The following letter appeared in the 2010 Annual Report.

April 11, 2011

Dear Fellow Shareholders, Customers, Colleagues and Business Partners,

An important test of the quality and strength of any business is how it finds opportunities in weak economic times. Over the last two years, the economy has been more challenging than any time in my memory. We made important decisions to improve the long-term growth and profitability of Grace. We acted quickly to match our operations to our markets; revisited and reinvigorated our strategies; and, maintained focus on improving our core business. I am proud of what we accomplished and I believe we are well positioned for success in 2011.

As 2009 came to a close, we worked hard to understand how our markets would perform in 2010 and then selected the best strategies for our businesses. We owe much of our success to the way we executed on that effort. For Grace Davison, the markets were stabilizing and excellent growth opportunities were beginning to emerge. Grace Davison did a great job anticipating and capturing these opportunities. Their execution was nearly flawless.

For Grace Construction Products, the massive overhang from the construction bubble and other external forces in North America and Europe were still quite challenging. Consequently, we entered 2010 with plans to improve profitability in the core business, rapidly accelerate growth in emerging regions and tightly control expenses. We delivered on all three elements of our strategy. Today, we are improving our position in emerging markets, moving resources around the globe to capture the best growth opportunities and not adding resources unless we have absolute clarity around market performance. As a result, Grace Construction Products is in a good position to grow profitably as underperforming regions recover.

The cover of this year’s Annual Report says a lot about Grace today. Although we have always had operations around the world, we made a decision several years ago to invest more aggressively in emerging economies. The mature economies of the U.S. and Europe are still important to us, but growth is slowing in these regions. We are seeing the fruit of that decision now.

Today, we have 34 manufacturing facilities, five technology centers and strong sales and technical support in the emerging regions, as defined by the International Monetary Fund. In 2011, Grace Davison plans to expand capacity to supply polypropylene catalysts to the Middle East and silica gel in Asia and South America to support our renewable fuels effort, a growth platform for our future. Grace Construction Products added new facilities in Brazil, China, Saudi Arabia and Vietnam in 2010 and expects to open at least four new plants in 2011. We believe that these investments and others in emerging regions will make increasingly significant contributions to our growth for many years to come. Today, many of our sales outside of North America come from products manufactured here. In 2010, over $450 million worth of products were exported from the U.S. to over 50 countries. Many Grace jobs in the U.S. depend on exports continuing to grow. I am hopeful that the U.S. Administration will continue pursuing trade agreements that open more markets to our products.

In addition to investing in new facilities, we also continued to make small bolt-on acquisitions to extend our product lines, increase our geographic reach and expand our manufacturing capacity. In 2010, we acquired Synthetech, Inc. as a way to quickly add new capacity for single site and polypropylene specialty catalysts and extend our discovery sciences offerings to the pharmaceutical sector. In China, we acquired a building materials business to increase the footprint of Grace Construction Products in Asia, shorten our supply lines and give us a portfolio of new products. And, as the year came to a close, we acquired RS Solutions, a U.S. company engaged in the design and manufacturing of quality control systems for ready mix concrete trucks.

We continue to rely on our productivity efforts to deliver cost savings and revenue enhancements. Grace Construction Products focused on improving their manufacturing to make products with equal or better quality at lower costs. Grace Davison worked to improve the volume of products manufactured on existing equipment without sacrificing quality. In 2010, these efforts—and many others like them—generated a productivity gain of $92.1 million.

Among the things that impress me most about Grace is the way people respond to adverse conditions—not just those faced by the business. Last year, many of our colleagues experienced natural disasters that threatened them, their families and our facilities. Whether it was in Chile, Tennessee or Southeast Asia, Grace employees stepped forward with donations of money, materials and, most importantly, their hearts, hands and energy to help affected communities get back on their feet again. It is humbling to watch our people come together in this way, not because their managers told them to, but because it’s the Grace way.

Before closing, I wanted to update you on the status of our Plan of Reorganization under Chapter 11 of the Bankruptcy Code. On January 31, 2011, our Plan was confirmed by the Bankruptcy Court; it will now be considered by the U.S. District Court, the next step in the legal process before we may emerge with the cloud of asbestos liability removed. This is a major step in our bankruptcy proceedings. We look forward to completing the process as quickly as possible.

Much has changed over the last two years because of global market conditions. Yet, in some respects, nothing has changed. We still believe that safety comes first and we are doing a better job at looking out for each other. Our customers around the world still bring us their problems to solve. We have stayed true to our vision, purpose and values. We are just as focused as ever on being the world’s premier specialty chemicals and materials company. Our purpose, to do everything we can to help our customers, still drives us. Our values continue to unite us, whether we are in Dammam, Buenos Aires or Baltimore. Unknown challenges lie ahead for sure, but with our common vision, purpose and values guiding us, we believe we are well positioned to continue enriching lives, everywhere!

Sincerely,

Fred Festa
Chairman, President and Chief Executive Officer