Rapala VMC Oyj — Governance Information 2011

Mar 14, 2011

RAPALA VMC CORPORATION CORPORATE GOVERNANCE STATEMENT

DECEMBER 31, 2010

CORPORATE GOVERNANCE STATEMENT

Rapala's Corporate Governance is based on Finnish Companies Act, other regulations concerning publicly listed companies, Rapala's articles of association and the rules and instructions concerning listed companies of the NASDAQ OMX Helsinki. Rapala adheres to the Finnish Corporate Governance Code, which is publicly available e.g. on the website of the Securities Market Association at www.cgfinland.fi. The full version of Rapala's Corporate Governance document, as well as this Corporate Governance Statement, is available at the website www.rapala.com. This Corporate Governance Statement is presented separately from the Review of the Board of Directors (Board).

General Meeting

The General Meeting is the highest decision-making body of a limited company where the shareholders participate in the supervision and management of the company. The Annual General Meeting (AGM) decides on the matters stipulated in the Companies Act and Rapala's Articles of Association.

The Group President, the Chairman of the Board and a sufficient number of Directors shall attend the General Meeting. A person nominated for the first time to be elected as a member of the Board shall participate in the General Meeting where the election takes place unless there are well founded reasons for the absence.

The AGM of the Company is held once a year. According to the Articles of Association, the AGM shall be held before the end of June. An extraordinary General Meeting is to be convened when necessary. The shareholders exercise their rights of vote and action at the General Meeting. Each share is entitled to one vote in the AGM.

Under the Articles of Association the shareholders of the Company are invited to the General Meeting by publishing the invitation and the agenda in a widely circulated daily paper and on the Company website as decided by the Board. The invitation to the Annual General Meeting shall state the matters to be handled at the General Meeting. The minutes of the AGM are published on Rapala's website at www.rapala.com.

More information on the AGM is found on the Company website.

Board of Directors

The members of the Board are elected by the AGM. The term of a member of the Board lasts until the next AGM. The Board elects the Chairman to serve until the next AGM.

The duties and responsibilities of the Board are principally based on the Finnish Companies Act and the Company's Articles of Association. All significant issues concerning the Company are decided by the Board. These include, but are not limited to, appointing and removing the CEO, approving strategic guidelines, financial statements, interim reports, business plans, annual budgets, stock exchange releases and considerable investments or divestments.

The Articles of Association provide that the Board consists of no fewer than five and no more than ten members. A person elected as a member of the Board shall have the qualifications required to perform the Directors' duties and the possibility to devote sufficient time to the work. The current Board comprises seven members: two members dependent on the Company: the Group President & CEO, the Head of Rapala's Chinese Manufacturing Operations and Hong Kong Office, and five nonexecutive members: Mr. Emmanuel Viellard, Mr. Eero Makkonen, Mr. Jan-Henrik Schauman, Mr. Marc Speeckaert and Mr. Christophe Viellard. In addition, all members of the Board, other than Mr. Emmanuel Viellard, Mr. Christophe Viellard and Marc Speeckaert, are independent of significant shareholders of the Company. Group President & CEO as well as Head of Group Chinese Manufacturing Operations and Hong Kong Office are members of the Board in addition to their executive positions. Their membership in the Board is based on their significant shareholding in the Company as well as a broad know-how and long-term experience in fishing tackle industry. Nor does Rapala follow the Corporate Governance Code of having both genders represented on the Board of Directors. According to the majority of shareholders the current composition and the number of Rapala's Board members is sufficient considering Rapala's operations. The Board does not have deputy members.

During the financial year 2010, the Board met 15 times. The average attendance rate at these meetings was 90.5%.

The current members of the Board are:

Emmanuel Viellard

Chairman Chairman of the Rapala Board since 2005 President of Viellard Migeon & Cie Vice Chairman and Executive Vice President of Lisi Industries B.A., CPA Year of birth: 1963 Shareholding and options*: - Indirect shareholding through a controlled corporation*: 100 000

Jorma Kasslin

President and Chief Executive Officer Rapala Board member since 1998 M.Sc. (Eng.) Year of birth: 1953 Shareholding*: - Indirect shareholding through a controlled corporation*: 680 000 Options*: 32 000

Eero Makkonen

Rapala Board member since 1998 Chairman of the Rapala Board 1999–2005 B.Sc. (Eng.) Year of birth: 1946 Shareholding and options*: - Indirect shareholding through a controlled corporation*: 100 000

Jan-Henrik Schauman

Rapala Board member since 1999 M.Sc. (Econ.), MBA Year of birth: 1945 Shareholding and options*: -

Christophe Viellard

Rapala Board member since 2000 Chairman of Viellard Migeon & Cie Diploma ESCP Year of birth: 1942 Shareholding and options*: - Indirect shareholding through a controlled corporation*: 100 000

King Ming (William) Ng

Head of Rapala's Chinese Manufacturing Operations and Hong Kong Office Rapala Board member since 2001 B.Sc. (Eng.) Year of birth: 1962 Shareholding*: 1 770 843 Options*: -

Marc Speeckaert

Rapala Board member since 2005 MBA Year of birth: 1951 General Manager of Sofina Shareholding and options*: -

*Shareholdings and options on December 31, 2010. Options include synthetic options.

Board Committees in 2010

In 2010, the Board had only one Board committee, the Remuneration Committee. The Remuneration Committee operates under its charter and its main responsibility is to prepare the decisions of the Board relating to the remuneration of key employees of the Group. The Committee's other tasks include reviewing and making recommendations with respect to the terms of employment of the CEO and reviewing the remuneration packages of the Executive Committee members and some other senior managers.

The Remuneration Committee is chaired by the Chairman of the Board, Emmanuel Viellard. Its members are drawn from the Company's non-executive and independent Directors and currently consist of Eero Makkonen and Jan-Henrik Schauman. Committee members' appointments run concurrently with a Director's term as a member of the Board. In 2010, the Committee met one time. The attendance rate at this meeting was 100%.

Since the Company does not have a separate Audit Committee, the entire Board is responsible for the tasks of an Audit Committee. These include the control of the financial reporting, external accounting, internal control and risk management issues. Of the seven Board members, at least three have the necessary financial expertise to assume these duties. The Board is regularly in contact with the auditors of the Company.

The Board has not appointed a Nomination Committee due to the size of the Group and the significant shareholding represented by the current members of the Board. Nomination issues are managed by the Board.

President and CEO

The CEO is appointed by the Board. Since 1998, Mr. Jorma Kasslin has acted as the CEO and as a member of the Board.

The CEO also acts as the Group's President. The duties and responsibilities of the President are set forth in the Finnish Companies Act. The President & CEO is responsible for the day-to-day management of the Group in accordance with the instructions and rules given by the Board. Unless separately authorized by the Board, the CEO shall not take actions, which may be considered unusual or far-reaching in view of the scope and nature of the Company's business. The CEO is entitled to represent the Company in any matter within his/her authority. The CEO chairs the Executive Committee. The CEO's service terms and conditions have been specified in writing in a service agreement approved by the Board.

Executive Committee

The Executive Committee assists the CEO in planning and managing the operations of the Group. The members of the Executive Committee report to the CEO. The Executive Committee convenes under the leadership of the CEO and is composed of different Executive Committee members depending on the matters at hand.

The current members of the Executive Committee are:

Jorma Kasslin

President and Chief Executive Officer (CEO) Rapala Executive Committee member since 1998 See information in section "Board of Directors"

Jussi Ristimäki

Chief Financial Officer (CFO) Rapala Executive Committee member since 2010 Shareholding*: - Options*: 4 500

King Ming (William) Ng

Head of Chinese Manufacturing Operations and Hong Kong Office Rapala Executive Committee member since 2001 See information in section "Board of Directors"

Olli Aho

Company Counsel, Secretary of the Board and Investor Relations Rapala Executive Committee member since 1998 Shareholding*: - Indirect shareholding through a controlled corporation*: 70 000 Options*: 22 000

Juhani Pehkonen

Head of Lure Business Rapala Executive Committee member since 1998 Shareholding*: - Indirect shareholding through a controlled corporation*: 30 000 Options*: 22 000

Stanislas de Castelnau

Head of Fishing Hook Business Rapala Executive Committee member since 2002 Shareholding*: - Indirect shareholding through a controlled corporation*: 10 000 Options*: 22 000

Tom Mackin

President of Rapala USA Rapala Executive Committee member since 2007 Shareholding*: 3 000 Indirect shareholding through a controlled corporation*: 10 000 Options*: 22 000

Lars Ollberg

Head of Fishing Line and Accessory Business Rapala Executive Committee member since 2008 Shareholding*: - Indirect shareholding through a controlled corporation*: 30 000 Options*: 13 000

Jouni Grönroos was a member of the Executive Committee from May 9, 2005 until October 31, 2010.

*Shareholdings and options on December 31, 2010. Options include synthetic options.

Business Organization

The Group comprises the parent company and the manufacturing and distribution subsidiaries. The head offices of the Group are located in Helsinki and Brussels. The share of the Company is quoted on the NASDAQ OMX Helsinki. The Group's business organization consists of three operating segments: Group Fishing Products, Other Group Products and Third Party Products.

Remuneration

In 2010, the annual fee to the Chairman of the Board was EUR 60 000 and the fee to other Board members was EUR 30 000. The members of the Remuneration Committee do not receive further compensation. Members of the Board are paid a daily travel allowance and reimbursed for travel expenses corresponding to the Company's traveling compensation principles.

The monthly salary of the CEO is EUR 23 542. The CEO is also entitled to a profit bonus according to the principles of the Group's senior management bonus scheme. His bonus accrued for 2010 totaled EUR 153 464. In addition to the mandatory pension insurance, the CEO has the right to receive further compensation of EUR 8 400 annually to be placed in a voluntary pension scheme or a similar arrangement. The retirement age and pension of CEO are determined in accordance with the legislation in force. The Company shall give notice at any time or using 24 months notice period and the CEO shall give notice 3 or 6 months prior to terminating the service contract. The term of notice is dependent on the cause for termination of employment. If the service agreement is terminated by the Company without a cause, the CEO is entitled to severance compensation corresponding to 24 months' salary (excluding profit bonuses). The Remuneration Committee prepares and makes proposals to the Board of Directors for the compensation of the CEO. The Board approves the compensation of the CEO.

The CEO and senior management of the Group participate in the Group's senior management bonus scheme. Every year, a profit bonus scheme is established for the following year. The amount and payment of the bonus requires that EBITDA and cash flow targets set by the Board are achieved. If the targets are not achieved, payment of bonus is fully at the discretion of the Board. Bonuses awarded under the scheme are paid in two installments, the first when the audited results for the relevant financial year are known and the second after a predetermined vesting period of few months, to encourage retention of senior management.

For compensation of the Board, the CEO and the Executive Committee, see note 28 in the consolidated financial statements. Remuneration Statement it is available at Rapala's website www.rapala.com.

Responsibilities and Internal Control

The Group has a strong entrepreneurial and business oriented corporate culture that supports local decision making. This culture influences the set up of Group's internal control and management. The Group's management model is strongly based on people management, delegation of responsibility and recognition of differences in business environments, which all enable quick and flexible decision making. Instead of formal and heavily structured processes, the internal control of the Group is based on a flat and transparent organization where Group management is in frequent and personal interaction with Group companies. Number of personnel of Group management is relatively small, which enables focused and centralized information management and direct and tight relationships with operational and financial management of the business units. Business units are closely monitored through financial indicators and by observing the operative actions.

The Group comprises of the parent company and the manufacturing and distribution subsidiaries. Group's internal controls and management are based on this legal structure. Responsibility for the management of these subsidiaries rests with each company's Board of Directors, which typically comprises of the Group CEO, the Group CFO, and the Company Counsel and the subsidiary's managing director. In addition, the Group subsidiaries have their own management teams which together with each subsidiary's managing director have responsibility over the operative decision making.

The CEO, the members of the Board of Directors, and the managing director of each Group company are responsible for ensuring that the accounting and administration in their respective areas of responsibility are in compliance with the local laws, the Group's operating principles, and the instructions and rules issued by the Board of Directors of the Company.

The aim of internal controls is to ensure the effectiveness and efficiency of Group's operations, reliability of financial and operational reporting and compliance with the applicable regulations, practices and policies.

The Board of Directors monitors the business activities of the Company and is responsible for ensuring that accounting, reporting and asset management are appropriately organized.

The Group has a harmonized chart of accounts, uniform accounting principles (IFRS) and related reporting process. This year the Group adopted a Group wide information technology system, which improves the transparency of supply chain and inventories. The Group's financial management monitors the functionality and reliability of financial reporting process. The key instructions and regulations concerning financial reporting and risk management are available to managing directors and financial management of each subsidiary on Rapala finance intranet.

The Board of Directors monitors the Group's business risks on an ongoing basis. All Group companies report their financial performance and position at least once a month to the management that prepares for the Board of Directors a monthly management report, which explains the main recent developments in the business of the Group and the major Group companies.

Communication and personal interaction between Group management and subsidiaries is frequent and tight. Group management and managing directors and financial management of all subsidiaries meet several times during the year, where also business performance and internal control issues are reviewed. In addition representatives of Group management visit subsidiaries regularly in different assemblies. The purpose of these meetings is to share information mutually. These meetings enable Group management to monitor and give guidance to the subsidiaries.

Risks and Risk Management

Rapala Group's risks consist of strategic, operational and hazard risks as well as financial risks.

The main strategic risks relate to the status of sport fishing as a leisure time hobby, environmental issues affecting the fishing opportunities, success in developing new products, competitor actions, value of Group's brands, corporate reputation and other intangible assets, managing the costs and productivity, development of Group's strategic supplier partnerships, country and political risks as well as success in merger and acquisition projects.

The main operational risks relate to the effects the changes in economic cycles may have on consumer demand and customer behavior, annual seasonality of the business, weather, high interdependency between the Group's units and consequent supply chain, inventory and supplier management issues and availability of competent production labor. Group's main hazard risks relate to fire or other similar disaster scenarios, which could lead to property damages but also to business interruption losses throughout the supply chain.

The main financial risks relate to market prices, liquidity and counterparty risks. The main market price risks relate to foreign exchange rates, interest rates and raw material prices. Liquidity risks relate to availability of sufficient funding even at the peaks of the seasons. Counterparty risk relates to creditworthiness of customers and other counterparties, such as banks.

The objective of Rapala's risk management is to support the implementation of the Group's strategy and execution of business targets. This is done by monitoring and mitigating the related threats and risks while simultaneously identifying and managing opportunities. The Board evaluates the Group's financial, operational and strategic risk position on a regular basis and establishes related policies and instructions to be implemented and coordinated by Group management.

The CEO and Group Risk Management continuously monitor changes in business environment and coordinate the management of the Group's strategic, operational and financial risks. Group Risk Management consists of Group CFO, Group Funding Manager and Financial Analyst and convenes on a regular basis. The daily risk management activity is primarily allocated to the management of the business units, who are responsible for managing the local strategic, operational and financial risks.

All Group companies report their financial performance and position at least once a month to the Group Finance, which prepares management analyses and reports for the Board and the Executive Committee. Business performance and internal control issues are reviewed also in global and regional management meetings a few times each year. In addition, Group Finance performs business unit reviews and visits during the year.

Internal Audit

The Group does not have a separate Internal Audit organization due to the size of the Group's operations. The Group Finance, lead by the CFO, is responsible for regular reviews of financial performance and internal control procedures at Group companies and reporting significant findings to the CEO and the Board. From time to time, management conducts or buys external services, if needed, to conduct specific and limited internal audits. The absence of an in-house internal audit organization is also taken into account in the external audit.

The managing director and controller of each subsidiary meet annually with the local auditor to discuss internal control and statutory compliance issues. The auditors of each subsidiary provide an audit opinion to the auditors of the Company at the conclusion of each annual audit. Each annual audit may also give rise to the preparation of a management letter to the Company outlining their audit findings in greater detail and recommending any improvements in internal controls. In addition, the auditors of the Company meet regularly the Group Management representatives of the Company to discuss and review the business and related financial, accounting, internal control and risk management issues.

Insider Administration

The Group's guidelines on insider administration follow the Guidelines for Insiders issued by the NASDAQ OMX Helsinki. Under the Group's guidelines on insider administration, both permanent and project specific insiders are subject to trading restrictions regarding the Company's securities. The permanent insiders as well as persons under their custody and the corporations controlled by them are prohibited from trading with the securities three weeks prior to the publication of an annual or quarterly report of the Company. The project specific insiders are prohibited from trading with the securities during their project participation. The Company arranges internal communication, training and supervision of insider issues.

Information on persons included in the public insider register can be found on the Company's website.

Audit

Ernst & Young is responsible for the audit of the majority of Group companies globally. The auditors of the parent company, Ernst & Young Oy, are responsible for instructing and coordinating the audit in all Group companies. The auditor in charge is Mikko Järventausta, CPA. The fact that the Group has no separate internal audit organization of its own is reflected in the scope and content of the audit.