled to distributions on the Company’s units as defined in the Company’s Second Amended and Restated Limited Liability Company Agreement. As part of the Norcross Transaction, the Predecessor funded $7,698 to the holders of Class E Units.

Common Units

In addition to the preferred units and Class E Unites, the Predecessor’s equity structure consisted of Class A common units, Class B common units, Class C common units, and Class D common units. Class B common units and Class D common units were nonvoting. Common units were generally convertible into other classes of common units at the member’s request, with certain restrictions based on Class B and Class C unit holders, as defined.

Common Shares

As of December 31, 2007, the Company had 15,000,000 authorized common shares and 11,030,884 outstanding common shares with a par price of $0.01 per share.

Management Loans

In connection with the acquisition of North, certain members of management entered into nonrecourse promissory notes amounting to $1,086 in exchange for Class C common units of the Predecessor. The notes were non-interest-bearing and matured on the earlier of December 31, 2016, the sale of the Predecessor, or the occurrence of certain events, all as defined in the notes. The promissory notes were collateralized by the Class A and Class C common and all preferred units of the borrowers, and were classified as reductions to members’ deficit.

In connection with an acquisition, certain members of management entered into nonrecourse promissory notes amounting to $1,108 in exchange for Class A common units and preferred units of the Predecessor. The notes were non-interest-bearing and matured on the earlier of December 31, 2016, the sale of the Predecessor, or the occurrence of certain events, all as defined in the notes. The promissory notes are collateralized by Class A common and preferred units of the borrowers and have been classified as reductions to members’ deficit.

The management loans were repaid as part of the Norcross Transaction.

22. Management Incentive Compensation

Safety Products’ Option Plan (as amended, the “Plan”) was adopted and approved by the Board of Directors in December 2005, and provides for the issuance of up to 1,436,631 shares of common stock of Safety Products in connection with the granting of non-qualified or incentive stock options. The principal purposes of the Plan are: 1) to further the growth, development and financial success of Safety Products and its subsidiaries, by providing additional incentives to employees, consultants and independent directors (as defined) of Safety Products and its subsidiaries and 2) to enable Safety Products and its subsidiaries to obtain and retain the services of the type of professional, technical and managerial employees, consultants and independent directors considered essential to the long-range success of Safety Products.

In the first quarter of 2006, Safety Products granted a total of 1,213,559 non-qualified options in connection with the Plan (the “Initial Grant”). Outstanding non-qualified stock options under the Initial Grant have an expiration date ten years from the date of grant and have an exercise price of $10 per share. In the fourth quarter of 2006, Safety Products granted a total of 132,000 non-qualified options in connection with the Plan (the “Second Grant”). Outstanding non-qualified stock options under the Second Grant have an expiration date ten years from the date of grant and have an exercise price of $19.67 per share. In the second quarter of 2007, Safety Products granted a total of 86,000 non-qualified options in connection with the Plan (the “Third Grant”). Outstanding non-qualified stock operation under the Third Grant have an expiration date ten years from the date of grant and have an exercise price of $19.78 per share.

All non-qualified stock options were granted with an exercise price equal to the fair market value on the date of grant. The fair market value for the Initial Grant was consistent with the price paid by Odyssey as part of the Norcross Transaction. The fair market values for the Second Grant and Third Grant were determined using a discounting cash flow analysis.

During the year ended December 31, 2007, no options expired or were exercised. The Company did enter into a cancellation agreement in which the Company paid $35 to cancel 10,000 non-qualified options (vested and non-vested) granted within the Initial Grant. This additional expense was reflected within $1,679 of management incentive compensation for the year ended December 31, 2007.

The non-qualified stock options under the Initial Grant, Second Grant and Third Grant are scheduled to vest over an approximate eight year period. In addition, a portion of the non-qualified stock options are subject to accelerated vesting provisions when certain performance targets are met. Through December 31, 2007, all performance targets within the Initial Grant, Second Grant and Third Grant have been or are expected to be met. The non-qualified stock options are subject to further acceleration clauses based on change in control provisions. As of December 31, 2007, 676,035 shares of non-qualified stock options were vested under Initial Grant, 43,996 shares of non-qualified stock options were vested under the Second Grant and 9,824 shares of non-qualified stock options were vested under the Third Grant.

As of December 31, 2007, there was approximately $2,127, $650 and $651 of unrecognized management incentive compensation related to nonvested non-qualified stock options under the Initial Grant, Second Grant and Third Grant, respectively. The Company expects to recognize this management incentive compensation over a weighted average period of 4.0 years under the Initial Grant, 3.0 years under the Second Grant and 4.5 years under the Third Grant.

The Company used the Black-Scholes option-pricing model to estimate the fair value of each option grant as of the date of grant. Expected volatilities are based on historical volatility of the common stock of comparable public companies. The Company estimated the expected life of the options based on the likelihood of the achievement of performance targets, change in control provisions, and historic employee termination data. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. The estimated weighted-average fair values of and related assumptions for options granted were as follows:

	Initial Grant			Second Grant			Third Grant
Weighted-average fair value of options granted:
At fair value	$	3.95		$	7.39		$	8.55

Assumptions:
Dividend yield	0.0		%	0.0		%	0.0		%
Expected volatility	40.0		%	40.0		%	40.0		%
Risk-free interest rate	5.0		%	4.6		%	5.1		%
Expected life of option (years)	5.0			4.0			5.5

As a result of the Norcross Transaction, the Predecessor recognized $16,388 in management incentive compensation expense during the January 1, 2005 through July 19, 2005 predecessor period. The expenses were funded by the Predecessor from proceeds realized upon the consummation of the Norcross Transaction.

23. Seller Transaction Expenses

NSP Holdings incurred $4,646 in transaction expenses related to professional services during the January 1, 2005 through July 19, 2005 predecessor period. The expenses were funded by the Predecessor from proceeds realized upon the consummation of the Norcross Transaction. These costs are reflected within operating expenses as seller transaction expenses.

SAFETY PRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)

(NSP Holdings L.L.C. as predecessor)

SCHEDULE I—CONDENSED FINANCIAL INFORMATION

BALANCE SHEETS

(Amounts in Thousands)

	December 31,
	2006			2007
Assets
Cash	$	700		$	718
Prepaid expenses and other current assets	69			63
Total current assets	769			781
Deferred financing costs, net	10,130			8,104
Investment in subsidiary	260,502			317,597
Deferred income taxes	4,002			5,176
Total assets	$	275,403		$	331,658

Liabilities and shareholders’ equity
Current liabilities:
Accrued expenses	$	53		$	119
Current maturities of long-term obligations	(1,010		)	(1,148		)
Total current liabilities	(957		)	(1,029		)
Long-term obligations	149,474			169,382
Shareholders’ equity:
Common shares	110			110
Contributed capital	111,883			113,527
Retained earnings	4,098			16,503
Accumulated other comprehensive income	10,795			33,165
Total shareholders’ equity	126,886			163,305
Total liabilities and shareholders’ equity	$	275,403		$	331,658

See notes to condensed financial statements.

SAFETY PRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)

(NSP Holdings L.L.C. as predecessor)

SCHEDULE I—CONDENSED FINANCIAL INFORMATION

STATEMENTS OF OPERATIONS

(Amounts in Thousands)

	Predecessor			Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Year ended December 31,
	2005			2005			2006			2007
General and administrative	$	(3,094	)	$	(113	)	$	(326	)	$	(185	)
Seller transaction expense	(4,646		)	—			—			—
Interest expense	(11,458		)	(8,156		)	(19,650		)	(21,795		)
Interest income	450			—			—			19
Income tax (expense) benefit	(100		)	2,457			6,944			7,623
Equity in earnings of subsidiary	4,385			1,046			21,896			27,119
Net (loss) income	$	(14,463	)	$	(4,766	)	$	8,864		$	12,781

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)

(NSP Holdings L.L.C. as predecessor)

SCHEDULE I—CONDENSED FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

	Predecessor			Successor
	January 1, 2005 through July 19,			July 20, 2005 through December 31,			Year ended December 31,
	2005			2005			2006			2007
Operating activities
Net cash (used in) provided by operating activities	$	(667	)	$	268		$	2,315		$	6,356
Investing activities
Investment in subsidiary	—			(121,114		)	—			—
Advances from (to) subsidiary	567			728			(2,464		)	(6,338		)
Net cash provided by (used in) investing activities	567			(120,386		)	(2,464		)	(6,338		)
Financing activities
Payments for deferred financing costs	(3,246		)	(13,062		)	—			—
Payments from borrowings	100,000			23,646			—			—
Proceeds from capital contribution	—			109,670			713			—
Distribution of preferred units	(60,000		)	—			—			—
Distribution of common units	(2,509		)	—			—			—
Net cash provided by financing activities	34,245			120,254			713			—
Effect of exchange rate changes on cash	—			—			—			—
Net increase in cash and cash equivalents	34,145			136			564			18
Cash and cash equivalents at beginning of period	—			—			136			700
Cash and cash equivalents at end of period	$	34,145		136			$	700		$	718

See notes to consolidated financial statements.

SAFETY PRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)

(NSP Holdings L.L.C. as predecessor)

SCHEDULE I—CONDENSED FINANCIAL INFORMATION

NOTES TO FINANCIAL STATEMENTS

THE PERIOD FROM JANUARY 1, 2005 THROUGH JULY 19, 2005,

THE PERIOD FROM July 20, 2005 THROUGH DECEMBER 31, 2005 AND

THE YEARS ENDED DECEMBER 31, 2006 AND 2007

(Amounts in Thousands, Except Units and Per Unit Data)

1. The Transaction

On July 19, 2005, Norcross Safety Products L.L.C. (“Norcross”) announced the closing of the transaction under which it was acquired by Safety Products Holdings, Inc. (the “Company” or “Safety Products”) a new holding company formed by Odyssey Investment Partners, LLC for the purpose of completing the acquisition. Pursuant to the terms of the purchase agreement, Safety Products purchased all of the outstanding membership units of Norcross and all of the outstanding common stock of NSP Holdings Capital Corp. (“NSP Capital”), a wholly-owned subsidiary of NSP Holdings L.L.C. (“NSP Holdings”), and pursuant to which Safety Products assumed all of the outstanding indebtedness of Norcross and NSP Holdings, in exchange for a base purchase price to NSP Holdings of $472,000, plus the cash in Norcross as of April 2, 2005 in the amount of approximately $16,900, less (1) the indebtedness of Norcross and its subsidiaries as of April 2, 2005 and (2) certain transaction fees and expenses. The cash purchase price was $204,488 including direct costs of acquisition of $2,346, and excluding assumed debt of $260,523. The acquisition of Norcross is referred to as the “Norcross Transaction”.

2. Basis of Presentation

Predecessor — The financial statements of the Predecessor represent the results of operations of NSP Holdings L.L.C. prior to the Norcross Transaction.

Successor — The financial statements of the Successor represent the results of operations of Safety Products Holdings, Inc. subsequent to the Norcross Transaction.

3. Investment in Subsidiary

Safety Products accounts for its investment in Norcross under the equity method of accounting. Advances to or from Norcross are included within the investment in subsidiary.

4. Debt

On January 7, 2005, NSP Holdings and NSP Capital issued $100,000 of 11¾% senior pay in kind notes due 2012 (the “Senior Notes”). The proceeds were used to: (i) make a payment in respect of preferred units of $60,000, $58,000 of which were payments in respect of accrued preferred yield and $2,000 of which was the return of a portion of the original capital contribution made by holders of NSP Holdings preferred units, (ii) make distributions in respect of the common units of certain members of management of $2,000, and (iii) pay fees and expenses. The remainder of the net proceeds were used for general corporate purposes, including potential acquisitions and/or distributions to NSP Holdings’ unitholders.

Purchaser and were resold to qualified institutional buyers in compliance with the exemption from registration.

5. Redeemable Preferred Units

The preferred units accrued dividends at a semiannual compound rate of 10%. The preferred units were nonvoting and were mandatorily redeemable by the Predecessor on September 30, 2013. In the event of any liquidation, sale, dissolution, or winding up of the affairs of the Predecessor, holders of the preferred units were to be paid the redemption price, plus all accrued dividends before any payment to other unit holders. On January 7, 2005, the Predecessor made a payment in respect of the preferred units of $60,000, $58,000 of which were payments in respect of accrued preferred yield and $2,000 of which was the return of a portion of the original capital contribution made by holders of NSP Holdings preferred units (See Note 4). As part of the Norcross Transaction, all outstanding accrued preferred yield and capital was funded to the preferred unit holders.

For the period from January 1, 2005 through July 19, 2005, the Predecessor classified $4,833 of preferred unit dividends as interest expense.

6. Commitments and Contingencies

Safety Products along with Norcross has guaranteed Norcross’ obligations under Norcross’ senior credit facility, which consists of a term loan and revolving credit facilities, and secures its guarantee with substantially all of the Company’s assets, including the stock of Norcross. As of December 31, 2007, there was $161,711 outstanding under the term loan at an interest rate of 7.3%. Norcross also had $2,446 of letters of credit outstanding, in addition to $47,554 available for borrowings under the revolving credit facilities as of December 31, 2007.

SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES (IN THOUSANDS)

			Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts			Deductions— write-offs			Balance at end of period
Predecessor Company
Reserve for inventory obsolescence for the period from January 1, 2005 through July 19, 2005	$	9,300	$	229	$	(82	)	$	(368	)	$	9,079

Successor Company
Reserve for inventory obsolescence for the period from July 20, 2005 through December 31, 2005	9,079		1,182		317			(1,318		)	9,260

Reserve for inventory obsolescence for the year ended December 31, 2006	9,260		2,319		1,395			(2,394		)	10,580

Reserve for inventory obsolescence for the year ended December 31, 2007	10,580		2,425		568			(3,922		)	9,651

			Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts			Deductions— write-offs			Balance at end of period
Predecessor Company
Allowances for uncollectible accounts for the period from January 1, 2005 through July 19, 2005	$	2,063	$	242	$	(115	)	$	(29	)	$	2,161

Successor Company
Allowances for uncollectible accounts for the period from July 20, 2005 through December 31, 2005	2,161		183		82			(109		)	2,317

Allowances for uncollectible accounts for the year ended December 31, 2006	2,317		482		31			(507		)	2,323

Allowances for uncollectible accounts for the year ended December 31, 2007	2,323		608		146			(745		)	2,332

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we performed an evaluation under the supervision and with the participation of our management including the chief executive officer and the chief financial officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective. There have been no changes in internal control over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Controls Over Financial Reporting

Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and notes to the consolidated financial statements. The financial statements were prepared in accordance with the accounting principles generally accepted in the United States and include certain amounts based on management’s judgment and best estimates. Other financial information presented is consistent with the financial statements.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed under the supervision of the Company’s principal executive and financial officers in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2007.

This annual report does not include an attestation report of Ernst & Young LLP, the Company’s registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by Ernst & Young LLP pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

/s/ Safety Products Holdings, Inc.

Oak Brook, Illinois
March 13, 2008

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our executive officers and the members of our board of directors are as follows:

Name	Age	Position(s) held
Robert A. Peterson	51	President and Chief Executive Officer, Director
David F. Myers, Jr.	45	Executive Vice President, Chief Financial Officer and Secretary, Director
William J. Hayes	48	President—General Safety and Preparedness
Charles S. Ellis	59	President—North Worldwide
Kenneth R. Martell	59	Vice President and General Manager—Electrical Safety
Brian Kwait	46	Director
Craig P. Staub	36	Director
Matthew A. Satnick	28	Director

Set forth below is a brief description of the business experience of each of our executive officers and the members of the board of directors.

Robert A. Peterson. Mr. Peterson has served as our President and Chief Executive Officer since our formation in June 1995, and he also has served as a member of the board of directors since July 2005. Previously, from 1984 to 1991, Mr. Peterson held various senior positions at Farley Industries, a diversified group of manufacturing companies with sales in excess of $2.5 billion and, from 1992 to 1993, was President of Wright Line, a technical furniture company. From 1994 to 1995, Mr. Peterson was involved in strategic planning consulting for Farley Industries and Merchant Partners. He is also a CPA and a former manager of Ernst & Young. Mr. Peterson also is a director of Actuant Corporation.

David F. Myers, Jr. Mr. Myers has served as our Executive Vice President, Chief Financial Officer and Secretary since our formation in June 1995, and he also has served as a member of the board of directors since July 2005. Previously he was with Morris Anderson & Associates, a leading turnaround consulting firm, providing advisory services and serving as interim chief financial officer to companies with sales ranging from $50.0 million to $2.0 billion. Mr. Myers started his career at Ernst & Young in the corporate finance/restructuring consulting practice. Mr. Myers is a CPA.

William J. Hayes. Mr. Hayes has served as our President-General Safety and Preparedness since October 2006. Mr. Hayes was previously with Nitto Denko Corporation, where he served as President and Chief Executive Officer of Nitto Americas (Nitto Denko’s $350 million portfolio of U.S.—based manufacturing companies) and also served as Corporate Vice President of Nitto Denko, a multi-billion dollar global business. Prior to joining Nitto Denko in 1994, Mr. Hayes served as General Manager of Brady Coated Products Co., a unit of Brady Corp. Prior to joining Brady in 1987, Mr. Hayes worked for Johnson & Johnson and Avery Dennison in a variety of positions.

Charles S. Ellis. Mr. Ellis has served as our President-North Worldwide since December 2004 with responsibility for the U.S., Canadian and European divisions of North Safety Products (except for KCL, which reports directly to our President-General Safety and Preparedness). From June 2001 until December 2004, Mr. Ellis served as our President—U.S. General Safety and Preparedness. Mr. Ellis was previously at Thomas and Betts Corporation, where he served as president for the Lighting and Utility Division, a $320 million global business. Prior to joining Thomas and Betts in 1996, Mr. Ellis was President and COO of Elastimold, a division of Eagle Corp. He also worked for Westinghouse Electrical Corporation in a variety of positions over 17 years.

Kenneth R. Martell. Mr. Martell has served as our Vice President and General Manager—Electrical Safety since August 1999. Mr. Martell has more than 30 years of manufacturing expertise. Prior to joining us, he was an executive vice president and general manager of the Plews/Eddelman division of Stant Corporation. He has held executive positions at Epicor Industries, Parker Hannifin and American Can Corporation.

Brian Kwait. Mr. Kwait has served as a member of the board of directors since July 2005. He is a Managing Principal at Odyssey Investment Partners, LLC and was a principal in the private equity investing group of Odyssey Partners, L.P. from 1989 to 1997. He also currently serves on the Board of Directors of Ranpak Holdings, Pro Mach, Inc. and Wastequip, Inc. Prior to joining Odyssey Partners, Mr. Kwait was a corporate finance associate at Bear, Stearns & Co., Inc. Prior to joining Bear Stearns, he was a senior accountant at Ernst & Whinney. Mr. Kwait is a CPA.

Craig P. Staub. Mr. Staub has served as a member of the board of directors since April 2006. Mr. Staub joined Odyssey Investment Partners, LLC in 2003 and also currently serves on the Board of Directors of Ranpak Holdings and Pro Mach, Inc. Prior to joining Odyssey, Mr. Staub was a vice president at Westbury Equity Partners where he was responsible for executing and monitoring private equity investments. Previously, he was a vice president for The Shattan Group, a boutique investment bank and Marakon Associates, a strategic consulting firm.

Matthew A. Satnick. Mr. Satnick has served as a member of the board of directors since March 2007. Mr. Satnick has been an Associate at Odyssey Investment Partners, LLC since 2004. Prior to joining Odyssey, Mr. Satnick was an Associate at Saunders Karp & Megrue, where he actively managed middle-market private equity investments. Prior to SKM, he was an Analyst at Lazard Fréres in the Restructuring Group, where he focused on advising financially distressed companies.

There are no family relationships between any of our executive officers or directors.

Board Composition

Odyssey Investment Partners Fund III, LP (“Odyssey Fund”) owns approximately 75% of the capital stock of Safety Products. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The stockholders agreement among Safety Products, Odyssey Fund and Safety Products, LLC (“SPL”), which was entered into in July 2005, provides that the board of directors of Safety Products will consist of five members or such other number as may be agreed upon by Odyssey Fund and SPL. Pursuant to the stockholders agreement, SPL is required to vote in favor of any designee or designees to the board of directors selected by Odyssey Fund. The board of directors of Safety Products and our board of directors have the same members. Three of our five directors, Messrs. Kwait, Satnick and Staub, are members of Odyssey, the general partner of Odyssey Fund. For more information, see “Item 13. Certain Relationships and Related Transactions, and Director Independence—Stockholders Agreement.”

Committees of Our Board of Directors

Our board of directors has an audit committee. The audit committee consists of Messrs. Kwait and Staub, neither of whom qualifies as an audit committee financial expert. However, the board believes that each member of the audit committee has demonstrated that he is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. As the board believes that the current members of the audit committee are qualified to carry out all of the duties and responsibilities of the audit committee, the board does not believe that it is necessary at this time to actively search for an outside person to serve on the board of directors who would qualify as an audit committee financial expert. In the future, our board may establish other committees, as it deems appropriate, to assist it with its responsibilities.

Code of Ethics

We have adopted a written code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The text of this code may be found on our Internet website, www.nspusa.com. We intend to post notice of any waiver from, or amendment to, any provision of our code of ethics on our web site.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

Following the Norcross Transaction, our board of directors consists of three non-employee directors who are employed by affiliates of Odyssey, Robert A. Peterson, our President and Chief Executive Officer, and David F. Myers, Jr., our Executive Vice President and Chief Financial Officer. At present, our board of directors does not have a compensation committee but may determine to form one in the future, which would likely be comprised of certain of its non-employee directors and Mr. Peterson.

In connection with the Norcross Transaction, affiliates of Odyssey negotiated compensation arrangements with certain of our named executive officers, and the compensation paid to these executive officers, including the base salaries and performance targets on which incentive compensation is based, reflects the results of such negotiations. Additionally, certain of our named executive officers negotiated the terms of the 2005 Option Plan of Safety Products Holdings, Inc. (the “Option Plan”). The option grants and vesting schedule, as more specifically set forth in the discussion entitled “Option Grants” under the Grants of Plan-Based Awards Table, are a result of such negotiations. Following the Norcross Transaction, decisions with respect to Mr. Peterson’s and Mr. Myers’ compensation are made by our non-employee directors, and decisions regarding the compensation of our remaining executive officers are made by our non-employee directors, in consultation with our Chief Executive Officer.

Throughout this analysis, the individuals who served as our Chief Executive Officer and Chief Financial Officer during 2007, as well as other individuals included in the Summary Compensation Table, are referred to as the “named executive officers.”

Compensation Objectives and Program Structure. Our compensation determinations are made by our board of directors. The board is responsible for determining the compensation elements and amounts paid to each of the named executive officers. The primary objectives of our executive compensation program are to:

· Attract and retain the best possible executive talent;

· Achieve accountability for performance by linking annual cash and long-term incentive awards to achievement of measurable performance objectives; and

· Further the growth, development and financial success of the Company and its subsidiaries by aligning executives’ incentives with stockholder value creation.

Elements of Compensation. We have sought to create value for our stockholders by using all elements of compensation to reinforce a results-oriented management culture, focusing on financial targets such as EBITDA (as further defined herein) and net working capital, performance as compared to our annual budget, the achievement of longer-term strategic goals and objectives, and individual performance. Accordingly, our executive compensation combines foundational elements such as base salary and benefits, an annual bonus and equity incentives such as participation in our Option Plan. Our executive compensation consists of the following components:

· Base salary

· Annual cash bonus; and

· Stock options.

Base Salary. Base salary is established based on the experience, skills, knowledge and responsibilities required of the executive officers in their roles. We seek to maintain base salaries that are competitive with the marketplace, to allow us to attract and retain executive talent. Salaries for executive officers are reviewed on an annual basis, at the time of a promotion or other change in level of responsibilities, as well as when competitive circumstances may require review. Increases in salary are based on evaluation of factors such as merit, the individual’s level of responsibility, performance level of compensation compared to comparable companies, and cost of living.

Annual Cash Bonus. The objective of the annual cash bonus incentive is to reward executive officers for the performance of the Company and its subsidiaries as well as for individual performance. The annual cash bonus is based on performance metrics, which vary among the named executive officers and are set based on the annual budget. The bonus for Messrs. Peterson and Myers is based solely on a budget consolidated EBITDA. The bonus for Mr. Hayes is based on budget EBITDA of our general safety and preparedness segment. The bonus for Mr. Ellis is based on the following budget performance targets with respect to certain divisions of the general safety and preparedness segment: EBITDA and net working capital. The bonus for Mr. Martell is based on the following budget performance targets with respect to our electrical safety segment: EBITDA, net sales, inventory turns and fill rate. In 2007, the bonus for Messrs. Hayes, Ellis and Martell also included a discretionary payment based on their contributions to integration, process improvement initiatives and other activities. For a more detailed description of the annual cash bonus payments, please see the discussion entitled “Summary of Grants of Plan-Based Awards.”

Option Plan. All of our named executive officers have received equity compensation awards in the form of non-qualified stock options. We grant long term incentive awards in the form of stock options because it is a common method for privately-held companies to provide equity incentives to executive officers. The options are designed to align the interests of our executive officers with our stockholders’ long-term interests by providing them with equity-based awards that vest over a period of time, with a portion subject to acceleration upon the satisfaction of performance conditions, and to reward executive officers for performance. In connection with the Norcross Transaction, the board adopted the Option Plan. Stock options granted by us have an exercise price equal to the fair market value of our common stock on the date of grant. Future grants of stock options will be at the discretion of our board of directors. Because all of the options are non-qualified stock options, we will be entitled to a tax deduction in the year in which the non-qualified stock option is exercised in an amount equal to the amount by which the fair market value of the shares underlying the option on the date of exercise exceeds the option exercise price.

The Option Plan is currently administered by the board of directors unless that board delegates administration to its compensation committee. The board has the authority to determine to whom options will be granted, and to establish the terms and conditions of those grants. However, in no event may the exercise price of any option granted under the plan be less than the fair market value of the shares underlying that option on the date the option is granted and no option may have a term that exceeds 10 years. Additionally, neither the board nor the compensation committee may exercise its discretion in a way that would prevent an incentive stock option from qualifying as such under Section 422 of the Internal Revenue Code. The Option Plan and the underlying agreements provide, and will provide, that unless determined otherwise at the time the option is granted, following termination of employment, options that have not previously become exercisable will not become exercisable and that the exercise period of a vested (exercisable) option will generally be limited, provided that vested options will be cancelled immediately upon a termination for cause.

With the exception of options granted to Messrs. Peterson and Myers, options granted under the Option Plan may not be transferred other than by will or applicable inheritance laws. Messrs. Peterson and Myers are permitted to transfer non-qualified options to children, grandchildren, spouse, siblings or parents (collectively, “Immediate Family Members”), or to bona fide trusts, partnerships or other entities controlled by and of which the only beneficiaries are Immediate Family Members. Shares of common stock of Safety Products acquired upon exercise of options are subject to the terms of the Management Stockholders Agreement and, as a consequence, are generally not transferable other than in accordance with that agreement.

Upon a change in control all options that have previously become exercisable may be exercised in connection with that change in control. In addition, upon a change in control, previously unexercisable options will, or in the board’s discretion may, become exercisable if a certain internal rate of return and a multiple of investment dollars is achieved by Odyssey.

Retirement Benefits. Messrs. Ellis and Martell participate in the Norcross Safety Products L.L.C. Employees’ Pension Plan (the “NSP Pension Plan”), which is a tax-qualified defined benefit plan. Messrs. Peterson, Myers and Ellis are participants in the North Safety Products, Inc. Benefit Restoration Plan (“Restoration Plan”), which is a non-qualified unfunded defined benefit plan. Eligibility for this plan includes North Safety Products employees whose benefits are limited by the Internal Revenue Code or those employees selected by our board of directors. The NSP Pension Plan and the Restoration Plan were frozen for future benefit accruals as of December 31, 2006. Prior to 2006, Messrs. Myers and Peterson were not participants in the Restoration Plan. In connection with entering into new employment agreements with Mr. Peterson and Mr. Myers as part of the Norcross Transaction, Safety Products agreed that it would extend to them the opportunity to participate in the Restoration Plan. Benefits under these plans are described in the Pension Benefits Table.

Other Programs. We also provide our named executive officers with life and medical insurance, 401(k) matching, a car allowance program and, in the case of Mr. Martell, contribution to W.H. Salisbury’s profit sharing plan in 2006.

Compensation Committee Report

As we do not presently have a separately designated Compensation Committee, our full board of directors has reviewed and discussed the Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, have recommended that the Compensation Discussion and Analysis be included in this annual report.

	THE BOARD OF DIRECTORS

		Robert A. Peterson
		David F. Myers, Jr.
		Brian Kwait
		Craig P. Staub
		Matthew A. Satnick

Summary Compensation Table

The following table summarizes the total compensation earned in 2007 and 2006 by our named executive officers:

Name and Principal		Salary		Bonus		Stock Awards	Option Awards ($)	Non-Equity Incentive Plan Compen-sation		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compen-sation ($)	Total ($)
Position	Year	($)		($)		($)	(f)	($)		(h)	(i)	(j)
(a)	(b)	(c)		(d)		(e)	(6)	(g)		(11)	(12)	(13)

Robert A. Peterson, President and Chief Executive Officer	2007 2006	625,000 570,000		— —		— —	494,566 749,721	622,125 499,662	(7) (7)	26,388 621,216	18,048 16,548	1,786,127 2,457,147
David F. Myers, Jr., Executive Vice President and Chief Financial Officer	2007 2006	435,000 395,000		— —		— —	320,013 485,113	433,000 346,257	(7) (7)	4,080 307,620	18,048 16,548	1,210,141 1,550,538
William J. Hayes, President-General Safety and Preparedness	2007 2006	390,000 72,115		16,575 88,000	(3) (3)	— —	295,597 —	351,390 71,320	(8) (8)	— —	18,048 2,048	1,071,610 233,483
Charles S. Ellis, President - North Worldwide	2007 2006	316,582 299,457	(1) (1)	24,001 40,800	(4) (4)	— —	61,742 93,596	159,364 190,402	(9) (9)	23,196 74,052	16,848 14,448	601,733 712,755
Kenneth R. Martell, Vice President and General Manager-Electrical Safety	2007 2006	209,612 197,753	(2) (2)	10,430 33,500	(5) (5)	— —	61,102 35,999	89,570 91,500	(10) (10)	12,060 22,428	16,848 22,848	399,622 404,028

(1) Mr. Ellis’ base salary was increased on March 1, 2006 from $287,834 to $302,225 and increased on March 1, 2007 from $302,225 to $320,008. The salaries set forth above represent the amounts earned by Mr. Ellis in 2006 and 2007.

(2) Mr. Martell’s base salary was increased on March 1, 2006 from $190,077 to $199,577 and increased on March 1, 2007 from $199,577 to $212,000. The salaries set forth above represent the amounts earned by Mr. Martell in 2006 and 2007.

(3) The 2007 amount represents a discretionary bonus paid to Mr. Hayes for the implementation of process improvement initiatives. The 2006 amount represents a sign-on bonus paid to Mr. Hayes as part of his employment contract.

(4) Represents discretionary bonus payments paid to Mr. Ellis. See Summary of Grants of Plan-Based Awards for further information.

(5) The 2006 and 2007 amounts represent discretionary bonuses paid to Mr. Martell for acquisition integration initiatives.

(6) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the specified year for the fair value of stock options granted to each of the named executives in such year as well as prior years, in accordance with SFAS 123R, except that, in accordance with the SEC’s rules the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, refer to Note 22 of the consolidated financial statements for the year ended December 31, 2007. See the Grants of Plan-Based Awards Table for information on awards made in a given year. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by the named executive officers.

(7) Represents bonus payments paid based on the achievement of budget consolidated EBITDA. See “Summary of Grants of Plan-Based Awards” for further information.

(8) Represents bonus payments paid based on the achievement of budget targets with respect to EBITDA of our general safety and preparedness segment. See “Summary of Grants of Plan-Based Awards” for further information.

(9) Represents bonus payments paid based on the achievement of budget targets with respect to EBITDA and net working capital of certain divisions of the general safety and preparedness segment. See “Summary of Grants of Plan-Based Awards” for further information.

(10) Represents bonus payments paid based on the achievement of budget targets with respect to: EBITDA, net sales, inventory turns, and fill rate of our electrical safety segment. See “Summary of Grants of Plan-Based Awards” for further information.

(11) Represents the change in actuarial present value of the named executive’s accumulated benefit under the Norcross Safety Products L.L.C. Employees’ Pension Plan and the North Safety Products, Inc. Retirement Benefit Restoration Plan. The Company does not have any non-qualified defined contribution plans. As discussed above under “Compensation Discussion and Analysis — Retirement Benefits,” Messrs. Peterson and Myers were not participants in the Restoration Plan prior to 2006. Amounts for Messrs. Peterson and Myers therefore reflect the full amount of the pension benefits to which they became entitled in connection with the negotiation of their employment agreements in connection with the Norcross Transaction.

(12) The dollar value of the amounts shown in this column includes the following for 2007:

Named Executive Officer	Car Allowance ($)	Matching Contributions Under 401(k) Plan ($)	Life Insurance and AD&D Premiums ($)
Robert A. Peterson	8,400	9,000	648
David F. Myers, Jr.	8,400	9,000	648
William J. Hayes	8,400	9,000	648
Charles S. Ellis	7,200	9,000	648
Kenneth R. Martell	7,200	9,000	648

(13) The salary and bonus received and reported in the Summary Compensation Table for 2007 represents the following percentages of the total compensation received and reported for each named executive officer: Mr. Peterson - 70%, Mr. Myers - - 72%, Mr. Hayes - 71%, Mr. Ellis - 83% and Mr. Martell - 77%.

Summary of Employment Agreements

Robert A. Peterson. Norcross entered into an employment agreement, dated as of May 20, 2005, with Mr. Peterson, pursuant to which he serves as our President and Chief Executive Officer for a period of five years. Under the terms of this agreement Mr. Peterson is entitled to receive a base salary, as adjusted on January 1, 2007, of $625,000, a $700 per month automobile allowance, reimbursement for reasonable expenses, participation in the benefit programs (including participation in the Restoration Plan) Norcross has in place for its employees who are not members of a collective bargaining unit (on a basis

commensurate with his position), and four calendar weeks of vacation per year. Pursuant to the terms of his agreement, for a period of eighteen months following the termination of Mr. Peterson’s employment, he shall be subject to a non-competition provision which states that Mr. Peterson cannot, without the prior written consent of Norcross, directly or indirectly participate in any line of business that is competitive with Norcross. For purposes of the non-competition provision, “participate” means direct or indirect ownership or assistance to any enterprise, excluding ownership of less than 2% of a class of securities on a national securities exchange or NASDAQ. The non-competition provision is limited in geographic scope to the United States and any other county in which Norcross does business. Upon termination, Mr. Peterson is also subject to an eighteen-month non-solicitation provision, which is applicable to customers, suppliers, business relations and employees of Norcross. Notwithstanding the foregoing, in the event Mr. Peterson’s employment with Norcross is terminated, he is permitted to solicit the employment of his personal assistant and Mr. Myers. In connection with the Norcross Transaction, in addition to the capital stock purchased by Mr. Peterson, Safety Products agreed to issue to Mr. Peterson options to purchase shares of capital stock of Safety Products equal to 4.25% of its fully diluted equity, which grants were made on January 2, 2006.

David F. Myers, Jr. Norcross entered an employment agreement, dated as of May 20, 2005, with Mr. Myers, pursuant to which he serves as our Executive Vice President and Chief Financial Officer on substantially the same terms as those contained in Mr. Peterson’s employment agreement, except that (1) his base salary, as adjusted on January 1, 2007, is $435,000, (2) the non-solicitation provision contained in Mr. Myers’ agreement provides an exception allowing Mr. Myers to solicit the employment of his personal assistant and Mr. Peterson, and (3) in connection with the Norcross Transaction, in addition to the capital stock purchased by Mr. Myers, Safety Products agreed to issue to Mr. Myers options to purchase shares of capital stock of Safety Products equal to 2.75% of its fully diluted equity, which grants were made on January 2, 2006.

William J. Hayes. Norcross entered into an employment agreement, dated as of September 8, 2006, with Mr. Hayes, pursuant to which he serves as President-General Safety and Preparedness. Under the terms of this agreement, Mr. Hayes is entitled to receive a base salary, as adjusted on January 1, 2007, of $390,000, a $700 per month automobile allowance, participation in all employee benefits plans for which senior executives are eligible, and four calendar weeks of vacation per year.

Charles S. Ellis. Our subsidiary, North Safety, entered into an employment agreement, dated as of May 20, 2005, with Mr. Ellis, pursuant to which he serves as President-North Worldwide for an initial term of three years. Under the terms of this agreement, Mr. Ellis is entitled to receive a base salary, as adjusted on March 1, 2007, of $320,008, a $600 per month automobile allowance, participate in all employee benefits plans for which senior executives of North Safety are eligible, and three calendar weeks of vacation per year. Pursuant to the terms of his agreement, for a period of eighteen months following the termination of Mr. Ellis’ employment, he shall be subject to (1) a non-competition provision, which has no limit in geographic scope and (2) a non-solicitation provision, which is applicable to customers, suppliers and employees of North Safety.

Kenneth R. Martell. Our electrical safety segment entered into an employment agreement in August 1999 with Mr. Martell pursuant to which he serves as Vice President and General Manager. Under the terms of this agreement, Mr. Martell is entitled to receive a base salary, as adjusted on March 1, 2007, of $212,000. Mr. Martell is also entitled to participate in all employee benefits plans for which senior executives are eligible, a $600 per month automobile allowance and three calendar weeks of vacation per year.

On June 30, 2007, Safety Products entered into an agreement with our electrical safety segment and Mr. Martell regarding Mr. Martell’s future retirement from his position as Vice President and General Manager of our electrical safety segment, and any other offices, positions and titles he holds with the Company or any of its affiliates. The effective date of Mr. Martell’s retirement will be March 31, 2008 (the “Resignation Date”). Assuming Mr. Martell retires on the Resignation Date, he shall be entitled to receive, through the close of business on December 31, 2008, health care benefits and an automobile allowance as currently provided in his employment agreement, and payments totaling $166,500. Further, assuming Mr. Martell retires on the Resignation Date, his then outstanding options shall be eligible to continue to vest, subject to the satisfaction of certain conditions, during the period beginning on the Resignation Date and ending on December 31, 2008, as if he was still an employee of the Company during such period. The terms of Mr. Martell’s retirement agreement were conditioned upon his execution and delivery of a general release in favor of Norcross and Safety Products, concurrently with his execution of the retirement agreement.

Grants of Plan-Based Awards

The following table summarizes information regarding awards granted under the Company’s equity and non-equity incentive plans during 2007:

					All Other Option
		Estimated Possible Payouts			Awards: Number of	Exercise or	Grant Date
		Under Non-Equity Incentive Plan(1)			Securities Underlying	Base Price of Option	Fair Value of Stock
	Grant	Threshold	Target	Maximum	Options	Awards	and Option
Name	Date	($)	($)	($)	(#)	($/Sh)	Awards
(a)	(b)	(c)	(d)	(e)	(j)	(k)	(l)
Robert A. Peterson	1/1/07	—	562,500	703,125	—	—	—
David F. Myers, Jr.	1/1/07	—	391,500	489,375	—	—	—
William J. Hayes	1/1/07	—	331,500	414,375	—	—	—
Charles S. Ellis	1/1/07	—	192,005	240,006	—	—	—
Kenneth R. Martell	1/1/07	—	106,000	132,500	—	—	—

(1) Such amounts represent the target and maximum amounts possible under the annual cash bonuses for 2007. For a more detailed description of the bonus targets and maximums, please see the discussion entitled “Summary of Grants of Plan-Based Awards” below.

Summary of Grants of Plan-Based Awards

Bonus Payments for Messrs Peterson and Myers. The target bonus for each of Mr. Peterson and Mr. Myers was based on the achievement of a budget consolidated EBITDA of $97,873,000. The target bonus payable to each of Messrs. Peterson and Myers was equal to 90% of such executive’s base salary. The maximum amount of bonus available to Messrs. Peterson and Myers was equal to 125% of such executive’s target bonus in the event 110%-120% of the target EBITDA was achieved, declining ratably to 100% of the target bonus if 100% of the target EBITDA was achieved, and declining to 0% of the target bonus if less than 90% of the target EBITDA was achieved. For 2007, these targets were 105.2% achieved and Mr. Peterson and Mr. Myers received the bonuses set forth in the Summary Compensation Table.

Bonus Payments for Mr. Hayes. The target bonus for Mr. Hayes was based on the achievement of a budget EBITDA of our general safety and preparedness segment of $67,548,000. The target bonus for Mr. Hayes was equal to 85% of his base salary. The maximum amount of bonus available to Mr. Hayes was equal to 125% of such executive’s target bonus in the event 110%-120% of the target EBITDA was achieved, declining ratably to 100% of the target bonus if 100% of the target EBITDA was achieved, and declining to 0% of the target bonus if less than 90% of the target EBITDA was achieved. For 2007, these targets were 103.0% achieved and Mr. Hayes received the bonus set forth in the Summary Compensation Table.

Bonus Payments for Mr. Ellis. The target bonus for Mr. Ellis was equal to 60% of his base salary and was based on the achievement of the following budget performance targets with respect to certain divisions of the general safety and preparedness segment: target EBITDA of $61,754,000 and net working capital of 28.8% of net sales, with the EBITDA component comprising 60% of the target bonus and the net working capital component comprising 40% of the target bonus. Mr. Ellis was eligible to receive up to an additional 15% of his base salary as a discretionary bonus. The maximum amount of bonus available to Mr. Ellis was equal to 125% of his target bonus in the event 110%-120% of the performance targets were achieved, declining ratably to 100% of the target bonus if 100% of the performance targets were achieved, and declining to 0% of the target bonus if less than 90% of the performance targets were achieved. For 2007, 96.2% of the EBITDA and net working capital targets were achieved and Mr. Ellis received the bonus set forth in the Summary Compensation Table. In addition, Mr. Ellis was paid the discretionary bonus set forth in the Summary Compensation Table for launching process improvement initiatives and integration activities.

Bonus Payments for Mr. Martell. The target bonus for Mr. Martell was equal to 40% of his base salary and was based on the achievement of the following budget performance targets with respect to our electrical safety segment: EBITDA of $26,445,000, net sales of $91,410,000 and the achievement of inventory turns and fill rate, with the EBITDA component

comprising 70% of the target bonus, the net sales component comprising 10% of the target bonus, the inventory turns component comprising 15% of the target bonus and the fill rate component comprising 5% of the target bonus. The maximum amount of bonus available to Mr. Martell was equal to 125% of his target bonus in the event 110%-120% of the performance targets were achieved, declining ratably to 100% of the target bonus if 100% of the performance targets were achieved, and declining to 0% of the target bonus if less than 90% of the performance targets were achieved. For 2007, 96.7% of these targets were achieved and Mr. Martell received the bonus set forth in the Summary Compensation Table.

Option Grants for Messrs. Peterson, Myers, Ellis and Martell. Options are subject to time vesting and are conditioned upon continual employment in active service. For Messrs. Peterson, Myers, Ellis and Martell, one-third of the options covered by the grant vest in five installments, with 4.1333% of the grant amount vesting on the grant date and an additional 7.29925% vesting in each of the four fiscal years from 2006 through 2009 (with each such annual installment vesting quarterly on the last day of each calendar quarter). The remaining two-thirds of the options covered by the grant become exercisable on the day immediately preceding the eighth anniversary of the grant date; however the vesting on this portion of the option award is subject to acceleration if the EBITDA-based targets set forth in the grant agreement are met. With respect to the two-thirds for which vesting is subject to acceleration, the grant agreements provide that an installment consisting of 7.2900% of the shares became exercisable on March 31, 2006 and an installment consisting of 14.8425% would become exercisable on or within 120 days following December 31 of each calendar year 2006 through 2009, if the EBITDA-based target for the year was met. If the targets are not met for any calendar year 2006 through 2009, the portion of the option that was subject to acceleration will become exercisable on, or within 120 days following, the first December 31 on which the EBITDA-based target for such year is met and the cumulative EBITDA-based target is met.

Option Grants for Mr. Hayes. For Mr. Hayes, one-third of the options covered by the grant vest in three installments, with 11.11% vesting in each of the three fiscal years from 2007 through 2009 (with each such annual installment vesting quarterly on the last day of each calendar quarter). The remaining two-thirds of the options covered by the grant become exercisable on the day immediately preceding the eighth anniversary of the grant date; however the vesting on this portion of the option award is subject to acceleration if the EBITDA-based targets set forth in the grant agreement are met. With respect to the two-thirds for which vesting is subject to acceleration, the grant agreement provides that an installment consisting of 22.22% would become exercisable on or within 120 days following December 31 of each calendar year 2007 through 2009, if the EBITDA-based target for the year was met. If the targets are not met for any calendar year 2007 through 2009, the portion of the option that was subject to acceleration will become exercisable on, or within 120 days following, the first December 31 on which the EBITDA-based target for such year is met and the cumulative EBITDA-based target is met.

For purposes of our option vesting schedule and the bonus payment calculations, EBITDA means the sum of (a) the sum of (i) Adjusted EBITDA (which represents EBITDA adjusted for management incentive compensation; (gain) loss on sale of property, plant and equipment; inventory purchase accounting adjustments; non-cash pension curtailment gain and seller transaction expenses), plus (ii) any LIFO reserve adjustment (whether positive or negative), plus (iii) unrealized foreign exchange gains or losses, plus (iv) other non-recurring or extraordinary gains or losses, plus (b) any management or similar fees charged to the Company by any principal stockholder (but only to the extent that such fees are deducted from the earnings described in clause (a) above but excluding reimbursement of any reasonable out of pocket fees and expenses). EBITDA may be adjusted to reflect the impact of acquisitions.

The specific EBITDA and Cumulative EBITDA targets are as follows:

EBITDA Targets	2006		2007		2008		2009
Total Annual EBITDA	$	83,624,000	$	92,623,000	$	97,912,000	$	101,951,000
Cumulative EBITDA Targets	150,724,000		243,346,000		341,258,000		443,209,000

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding equity awards held by our named executive officers for 2007:

	Option Awards
					Equity
					Incentive
					Plan
					Awards:
	Number		Number		Number
	of		of		of
	Securities		Securities		Securities
	Underlying		Underlying		Underlying
	Unexercised		Unexercised		Unexercised	Option
	Options		Options		Unearned	Exercise	Option
	(#)		(#)		Options	Price	Expiration
Name	Exercisable		Unexercisable		(#)	($)	Date
(a)	(b)		(c)		(d)	(e)	(f)

Robert A. Peterson	290,044	(1)(2)	230,617	(3)	—	10.00	1/2/16
David F. Myers, Jr.	187,675	(1)	149,223	(3)	—	10.00	1/2/16
William J. Hayes	40,000	(4)	80,000	(5)	—	19.67	10/16/16
Charles S. Ellis	36,209	(1)	28,791	(3)	—	10.00	1/2/16
Kenneth R. Martell	13,927	(1)	11,073	(6)	—	10.00	1/2/16

(1) Exercisable options are comprised of (i) 4.13333% of the shares covered by the option grant, which vested as of January 2, 2006, plus (ii) 7.29925% of the shares covered by the option grant, which vested as of December 31, 2006, plus (iii) 7.29000% of the shares covered by the option grant, which were subject to accelerated vesting as of March 31, 2006 based on the achievement of the applicable EBITDA target as set by the board, plus (iv) 14.8425% of the shares covered by the option grant, which were subject to accelerated vesting as of December 31, 2006 based on the achievement the applicable EBITDA target as set by the board, plus (v) 7.29925% of the shares covered by the option grant, which vested as of December 31, 2007, plus (vi) 14.8425% of the shares covered by the option grant, which were subject to accelerated vesting as of December 31, 2007 based on the achievement the applicable EBITDA target as set by the board.

(2) On December 31, 2007, Mr. Peterson transferred a portion of his vested options representing the right to acquire 50,000 shares of the Company’s common stock to various trusts held for the benefit of his children.

(3) Unexercisable options will vest as follows: (i) an installment consisting of 7.29925% of the shares covered by the option grant shall become exercisable at the rate of 25% of the installment on the last day of each calendar quarter for each year ending December 31, 2008 and 2009; (ii) 29.685% of the shares subject to the option grant shall become fully exercisable on January 1, 2014, provided that the optionee remains continuously employed through such date, provided further that an installment consisting of 14.8425% of the shares covered by the option grant shall be subject to accelerated vesting on or within 120 days following December 31 of each calendar year 2008 and 2009, if the EBITDA as of such December 31 equals or exceeds the applicable EBITDA target for such year as set by the board.

(4) Exercisable options are comprised of (i) 11.11% of the shares, which vested as of December 31, 2007, plus (ii) 22.22% of the shares covered by the option grant, which were subject to accelerated vesting as of December 31, 2007 based on the achievement the applicable EBITDA target as set by the board.

(5) Unexercisable options will vest as follows: (i) an installment consisting of 11.11% of the shares covered by the option grant shall become exercisable at the rate of 25% of the installment on the last day of each calendar quarter for each year ending December 31, 2008 and 2009; (ii) 44.44% of the shares subject to the option grant shall become fully exercisable on January 1, 2015, provided that the optionee remains continuously employed through such date, provided further that an installment consisting of 22.22% of the shares covered by the option grant shall be subject to accelerated vesting on or within 120 days following December 31 of each calendar year 2008 and 2009, if the EBITDA as of such December 31 equals or exceeds the applicable EBITDA target for such year as set by the board.

(6) Unexercisable options will vest as follows: (i) an installment consisting of 7.29925% of the shares covered by the option grant shall become exercisable at the rate of 25% of the installment on the last day of each calendar quarter for the year ending December 31, 2008; (ii) 14.8425% of the shares covered by the option grant shall be subject to accelerated vesting on or within 120 days following December 31 of the calendar year 2008, if the EBITDA as of such December 31 equals or exceeds the applicable EBITDA target for such year as set by the board. The remaining unvested options will be cancelled as of December 31, 2008. See Summary of Employment Agreements.

Option Exercises and Stock Vested

There were no options exercised in 2007.

PENSION BENEFITS TABLE

		Number of Years of	Present Value of	Payments During
		Credited Service	Accumulated Benefit	Last Fiscal Year
Name	Plan Name	(#)	($)	($)
(a)	(b)	(c)	(d)	(e)
Robert A. Peterson	North Safety Products Benefit Restoration Plan	11.7	647,604	—
David F. Myers, Jr.	North Safety Products Benefit Restoration Plan	11.5	311,700	—
William J. Hayes	¾	¾	¾	¾
Charles S. Ellis	Norcross Safety Products L.L.C. Employees Pension Plan North Safety Products Benefit Restoration Plan	5.5 5.5	117,912 158,628	—
Kenneth R. Martell	W.H. Salisbury & Co. Employees Pesion Plan	7.4	168,156	—

Norcross Safety Products L.L.C. Employees’ Pension Plan. Messrs. Ellis and Martell participate in the Norcross Safety Products L.L.C. Employees’ Pension Plan (the “NSP Pension Plan”), which is a tax-qualified defined benefit plan. Mr. Ellis’ benefits are determined by the North Safety Benefit formula and Mr. Martell’s benefits are determined by the W.H. Salisbury Benefit formula as described below. Under the terms of the NSP Pension Plan, eligibility for Normal Retirement is age 65. Eligibility for Early Retirement for employees of North Safety Products is age 55 with ten years of service. Eligibility for Early Retirement for employees of W. H. Salisbury is age 62 with twenty years of service. As of December 31, 2007 neither Messrs. Ellis nor Martell are eligible for Normal Retirement or Early Retirement benefits under the terms of the NSP Pension Plan. No additional benefits will be earned after December 31, 2006.

North Safety Benefits under the NSP Pension Plan are calculated based on (1) the employee’s average monthly compensation for the five consecutive calendar years for which the participant’s aggregate compensation was greatest and (2) the employee’s years of credited service. Compensation includes total cash compensation required to be reported on Form W-2, plus any compensation deferred under Section 401(k) of the Internal Revenue Code, plus any compensation reductions under a plan pursuant to Section 125 of the Internal Revenue Code, but excluding reimbursements, other expense allowances, fringe benefits, deferred compensation and welfare benefits. Compensation is subject to Internal Revenue Code limitations. The monthly benefits calculated for Mr. Ellis under the North Safety formula equals:

· 1.0% of the participant’s average final monthly compensation, plus 0.5% of the participant’s average final monthly compensation in excess of covered compensation, multiplied by years and partial years of credited service limited to 35 years on the excess portion.

W.H. Salisbury Benefits under the NSP Pension Plan are calculated based on (1) the employee’s average monthly compensation for the three consecutive years out of the last 10 years which yields the highest average and (2) the employee’s years of credited service. Compensation includes all amounts paid for services rendered in the course of employment

excluding certain amounts which receive special tax benefits defined under the plan. Compensation is subject to Internal Revenue Code limitations. The monthly benefits calculated for Mr. Martell under the W.H. Salisbury formula equals:

· 1.63% of the participant’s average final monthly compensation, plus 0.65% of the participant’s average final monthly compensation in excess of covered compensation, multiplied by years and partial years of credited service limited to 20 years; less

· profit sharing account balance which could be received as a straight life annuity provided to the participant under W.H. Salisbury & Co.’s defined contribution plan.

North Safety Products Benefit Restoration Plan. Messrs. Ellis, Myers and Peterson participate in a non-qualified, unfunded defined benefit plan (the “Restoration Plan”). Eligibility for this plan includes North Safety Products employees whose benefits are limited by the Internal Revenue Code or those employees selected by Safety Products board of directors. The Restoration Plan provides a supplemental benefit equal to the maximum benefit amount that the participant would have received under the NSP Pension Plan if (1) there were no limitations on the maximum benefits payable under the NSP Pension Plan, and (2) if certain Internal Revenue Code limitations did not apply, and (3) if the prior plan formula under the NSP Pension Plan continued to be effective for all years of credited service. Eligibility for payment of benefits under the Restoration Plan is the same as provided in the NSP Pension Plan. No additional benefits will be earned after December 31, 2006. The monthly benefits calculated under the Restoration Plan equal the greater of the formula below offset by the monthly benefits provided under the NSP Pension Plan.

· 1.0% of the participant’s average final monthly compensation, plus 0.5% of the participant’s average final monthly compensation in excess of “covered compensation,” multiplied by years and partial years of credited service limited to 35 years on the excess portion; or

· 1.67% of the participant’s average final monthly compensation multiplied by years and partial years of credited service, less 1.67% of the participants primary social security benefit multiplied by his years of service and full months of credited service, not to exceed 30 years.

The monthly benefits payable to Messrs. Peterson and Myers under the Restoration Plan will be equal to the above formula multiplied by 37%.

Termination and Change in Control Arrangements

Assuming each executive officer’s employment was terminated under each of the circumstances set forth below on December 31, 2007, the estimated values of payments and benefits to each named executive officer are set forth in the following table:

Name

Benefit

Termination
with
Cause or without
Good Reason

Termination
without
Cause or for
Good
Reason

Change in
Control

Termination in
the
Event of
Disability
or Death

Robert A. Peterson

Salary

1,250,000

1,164,984

1,250,000

Bonus(1)

622,125

Medical Benefits

22,616

All Other Compensation(2)

18,096

—

Option Vesting(3)

5,901,500

David F. Myers, Jr.

Salary

870,000

810,839

870,000

Bonus(1)

433,000

Medical Benefits

22,616

All Other Compensation(2)

18,096

—

Option Vesting(3)

3,818,614

William J. Hayes

Salary

780,000

Bonus(1)

—

367,965

Medical Benefits

22,674

All Other Compensation

Option Vesting(3)

1,273,606

Charles S. Ellis

Salary

480,012

Bonus(1)

183,365

Medical Benefits

All Other Compensation

Option Vesting(3)

736,751

Kenneth R. Martell

Salary

Bonus

Medical Benefits

All Other Compensation

Option Vesting(3)

283,366

(1) Includes bonus payments with respect to fiscal 2007 that are reflected in column (d) and column (g) of the Summary Compensation Table.

(2) The dollar value of the amounts shown in this column includes the following, which amounts represent the two-year total of such benefits based on the value for fiscal 2007:

Named Executive Officer	Car Allowance ($)	Life Insurance and AD&D Premiums ($)
Robert A. Peterson	16,800	1,296
David F. Myers, Jr.	16,800	1,296

(3) At the discretion of the board of directors, unexercisable options may become exercised in connection with a change of control if a certain internal rate of return is achieved by Odyssey. Odyssey’s target internal rate of return would have been achieved if a change in control had occurred on December 31, 2007. Amounts represent value of unvest options as of December 31, 2007 that would vest upon a change in control.

Summary of Termination and Change in Control Arrangements

Messrs. Peterson and Myers. In the event employment of Messrs. Peterson and Myers is terminated by Norcross for cause or by the executive without good reason, the executive will be entitled to his base salary and benefits for the period ending on the date of such termination and any unpaid bonus for any calendar year ending prior to the year in which such termination occurs.

In the event that employment is terminated (1) by Norcross without cause, (2) by the executive for good reason, (3) due to the executive’s death or disability, or (4) due to Norcross not offering, at least 90 days prior to the end of the term of employment, to continue the executive’s employment for a period of at least two years, the executive (or his estate) will be entitled to his base salary and benefits for the period ending on the date of termination, any unpaid bonus for any calendar year ending prior to the year in which such termination occurs, a pro rata bonus for the calendar year in which termination occurs and his base salary and benefits for a period of 2 years if, within 30 days of termination, the executive signs and delivers to Norcross a general release from claims arising from facts and circumstances existing before the date of such release. In the event such executive’s employment terminated because Norcross elected not to continue his employment after the expiration of the initial term, the severance payment as described above will be offset by any payments or benefits received by the executive in the second year following such termination as a result of his having obtained new employment. Any amounts due to the executive shall be paid as if he had not been terminated, except that in the event the executive terminated his employment due to a change in control, such amounts shall be paid in a lump sum within 10 days of his resignation, in an amount discounted to present value at a rate of 7% per year. In the event that employment is terminated (1) by Norcross with cause or (2) by the executive without good reason, the executive shall be entitled to (i) receive base salary and benefits for the period ending on the termination date; and (ii) receive any unpaid bonus for any calendar year ending prior to the year in which the termination date incurred.

For purposes of the executives’ employment agreements, the terms “cause” and “good reason” are defined as follows:

· “cause” means the executive’s: (1) embezzlement or misappropriation of funds; (2) conviction of a felony involving moral turpitude; (3) commission of a material act of dishonesty; (4) fraud or deceit; (5) breach of any material provision of the employment agreement or other agreement with Norcross, Safety Products or any subsidiary thereof; (6) habitual or willful neglect of duties; (7) breach of fiduciary duty; or (8) material violation of any other duty to Norcross, Safety Products or any subsidiary thereof.

· “good reason” means: (1) material breach by Norcross of its obligations to the executive if not cured within twenty days after written notice by executive to Norcross; (2) Norcross requiring executive to move his principal place of employment by more than 25 miles if such move increases executive’s commute; (3) the failure of any successor to Norcross to assume executive’s employment agreement; (4) a change of control.

Mr. Hayes. In the event employment is terminated by us or Norcross without cause or by Mr. Hayes because his base salary has been reduced, Norcross shall, (1) for a period of twenty-four months following such termination or resignation, pay Mr. Hayes his base salary as of such termination date, (2) pay Mr. Hayes any accrued annual bonus earned but not yet paid, for the fiscal year prior to the year of such termination date and (3) pay Mr. Hayes a prorated annual bonus for the fiscal year which includes such termination date. Additionally, Mr. Hayes shall be entitled to receive medical insurance from the termination date through the second anniversary of such termination date.

For purposes of Mr. Hayes’ employment agreement, the term “cause” has the same meaning as defined in the employment agreements for Messrs. Peterson and Myers.

Mr. Ellis. In the event employment is terminated by North Safety without cause or by Mr. Ellis with good reason, North Safety shall, for a period of eighteen months following such termination or resignation, pay Mr. Ellis his base salary as of such termination date. As a condition of such severance payment, Mr. Ellis shall continue to be bound by the covenants not to compete or solicit as specifically set forth in his employment agreement. In the event employment of Mr. Ellis is terminated (1) by North Safety for cause, (2) by Mr. Ellis without good reason or (3) due to his death or disability, Mr. Ellis will be entitled to the sum of any unpaid base salary through the date of termination, plus accrued and unpaid vacation pay and any unreimbursed expenses incurred by Mr. Ellis on behalf of North Safety.

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For purposes of Mr. Ellis’ employment agreement, the terms “cause” and “good reason” are defined as follows:

· “cause” has the same meaning as defined in the employment agreements for Messrs. Peterson and Myers, except that the definition for Mr. Ellis also includes: (1) failure to correct insubordination; (2) failure to comply with instructions; or (3) other acts or omissions that adversely affect operations.

· “good reason” means Mr. Ellis’ resignation as a result of: (1) a substantial diminution of responsibilities, duties or authorities; (2) a reduction of his perquisites, including office facilities and support staff; (iii) a relocation to an area more than fifty miles from the current location; or (4) a material breach of his employment agreement by North Safety, which is not cured within 30 days after written notice by Mr. Ellis to North Safety.

Option Plan. As described in the Compensation Discussion and Analysis, upon a change in control, previously unvested options would become exercisable if specified internal rate of return and a multiple of investment dollars had been achieved by Odyssey. As of December 31, 2007, such target internal rates of return and multiple of investment dollars were achieved and options would accelerate upon a change in control at the discretion of the board of directors.

Director Compensation

None of our employees are entitled to any compensation for serving on our board of directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Principal Equityholders

The following table sets forth certain information with respect to the beneficial ownership of the common stock of Safety Products as of February 29, 2008, by:

· Each person, or group of affiliated persons, who is known by us to own beneficially more than 5.0% of its common stock;

· Each of our directors and named executive officers; and

· All of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rule of the SEC. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 29, 2008, are deemed outstanding for calculating the percentage of outstanding share of the person holding these options, but are not deemed outstanding for the percentage of any other person. Percentage of beneficial ownership is based upon 11,023,384 shares of common stock outstanding as of February 29, 2008. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is as follows: c/o Safety Products Holdings, Inc., 2001 Spring Road, Suite 425, Oak Brook, Illinois 60523.

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	Common Stock
Name	Number Including Underlying Options		Number Underlying Options	Percent
Odyssey Investment Partners Fund III, LP c/o Odyssey Investment Partners, LLC 280 Park Avenue West Tower New York, NY 10017	8,260,000	(1)	—	74.9	%
Safety Products, LLC c/o GE Asset Management Incorporated 3001 Summer Street Stamford, CT 06905	2,500,000		—	22.7	%
Robert A. Peterson	409,545		299,545	3.6	%
David F. Myers, Jr.	243,823		193,823	2.2	%
William J. Hayes	50,955		43,329	*
Charles S. Ellis	50,396		37,396	*
Kenneth R. Martell	17,883		14,383	*
Brian Kwait	8,301,258	(2)(3)(4)(5)	—	75.3	%
Craig P. Staub	—		—	*
Matthew A. Satnick	—		—	*
All directors and executive officers as a group (9 persons)	9,105,057		607,173	78.3	%

* Represents beneficial ownership of less than one percent.

(1) Odyssey Capital Partners III, LLC, or Odyssey Capital, is the general partner of Odyssey Investment Partners Fund III, LP, or Odyssey Fund, and by virtue of such status may be deemed to be the beneficial owner of the shares held by Odyssey Fund. Mr. Kwait is a Managing Member of Odyssey Capital and does not have the power individually to direct or veto the voting or disposition of shares held by Odyssey Fund. Odyssey Capital expressly disclaims beneficial ownership of the shares held by Odyssey Fund.

(2) Includes 8,260,000 shares of common stock owned by Odyssey Fund.

(3) Mr. Kwait may be deemed to share beneficial ownership of the shares held by Odyssey Fund by virtue of his status as a Managing Member of Odyssey Capital. Mr. Kwait expressly disclaims beneficial ownership of any shares held by Odyssey Fund that exceed his pecuniary interest therein. The members and managers of Odyssey Capital share investment and voting power with respect to securities owned by Odyssey Fund, but no individual controls such investment or voting power.

(4) Includes 41,258 shares of common stock owned by Safety Products Coinvestment LLC, or Coinvestment LLC. Odyssey Investment Partners, LLC, or Odyssey, is the managing member of Coinvestment LLC and by virtue of such status may be deemed to be the beneficial owner of the shares held by Coinvestment LLC. Mr. Kwait is a Managing Member of Odyssey and does not have the power individually to direct or veto the voting or disposition of shares held by Coinvestment LLC. Odyssey expressly disclaims beneficial ownership of the shares held by Coinvestment LLC.

(5) Mr. Kwait may be deemed to share beneficial ownership of the shares held by Coinvestment LLC by virtue of his status as a Managing Member of Odyssey. Mr. Kwait expressly disclaims beneficial ownership of any shares held by Coinvestment LLC that exceed his pecuniary interest therein.

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Equity Compensation Plan Information

The following table provides information as of December 31, 2007 about the common stock that may be issued under all of the existing equity compensation plans, including the 2005 Option Plan of Safety Products. The 2005 Option Plan has been approved by the stockholders.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities Remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	1,421,559	$	11.49	15,072

Equity compensation plans not approved by security holders	—	—		—
Total	1,421,559	$	11.49	15,072

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Stockholders Agreement

On July 19, 2005, Safety Products entered into a stockholders agreement with Odyssey Investment Partners Fund III, LP (“Odyssey Fund”) and Safety Products, LLC (“SPL”). The stockholders agreement includes certain restrictions on the transfer of shares of common stock including the granting to Odyssey Fund of a right of first refusal with respect to sales of shares held by SPL at any time prior to the fifth anniversary of the execution date of the agreement. Under certain circumstances, SPL has “tag-along” rights to sell its shares on a pro rata basis with Odyssey Fund in certain sales to third parties. If Odyssey Fund approves a sale of shares of common stock, Odyssey Fund has the right to require SPL to sell their shares on the same terms. In addition, subject to certain exceptions, including issuance pursuant to an initial public offering, the stockholders agreement grants holders of common stock party thereto preemptive rights with respect to issuances of common stock by Safety Products.

The stockholders agreement also includes certain registration rights which provide that, upon the written request of either Odyssey Fund or SPL, Safety Products has agreed to, on one or more occasions following an initial public offering, prepare and file a registration statement with the SEC concerning the distribution of all or part of the shares of common stock held by Odyssey Fund and SPL, and use its commercially reasonable efforts to cause the registration statement to become effective. Following an initial public offering by Safety Products, Odyssey Fund and SPL will also have the right, subject to certain exceptions and rights of priority, to have their shares included in certain registration statements filed by Safety Products. Registration expenses of the selling stockholders (other than underwriting discounts and commissions and transfer taxes applicable to the shares sold by such stockholders or the fees and expenses of any accountants or other representatives retained by a selling stockholder) will be paid by Safety Products. Safety Products has also agreed to indemnify the stockholders against certain customary liabilities in connection with any registration.

Management Stockholders Agreement

On July 19, 2005, Safety Products also entered into a management stockholders agreement with Odyssey Fund and the management investors. The management stockholders agreement generally restricts the transfer of shares of common stock without the consent of Odyssey Fund. Exceptions to this restriction include transfers for estate planning purposes, in each case so long as any transferee agrees to be bound by the terms of the management stockholders agreement.

Safety Products and Odyssey Fund have a right of first refusal under the management stockholders agreement with respect to sales of shares of common stock held by management investors. Under certain circumstances, the stockholders have “tag-along” rights to sell their shares on a pro rata basis with the selling stockholder in certain sales to third parties. If

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Odyssey Fund approves a sale of shares of common stock, Odyssey Fund has the right to require the management stockholders to sell their shares on the same terms. The agreement also contains a provision that gives Safety Products the right to repurchase a management investor’s shares upon termination of that management investor’s employment and gives the management stockholder the right to require Safety Products to repurchase such stockholder’s shares upon termination of that management investor’s employment. In addition, subject to certain exceptions, including issuance pursuant to an initial public offering, the management stockholders agreement grants holders of common stock party thereto preemptive rights with respect to issuances of common stock by Safety Products to Odyssey Fund.

Family Relationships

William L. Grilliot, our President—Fire Service, is the husband of Mary I. Grilliot, the Vice President of our subsidiary, Morning Pride Manufacturing L.L.C. Mr. and Mrs. Grilliot were each paid an aggregate salary and bonus of $300,835 and $233,086 for their services during the years ended December 31, 2007 and 2006, respectively.

Real Property Leases

Morning Pride Manufacturing L.L.C. leases a facility in Dayton, Ohio from American Firefighters Cooperative, Inc., a corporation controlled by William L. Grilliot, our President—Fire Service. The initial term of the lease ended on February 28, 2005 and was extended through April 30, 2009. The base rent is $347,816 per year, payable in monthly installments. In addition, we must also pay American Firefighters Cooperative, Inc. the actual amount of all real estate taxes, and all general and special assessments of every kind, as additional rent during the term of the lease. The annual rent paid in each of 2007, 2006 and 2005 was $382,193, $382,111 and $373,181, respectively. If the lease expires or is terminated at any time prior to July 1, 2010, we must reimburse American Firefighters Cooperative, Inc. an amount equal to the number of months remaining in the rental term multiplied by $1,206. In December 2007, an amendment to the lease was entered related to the expansion of the facility. The base rent under the amended lease is $587,647 per year, payable in monthly installments and began upon completion of the expansion, which was January 2008. The lease was extended five years from the date of completion.

Related Party Policy

We do not have a formal related party approval policy for review and approval of transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K. However, it is our policy to comply with the covenant related to transactions with affiliates that is contained in the indenture governing our notes.

Director Independence

The Company has no securities listed for trading on a national securities exchange or in an automated inter-dealer quotation system of a national securities association which has requirements that a majority of its board of directors be independent. For purposes of complying with the disclosure requirements of the Securities and Exchange Commission, the Company has adopted the definition of independence used by The Nasdaq Stock Market LLC (“Nasdaq”). Our board of directors believes that each of our three non-employee directors, Messrs. Kwait, Satnick and Staub, qualifies as an independent director based on the definition of independent director set forth in Rule 4200(a)(15) of the Nasdaq Marketplace rules. In this regard, we note that we do not believe that the payments we have made to Odyssey in our last three fiscal years have exceeded 5% of Odyssey’s consolidated gross revenues in any of those years. Our audit committee is comprised of Messrs. Kwait and Staub, each of whom our board of directors believes qualifies as an independent director under Nasdaq’s definition of independent director. Note that under Rule 4350(c)(5) of the Nasdaq Marketplace Rules, we would be considered a “controlled company” because more than 50% of our voting power is held by another company. Accordingly, even if we were a listed company on Nasdaq, we would not be required to maintain a majority of independent directors on our board.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for services provided by Ernst & Young LLP (“E&Y”) for fiscal year 2006 and 2007. All Audit Fees, Audit-Related Fees, Tax Fees and Other Fees were pre-approved by the Audit Committee in accordance with its established procedures.

(In thousands)	2006		2007
Audit Fees (a)	$	1,103,342	$	1,143,046
Audit-Related Fees (b)	125,000		47,000
Tax Fees (c)	1,133,350		922,642
All Other Fees	12,823		—
Total	$	2,374,515	$	2,112,688

(a) Fees for professional services provided for the audit of the Company’s annual financial statements as well as reviews of the Company’s quarterly reports on Form 10-Q, accounting consultations on matters addressed during the audit or interim reviews, SEC filings and offering memorandums including comfort letters and consents and assistance with SEC comment letters.

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(b) Fees for professional services which principally include services in connection with internal control matters.

Pre-Approval Policy

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditor. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditor and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval policy, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The aggregate amount of all such pre-approved services constitutes 100% of the total amount of fees paid by us to E&Y.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The financial statements filed as part of this Form 10-K are described in the Index to Consolidated Financial Statements in Item 8 above.

(a)(2) Financial Statement Schedules (included in Item 8 above)

Schedule II—Valuation and Qualifying Accounts and Reserves

(a)(3) Exhibits

See attached Exhibit Index.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Safety Products Holdings, Inc.

	/s/ Robert A. Peterson
	By:	Robert A. Peterson
Date: March 13, 2008	Its:	President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on March 13, 2008.

Signatures		Capacity


/s/ Robert A. Peterson		President, Chief Executive Officer and Director
Robert A. Peterson		(Principal Executive Officer)


/s/ David F. Myers, Jr.		Executive Vice President, Chief Financial Officer,
David F. Myers, Jr.		Secretary and Director
		(Principal Financial and Accounting Officer)


/s/ Brian Kwait		Director
Brian Kwait


/s/ Craig P. Staub		Director
Craig P. Staub


/s/ Matthew A. Satnick		Director
Matthew A. Satnick

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EXHIBIT INDEX

Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q of Safety Products Holdings, Inc. for the fiscal quarter ended July 2, 2005).

3.2		Amended and Restated Bylaws of Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 of the Annual Report on Form 10-K of Safety Products Holdings, Inc. for the fiscal year ended December 31, 2006).

4.1		Indenture, dated as of January 7, 2005, by and between NSP Holdings L.L.C., NSP Holdings Capital Corp. and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form S-4 of NSP Holdings, L.L.C. (File No. 333-123631)).

4.2		Form of 11¾% Senior Pay in Kind Notes due 2012, Series B (incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form S-4 of Safety Products Holdings, Inc., filed on December 15, 2005).

4.3		First Supplemental Indenture dated as of July 19, 2005 among NSP Holdings L.L.C., NSP Holdings Capital Corp. and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.3 of the Registration Statement on Form S-4 of Safety Products Holdings, Inc., filed on December 15, 2005).

4.4		Second Supplemental Indenture dated as of July 19, 2005 among NSP Holdings L.L.C., NSP Holdings Capital Corp., Safety Products Holdings, Inc. and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K of Safety Products Holdings, Inc. filed on July 25, 2005).

4.5		Registration Rights Agreement dated as of July 19, 2005 by and between Safety Products Holdings, Inc. and Credit Suisse First Boston LLC (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K of Safety Products Holdings, Inc. filed on July 25, 2005).

10.1		Purchase Agreement dated June 28, 2005 by and between Safety Products Holdings, Inc. and Credit Suisse First Boston LLC (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Safety Products Holdings, Inc. filed on July 25, 2005).

10.2		Purchase and Sale Agreement dated May 20, 2005 by and among NSP Holdings L.L.C., Norcross Safety Products L.L.C. and Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Safety Products Holdings, Inc. for the fiscal quarter ended July 2, 2005).

10.3		Credit Agreement dated as of July 19, 2005 among Safety Products Holdings, Inc., as a Guarantor, Norcross Safety Products L.L.C., North Safety Products Inc., Morning Pride Manufacturing L.L.C., North Safety Products LTD., the Several Lenders from Time to Time Parties thereto, Credit Suisse, as Administrative Agent, Bank of America, N.A., as Syndication Agent, GMAC Commercial Finance LLC, LaSalle Bank National Association and US Bank National Association, as Documentation Agents, and Credit Suisse, Toronto Branch, as Canadian Agent (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.4		Incremental Facility Amendment dated as of November 1, 2005 among Norcross Safety Products L.L.C., North Safety Products Inc., Morning Pride Manufacturing L.L.C., the Several Lenders from Time to Time Parties thereto, and Credit Suisse, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Safety Products Holdings, Inc. for the fiscal quarter ended October 1, 2005).

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Exhibit No.		Description
10.5		Incremental Facility Amendment dated as of June 9, 2006 among Norcross Safety Products L.L.C., North Safety Products Inc., Morning Pride Manufacturing L.L.C., the Several Lenders from Time to Time Parties thereto, and Credit Suisse, as Administrative Agent (incorporated herein by reference to Exhibit 10.5 of the Annual Report on Form 10-K of Safety Products Holdings, Inc. for the fiscal year ended December 31, 2006).

10.6		Lease Agreement by and between Morning Pride Manufacturing L.L.C. and American Firefighter Cooperative, Inc. regarding property located in Dayton, Ohio (incorporated herein by reference to Exhibit 10.5 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.7		Retirement Agreement, dated June 30, 2007, by and between Kenneth R. Martell and Salisbury Electrical Safety L.L.C. and Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on July 20, 2007).

10.8		Amended and Restated Employment Agreement dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and Robert A. Peterson (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.9		Amended and Restated Employment Agreement dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and David F. Myers, Jr. (incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.10		Employment Agreement dated as of May 20, 2005 by and between Morning Pride Manufacturing L.L.C. and William Grilliot (incorporated herein by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.11		Employment Agreement dated as of May 20, 2005 by and between North Safety Products, Inc. and Charles S. Ellis (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.12		Employment Agreement, dated as of August 1999, by and between Kenneth R. Martell and W.H. Salisbury and Company (incorporated herein by reference to Exhibit 10.12 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.13		Share Purchase Agreement, dated September 1, 1998, by and among Norcross Safety Products L.L.C., Siebe Plc, Siebe International Limited, Deutsche Siebe Gmbh, and Siebe Inc (incorporated herein by reference to Exhibit 10.16 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.14		Amendment and Assignment of the Siebe Share Purchase Agreement (incorporated herein by reference to Exhibit 10.17 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

109

Exhibit No.		Description
10.15		2005 Option Plan of Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 10.18 of the Registration Statement on Form S-4 of Safety Products Holdings, Inc., filed on December 15, 2005).

10.16		Agreement, dated December 14, 1982, by and among Siebe Norton, Inc., Norton Company and Siebe Gorman Holdings PLC (incorporated herein by reference to Exhibit 10.29 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.17		Cooperation Agreement, made as of January 10, 1983, by and between Siebe Norton, Inc. and Norton Company (incorporated herein by reference to Exhibit 10.30 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.18		Indenture, dated as of August 13, 2003, by and between Norcross Safety Products L.L.C., Norcross Capital Corp., the Guarantors named therein and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.19		First Supplemental Indenture dated as of July 19, 2005 among Norcross Safety Products L.L.C., Norcross Capital Corp., the Guarantors listed on the signature pages thereto and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).

10.20		Second Supplemental Indenture dated as of December 14, 2005 among The Fibre-Metal Products Company, Norcross Safety Products L.L.C., Norcross Capital Corp., the Guarantors listed on the signature pages thereto and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 10.23 of the Registration Statement on Form S-4 of Safety Products Holdings, Inc., filed on December 15, 2005).

10.21		Form of 9⁷/₈% Senior Subordinated Notes due 2011, Series B, of Norcross Safety Products L.L.C. (incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.22		Form of Guarantee issued by the Guarantors of the 9⁷/₈% Senior Subordinated Notes due 2011 of Norcross Safety Products L.L.C. (incorporated herein by reference to Exhibit 4.3 of the Registration Statement on Form S-4 of Norcross Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).

10.23		CIVC Registration Rights Agreement, dated as of January 7, 2005, by and among NSP Holdings L.L.C., NSP Holdings Capital Corp. and CIVC Partners Fund, L.P. (incorporated herein by reference to Exhibit 10.44 of the Annual Report on Form 10-K of Norcross Safety Products L.L.C. for the fiscal year ended December 31, 2004).

10.24		Letter dated July 19, 2005 from Safety Products Holdings, Inc. to GS Mezzanine Partners III Onshore Fund, L.P. and GS Mezzanine Partners III Offshore Fund, L.P. (incorporated herein by reference to Exhibit 10.27 of the Registration Statement on Form S-4 of Safety Products Holdings, Inc., filed on December 15, 2005).

10.25		Stock Purchase Agreement dated as of October 3, 2005 by and among Norcross Safety Products, L.L.C., The Fibre-Metal Products Company, Residuary Trust under the Will of Charles E. Bowers, Jr., Trust under the Will of Charles E. Bowers, Jr. for the benefit of Judith L. Bowers, Charles E. Bowers, Jr. Irrevocable Trust dated December 17, 1990 and Charles J. Grandi (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of Safety Products Holdings, Inc. for the fiscal quarter ended October 1, 2005).

110

Exhibit No.		Description
10.26		Amendment No. 1 to the 2005 Option Plan of Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006).

10.27		Form of Non-Qualified Option Agreement of Safety Products Holdings, Inc. (incorporated herein by reference to Exhibit 10.27 of the Annual Report on Form 10-K of Safety Products Holdings, Inc. for the fiscal year ended December 31, 2006).

10.28		Employment Letter Agreement by and between William Hayes and Norcross Safety Products L.L.C., dated September 8, 2006 (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006).

21.1		Subsidiaries of Registrant.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

111

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Safety Products Inactive 10-K2007 FY Annual report

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