Wertpapierprospekt SMARTRAC N.V.

SMARTRAC N.V.(a public company with limited liability incorporated under the laws of The Netherlands,

with its corporate seat in Amsterdam)

Global offer of up to 4,550,000 ordinary bearer shares

This is a global offer of up to 3,000,000 new shares and up to 1,550,000 existing shares of SMARTRACN.V. The existing shares are being offered by certain members of the management board, supervisory board andsenior management of SMARTRAC N.V.

In addition, Deutsche Bank, acting for the account of the underwriters, may effect over-allotments as part ofthe global offer of up to 500,000 additional shares. To cover these over-allotments, the selling shareholders havegranted Deutsche Bank, on behalf of the underwriters, an option exercisable within 30 calendar days after thecommencement of trading to purchase up to an additional 500,000 existing shares at the offer price.

SMARTRAC N.V. will receive the net proceeds from the sale of the new shares but will not receive anyproceeds from the sale of existing shares.

The global offer consists of public offerings in Germany and Switzerland and private placements outsideGermany, Switzerland and the United States to institutional investors. The shares have not been and will not beregistered under the U.S. Securities Act of 1933, as amended, and are being offered and sold outside the UnitedStates in reliance on Regulation S under the Securities Act. For a description of restrictions on offers, sales andtransfers of the shares and the distribution of this prospectus in other jurisdictions, see ‘‘Selling and TransferRestrictions’’.

Prior to the global offer, there has been no public market for the shares. SMARTRAC N.V. intends to applyfor admission of all of its up to 13,000,000 shares (including up to 3,000,000 new shares) to trading on theofficial market (Amtlicher Markt) of the Frankfurt Stock Exchange and the sub-sector of the official market withadditional obligations arising from admission (Prime Standard) under the symbol SM7.

See ‘‘Risk Factors’’ beginning on page 13 to read about factors that should be consideredbefore buying shares.

Offer Price: 5 To be determined

The price range within which purchase orders may be submitted, and definitive times for the start and end ofthe offering period, will be published in the form of a supplement (within the meaning of Article 16 of theprospectus directive 2003/71/EC) to this prospectus on the SMARTRAC website (www.smartrac-group.com) andon an electronic information system, such as Reuters and Bloomberg, on March 17, 2006, at the earliest but inany case prior to the beginning of the offering period which is expected to start on March 20, 2006, at the earliest.

Delivery of the shares is expected to take place on March 27, 2006, at the earliest, through the book-entryfacilities of Clearstream Banking AG, Frankfurt am Main, against payment for the shares in immediatelyavailable funds.

This document constitutes a prospectus for the purposes of Article 3 of the prospectus directive 2003/71/ECand has been prepared in accordance with Section 3 of the Dutch 1995 Act on the Supervision of the SecuritiesTrade (Wet Toezicht Effectenverkeer 1995), as amended, and the rules promulgated thereunder. This prospectushas been filed with and approved by the Netherlands Authority for the Financial Markets (Autoriteit FinancieleMarkten, the ‘‘AFM’’) and the approved prospectus will be notified by the AFM to the German Federal FinancialSupervisory Authority (Bundesanstalt fur Finanzdienstleistungsaufsicht).

Sole Global Coordinator

Deutsche BankLead Managers and Joint Bookrunners

Deutsche Bank UBS Investment Bank

Prospectus dated March 13, 2006

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TABLE OF CONTENTS

SUMMARY *************************************************************************** 1

GERMAN TRANSLATION OF THE SUMMARY******************************************** 13

RISK FACTORS************************************************************************ 25

IMPORTANT INFORMATION************************************************************ 35

FORWARD-LOOKING STATEMENTS ***************************************************** 37

DIVIDEND POLICY ******************************************************************** 38

EXCHANGE RATES******************************************************************** 39

USE OF PROCEEDS******************************************************************** 40

CAPITALIZATION ********************************************************************* 41

DILUTION **************************************************************************** 42

SELECTED COMBINED AND CONSOLIDATED FINANCIAL INFORMATION ***************** 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATION ********************************************************************* 46

INDUSTRY BACKGROUND ************************************************************* 61

BUSINESS **************************************************************************** 67

GROUP STRUCTURE AND RECENT CORPORATE RESTRUCTURING OF THE SMARTRACGROUP ***************************************************************************** 84

MANAGEMENT AND EMPLOYEES ****************************************************** 86

PRINCIPAL AND SELLING SHAREHOLDERS ********************************************* 95

RELATED PARTY TRANSACTIONS ****************************************************** 96

DESCRIPTION OF THE COMPANY, THE SHARE CAPITAL AND CORPORATE GOVERNANCE 98

MARKET INFORMATION*************************************************************** 107

TAXATION**************************************************************************** 108

THE GLOBAL OFFER ****************************************************************** 116

PLAN OF DISTRIBUTION ************************************************************** 120

SELLING AND TRANSFER RESTRICTIONS ********************************************** 123

INDEPENDENT AUDITORS ************************************************************* 125

GENERAL INFORMATION************************************************************** 126

INDEX TO FINANCIAL INFORMATION ************************************************** F-1

GLOSSARY OF SELECTED TERMS ****************************************************** G-1

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SUMMARY

This summary must be read as an introduction to this Prospectus. Any decision to invest in any Sharesshould be based on a consideration of this Prospectus as a whole, including the risks of investing in the Shares setout in ‘‘Risk Factors’’. This summary is not complete and does not contain all the information that you shouldconsider in connection with any decision relating to the Shares.

No civil liability will attach to the Company in respect of this summary, including the Summary of Terms ofthe Global Offer and the Summary Combined and Consolidated Financial Information included herein, or anytranslation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts ofthis Prospectus. Where a claim relating to information contained in this Prospectus is brought before a court in astate within the European Economic Area, the plaintiff may, under the national legislation of the state where theclaim is brought, be required to bear the costs of translating this Prospectus before the legal proceedings areinitiated.

Overview

Based on industry studies, announced ePassport projects and our internal estimates, we believe we are theglobal leader in high-security radio frequency identification (‘‘RFID’’) inlays for contactless payment cards andePassports. RFID inlays consist of a memory or microcontroller chip bonded to an antenna, which is embedded ina carrier material, such as plastic. Our inlays are integrated into our customers’ finished products (such as cards ortags) to enable them to transmit data to a reader via radio waves.

In the RFID value chain, we have positioned ourselves as a focused inlay manufacturer, located between oursuppliers (chip manufacturers) and our customers (card manufacturers and secure printing houses). Accordingly,our business consists primarily of manufacturing inlays, as opposed to producing completed cards and readers orproviding related system integration services. We have over 100 customers located in more than 27 countries,including Gemplus International, Axalto, Oberthur Card Systems, Bundesdruckerei (the German Federal PrintingOffice), Osterreichische Staatsdruckerei (the Austrian State Printing Office) and NagraID.

We conduct our business in two segments — ‘‘standard’’ and ‘‘high security’’. Our standard segmentencompasses both our ‘‘mass transit & access control’’ and ‘‘logistics’’ product lines. Our high security segmentincludes our ‘‘ePayment’’ and ‘‘ePassports’’ product lines. The following diagram provides a graphicalillustration of our segments and product lines.

Segments}

Product Lines}Mass Transit &

Access Control Logistics ePayment ePassports

SMARTRAC

High SecurityStandard

RFID inlays produced in our standard segment have historically been our primary source of revenue.Although these inlays only contain a memory chip, most of them contain security features such as passwordauthentication and basic encryption. Most of the inlays produced in our standard segment are part of our masstransit & access control product line, which has historically accounted for more than 90% of our revenues in thissegment. Our standard segment also encompasses our logistics product line, which includes non-card relatedinlays and products used for logistical and verification applications (e.g., product tracking and tracing, animal IDimplants, laundry tags and casino chips). We expect substantial revenue growth in this segment, as the trendtoward declining prices for higher capacity chips and the successful implementation of large-scale projectsaround the world encourage more transit companies to adopt RFID technology.

Products in our new high security segment feature inlays containing microcontroller chips that includesophisticated encryption functions and permit advanced calculations to be made. Within our high securitysegment, our ePayment product line focuses on manufacturing inlays for contactless banking, credit and debitcards. We expect strong growth in this product line over the next few years as card issuers migrate from

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traditional magnetic stripe and contact-based chip cards to RFID-enabled contactless cards. We are the first inlaymanufacturer to receive VISA security approval to supply inlays and have also been approved to supply inlays forMasterCard and several regional payment cards, such as Dexit and T-Money.

We believe that our ePassports product line, in which we manufacture special inlays designed for electronicpassports, has the most attractive prospects for future growth. With a significant number of governments havingintroduced ePassports at the end of 2005 (with more to follow in 2006) and the introduction of RFID-enabledidentification cards (e.g., ID cards and drivers’ licenses) expected to follow thereafter, the market for ourePassport product line is expected to grow quickly over the next few years. With respect to eight countries,including the United States, Russia and Sweden, we have already provided at least an initial shipment of inlayswhich have been incorporated into issued ePassports. Moreover, our inlays are currently in various stages oftesting for use in the ePassports of over 15 other countries, including Germany, Spain, Canada and Taiwan. As ofJanuary 2006, we had already supplied inlays for a total of more than 1 million ePassports.

In 2005, we generated revenues of 425.2 million, compared to 414.7 million in 2004. Revenues from ourstandard segment represented 79.1% of our total revenues in 2005, while our high security segment accounted for19.9%. We expect the relative revenue contributions of our product lines to change rapidly as we expand ouractivities in the fast-growing, secure contactless ePayment and ePassport markets.

Our Strengths

We believe the following core strengths will contribute to our future growth:

) Leadership position in fast-growing markets. Based on industry studies (including Frost & Sullivan,2006), announced ePassport projects and our internal estimates, we believe we are the global leader inhigh-security RFID inlays for contactless payment cards and ePassports. We have a successful trackrecord in producing inlays for mass transit cards, physical and logical access control cards and customizedidentification tags, with approximately 100 million units shipped between 2003 and 2005. In 2005, webegan volume production of inlays for contactless payment cards and ePassports.

) Superior manufacturing technology and cost-efficient location. Our primary manufacturing facilitiesare located in Thailand, where we benefit from low operating costs. We have proprietary processes thatallow us to efficiently embed antennas and chips in inlay materials. We also have proprietary machineryused to produce inlays on a fully or semi-automated basis. Our technical know-how allows us to maximizethe efficiency of our capital expenditures and increase our production capacity on a timely basis. In 2005,to ensure a secure supply of this proprietary machinery we entered into an agreement to form XytecSolutions Sdn. Bhd. (‘‘Xytec Solutions’’). Xytec Solutions provides us with this specialized machinery onan exclusive basis, allowing us to focus on our core business.

) Largest high-security inlay production capacity. As of March 1, 2006, we had sufficientmanufacturing capacity to produce over 9 million high frequency inlays per month, which we expect toincrease to over 13 million high frequency inlays per month during 2006. We believe that our productioncapacity significantly exceeds our competitors’ capacity to produce high security inlays. Our highmanufacturing capacity and commitment to quality allows us to secure contracts with the largest cardmanufacturers, system integrators and secure printers.

) Close relationships with customers and suppliers. Because we focus on producing inlays rather thancompleted cards or microchips, we do not compete with our customers or our suppliers. This has allowedus to develop strong relationships with leading card and chip manufacturers.

) Positioned for growth in ePayment and ePassports. Issuers of contactless payment cards andgovernments issuing ePassports typically require component manufacturers to undergo a lengthy testingprocess to demonstrate their ability to provide high quality products and meet stringent security standards.Due to our high quality and security standards, eight countries (including the United States) have alreadyincorporated our inlays in ePassports they have issued. Similarly, we became the first inlay manufacturerto receive VISA security approval to supply inlays and have also been approved to supply inlays forMasterCard and several regional payment cards.

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Our Strategy

Our strategic goals are to maintain our strong market share and further enhance our market position. Toachieve these objectives, we intend to:

) Strengthen our leading position. We intend to further strengthen what we believe is our leadingposition in the market for high-security inlays for contactless payment cards and ePassports. Our inlaysare currently in various stages of testing for use in the ePassports of over 15 countries and we expect toenter into additional contracts when testing is completed. We will continue to develop our relationshipswith governments and secure printing houses in order to capture future growth in other electronicgovernment identification documents. To serve governments that require that their ePassports bemanufactured locally, we are negotiating a lease for, and may purchase, a secure manufacturing facility inGermany and we intend to open a secure manufacturing facility in the United States late in 2006 or duringthe first half of 2007.

) Increase production capacity. Due to significant market growth, customers are increasingly requestingthat we provide minimum capacity guarantees. We seek to maintain excess capacity equal to 20% of ouranticipated production requirements and to have such excess capacity available three to four monthsbefore it is needed. Our close relationship with Xytec Solutions makes this easier. Xytec Solutionssupplies us with machines built to our proprietary specifications that are qualitatively superior, yet stillsignificantly less expensive, than what is otherwise available.

) Leverage proprietary technology to expand into new applications and markets. We intend to applyour inlay technology and manufacturing expertise to applications based on comparable technology. Forexample, we are working with our customers to develop secure contactless personal identification cards,such as national identity cards or drivers’ licenses.

) Expand chip-sourcing service. We currently purchase between 70% and 80% of the chips used in ourstandard segment, less than 50% of the chips used in our ePassport product line and a low percentage ofthe chips used in our ePayment product line. We will seek to increase these percentages in order toincrease our earnings while strengthening our relationships with customers.

) Continue to improve security and quality standards. Despite our already high 98% yield rate, weintend to further improve our quality controls and have initiated an ambitious six sigma program at ourmain Thai production facility.

) Acquire complementary businesses or technologies. We continue to monitor the market foropportunities to broaden our product offerings, increase our market penetration in targeted geographicareas and expand our marketing and distribution capabilities by acquiring complementary businesses andtechnologies or establishing joint ventures.

Summary of Risk Factors

Before investing in the Shares, prospective investors should consider carefully, together with the otherinformation contained in this Prospectus, the risks attaching to an investment in the Shares described in ‘‘RiskFactors’’, including:

) The markets that we have targeted for our future growth are in the early stages of development and maynot develop rapidly or profitably.

) If we are unable to keep up with changes in industry standards or technology, our products may no longerbe competitive, and we may become unable to supply our customers. Many of our products are new, donot have an established performance record and may contain defects, potentially subjecting us to costlywarranty or other claims.

) We face operational and strategic risks related to our supply of the machinery used to manufacture ourproducts. We may fail to optimize our production capacity, and we may be liable to our customers forindirect damages due to delayed deliveries.

) We face risks associated with challenges to intellectual property we have developed or acquired fromother companies. Significant patents to which we claim exclusive rights are or may become the subject ofdisputes and claims brought by the co-owner and co-developer of the technology. Moreover, enforcing ourintellectual property rights against others could result in distracting and costly litigation.

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) Prices for low-security RFID products have fallen rapidly and competition in the high-security market islikely to increase.

) A substantial portion of our revenues has historically been derived from a limited number of customers.

) Our quarterly results of operations have fluctuated in the past, and we expect these fluctuations tocontinue.

) We may fail to optimally manage our inventories of microchips or suffer disruptions in our supply chain.We rely on two suppliers to provide us with the specialized plastics that constitute the body of our inlays.

) We intend to increase the share of microchips used in our inlays that we purchase on our own account,which will increase our working capital requirements, expose us to inventory risk, and dilute our margins.

) We may be unable to manage our expanding operations effectively and future acquisitions may adverselyaffect our business.

) Our success depends upon recruiting and retaining key personnel.

) We are exposed to currency risks. Moreover, economic, political, legal and regulatory developments inThailand may have an adverse effect on our business.

) The temporary tax benefits we currently enjoy may not be available in the future and our internationalexpansion could cause our effective tax rate to increase.

) Our founder and other principal shareholders, whose interests may differ from other shareholders, willhave the ability to exercise significant control over us, even after completion of the offering.

Corporate Information

SMARTRAC is a public company with limited liability incorporated under the laws of The Netherlands,with registration number 34241345, and has its corporate seat in Amsterdam, The Netherlands. The Company’sbusiness address is Parnassusweg 103, 1077DE Amsterdam, The Netherlands.

Pending Patent Litigation

The core technology we use in our products and manufacturing processes is subject to patent protection. Weown or have arranged for exclusive or practically exclusive usage rights to over 155 patents and patentapplications, of which approximately 128 were sublicensed or purchased from the bankruptcy administrator ofanother company, AmaTech Automation GmbH (‘‘AmaTech’’), in 2002. Prior to the insolvency of AmaTech, ourChief Executive Officer, Manfred Rietzler, and a former colleague (the ‘‘Co-Owner’’) had granted AmaTech alicense (the ‘‘License’’) to use the patents they had jointly developed, most of which had been registered orapplied for in Germany, the rest of Europe, the United States and Japan in both of their names (the ‘‘Patents’’).Approximately 22 of the Patents have been registered or applied for in Germany (the ‘‘German Patents’’). At thetime Mr. Rietzler and the Co-Owner granted the License to AmaTech, they were significant shareholders ofAmaTech AG, the parent company of AmaTech. The License permits AmaTech to grant sublicenses to use thePatents. In 2002, AmaTech AG, AmaTech and other AmaTech AG subsidiaries entered into bankruptcyproceedings. In October 2002, we purchased various AmaTech assets from its bankruptcy administrator,including 10 patents owned by AmaTech, and we received the right to use 118 Patents by means of a sublicense(‘‘Our Sublicense’’). Some of these patents and patent applications concern the basic technology and processesused to manufacture a wide variety of our products.

On March 29, 2004, the Co-Owner brought an action to force Mr. Rietzler to consent to the sale by publicauction of the ownership rights to two of the German Patents, neither of which is significant to our business.Following adverse rulings in the first and second instance, Mr. Rietzler applied to the German Federal Court ofJustice for leave to appeal (Nichtzulassungsbeschwerde). As part of these proceedings, the Co-Owner disclosedthat he had committed to assign all of his rights stemming from the above litigation and/or the Patents to AssaAbloy ITG AB, a member of the same group as one of our competitors, Sokymat. If the pending litigation isultimately decided in the Co-Owner’s favor, the two German Patents that are the subject of the action may bepublicly auctioned. It is possible that similar claims could be made with regard to the remaining German Patents.Although we would be permitted to participate in any such auctions, we may not be the successful bidder and athird party, such as one of our competitors, may acquire ownership of the German Patents. However, underGerman law, a transfer of patent ownership would not, by itself, affect the License or Our Sublicense.Nevertheless, it cannot be excluded that a new owner of the German Patents might claim that either the License orOur Sublicense is void, unenforceable or terminable. In addition, a new owner could seek to invalidate the

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German Patents, with the effect that the technology would no longer be patent-protected in Germany and could beused by any party. As a result, our competitive advantage would be reduced to the extent that we are unable toprevent competitors from using the Patents. Nonetheless, we believe we would retain the benefits provided by ourmanufacturing expertise, production capacity and security certifications.

Furthermore, in letters dated February 2006 addressed to the AmaTech bankruptcy administrator and toMr. Rietzler, the Co-Owner sought to terminate the License for cause based, inter alia, upon Mr. Rietzler’salleged breach of trust and the AmaTech bankruptcy administrator’s alleged breach of contract. We believe thatthe allegations and arguments set forth in the letters to support the purported termination of the License arewithout merit. Together with our CEO, Mr. Rietzler, we intend to defend our rights under the License and OurSublicense. If, however, based on the Co-Owner’s action or the action of any third party, the License were to bedeclared by a court to be invalid, ineffective or unenforceable, we would lose the right to use the Patents and theusage rights would revert to Mr. Rietzler and the Co-Owner. Under such circumstances, Mr. Rietzler, personally,would be able to grant us a non-exclusive license to practice the Patents in countries (such as the United States)where he, as a co-owner of the Patents, is able to independently license their use. However, if the German Patentswere publicly auctioned as described above, the License were validly terminated by a court and we were unableto use alternative non-infringing technology, the new owner might be able prevent us from making and sellingproducts made according to the Patents in Germany and a limited number of other countries.

Similarly, if Our Sublicense, but not the License, were, after a court proceeding, to be declared invalid,ineffective or unenforceable, we might lose the right to practice technology covered by the Patents. Such a casecould arise, for example, if a valid exclusive sublicense to use the Patents existed in favor of a third party at thetime we received Our Sublicense in October 2002. Although we are aware of a sublicense agreement withExcenga Technologies GmbH that predated Our Sublicense, the agreement was limited to Japan and countrieswhere the technology had not been patented. Moreover, the AmaTech bankruptcy administrator has confirmed tous that (a) he has not elected to require performance under the sublicense agreement with Excenga TechnologiesGmbH or any other sublicenses, and (b) he considers all sublicenses predating Our Sublicense to have beencancelled. In addition, Excenga Technologies GmbH transferred certain of its rights under its sublicense and thetransferee has waived and renounced such rights vis-a-vis AmaTech and Smartrac. We are not aware of any otherlicensing agreements that predate Our Sublicense.

We may attempt to reach a settlement with regard to the pending litigation and the purported termination ofthe License by the Co-Owner. Preliminary discussions have occurred with the Co-Owner, but we do not expect tobe able to reach a settlement in the near term. To fully resolve the issues relating to the Patents, it would also benecessary to enter into a settlement agreement with Assa Abloy ITG AB. Any such settlement or settlements mayrequire us to pay a substantial amount of money and/or grant the Co-Owner and/or Assa Abloy ITG AB certainrights to the Patents in countries where we currently claim exclusive rights, which may affect our competitiveadvantage and could have a material adverse effect on our business, liquidity, results of operations and futureprospects.

In February 2006, Mr. Rietzler, who was formerly employed as a managing director within the AmaTechgroup, which he left in December 2000, was contacted by a former member of the Supervisory Board andshareholder of AmaTech AG. This AmaTech AG shareholder alleged that Mr. Rietzler improperly transferredcertain AmaTech group technology, intellectual property and know-how to us, and that Mr. Rietzler’s activitieson our behalf constituted a violation of his contractual obligations and of his duties owed to the AmaTech groupcompanies. We believe the allegations and arguments are without merit. Nonetheless, similar claims may be madeby AmaTech AG shareholders and/or creditors against Mr. Rietzler or Smartrac and such claims may result informal litigation or settlement.

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Summary of Terms of the Global Offer

Issuer *********************** SMARTRAC N.V., a public company with limited liability incorporatedunder the laws of The Netherlands.

Selling Shareholders*********** Richard Bird (through RB Netherlands B.V.), Manfred Rietzler (throughICM Netherlands B.V.), Elisabeth Rietzler and Martin Kuschewski (bothindirectly through TCL Netherlands B.V.), Wolfgang Schneider andRonald Brown.

Shares*********************** Up to 4,550,000 shares of the Company, consisting of up to 3,000,000 newshares and up to 1,550,000 existing shares offered by the SellingShareholders.

Furthermore, Deutsche Bank, for the account of the Underwriters mayeffect over-allotments of up to 500,000 existing shares of the Company aspart of the Global Offer.

Shares outstanding************ Immediately prior to the Global Offer, the Company had 10,000,000ordinary shares outstanding. Immediately after the Global Offer, theCompany will have up to 13,000,000 ordinary shares outstanding.

Share ownership************** Immediately after the Global Offer, assuming placement of 3,000,000 newshares and no exercise of the Greenshoe Option, approximately 63% of theCompany’s outstanding share capital will be owned by the SellingShareholders.

Global Offer ***************** The Global Offer consists of a public offering in Germany and Switzerlandand private placements to institutional investors outside Germany,Switzerland and the United States.

Offering period*************** The offering period is expected to begin on Monday, March 20, 2006, atthe earliest. The offering period will extend over approximately three days.The start and end of the offering period will (along with the price range) bepublished in the form of a supplement (within the meaning of Article 16 ofdirective 2003/71/EC of the European Parliament and the Council — the‘‘Prospectus Directive’’) to the Prospectus, expected to be published onMarch 17, 2006, at the earliest.

On the last day of the offering period, retail investors may submit offersuntil 12:00 p.m. noon (CET) and institutional investors may submit offersuntil 2:00 p.m. (CET).

Until the last day of the offering period, the Company and the SellingShareholders reserve the right, together with the Underwriters, to extend orshorten the offering period. To the extent the right to change the terms ofthe Global Offer is exercised, such change will be published as an ad-hocannouncement or by means of an electronic information system, such asReuters or Bloomberg, and, to the extent required under the GermanSecurities Prospectus Act (Wertpapierprospektgesetz) or Dutch law, as asupplement to this Prospectus. Investors who have submitted offers will notbe individually notified.

Price range, offer price ******** The price range within which orders may be submitted, along with theoffering period, will be published in the form of a supplement to theProspectus on our website before the start of the offering period. Thesupplement will also be available from the Company, the Underwriters andthe listing department of the Frankfurt Stock Exchange (FrankfurterWertpapierborse) (‘‘FSE’’) at no charge during regular business hours.One business day afterwards, a notice of the publication of the supplementwill appear in the Frankfurter Allgemeine Zeitung.

The Company and the Selling Shareholders reserve the right, together withthe Underwriters, to increase or decrease the upper and/or the lower limitof the price range.

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The offer price will be determined on the basis of an order book builtduring the bookbuilding process and will be set by the Company, theSelling Shareholders and the Underwriters. The offer price will then bepublished by means of an ad-hoc announcement on an electronic informa-tion system and on our website (www.smartrac-group.com). At the earliest,it will be published one bank workday later in the Frankfurter AllgemeineZeitung. Should the placement volume be insufficient to satisfy all ordersplaced at the offer price, the Underwriters reserve the right to reject ordersin part or full.

Delivery, Settlement Date ****** Delivery of the Shares against payment of the offer price is expected totake place on the second business day following the date on which tradingcommences on the FSE, i.e., March 27, 2006 at the earliest.

Stabilization****************** In connection with the Global Offer, stabilization measures, as well asmeasures supporting stabilization (ancillary stabilization measures), suchas over-allotments, may be effected to the extent legally permissible.

Greenshoe Option************* In connection with possible over-allotments, Deutsche Bank, acting asstabilization manager for the Underwriters, has been provided by theSelling Shareholders at no charge with up to 500,000 existing shares of theCompany pursuant to a share lending agreement. The Selling Shareholdershave also granted Deutsche Bank, for the account of the Underwriters, theoption to purchase up to 500,000 additional existing ordinary shares of theCompany at the offer price. This option will expire 30 calendar days afterthe commencement of trading of the ordinary shares of the Company onthe official market (Amtlicher Markt) of the FSE and on the sub-sector ofthe official market with additional obligations arising from admission(Prime Standard).

Sole Global Coordinator ******* Deutsche Bank AG.

Underwriters***************** Deutsche Bank and UBS Limited.

Use of proceeds*************** The Company intends to first use the net proceeds it receives to repayapproximately 48.8 million of indebtedness existing as of December 31,2005. In addition, the Company intends to repay the short term loangranted to the Company by Deutsche Bank in February 2006 in the amountof 42 million. The Company intends to use the majority of the net proceedsprimarily to expand its current Thai production facilities and to financenew production facilities in Germany, the United States and Brazil. Inaddition, the Company intends to fund further research and developmentand strategic investments or acquisitions. The Company will retain broaddiscretion in allocating the net proceeds of the Global Offer.

The Company will not receive any proceeds from the sale of the existingshares in the Global Offer.

Lock-up arrangements ******** The Company has agreed, subject to certain exceptions, not to announce oreffect an increase of the share capital, issue any securities convertible intoshares of the Company or any economically similar transaction without theprior written consent of the Underwriters, for six months after theSettlement Date.

Our CEO and CFO have agreed that they will not, for a period of twelvemonths from the Settlement Date, and the other Selling Shareholders haveagreed that they will not, for a period of six months from the SettlementDate, in each case without the prior written consent of the Underwriters,directly or indirectly, offer, sell or announce the sale of any shares of theCompany or propose any increase in the Company’s share capital, vote infavor of such a proposed increase or otherwise support any capital increaseproposed with respect to the Company.

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Listing and trading *********** Application will be made for all of the Company’s ordinary shares to beadmitted to listing on the official market (Amtlicher Markt) of the FSE andon the sub-sector of the official market with additional obligations arisingfrom admission (Prime Standard) under the symbol SM7.

Dividends******************** The Company does not anticipate paying any dividends for the foreseeablefuture.

Voting rights ***************** Holders of the Shares will be entitled to one vote per Share at generalmeetings of shareholders.

Share trading information ***** ISIN: NL 0000186633.

German Securities Identification Number (WKN): A0JEHN

Common Code: 024774287.

Trading Symbol: SM7.

Paying agent and depositaryagent********************** Deutsche Bank

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Summary Combined and Consolidated Financial Information

SMARTRAC N.V. was incorporated on January 23, 2006 in the course of a series of restructuring steps. Theentities of the SMARTRAC Group existing prior to the restructuring and SMARTRAC N.V. are under commoncontrol within the meaning of IFRS 3 ‘‘Business Combination’’. The summary combined and consolidatedfinancial information set forth below is that of SMARTRAC’s subsidiaries and, since such subsidiaries have beencontributed to SMARTRAC N.V. upon its incorporation, of SMARTRAC N.V. The consolidated financialinformation for 2003 and 2004 comprises the activities of the Thai and German companies. The combined andconsolidated financial information for 2005 comprises the activities of the Thai and German companiesconsolidated with and combined with the activities of the Singporean company into one reporting entity.Reference is made to Note 1 to the SMARTRAC N.V. combined and consolidated financial information 2003-2005.

The combined and consolidated financial information 2003-2005 has been presented as if SMARTRAC N.V.already existed as at December 31, 2005 and the contribution in kind of all group companies had alreadyoccurred as at December 31, 2005. This pro forma method of presentation only relates to the classification ofequity elements in the balance sheet as of December 31, 2005 and does not affect the equity total.

The summary combined and consolidated financial information should be read in conjunction with‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation’’, ‘‘Selected Combinedand Consolidated Financial Information’’ and the combined and consolidated financial information and notesthereto included elsewhere in this Prospectus. The year-end combined and consolidated financial information isextracted from the Company’s combined and consolidated financial information that has been audited by KPMGAccountants N.V., independent auditors. The combined consolidated and financial information and managementaccounts from which the summary combined and consolidated financial information set forth below have beenderived were prepared in accordance with IFRS. The summary combined and consolidated financial informationset forth below may not contain all of the information that is important to you.

Year ended December 31,2003 2004 2005

(in thousands of Euro)

Selected Income Statement Data(1)

Revenue *********************************************************** 8,653 14,698 25,173

Cost of sales ******************************************************* (5,095) (9,062) (17,333)

Gross profit ******************************************************* 3,558 5,636 7,840Administrative expenses ********************************************** (2,301) (2,751) (4,255)

Other operating expenses ********************************************* (30) (441) (9)

Operating profit before financing costs (EBIT)(2) ************************ 1,227 2,444 3,576Financial income **************************************************** 414 290 3

Financial expenses*************************************************** (208) (389) (613)

Net financing income (expense)*************************************** 206 (99) (610)Share of profit of associates ******************************************* — — 15

Income tax benefit*************************************************** — — 37

Profit for the period ************************************************ 1,433 2,345 3,018

9

Year ended December 31,2003 2004 2005

(in thousands of Euro)

Selected Balance Sheet Data(1)

Property, plant and equipment ***************************************** 6,465 8,601 11,734

Intangible assets **************************************************** 136 116 1,293

Inventories ********************************************************* 1,631 2,011 3,824

Trade receivables**************************************************** 2,857 3,423 6,990

Cash and cash equivalents ******************************************** 194 360 1,500

Total assets ******************************************************** 11,550 15,006 26,703Total equity ******************************************************* 4,452 6,897 9,923Total non-current liabilities******************************************** — — 233

Total current liabilities *********************************************** 7,098 8,109 16,547

Total liabilities ***************************************************** 7,098 8,109 16,780

Year ended December 31,2003 2004 2005(in thousands of Euro exceptfor selected operating data)

Selected Cash Flow DataNet cash provided by operating activities ******************************** 1,273 2,674 1,022

Net cash used in investing activities ************************************ (2,654) (3,151) (4,376)

Net cash provided by financing activities ******************************** 1,287 803 3,299

Selected Segment DataStandard Segment

Revenues ********************************************************** 8,625 14,297 19,903

of which mass transit & access control******************************** 8,586 13,974 18,540

of which logistics************************************************** 39 323 1,363

Gross Profit ******************************************************** 3,570 5,794 6,381

EBITDA(3) ********************************************************* 1,925 3,808 4,111

High Security Segment

Revenues ********************************************************** — — 5,010

of which ePayment ************************************************ — — 2,255

of which ePassport ************************************************ — — 2,755

Gross Profit ******************************************************** — — 1,419

EBITDA(3) ********************************************************* — — 944

Other Operations

Revenues ********************************************************** 28 401 260

Gross Profit ******************************************************** (12) (158) 40

EBITDA(3) ********************************************************* (17) (321) (143)

Selected Operating DataUnits shipped (in millions)

Standard********************************************************* 17.7 33.1 46.2

ePayment ******************************************************** — — 9.3

ePassport ******************************************************** — — 1.3

Manufacturing capacity (million units per month) ************************* 6.3 7.4 11.6

Employees (as of December 31,)

Direct *********************************************************** 142 169 332

Indirect********************************************************** 318 407 772

(1) Columns may not add due to rounding.

(2) We define EBIT as operating profit for the period before financing costs, share of profits of associates and income tax expense. We presentEBIT because management believes it is a useful measure in evaluating our operating performance. EBIT is not a measure of operating

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performance or liquidity under IFRS. EBIT as presented by us may not be comparable to measures with similar names as presented byother companies. For a reconciliation of EBIT to profit for the period, see footnote (3) to the ‘‘Selected Combined and ConsolidatedFinancial Information’’.

(3) We define EBITDA as operating profit for the period before depreciation, amortization, financing costs, share of profits of associates,extraordinary costs and income tax expense. We present EBITDA because management believes it is a useful measure in evaluating ouroperating performance. EBITDA is not a measure of operating performance or liquidity under IFRS. EBITDA as presented by us may notbe comparable to measures with similar names as presented by other companies. For a reconciliation of EBITDA to profit for the period,see footnote (3) to the ‘‘Selected Combined and Consolidated Financial Information’’.

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12

ZUSAMMENFASSUNG

Diese Zusammenfassung ist als Einfuhrung zum vorliegenden Prospekt zu verstehen. Jede Entscheidung imHinblick auf eine Anlage in Aktien sollte sich auf die Prufung des gesamten Prospekts, einschließlich der miteiner Anlage in die Aktien verbundenen Risiken, die im Abschnitt ,,Risikofaktoren‘‘ beschrieben sind, stutzen.Diese Zusammenfassung erhebt keinen Anspruch auf Vollstandigkeit und enthalt nicht alle Informationen, die imZusammenhang mit einer Entscheidung bezuglich der Aktien gepruft werden sollten.

Die Gesellschaft kann in Bezug auf diese Zusammenfassung, einschließlich der hierin enthaltenen Ab-schnitte ,,Zusammenfassung der Bedingungen des Globalen Angebots‘‘ und ,,Zusammengefasste, kombinierte undkonsolidierte Finanzangaben‘‘, oder eine Ubersetzung derselben nur dann zivilrechtlich haftbar gemacht werden,wenn ihr Inhalt — in Verbindung mit den anderen Teilen des vorliegenden Prospekts gelesen — irrefuhrend,unrichtig oder widerspruchlich ist. Fur den Fall, dass vor einem Gericht in einem Staat innerhalb desEuropaischen Wirtschaftsraums Anspruche aufgrund der in diesem Prospekt enthaltenen Informationen geltendgemacht werden, muss der Klager in Anwendung der einzelstaatlichen Rechtsvorschriften des Staates, in dem dieAnspruche geltend gemacht werden, moglicherweise die Kosten fur die Ubersetzung des Prospekts vorProzessbeginn tragen.

Uberblick

Auf der Grundlage von Branchenstudien, angekundigten ePassport-Projekten und internen Prognosen derGesellschaft, ist SMARTRAC nach eigener Auffassung der weltweit fuhrende Anbieter von High Security-Inlaysim Bereich Radio Frequency Identification (,,RFID‘‘) fur kontaktlose Zahlungskarten und Reisepasse mitintegriertem kontaktlosen Chip (,,ePassports‘‘). RFID-Inlays bestehen aus einem Speicher- oder Mikrocontroller-Chip, der mit einer Antenne verbunden ist, die vollstandig in ein Tragermaterial, wie z.B. Kunststoff, eingebettetist. Die Inlays von SMARTRAC werden in die Endprodukte der Kunden (wie z.B. Karten oder Tags) integriert,so dass sie uber Funkwellen Daten an ein Lesegerat ubertragen konnen.

Innerhalb der RFID-Wertschopfungskette hat sich die Gesellschaft als spezialisierter Inlay-Herstellerzwischen ihren Lieferanten (Chip-Herstellern) und ihren Kunden (Kartenherstellern und Sicherheitsdruckereien)positioniert. Daher besteht die Geschaftstatigkeit von SMARTRAC hauptsachlich in der Herstellung von Inlaysim Gegensatz zur Produktion kompletter Karten und Lesegerate oder der Erbringung damit verbundenerSystemintegrationsleistungen. SMARTRAC verfugt uber mehr als 100 Kunden, die in mehr als 27 Landernansassig sind. Dazu gehoren Gemplus International, Axalto, Oberthur Card Systems, die Bundesdruckerei, dieOsterreichische Staatsdruckerei und NagraID.

Die Gesellschaft unterteilt ihre Geschaftstatigkeit in zwei Segmente — ,,Standard‘‘ und ,,High Security‘‘.Das Standard-Segment umfasst die beiden Produktlinien ,,Personennahverkehr und Zutrittskontrolle‘‘ und,,Logistik‘‘. Das Segment High Security besteht aus den Produktlinien ,,ePayment‘‘ und ,,ePassports‘‘. In derfolgenden Ubersicht sind die Segmente und Produktlinien von SMARTRAC grafisch dargestellt.

Produkt-

linien

Die fur das Standard-Segment hergestellten RFID-Inlays waren in der Vergangenheit die Hauptumsatzquelleder Gesellschaft. Obwohl diese Inlays lediglich mit einem Speicherchip ausgestattet sind, enthalten die meistendavon Sicherheitsfunktionen, wie Kennworterkennung und Basis-Verschlusselungen. Der großte Teil der fur dasStandard-Segment produzierten Inlays gehort zur Produktlinie Personennahverkehr und Zutrittskontrolle‘‘, aufdie in der Vergangenheit mehr als 90 % des Umsatzerloses im Standard-Segment entfielen. Das Standard-Segment beinhaltet außerdem die Produktlinie ,,Logistik‘‘, die nicht kartengebundene Inlays und Produkte furAnwendungen im Bereich Logistik und Uberwachung umfasst (z.B. Produktverfolgung und -uberwachung,

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Tieridentifkationsimplantate, Waschereitags und Casinochips). SMARTRAC rechnet mit einem erheblichenUmsatzwachstum in diesem Segment, da die Tendenz zu sinkenden Preisen fur Chips mit hoherer Kapazitat unddie erfolgreiche Umsetzung umfangreicher Projekte uberall auf der Welt immer mehr Transportunternehmendarin bestarkt, RFID-Technologien einzufuhren.

Die Produkte innerhalb des neuen Segments High Security der Gesellschaft sind mit Inlays ausgestattet, dieMikrocontroller-Chips enthalten, die ausgereifte Verschlusselungsfunktionen aufweisen und erweiterte Be-rechnungen ermoglichen. Innerhalb des Segments High Security konzentriert sich die Produktlinie ,,ePayment‘‘auf die Herstellung von Inlays fur kontaktlose Bank-, Kredit- und Kundenkarten. SMARTRAC rechnet fur dienachsten Jahre mit einem kraftigen Wachstum in dieser Produktlinie, da die Kartenaussteller von den herkommli-chen Magnetstreifenkarten und Kontakt-Chipkarten zu RFID-fahigen kontaktlosen Karten ubergehen.SMARTRAC ist der erste Inlay-Hersteller, der die VISA-Sicherheitszulassung fur die Lieferung von Inlayserhielt, und wurde außerdem fur die Lieferung von Inlays fur MasterCard und mehrere regionale Zahlungskarten,wie z.B. Dexit und T-Money, zugelassen.

Nach Auffassung der Gesellschaft hat ihre Produktlinie ,,ePassports‘‘, innerhalb der sie eigens furReisepasse mit integriertem kontaktlosen Chip entwickelte Spezial-Inlays herstellt, die besten Wachstumschan-cen. Angesichts der Einfuhrung von Reisepasse mit integriertem kontaktlosen Chip zum Ende des Jahres 2005durch eine beachtliche Anzahl von Regierungen (auf die im Jahr 2006 weitere folgen werden) und dervoraussichtlich darauf folgenden Einfuhrung RFID-fahiger Ausweise (z.B. Personalausweise und Fuhrerscheine)durfte der Markt fur unsere Produktlinie ,,ePassports‘‘ in den nachsten Jahren schnell wachsen. In acht Landern,darunter den Vereinigten Staaten von Amerika, Russland und Schweden, hat SMARTRAC bereits erste Inlaysgeliefert, die in ePassports integriert worden sind. Daruber hinaus befinden sich die Inlays der Gesellschaftderzeit in verschiedenen Testphasen fur den Einsatz in Reisepasse mit integriertem kontaktlosen Chip von mehrals 15 weiteren Landern, darunter Deutschland, Spanien, Kanada und Taiwan. Mit Stand von Januar 2006 hatteSMARTRAC bereits Inlays fur insgesamt mehr als 1 Millionen ePassports geliefert.

Im Jahr 2005 erzielte SMARTRAC Umsatzerlose in Hohe von 4 25,2 Mio. und in 2004 Umsatzerlose von4 14,7 Mio. Auf die Umsatzerlose aus unserem Standard Segment entfielen im Jahr 2005 79,1 % desGesamtumsatzes der Gesellschaft, wahrend das High Security-Segment 19,9 % des Gesamtumsatzes ausmachte.SMARTRAC rechnet damit, dass sich der relative Umsatzanteil der einzelnen Produktlinien im Zuge derAusweitung der Aktivitaten der Gesellschaft auf die schnell wachsenden Markte fur sichere und kontaktloseePayment- und ePassports-Produkte rapide andern wird.

Die Starken von SMARTRAC

Nach Auffassung der Gesellschaft werden die folgenden Starken zu ihrem zukunftigen Wachstum beitragen:

) Fuhrungsposition auf schnell wachsenden Markten. Auf der Grundlage von Branchenstudien(z.B. Frost & Sullivan, 2006) angekundigten ePassport-Projekten und internen Prognosen der Gesell-schaft, ist SMARTRAC nach eigener Auffassung der weltweit fuhrende Anbieter von High Security-RFID-Inlays fur kontaktlose Zahlungskarten und Reisepassen mit integriertem kontaktlosen Chip.Außerdem hat die Gesellschaft eine positive Erfolgsbilanz bei der Herstellung von Inlays fur Karten furden Personennahverkehr, physische und logische Zugangskontrollkarten sowie kundenspezifischeIdentifikationstags, wobei zwischen 2003 und 2005 etwa 100 Millionen Stuck versandt wurden. Im Jahr2005 nahm SMARTRAC die Serienproduktion von Inlays fur kontaktlose Zahlungskarten und ePassportsauf.

) Uberlegene Fertigungstechnologie und kosteneffizienter Standort. Die primaren Fertigungsstandortevon SMARTRAC befinden sich in Thailand, wo SMARTRAC von niedrigen Betriebskosten profitiert.SMARTRAC verfugt uber proprietare Prozesse, die SMARTRAC in die Lage versetzen, Antennen undChips effizient in Inlaymaterialien einzubetten. Die Gesellschaft besitzt daruber hinaus proprietareMaschinen zur Produktion von Inlays auf voll- oder halbautomatischer Basis. Aufgrund ihres technischenKnow-hows kann die Gesellschaft die Effizienz ihrer Investitionskosten maximieren und ihre Produktions-kapazitat rechtzeitig steigern. Im Jahr 2005 schloss SMARTRAC eine Vereinbarung zur Grundung vonXytec Solutions Sdn. Bhd. (,,Xytec Solutions‘‘), um eine sichere Lieferung dieser rechtlich geschutztenMaschinen gewahrleisten zu konnen. Xytec Solutions liefert SMARTRAC spezialisierte Maschinen aufexklusiver Basis, so dass sich SMARTRAC auf ihr Kerngeschaft konzentrieren kann.

) Großte Produktionskapazitat fur High Security-Inlays. Mit Stand vom 1. Marz 2006 verfugteSMARTRAC uber eine ausreichende Fertigungskapazitat fur die Produktion von mehr als 9 MillionenHoch-Frequenz-Inlays pro Monat, die sie im Laufe des Jahres 2006 voraussichtlich auf mehr als

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13 Millionen Hoch-Frequenz-Inlays pro Monat steigern wird. SMARTRAC ist der Auffassung, dass ihreProduktionskapazitat die Kapazitat ihrer Konkurrenten zur Produktion von High Security-Inlays wesent-lich uberschreitet. Ihre hohe Fertigungskapazitat und ihr starkes Engagement fur Qualitat ermoglichenSMARTRAC, Vertrage mit den großten Kartenherstellern, Systemintegrationsunternehmen undSicherheitsdruckereien abzuschließen.

) Enge Beziehungen zu Kunden und Lieferanten. Da sich SMARTRAC auf die Produktion von Inlaysim Gegensatz zu kompletten Karten oder Mikrochips konzentriert, steht sie nicht in Konkurrenz zu ihrenKunden oder ihren Lieferanten. Dadurch ist es ihr moglich, stabile Beziehungen zu fuhrenden Karten- undChipherstellern aufzubauen.

) Gute Ausgangsposition fur Wachstum im ePayment- und ePassport-Bereich. Herausgeber vonkontaktlosen Zahlungskarten und Regierungen, die ePassports ausstellen, verlangen normalerweise, dassdie Hersteller von Komponenten einen langwierigen Prufprozess durchlaufen, um ihre Fahigkeit zurLieferung erstklassiger Produkte und die Erfullung strenger Sicherheitsstandards nachzuweisen. Aufgrundder hohen Qualitats- und Sicherheitsstandards von SMARTRAC haben acht Lander (darunter dieVereinigten Staaten von Amerika) bereits Inlays der Gesellschaft in von ihnen ausgestellte ePassportsintegriert. Ebenso wurde SMARTRAC der erste Inlay-Hersteller, der die VISA-Sicherheitszulassung furdie Lieferung von Inlays erhielt, und außerdem fur die Lieferung von Inlays fur MasterCard und mehrereregionale Zahlungskarten zugelassen.

Die Strategie von SMARTRAC

Die strategischen Ziele der Gesellschaft bestehen im Erhalt ihres soliden Marktanteils und der weiterenStarkung ihrer Marktposition. Zur Erreichung dieser Ziele plant SMARTRAC folgende Maßnahmen:

) Starkung der Fuhrungsposition. SMARTRAC ist bestrebt, die nach eigener Auffassung fuhrendePosition des Unternehmens auf dem Markt fur High Security-Inlays fur kontaktlose Zahlungskarten undePassports weiter zu starken. Die Inlays der Gesellschaft befinden sich derzeit in verschiedenenTestphasen fur den Einsatz in Reisepassen mit integriertem kontaktlosen Chip von mehr als 15 Landernund wenn diese Testverfahren abgeschlossen sind, rechnet SMARTRAC mit dem Abschluss zusatzlicherVertrage. Die Gesellschaft wird versuchen, ihre Beziehungen zu den Regierungen undSicherheitsdruckereien, weiter auszubauen, um am voraussichtlichen zukunftigen Wachstum bei anderenstaatlichen Ausweisdokumenten teilzuhaben. SMARTRAC verhandelt die Anmietung bzw. den mogli-chen Kauf einer sicheren Fertigungsstatte in Deutschland, um Regierungen beliefern zu konnen, die eineHerstellung ihrer ePassports vor Ort vorschreiben und die Gesellschaft plant eine sichere Fertigungsstattein den Vereinigten Staaten von Amerika Ende 2006 oder in der ersten Halfte des Jahres 2007 zu eroffnen.

) Steigerung der Produktionskapazitat. Aufgrund betrachtlichen Marktwachstums verlangen die Kun-den der Gesellschaft in zunehmendem Maße, Garantien fur Mindestkapazitaten von SMARTRAC.SMARTRAC ist bestrebt, eine Mehrkapazitat in Hohe von 20 % des voraussichtlichen Produktionsbedarfsaufrechtzuerhalten und diese Mehrkapazitat drei bis vier Monate, bevor sie benotigt wird, bereit zustellen. Dies wurde durch die enge Beziehung der Gesellschaft zu Xytec Solutions erheblich erleichtert.Xytec Solutions beliefert SMARTRAC mit nach ihren proprietaren Spezifikationen gebauten Maschinen,die anderweitig verfugbaren Maschinen hinsichtlich ihrer Qualitat uberlegen und dennoch wesentlichpreiswerter sind.

) Wirksamer Einsatz rechtlich geschutzter Technologien fur die Ausweitung auf neue Anwendungs-bereiche und Markte. Die Gesellschaft plant, ihre Inlay-Technologie und Fertigungskompetenz furandere Anwendungsbereiche mit vergleichbaren Technologien zu nutzen. Beispielsweise arbeitetSMARTRAC zusammen mit Kunden an der Entwicklung sicherer kontaktloser Ausweiskarten, wie z.B.Personalsausweise oder Fuhrerscheine.

) Erweiterung der Chip-Beschaffung. Die Gesellschaft kauft derzeit zwischen 70 % und 80 % derChips, die in ihrem Standard-Segment zum Einsatz kommen, weniger als 50 % der Chips fur ihreProduktlinie ,,ePassports‘‘ und einen niedrigen Prozentsatz der Chips fur die Produktlinie ,,ePayments‘‘.Sie wird versuchen, diese Prozentsatze zu erhohen, um ihre Ertrage zu steigern und damit ihreBeziehungen zu ihren Kunden zu festigen.

) Weitere Erhohung des Sicherheits- und Qualitatsniveaus. Trotz einer bereits sehr hohen Ausbeutevon uber 98 % plant SMARTRAC ihre Qualitatskontrollen weiter zu verbessern und hat ein ehrgeizigesSix Sigma-Programm in ihrer thailandischen Hauptproduktionsstatte eingefuhrt.

15

) Erwerb erganzender Geschaftsfelder oder Technologien. Die Gesellschaft beobachtet weiter denMarkt auf der Suche nach Moglichkeiten der Erweiterung ihres Produktangebotes, der Steigerung ihrerMarktdurchdringung in geographischen Zielgebieten und dem Ausbau ihrer Marketing- und Vertriebs-moglichkeiten durch den Erwerb erganzender Geschaftsfelder und Technologien oder die Errichtung vonJoint Ventures.

Zusammenfassung der Risikofaktoren

Vor einem Erwerb von Aktien sollten zukunftige Anleger neben den anderen im vorliegenden Prospektenthaltenen Informationen die mit einer Aktienanlage verbundenen Risiken, die im Abschnitt ,,Risikofaktoren‘‘beschrieben werden, sorgfaltig prufen. Dazu gehoren die folgenden Risiken:

) Die Zielmarkte der Gesellschaft fur ihr zukunftiges Wachstum befinden sich in einer fruhen Entwick-lungsphase und entwickeln sich moglicherweise nicht rapide oder rentabel.

) Falls SMARTRAC nicht mit den Veranderungen bei Industriestandards oder Technologien Schritt haltenkann, sind ihre Produkte moglicherweise nicht mehr konkurrenzfahig und SMARTRAC kann moglicher-weise ihre Kunden nicht mehr beliefern. Viele der Produkte von SMARTRAC sind neu, haben keineetablierte Erfolgsbilanz und enthalten moglicherweise Fehler, die kostspielige Gewahrleistungs- oderandere Anspruche gegen die Gesellschaft nach sich ziehen konnten.

) Die Gesellschaft ist betrieblichen und strategischen Risiken in Bezug auf ihre Belieferung mit denMaschinen, die fur die Herstellung ihrer Produkte eingesetzt werden, ausgesetzt. Es gelingt SMARTRACmoglicherweise nicht, ihre Produktionskapazitat zu optimieren, und SMARTRAC konnte ihren Kundenmoglicherweise wegen Lieferverzugs Schadensersatz zu leisten haben.

) SMARTRAC ist Risiken in Verbindung mit Angriffen gegen geistiges Eigentums ausgesetzt, das von ihrentwickelt oder von anderen Unternehmen erworben wurde. Wesentliche Patente, fur die SMARTRACausschließliche Rechte beansprucht, sind oder werden moglicherweise Gegenstand von Rechtsstreitigkei-ten und Anspruchen, die vom Mitinhaber und Mitentwickler der Technologie eingeleitet bzw. geltendgemacht wurden. Außerdem konnte die Durchsetzung der geistigen Eigentumsrechte der Gesellschaft inzeitaufwendigen und kostspieligen Prozessen resultieren.

) Die Preise fur Low Security-RFID-Produkte sind rapide gesunken, und der Wettbewerb auf dem HighSecurity-Markt wird wahrscheinlich weiter zunehmen.

) Ein wesentlicher Teil des Umsatzes von SMARTRAC wurde in der Vergangenheit aus Geschaften miteiner begrenzten Anzahl von Kunden erzielt.

) Die Quartalsergebnisse von SMARTRAC haben in der Vergangenheit Schwankungen unterlegen, unddiese Schwankungen werden nach Ansicht der Gesellschaft auch weiterhin anhalten.

) SMARTRAC gelingt es moglicherweise nicht, ihre Vorrate an Mikrochips optimal zu verwalten, oder estreten moglicherweise Unterbrechungen in der Versorgungskette auf. SMARTRAC hat zwei Lieferanten,die die Gesellschaft mit dem Spezialkunststoffmaterial beliefern, das das Tragermaterial der Inlays bildet.

) SMARTRAC plant, den Anteil von Mikrochips, die in ihren Inlays zum Einsatz kommen und fur eigeneRechnung erworben werden, zu steigern, wodurch sich das Umlaufvermogen erhohen, SMARTRACeinem Vorratsrisiko ausgesetzt und die Gewinnspannen verwassert wurden.

) SMARTRAC gelingt es moglicherweise nicht, ihre expandierenden Geschaftsbereiche effektiv zuverwalten. Zukunftige Ubernahmen konnten sich nachteilig auf das Geschaft von SMARTRAC auswir-ken.

) Der Erfolg von SMARTRAC ist von der Einstellung und Bindung von Schlusselkraften abhangig.

) Die Gesellschaft ist Wahrungsrisiken ausgesetzt. Daruber hinaus wirken sich wirtschaftliche, politische,rechtliche und aufsichtsrechtliche Entwicklungen in Thailand moglicherweise nachteilig auf das Geschaftvon SMARTRAC aus.

) Die zeitlich begrenzten Steuervorteile, die SMARTRAC derzeit nutzt, stehen SMARTRAC in der Zukunftmoglicherweise nicht mehr zur Verfugung und die internationale Expansion von SMARTRAC konntedazu fuhren, dass sich der effektive Steuersatz von SMARTRAC erhoht.

16

) Die Grundungs- und anderen Hauptaktionare von SMARTRAC, deren Interessen moglicherweise vondenen anderer Aktionare abweichen, werden auch nach Abschluss des Angebotes die Moglichkeit haben,SMARTRAC wesentlich zu beherrschen.

Angaben zum Unternehmen

SMARTRAC ist eine Aktiengesellschaft mit beschrankter Haftung, die nach niederlandischem Rechtgegrundet und unter der Registernummer 34241345 eingetragen wurde. Sie hat ihren Sitz in Amsterdam,Niederlande. Die Geschaftsadresse der Gesellschaft lautet: Locatellikade 1, Parnassustoren, 1076AZ Amsterdam,Niederlande.

Anhangige Patentprozesse

Die wesentlichen Technologien, die SMARTRAC in ihren Produkten und Fertigungsprozessen einsetzt, sindpatentrechtlich geschutzt. SMARTRAC halt mehr als 155 Patente und Patentanmeldungen bzw. hat sichausschließliche oder praktisch ausschließliche Nutzungsrechte fur diese gesichert. Etwa 128 davon wurden imJahr 2002 vom Insolvenzverwalter eines anderen Unternehmens, AmaTech Automation GmbH (,,AmaTech‘‘), imWege einer Unterlizenz kauflich erworben. Vor der Insolvenz von AmaTech hatten Manfred Rietzler, ChiefExecutive Officer (CEO) von SMARTRAC, und ein ehemaliger Kollege (der ,,Patentmitinhaber‘‘) AmaTecheine Lizenz (die ,,Lizenz‘‘) fur die Nutzung verschiedener Patente, die sie gemeinsam entwickelt hatten, erteilt.Ein Großteil dieser Patente war in Deutschland, im ubrigen Europa, in den Vereinigten Staaten von Amerika undin Japan auf beider Namen eingetragen bzw. angemeldet worden (die ,,Patente‘‘). Etwa 22 der Patente sind inDeutschland eingetragen oder angemeldet worden (die ,,Deutschen Patente‘‘). Zu dem Zeitpunkt, als HerrRietzler und der Patentmitinhaber AmaTech die Lizenz erteilten, waren sie wesentliche Aktionare der AmaTechAG, der Muttergesellschaft von AmaTech. Die Lizenz erlaubt AmaTech, Unterlizenzen fur die Nutzung derPatente zu erteilen. Im Jahr 2002 wurde das Insolvenzverfahren uber die AmaTech AG, AmaTech und andereTochtergesellschaften der AmaTech AG eroffnet. Im Oktober 2002 kaufte SMARTRAC verschiedene Vermo-genswerte von AmaTech von deren Insolvenzverwalter, darunter 10 im Namen von AmaTech angemeldetePatente, und SMARTRAC erwarb im Wege einer Unterlizenz (die ,,SMARTRAC Unterlizenz‘‘) das Nutzungs-recht fur 118 Patente. Einige dieser Patente und Patentanmeldungen betreffen die grundlegenden Technologienund Prozesse, die fur die Herstellung einer breiten Palette von Produkten von SMARTRAC genutzt werden.

Am 29. Marz 2004 erhob der Patentmitinhaber Klage, um Herrn Rietzler zu zwingen, dem Verkauf derEigentumsrechte an zwei der Deutschen Patente im Wege einer offentlichen Versteigerung zuzustimmen. Keinesdieser Patente ist fur das Geschaft von SMARTRAC von wesentlicher Bedeutung. Nach zum Nachteil von HerrnRietzler ergangenen Entscheidungen in erster und zweiter Instanz legte Herr Rietzler beim deutschen Bundesge-richtshof Nichtzulassungsbeschwerde ein. Im Rahmen des Rechtsstreits legte der Patentmitinhaber offen, dass ersich verpflichtet hatte, all seine Rechte aus dem Prozess und/oder an den Patenten an Assa Abloy ITG ABabzutreten, einem Unternehmen, das dem gleichen Konzern wie Sokymat, einem Konkurrenten vomSMARTRAC, angehort. Falls der anhangige Prozess endgultig zu Gunsten des Patentmitinhabers entschiedenwird, werden die beiden Deutschen Patente, die Gegenstand der Klage sind, moglicherweise offentlichversteigert. Es ist auch moglich, dass ahnliche Anspruche im Hinblick auf die ubrigen Deutschen Patente erhobenwerden. SMARTRAC ware es zwar moglich an solchen Versteigerungen teilzunehmen, aber unter Umstandenerhalt SMARTRAC erhalt nicht den Zuschlag, und ein Dritter, zum Beispiel ein Konkurrent von SMARTRAC,konnte das Eigentum an den Deutschen Patenten erwerben. Nach deutschem Recht wurde jedoch eineUbertragung des Eigentums an den Patenten an sich nicht die Lizenz oder die SMARTRAC Unterlizenzbeeintrachtigen. Dennoch kann nicht ausgeschlossen werden, dass ein neuer Inhaber der Deutschen Patentegerichtlich geltend machen konnte, dass entweder die Lizenz oder die SMARTRAC Unterlizenz nichtig, nichtdurchsetzbar oder kundbar ist. Daruber hinaus konnte ein neuer Inhaber versuchen, die Deutschen Patente furungultig erklaren zu lassen, was zur Folge hatte, dass die Technologien in Deutschland nicht mehr patentrechtlichgeschutzt waren und von jedermann genutzt werden konnten. Im Ergebnis wurde sich der Wettbewerbsvorteil vonSMARTRAC insoweit verringern, als die Gesellschaft nicht in der Lage ist, ihre Konkurrenten an der Nutzungder Patente zu hindern. Nichtsdestotrotz wurden SMARTRAC nach eigener Auffassung die Vorteile aufgrundihrer Fertigungskompetenz, Produktionskapazitat und Sicherheitszertifizierungen bleiben.

Im Februar 2006 kundigte der Patentmitinhaber uberdies die Lizenz gegenuber dem Insolvenzverwalter derAmaTech und an Herrn Rietzler aus wichtigem Grund. Dabei stutzte er sich unter anderem auf einen angeblichenVertrauensbruch von Herrn Rietzler und einen angeblichen Vertragsbruch des Insolvenzverwalters. NachAuffassung von SMARTRAC entbehren die in den Schreiben enthaltenen Behauptungen undRechtsausfuhrungen, die die vorgebliche Kundigung der Lizenz unterstutzen sollen, jeder Grundlage. Zusammenmit ihrem CEO, Herrn Rietzler, plant SMARTRAC, ihre Rechte aus der Lizenz und der SMARTRAC Unterlizenz

17

zu verteidigen. Wenn jedoch die Lizenz durch Klage des Patentmitinhabers oder die Klage eines Dritten voneinem Gericht fur nichtig, unwirksam oder nicht durchsetzbar erklart werden sollte, wurde SMARTRAC dasRecht zur Nutzung der Patente verlieren und die Nutzungsrechte wurden an Herrn Rietzler und denPatentmitinhaber zuruckfallen. Unter diesen Umstanden konnte Herr Rietzler personlich SMARTRAC eine nichtausschließliche Lizenz zur Nutzung der Patente in den Landern (wie z.B. den Vereinigten Staaten von Amerika)erteilen, in denen er als Mitinhaber der Patente allein eine Lizenz zu deren Nutzung erteilen kann. Wenn dieDeutschen Patente jedoch wie oben beschrieben offentlich versteigert werden sollten und die Lizenz von einemGericht rechtsgultig beendet werden wurde und die Gesellschaft nicht in der Lage sein sollte, alternative, nichtpatentverletzende Technologien zu nutzen, konnte der neue Inhaber sie an der Herstellung und am Verkauf vonProdukten, die auf der Grundlage der Patente hergestellt wurden, in Deutschland und in einer begrenzten Anzahlanderer Lander hindern.

Falls die SMARTRAC Unterlizenz, nicht jedoch die Lizenz, durch ein Gericht fur nichtig, unwirksam odernicht durchsetzbar erklart werden sollte, konnte SMARTRAC ebenfalls das Recht zur Verwendung derTechnologien, die von den Patenten geschutzt sind, verlieren. Dieser Fall konnte beispielsweise eintreten, falls zudem Zeitpunkt, zu dem SMARTRAC die SMARTRAC Unterlizenz im Oktober 2002 erteilt wurde, eine gultigeausschließliche Unterlizenz zur Nutzung der Patente zu Gunsten eines Dritten bestand. Die Gesellschaft hat zwarKenntnis von einer Unterlizenzvereinbarung mit Excenga Technologies GmbH, die der SMARTRAC Unterlizenzzeitlich vorangeht, aber diese Unterlizenzvereinbarung war auf Japan und Lander, in denen die Technologie nichtpatentrechtlich geschutzt worden war, beschrankt. Uberdies hat der Insolvenzverwalter von AmaTech gegenuberder Gesellschaft bestatigt, dass (a) er nicht Erfullung der Unterlizenzvereinbarung mit Excenga TechnologiesGmbH oder etwaigen anderen Unterlizenznehmern gewahlt hat und (b) er alle Unterlizenzen, die der Unterlizenzvon SMARTRAC zeitlich vorangehen, als gekundigt betrachtet. Die Excenga Technologies GmbH hat außerdemeinen Teil ihrer Rechte aus ihrer Sublizenz ubertragen und der Empfanger dieser Rechte hat gegenuber AmaTechund Smartrac auf seine Rechte verzichtet und diese aufgegeben. Die Gesellschaft hat keine Kenntnis von anderenLizenzvereinbarungen, die der SMARTRAC Unterlizenz zeitlich vorgehen.

SMARTRAC versucht moglicherweise, einen Vergleich im Hinblick auf den anhangigen Prozess und dievorgebliche Kundigung der Lizenz durch den Patentmitinhaber zu erzielen. Vorlaufige Diskussionen sind mit demPatentmitinhaber gefuhrt worden, aber SMARTRAC geht nicht davon aus, dass in naher Zukunft ein Vergleichherbeigefuhrt werden kann. Um die Probleme im Zusammenhang mit den Patenten vollstandig zu losen, musstenauch Vergleichsvereinbarungen mit Assa Abloy ITG AB getroffen werden. Bei einem solchen Vergleich odersolchen Vergleichen musste SMARTRAC moglicherweise einen erheblichen Geldbetrag zahlen und/oder demPatentmitinhaber und/oder Assa Abloy ITG AB in Landern, in denen die Gesellschaft gegenwartig ausschließli-che Rechte beansprucht, bestimmte Rechte an den Patenten einraumen, was moglicherweise ihren Wettbewerbs-vorteil beeinflusst und sich wesentlich nachteilig auf die Geschafts-, Liquiditats- und Ertragslage sowieZukunftsaussichten von SMARTRAC auswirken konnte.

Im Februar 2006 wurde Herr Rietzler, der fruher eine Geschaftsfuhrerposition innerhalb der AmaTechGruppe, die er im Dezember 2000 verließ, inne hatte, von einem fruheren Mitglied des Aufsichtsrats undAktionar de AmaTech AG kontaktiert. Dieser AmaTech AG Aktionar behauptete, dass Herr Rietzlerunerlaubterweise Technologie der AmaTech-Gruppe, geistiges Eigentum und Know-how auf SMARTRACubertragen habe und dass diese Aktivitaten zugunsten von SMARTRAC eine Verletzung der vertraglichenVerpflichtungen von Herrn Rietzler und seiner Treuepflichten gegenuber den Unternehmen der AmaTech-Gruppedarstellten. SMARTRAC ist der Auffassung, dass diese Behauptungen unsubstantiiert sind. Trotzdem ist esmoglich, dass ahnliche Anspruche von anderen AmaTech AG Aktionaren und/oder AmaTech Glaubigern gegenHerrn Rietzler oder SMARTRAC erhoben werden und dass diese in Klageverfahren oderVergleichsvereinbarungen munden.

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Zusammenfassung der Bedingungen des Globalen Angebots

Emittentin ******************* SMARTRAC N.V., eine Aktiengesellschaft mit beschrankter Haftung, dienach niederlandischem Recht gegrundet wurde.

Abgebende Aktionare ********* Richard Bird (uber RB Netherlands B.V.), Manfred Rietzler (uber ICMNetherlands B.V.), Elisabeth Rietzler und Martin Kuschewski (beidemittelbar uber TCL Netherlands B.V.), Wolfgang Schneider und RonaldBrown.

Aktien*********************** Bis zu 4.550.000 Aktien der Gesellschaft, die sich aus bis zu 3.000.000neuen Aktien und bis zu 1.550.000 Altaktien, die von den abgebendenAktionaren angeboten werden, zusammensetzen.

Außerdem kann Deutsche Bank fur Rechnung der Konsortialbanken Mehr-zuteilungen von bis zu 500.000 Altaktien der Gesellschaft vornehmen, dieTeil des Globalen Angebotes sind.

Ausgegebene Aktien *********** Unmittelbar vor dem Globalen Angebot hatte die Gesellschaft 10.000.000Stammaktien ausgegeben. Unmittelbar nach dem Globalen Angebot wirddie Gesellschaft bis zu 13.000.000 Stammaktien ausgegeben haben.

Streuung der Aktien ********** Unter Annahme der Platzierung von 3.000.000 jungen Aktien und derNichtausubung der Greenshoe-Option werden sich unmittelbar nach demGlobalen Angebot etwa 63 % des ausgegebenen Aktienkapitals der Gesell-schaft im Eigentum der abgebenden Aktionare befinden.

Globales Angebot ************* Das Globale Angebot besteht aus einem offentlichen Angebot in Deutsch-land und in der Schweiz sowie Privatplatzierungen an institutionelleAnleger außerhalb Deutschlands, der Schweiz und der Vereinigten Staatenvon Amerika.

Angebotszeitraum************* Der Angebotszeitraum beginnt voraussichtlich fruhestens am Montag, den20. Marz 2006. Der Angebotszeitraum wird etwa drei Tage dauern. Beginnund Ende des Angebotszeitraums werden (zusammen mit der Preisspanne)in Form eines Nachtrags (im Sinne von Artikel 16 der Richtlinie2003/71/EG des Europaischen Parlamentes und des Rats — die,,Prospektrichtlinie‘‘) zum Prospekt bekannt gegeben, der voraussichtlichfruhestens am 17. Marz 2006 veroffentlicht wird.

Am letzten Tag des Angebotszeitraums konnen Privatanleger bis um12.00 Uhr (MEZ) und institutionelle Anleger bis 14.00 Uhr (MEZ)Kaufangebote abgeben.

Die Gesellschaft und die abgebenden Aktionare behalten sich gemeinsammit den Konsortialbanken das Recht vor, bis zum letzten Tag des Ange-botszeitraums den Angebotszeitraum zu verlangern oder zu verkurzen.Sofern vom Recht, die Angebotsbedingungen zu andern, Gebrauch ge-macht wird, wird die Anderung als Ad-hoc-Mitteilung oder uber elektroni-sche Informationssysteme, wie z.B. Reuters oder Bloomberg, und, sofernnach deutschem Wertpapierprospektgesetz oder niederlandischem Rechterforderlich, als Nachtrag zu diesem Prospekt veroffentlicht. Eine individu-elle Unterrichtung der Anleger, die Kaufangebote abgegeben haben, erfolgtnicht.

Preisspanne undPlatzierungspreis *********** Die Preisspanne, innerhalb derer Kaufauftrage abgegeben werden konnen,

wird zusammen mit dem Angebotszeitraum vor Beginn des Angebotszeit-raums in Form eines Nachtrags zum Prospekt auf der Internetadresse vonSMARTRAC veroffentlicht. Der Nachtrag wird außerdem wahrend derublichen Geschaftszeiten bei der Gesellschaft, den Konsortialbanken sowiebei der Zulassungsstelle der Frankfurter Wertpapierborse (,,FWB‘‘) ko-stenlos erhaltlich sein. Eine Mitteilung uber die Veroffentlichung des

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Nachtrags wird einen Bankarbeitstag danach in der ,,Frankfurter Allgemei-nen Zeitung‘‘ erscheinen.

Die Gesellschaft und die abgebenden Aktionare behalten sich gemeinsammit den Konsortialbanken das Recht vor, die Ober- und/oder Untergrenzeder Preisspanne zu erhohen oder zu verringern.

Der Platzierungspreis wird von der Gesellschaft, den abgebenden Aktio-naren und den Konsortialbanken mit Hilfe eines im Bookbuilding-Verfah-ren erstellten Orderbuchs festgelegt. Der Platzierungspreis wird imAnschluss hieran im Wege einer Ad-hoc-Mitteilung uber ein elektronischbetriebenes Informationssystem und unter der Internetadresse der Gesell-schaft (www.smartrac-group.com) sowie fruhestens am darauf folgendenBankarbeitstag durch Bekanntmachung in der ,,Frankfurter AllgemeinenZeitung‘‘ veroffentlicht. Insbesondere fur den Fall, dass dasPlatzierungsvolumen nicht ausreicht, samtliche Kaufauftrage zumPlatzierungspreis zu bedienen, behalten sich die Konsortialbanken vor,Kaufauftrage nicht oder nur teilweise anzunehmen.

Lieferung und Abrechnung **** Die verkauften Aktien werden voraussichtlich am zweiten Bankarbeitstagnach Aufnahme des Handels an der FWB, d.h. fruhestens am 27. Marz2006, gegen Zahlung des Platzierungspreises geliefert.

Stabilisierung **************** Im Zusammenhang mit dem Globalen Angebot werden moglicherweiseStabilisierungsmaßnahmen sowie die Stabilisierung unterstutzende Maß-nahmen (zusatzliche Stabilisierungsmaßnahmen), wie z.B. Mehrzuteilun-gen, im rechtlich zulassigen Umfang vorgenommen.

Greenshoe-Option************* Im Hinblick auf eine eventuelle Mehrzuteilung wurden der DeutschenBank in ihrer Eigenschaft als Stabilisierungsmanager fur die Konsortial-banken von den abgebenden Aktionaren bis zu 500.000 Altaktien derGesellschaft im Wege eines unentgeltlichen Wertpapierdarlehens zur Ver-fugung gestellt. Die abgebenden Aktionare haben ferner der DeutschenBank fur Rechnung der Konsortialbanken die Option eingeraumt, bis zu500.000 zusatzliche Alt-Stammaktien der Gesellschaft zum Platzierungs-preis zu erwerben. Diese Option endet 30 Kalendertage nach Aufnahmedes Handels der Stammaktien der Gesellschaft im amtlichen Markt derFWB und im Teilbereich des amtlichen Marktes mit weiteren Zulassungs-folgepflichten (Prime Standard).

Globaler Koordinator ********* Deutsche Bank AG.

Konsortialbanken ************* Deutsche Bank und UBS Limited.

Verwendung desEmissionserloses ************ Die Gesellschaft plant, den Nettoemissionserlos aus dem Globalen Ange-

bot zunachst fur die Ruckzahlung ausstehender Kredite in Hohe von etwa4 8,8 Mio. (Stand: 31, Dezember 2005) zu verwenden. Außerdem plant dieGesellschaft einen kurzfristigen Uberbruckungskredit in Hohe von4 2 Mio, der ihr von der Deutschen Bank im Februar 2006 gewahrt wurde,zuruckzufuhren. Die Gesellschaft plant den wesentlichen Teil des Netto-emissionserloses primar fur die Expansion der derzeitigen Produktionsstat-ten in Thailand und die Finanzierung neuer Produktionsstatten in Deutsch-land, in den Vereinigten Staaten von Amerika und Brasilien zu verwenden.Daruber hinaus plant die Gesellschaft, weitere Forschungs- und Entwick-lungsprojekte sowie strategische Investitionen oder Ubernahmen zu finan-zieren. Die Aufteilung des Nettoerloses des Globalen Angebots ist insalleinige Ermessen der Gesellschaft gestellt.

Die Gesellschaft erhalt aus dem Globalen Angebot keine Erlose aus demVerkauf der Altaktien.

20

Marktschutzvereinbarungen(Lock-up)****************** Die Gesellschaft hat sich vorbehaltlich bestimmter Ausnahmen ver-

pflichtet, bis sechs Monate nach dem Abrechnungstag ohne vorherigeschriftliche Zustimmung der Konsortialbanken keine Erhohung des Aktien-kapitals, keine Ausgabe von Wertpapieren, die in Aktien der Gesellschaftumgewandelt werden konnen, und keine wirtschaftlich vergleichbareTransaktion anzukundigen oder vorzunehmen.

Der CEO und der CFO von SMARTRAC haben sich verpflichtet, bis zwolfMonate nach dem Abrechnungstag und die anderen abgebenden Aktionarehaben sich verpflichtet, bis sechs Monate nach dem Abrechnungstag ohnevorherige schriftliche Zustimmung der Konsortialbanken keine Aktien derGesellschaft direkt oder indirekt anzubieten, zu verkaufen oder derenVerkauf anzukundigen oder eine Erhohung des Aktienkapitals der Gesell-schaft vorzuschlagen, fur eine solche vorgeschlagene Kapitalerhohung zustimmen oder eine in Bezug auf die Gesellschaft vorgeschlagene Kapitaler-hohung anderweitig zu unterstutzen.

Borsennotierung und -handel*** Die Zulassung samtlicher Stammaktien der Gesellschaft zur Notierung imamtlichen Markt der FWB mit gleichzeitiger Zulassung zum Teilbereichdes amtlichen Marktes mit weiteren Zulassungsfolgepflichten (Prime Stan-dard) unter dem Borsenkurzel SM7 wird beantragt.

Dividenden******************* Die Gesellschaft rechnet in absehbarer Zukunft nicht damit, Dividendenauszuschutten.

Stimmrechte ***************** Jede Aktie der Gesellschaft gewahrt ein Stimmrecht in der Hauptver-sammlung der Gesellschaft.

Angaben zum Aktienhandel **** ISIN: NL 0000186633.Wertpapier-Kenn-Nummer (WKN): AOJEHNCommon Code: 024774287.Borsenkurzel: SM7.

Zahlstelle und Hinterlegungs-stelle ********************** Deutsche Bank.

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Zusammengefasste kombinierte und konsolidierte Finanzangaben

SMARTRAC N.V. wurde am 23. Januar 2006 im Zuge mehrerer Umstrukturierungsmaßnahmen gegrundet.Die Unternehmen der SMARTRAC-Gruppe, die bereits vor der Umstrukturierung bestanden, und dieSMARTRAC N.V. stehen unter gemeinsamer Beherrschung im Sinne von IFRS 3 ,,Unternehmenszusammen-schlusse‘‘. Die nachstehend genannten zusammengefassten kombinierten und konsolidierten Finanzangaben sinddie der Tochtergesellschaften der SMARTRAC N.V. und, da diese Tochtergesellschaften bei der Grundung derSMARTRAC N.V. in die SMARTRAC N.V. eingebracht worden sind, der SMARTRAC N.V. Die konsolidiertenFinanzangaben fur die Jahre 2003 und 2004 umfassen die Aktivitaten der thailandischen und deutschenGesellschaften. Die kombinierten und konsolidierten Finanzangaben fur das Jahr 2005 umfassen die Aktivitatender thailandischen und deutschen Gesellschaften, konsolidiert und kombiniert mit den Aktivitaten dersingapurianischen Tochtergesellschaft. Es wird auf Note 1. zu den kombinierten und konsolidiertenFinanzangaben der SMARTRAC N.V. verwiesen.

Die kombinierten und konsolidierten Finanzangaben fur 2003-2005 sind so dargestellt, als habe dieSMARTRAC N.V. zum 31. Dezember 2005 schon bestanden und als sei die Einbringung samtlicher verbundenerUnternehmen schon zum 31. Dezember 2005 erfolgt. Diese Art der Pro Forma Darstellung bezieht sich nur aufdie Gliederung der Eigenkapitalposten in der Bilanz zum 31. Dezember 2005 und wirkt sich nicht auf die Summedes Eigenkapitals aus.

Die zusammengefassten kombinierten und konsolidierten Finanzangaben sollten in Verbindung mit denAbschnitten ,,Darstellung und Analyse der Vermogens-, Finanz- und Ertragslage‘‘ und ,,Ausgewahlte kombinierteund konsolidierte Finanzangaben‘‘ sowie mit den kombinierten und konsolidierten Finanzangaben und Anhangenderselben, die im vorliegenden Prospekt an anderer Stelle enthalten sind, gelesen werden. Die kombinierten undkonsolidierten Finanzangaben zum Jahresende wurden den von KPMG Accountants N.V., Wirtschaftsprufungsge-sellschaft, gepruften kombinierten und konsolidierten Finanzangaben der Gesellschaft entnommen. Die kombi-nierten und konsolidierten Finanzangaben, denen die nachstehend zusammengefassten kombinierten und konsoli-dierten Finanzangaben entnommen sind, wurden in Ubereinstimmung mit IFRS erstellt. Die nachstehendzusammengefassten kombinierten und konsolidierten Finanzangaben enthalten moglicherweise nicht alle Infor-mationen, die fur Sie von Bedeutung sind.

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Geschaftsjahr zum 31. Dezember2003 2004 2005

Ausgewahlte Angaben aus der Gewinn- und Verlustrechnung(1)

Umsatzerlose ***************************************************** 8.653 14.698 25.173

Umsatzkosten***************************************************** (5.095) (9.062) (17.333)

Bruttoergebnis *************************************************** 3.558 5.636 7.840Verwaltungskosten************************************************* (2.301) (2.751) (4.255)

Sonstige betriebliche Aufwendungen ********************************** (30) (441) (9)

Betriebsergebnis vor Finanzierungskosten (EBIT)(2) ******************* 1.227 2.444 3.576Finanzertrag****************************************************** 414 290 3

Finanzaufwand**************************************************** (208) (389) (613)

Finanzergebnis*************************************************** 206 (99) (610)Anteil am Gewinn verbundener Unternehmen*************************** — — 15

Ertragsteuervorteil ************************************************* — — 37

Periodenergebnis ************************************************* 1.433 2.345 3.018

Ausgewahlte Bilanzangaben(1)

Sachanlagen****************************************************** 6.465 8.601 11.734

Immaterielle Vermogenswerte**************************************** 136 116 1.293

Vorrate ********************************************************** 1.631 2.011 3.824

Forderungen aus Lieferungen und Leistungen*************************** 2.857 3.423 6.990

Flussige Mittel**************************************************** 194 360 1.500

Summe Aktiva *************************************************** 11.550 15.006 26.703

Summe Eigenkapital ********************************************** 4.452 6.897 9.923Summe langfristige Verbindlichkeiten ********************************* — — 233

Summe kurzfristige Verbindlichkeiten ********************************* 7.098 8.109 16.547

Summe Verbindlichkeiten****************************************** 7.098 8.109 16.780

Ausgewahlte Angaben aus der KapitalflussrechnungCashflow aus laufender Geschaftstatigkeit****************************** 1.273 2.674 1.022

Cashflow aus Investitionstatigkeit************************************* (2.654) (3.151) (4.376)

Cashflow aus Finanzierungstatigkeit ********************************** 1.287 803 3.299

Ausgewahlte SegmentangabenStandard-Segment

Umsatzerlose ***************************************************** 8.625 14.297 19.903

davon Personennahverkehr und Zutrittskontrolle ********************** 8.586 13.974 18.540

davon Logistik ************************************************** 39 323 1.363

Bruttoergebnis **************************************************** 3.570 5.794 6.381

EBITDA(3) ******************************************************* 1.925 3.808 4.111

High Security-Segment

Umsatzerlose ***************************************************** — — 5.010

davon ePayment************************************************* — — 2.255

davon ePassport ************************************************ — — 2.755

Bruttogewinn ***************************************************** — — 1.419

EBITDA(3) ******************************************************* — — 944

Sonstige Geschaftsbereiche

Umsatzerlose ***************************************************** 28 401 260

Bruttoergebnis **************************************************** (12) (158) 40

EBITDA(3) ******************************************************* (17) (321) (143)

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Geschaftsjahr zum 31. Dezember2003 2004 2005

Ausgewahlte operative AngabenGelieferte Einheiten (in Millionen)

Standard******************************************************* 17,7 33,1 46,2

ePayment ****************************************************** — — 9,3

ePassport ****************************************************** — — 1,3

Fertigungskapazitat (in Millionen Stuck pro Monat) ********************* 6,3 7,4 11,6

Mitarbeiter (Stand: 31. Dezember)

Direkt ********************************************************* 142 169 332

Indirekt******************************************************** 318 407 772

(1) Aufgrund von Rundungseffekten ergeben die Spalten nicht unbedingt die genaue Summe der Einzelbetrage.

(2) EBIT wird definiert als operatives Periodenergebnis vor Finanzierungskosten, Anteil am Gewinn verbundener Unternehmen und Steuernvom Einkommen und Ertrag. SMARTRAC weist EBIT aus, weil die Geschaftsleitung dieses als hilfreiche Kennzahl zur Beurteilung derEntwicklung der Gesellschaft betrachtet. EBIT ist kein Maßstab fur die Entwicklung oder die Liquiditat nach IFRS. EBIT in der vonSMARTRAC ausgewiesenen Form ist nicht unbedingt vergleichbar mit Kennzahlen ahnlichen Namens, wie sie von anderen Unternehmenveroffentlicht werden. Zur Uberleitung des EBIT auf das Periodenergebnis siehe Fußnote (3) zu den ,,Ausgewahlten kombinierten undkonsolidierten Finanzangaben‘‘.

(3) EBITDA wird definiert als operatives Periodenergebnis vor Abschreibungen, Finanzierungskosten, Anteil am Gewinn verbundenerUnternehmen, außerordentlichen Posten und Steuern vom Einkommen und Ertrag. SMARTRAC weist das EBITDA aus, weil dieGeschaftsleitung dieses als hilfreiche Kennzahl zur Beurteilung der Entwicklung der Gesellschaft betrachtet. EBITDA ist kein Maßstabfur die Entwicklung oder Liquiditat nach IFRS. EBITDA in der von SMARTRAC ausgewiesenen Form ist nicht unbedingt vergleichbarmit Kennzahlen ahnlichen Namens, wie sie von anderen Unternehmen veroffentlicht werden. Zur Uberleitung des EBITDA auf dasPeriodenergebnis siehe Fußnote (3) zu den ,,Ausgewahlten kombinierten und konsolidierten Finanzangaben‘‘.

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RISK FACTORS

Before investing in the Company’s shares, prospective investors should consider carefully the following risksand uncertainties in addition to the other information presented in this Prospectus. If any of the following risksactually occurs, our business, results of operations or financial condition could be materially adversely affected.In that event, the value of the Company’s shares could decline, and you might lose part or all of your investment.Although we believe that the risks and uncertainties described below are our most material risks anduncertainties, they are not the only ones we face. Additional risks and uncertainties not presently known to us orthat we currently deem immaterial may also have a material adverse effect on our business, results of operationsor financial condition and could negatively affect the price of the Company’s shares.

Risks related to our Business

The markets that we have targeted for a substantial part of our future growth are in the early stages ofdevelopment and may not develop rapidly or profitably.

Many of the markets that we target for our future growth have only recently emerged, are currently small andneed to develop for us to achieve our growth objectives. This is particularly true with regard to the markets forePassports and contactless payment cards. If some or all of these markets do not develop, or if they develop moreslowly than we anticipate, then our business may be adversely affected. For example, governments may decide todelay implementation of ePassports due to privacy or other concerns, may have difficulty implementing anePassport system, or may choose to continue using traditional paper passports. The U.S. government initiallycalled for implementation of ePassports by 2002, but has since extended the deadline twice, most recently toOctober 2006.

There are a number of competing technologies for a wide range of applications in these markets, some ofwhich could be given preference over RFID-based products. The most significant challenge involves the use ofcontact-based chip cards using the EMV (Europay, MasterCard, Visa) standard for secure banking applications,rather than contactless technology. The adoption of RFID-based systems requires significant investment ininfrastructure, including investment by merchants in point-of-sale readers for contactless payment cards.Particularly in Europe, where merchants already have made significant investments in EMV contact chip cardterminals, the introduction and acceptance of contactless payment cards may be delayed or fail entirely. Inaddition, payment by mobile phone, which does not require use of an RFID-based card, is gaining acceptance,particularly in Europe and Asia.

Finally, as the ePassport and contactless payment card markets are still emerging, clear trends in pricinghave yet to emerge. We may experience lower than anticipated prices due to intense competition in biddingprocesses or an overall decline in prices following the introduction of new products or technologies.

Delays in the implementation of, or in payments related to, significant orders and projects may also have anegative effect on the timing of our revenues, which may cause our quarterly operating results to fall belowinvestor expectations.

If we are unable to keep up with changes in industry standards or developments in technology, ourexisting products may no longer be competitive and we may become unable to supply our customers.

The market for our products is marked by rapid technological change because of frequent new productintroductions and enhancements, uncertain product life cycles, changes in client demands and evolving industrystandards. New products based on new or improved technologies or new industry standards can render existingproducts and services obsolete and unmarketable. To succeed, we need to continually enhance our currentproducts and develop new products on a timely basis. Any delays in developing and releasing enhanced or newproducts, or in keeping pace with continuous technological change, may cause us to lose our existing customerbase or prevent us from expanding it, which could adversely affect our business. Moreover, to be eligible tosupply certain customers, we must satisfy industry standards and criteria relating to our facilities and products.We must make significant investments in order to meet these standards and criteria, which tend to change overtime. If we fail to meet these standards and criteria, we may lose our certification and become ineligible toprovide certain products.

The process of developing our products and obtaining the certifications necessary to demonstrate compliancewith relevant industry standards requires significant continuing efforts and investments. Our investments inquality control and improved security standards have been considerable, and they may need to increase. Theseexpenses may adversely affect our business, results of operations and financial condition.

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We face operational and strategic risks related to our supply of the machinery used to manufacture ourproducts.

We rely on Xytec Solutions, a company in which we hold a 30% interest, to supply us with the proprietaryand customized equipment we need to efficiently manufacture our inlays. We will need to significantly increaseour production capacity to keep pace with market growth and meet our obligations to our customers. Our abilityto increase our production capacity is limited by Xytec Solutions’ ability to supply us with the necessaryequipment. If Xytec Solutions is unable or unwilling to provide us with the machinery we require, or fails toincrease its supply of equipment, our relations with our customers would be negatively affected, our market sharemight decline and our results of operations could be materially adversely affected.

Significant patents to which we currently claim exclusive rights are or may become the subject ofdisputes and claims brought by the co-owner and co-developer of the patented technology.

The core technology we use in our products and manufacturing processes is subject to patent protection. Weown or have arranged for exclusive or practically exclusive usage rights to over 155 patents and patentapplications, of which approximately 128 were sublicensed or purchased from the bankruptcy administrator ofanother company, AmaTech Automation GmbH (‘‘AmaTech’’), in 2002. Prior to the insolvency of AmaTech, ourChief Executive Officer, Manfred Rietzler, and a former colleague (the ‘‘Co-Owner’’) had granted AmaTech alicense (the ‘‘License’’) to use the various patents they had jointly developed, most of which had been registeredor applied for in Germany, the rest of Europe, the United States and Japan in both of their names (the‘‘Patents’’). Approximately 22 of the Patents have been registered or applied for in Germany (the ‘‘GermanPatents’’). At the time Mr. Rietzler and the Co-Owner granted the License to AmaTech, they were significantshareholders of AmaTech AG, the parent company of AmaTech. The License permits AmaTech to grantsublicenses to use the Patents. In 2002, AmaTech AG, AmaTech and other AmaTech AG subsidiaries entered intobankruptcy proceedings. In October 2002, we purchased various AmaTech assets from its bankruptcy administra-tor, including 10 patents owned by AmaTech, and received the right to use 118 Patents by means of a sublicense(‘‘Our Sublicense’’). Some of these patents and patent applications concern the basic technology and processesused to manufacture a wide variety of our products.

On March 29, 2004, the Co-Owner brought an action designed to force Mr. Rietzler to consent to the sale bypublic auction of the ownership rights to two of the German Patents, neither of which is significant to ourbusiness. Following adverse rulings in the first and second instance, Mr. Rietzler applied to the German FederalCourt of Justice for leave to appeal (Nichtzulassungsbeschwerde). As part of these proceedings, the Co-Ownerdisclosed that he had committed to assign all of his rights stemming from the above litigation, together with all ofhis rights relating to the Patents, to Assa Abloy ITG AB, a member of the same group as one of our competitors,Sokymat. If the pending litigation should be ultimately decided in the Co-Owner’s favor, the two German Patentsthat are the subject of the action may be publicly auctioned. Under such circumstances, it is also possible thatsimilar claims could be made with regard to the remaining German Patents. Although we would be permitted toparticipate in any such auctions, we ultimately may not be the successful bidder and a third party, such as one ofour competitors, may acquire ownership of the German Patents. However, under German law, a transfer of patentownership would not, by itself, affect the License or Our Sublicense. Nevertheless, it cannot be excluded that anew owner of the German Patents might claim that either the License or Our Sublicense is void, unenforceable orterminable. In addition, a new owner could seek to invalidate the German Patents, with the effect that thetechnology would no longer be patent-protected in Germany and could be used by any party. Sharing use of thePatents with a competitor would reduce our competitive advantage and could have a material adverse effect uponour business, operating results and future prospects.

Furthermore, in letters dated February 2006 addressed to the AmaTech bankruptcy administrator and toMr. Rietzler, the Co-Owner sought to terminate the License for cause based, inter alia, upon Mr. Rietzler’salleged breach of trust and the AmaTech bankruptcy administrator’s alleged breach of contract. We believe thatthe allegations and arguments set forth in the letters to support the purported termination of the License arewithout merit. Together with our CEO, Mr. Rietzler, we intend to defend our rights under the License and OurSublicense. If, however, based on the Co-Owner’s action or the action of any third party, the License were to bedeclared by a court to be invalid, ineffective or unenforceable, we would lose the right to practice the Patents andthe usage rights would revert to Mr. Rietzler and the Co-Owner. Under such circumstances, Mr. Rietzler,personally, would be able to grant us a non-exclusive license to use the Patents in countries (such as the UnitedStates) where he, as a co-owner of the Patents, is able to independently license their use. Such a license would notbe exclusive, however. Moreover, if the German Patents were publicly auctioned as described above, and theLicense were validly terminated by a court, and we were unable to use alternative non-infringing technology, the

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new owner might be able prevent us from making and selling products made according to the Patents in Germanyand a limited number of other countries.

Similarly, if Our Sublicense, but not the License, were, after a court proceeding, to be declared invalid,ineffective or unenforceable, we might lose the right to practice technology covered by the Patents. Such a casecould arise, for example, if a valid exclusive sublicense to use the Patents existed in favor of a third party at thetime we received Our Sublicense in October 2002. Although we are aware of a sublicense agreement withExcenga Technologies GmbH that predated Our Sublicense, the sublicense agreement was limited to Japan andcountries where the technology had not been patented. Moreover, the AmaTech bankruptcy administrator hasconfirmed to us that (a) he has not elected to require performance under the sublicense agreement with ExcengaTechnologies GmbH or any other sublicenses, and (b) he considers all sublicenses predating Our Sublicense tohave been cancelled. In addition, Excenga Technologies GmbH transferred certain of its rights under itssublicense and the transferee has waived and renounced such rights vis-a-vis AmaTech and Smartrac. We are notaware of any other licensing agreements that predate Our Sublicense.

In the event that we were to lose our license to one or more of the Patents, a court might find that (i) ourproducts (including contactless payment cards and e-Passports) or (ii) some of our production methods infringeone or more of the Patents. In such event, we may be required to acquire new license rights to the Patents in thejurisdictions concerned. It may be necessary to pay high royalties to use these patents or licenses may not beavailable on commercially acceptable terms. Paying high royalties could have a material adverse effect upon ourbusiness, operating results and financial condition. If we were unable to acquire the necessary licenses forcountries in which we operate, we might be required to cease such operations in those countries or use othertechnology in the jurisdictions concerned.

We may attempt to reach a settlement with regard to the pending litigation and the purported termination of theLicense by the Co-Owner. Preliminary discussions have occurred with the Co-Owner, but we do not expect to be ableto reach a settlement in the near term. To fully resolve the issues relating to the Patents, it would also be necessary toenter into a settlement agreement with Assa Abloy ITG AB. Any such settlement or settlements may require us to paya substantial amount of money and/or grant the Co-Owner and/or Assa Abloy ITG AB certain rights to the Patents incountries where we currently claim exclusive rights, which may affect our competitive advantage and could have amaterial adverse effect on our business, liquidity, results of operations and future prospects.

We face risks associated with challenges to intellectual property that we have developed or have acquiredfrom other companies.

We believe that we own the rights to use all the intellectual property used in our business. Some of ourpatents or licenses may be invalid, however, or we may unwittingly infringe upon the intellectual property rightsof others. If our right to use certain technologies or products is challenged, we face risks relating to costlyjudgments, license fees or injunctions. We might be forced to obtain licenses under unfavorable conditions and/orincur substantial liabilities. Any loss of, or inability to protect, our intellectual property could materiallyadversely affect our business, results of operations or financial condition.

In February 2006, Mr. Rietzler, who was formerly employed as a managing director within the AmaTechgroup, which he left in December 2000, was contacted by a former member of the Supervisory Board andshareholder of AmaTech AG. This AmaTech AG shareholder alleged that Mr. Rietzler improperly transferredcertain AmaTech group technology, intellectual property and know-how to us, and that Mr. Rietzler’s activitieson our behalf constituted a violation of his contractual obligations and of his duties owed to the AmaTech groupcompanies. We believe the allegations and arguments are without merit. Nonetheless, similar claims may be madeby AmaTech AG shareholders and/or creditors against Mr. Rietzler or Smartrac and such claims may result informal litigation or settlement. Such disputes may be costly to defend and may divert our management’s attentionfrom managing our day-to-day business operations.

Enforcing our intellectual property rights could cause us to incur distracting and costly litigation.

We rely to a significant extent upon our proprietary wire-embedding and manufacturing technology andother intellectual property rights. To date, we have relied primarily on a combination of patent, trade secret andcopyright laws, as well as nondisclosure and other contractual restrictions on copying, reverse engineering anddistribution, to protect our proprietary technology. We cannot guarantee, however, that these measures are or willbe sufficient to protect our intellectual property rights or that we will be able to obtain all of the patents for whichwe apply. The laws of certain foreign countries may not protect our intellectual property rights to the same extentas the laws in the European Union or the United States. Furthermore, our patents may not cover the scopeoriginally sought or offer meaningful protection. Litigation to enforce our intellectual property rights or protect

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our trade secrets could result in substantial costs and may not be successful, which could result in others gainingaccess to our proprietary technology or machinery, which could reduce our margins, competitive advantage andmarket share. Such events could seriously harm our business, results of operations and financial condition.

We currently believe that two of our competitors have been infringing upon one of our patents relating towire embedding technology to produce products sold on the European market. Together with Mr. Rietzler, wefiled infringement actions against Oriental Power Technology (a Chinese company) and Aontec Teoranta (an Irishcompany) in Germany on May 10, 2005 and June 3, 2005, respectively. Both actions seek damages andinjunctions prohibiting further infringement.

Prices for memory-based RFID products have fallen rapidly and competition in the high securitycontactless market is likely to increase.

As the market for memory-based RFID inlays and tags has grown, manufacturers have been able to increaseproduction volume and lower their costs, which has led to rapidly falling prices and lower margins on ourmemory-based products in our standard segment. In addition, prices for the chips integrated in our products havebeen falling, contributing to the overall price decline. Competitors may succeed in developing machinery that ismore efficient than the manufacturing equipment we use to produce our inlays. We may not be able to competesuccessfully against current or future competitors. So far we have faced relatively little competition in the marketsfor inlays for ePassports and contactless payment cards, but competition is likely to increase as competitorsbecome certified or recommended by governments and credit card licensing organizations. This competition, or achange in a government’s or licencing organization’s recommendation, could reduce our sales, prices andmargins, harming our business, results of operations and financial condition.

We believe that our current principal competitors are On Track Innovations, which has operations in theUnited States, Israel and China, Sokymat, a subsidiary of Assa Abloy AB that is based in Switzerland, andAontec Teoranta, an Irish company. New competitors with low-cost operating models may enter the market,especially in China or elsewhere in Asia, threatening our market share and our profitability.

As the market for RFID inlays grows, we may experience additional competition from companies that arecurrently our suppliers (e.g., Infineon), customers and strategic partners (e.g., Gemplus International, Axalto andOberthur Card Systems), including systems integrators, card manufacturers and microchip manufacturers. Assuppliers and customers operating in low-margin niches of the RFID market look for growth opportunities, thisrisk will increase in significance. Moreover, if a significant customer chooses to compete with us, we will likelylose their business as well.

Some of our competitors and potential competitors may have larger technical staffs, larger customer bases,more established distribution channels, greater brand recognition and greater financial, marketing and otherresources than we do. Our competitors may be able to develop products that are superior to our products, whichachieve greater customer acceptance or which have significantly improved functionality as compared to ourexisting and future products. Other competitors offer services in addition to their products, or offer completecards in addition to inlays. In addition, our competitors may be able to negotiate strategic relationships on morefavorable terms than we have been, or are, able to negotiate. Many of our competitors may also have well-established relationships with our existing and prospective customers. Increased competition may result inreduced margins, loss of sales or decreased market shares, which in turn could harm our business, results ofoperations and financial condition.

New developments may render the encryption technology in the chips used in our products inadequateor ineffective.

Many of our products contain chips that use cryptographic technology to secure transactions and exchangeconfidential information. These chips are equipped with secret keys that are required to encrypt and decodemessages through the application of algorithms. The security afforded by this technology depends on the integrityof a user’s secret key and the complexity of the algorithms used to encrypt and decode information. Anysignificant advance in techniques for attacking cryptographic systems, including the successful decoding ofcryptographic messages or the misappropriation of private keys, could result in a decline in the security of RFIDtechnology and negatively affect the market’s acceptance of, or demand for, RFID-based products which couldhave an adverse effect on our business, results of operations and financial condition.

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A substantial portion of our revenues have historically been derived from a limited number ofcustomers.

In 2005, approximately 49% of our revenues were derived from five customers. Of these, two of the largestby revenue (Gemplus and Axalto) have announced their intention to merge. On a combined basis, Gemplus andAxalto accounted for approximately 30% of our revenues in 2005. Until and unless our ePassport businessexpands and we secure customer relationships with substantially more customers, it is likely that we willexperience periods during which we will be highly dependent on a limited number of customers. Even in ourePassports business, we may depend upon a limited number of customers for a large proportion of our futurerevenues. Dependence on a few customers will make it difficult to satisfactorily negotiate attractive prices for ourproducts and will expose us to the risk of substantial losses if a single dominant customer stops or reduces thevolume of business conducted with us or delays payment of amounts due.

Our quarterly results of operations have fluctuated in the past, and we expect these fluctuations tocontinue.

We have experienced and expect to continue to experience significant fluctuations in our quarterly results ofoperations. In some periods, our results of operations may be below public expectations. If this occurs, the marketprice of our shares could decline. The following factors have affected our quarterly results of operations in thepast and are likely to affect our quarterly results of operations in the future:

) size, timing and pricing of orders, including order deferrals and delayed shipments;

) the availability and cost of key components;

) the timing of the introduction or market acceptance of new or enhanced products offered by us;

) variations in the mix of products sold by us;

) competitive pricing pressures;

) changes in our operating expenses;

) disruption in our sources of supply; and

) general economic and political conditions and other factors affecting project spending by our customers.

In addition, the sales cycles for our products typically involve lengthy marketing and procurement processes.After we are awarded a contract, delays in the delivery of a system may require that revenues associated withsuch a contract be recognized later than originally anticipated. Such delays have caused, and may in the futurecause, material fluctuations in our results of operations. Our revenues in any period are generally derived fromlarge orders from a limited number of customers. As our contract margin on such orders can differ significantly,our overall margin may vary significantly from period to period. Fluctuations in our quarterly results may createvolatility in the market price of the Company’s shares.

We may fail to optimally manage our inventories of microchips or suffer disruptions in our supply chain.

Our RFID inlays and other products are based principally on microchips, which are manufactured by chipmanufacturers that also supply chips for a large number of other applications and manufacturers. Major suppliers inthis industry include Atmel Corporation, Infineon, STMicroelectronics, Royal Philips Electronics, InsideContactless and EM Microelectronic-Marin. Historically, fluctuations in demand for chips have led to shortages inchip supply, which in turn have led to increases in the prices for chips and caused chip producers to allocateavailable chips more selectively among their customers. For example, chip manufacturers may allocate products toclients in other industries, such as the automobile or consumer electronics industry, rather than to manufacturers ofRFID-related products. Managing our inventory levels is made more difficult by the fact that the lead-times for theprocurement of semiconductors is significant compared to the volatility of demand from our customers.

In 2005, our two largest chip suppliers provided over 87% of our chips by value. If the chip suppliers withwhom we have established close working relationships cease to produce chips that are competitive from atechnological and pricing standpoint, or if one of our chip suppliers is acquired by a company with whom we donot have a prior relationship, our business may decline substantially as we may have difficulty establishingsimilar relationships with other chip suppliers. Moreover, there are typically fewer suppliers of new, moreadvanced chips in the initial stages of commercial development of such chips. For these reasons, in times ofshortage, we may not be able to secure adequate supplies of chips at commercially acceptable prices. When ashortage or price increase relates to the chips used to produce higher-margin, value-added products, our operating

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margins may be adversely affected. Finally, because the technology used in microchips is evolving rapidly, weface the risk that the chips we have in our inventory may become obsolete and unsellable.

We rely on two suppliers to provide us with the specialized plastics that constitute the body of our inlays.The price of these plastics may fluctuate with the price of oil.

In producing inlays, we embed a microchip and antenna in substrates made of specialized plastics withparticular physical properties. We currently rely on two suppliers to provide us with all of the plastics materials weuse to produce our inlays. If one or both of our current suppliers were to become unwilling or unable to provide uswith these materials, we could face higher costs for replacement materials, be forced to use lower quality materials(with the associated risk of customer dissatisfaction) or become unable to continue manufacturing our products.Any of these consequences could have a material adverse effect on our business and results of operations.

In addition, the price of the plastics we use may fluctuate with the price of oil. In the past several years, theprice of oil and of these plastics has increased significantly. Although the cost of the plastics used to manufacturethe substrate still represents a relatively small fraction of the cost of manufacturing an inlay, an increase in theprice of these plastics may reduce our operating margins and results of operations.

Our success depends upon recruiting and retaining key personnel.

Our products, services and technologies are complex, and our future growth and success depend to asignificant extent on the skills of capable engineers, operators, managers, salespeople and other key personnel.Maintaining our know-how, and the continuous re-training of currently competent personnel, is also necessary tomaintain an appropriate level of innovation and technological advancement. The ability to recruit, retain anddevelop quality personnel is a critical success factor for us.

Our future success also depends to a significant extent on a number of members of our senior managementand technical personnel, who have significant technical, managerial, and production-related experience in theindustry, and in particular on the engineering know-how of Manfed Rietzler, our chief executive officer. Our coresenior managers and key employees are not obligated to remain with us for a specified period of time and maychoose to leave us at any time. If we lose the services of one or more of our core senior managers, salespeople orother key employees, or if one or more of them decide to join a competitor or otherwise compete directly orindirectly with us, we may not be able to manage our business as efficiently as in the past, which could prevent usfrom growing as quickly or as profitably as we hope.

We may be unable to manage our expanding operations effectively.

The rapid growth we have experienced in the past few years, and the considerable growth we anticipate inthe future, bring us a variety of challenges. Any inability to expand our operations in an efficient manner couldcause our expenses to grow disproportionately to our revenues, our revenues to decline or grow more slowly thanexpected, or could otherwise have a material adverse effect on our business and the value of an investment in ourshares. We recently began operating a manufacturing facility in Germany, and expect to open an additionalmanufacturing facility in the United States late in 2006 or during the first half of 2007. Our presence in multiplejurisdictions will subject us to a variety of new regulatory requirements, including more stringent environmental,health and safety requirements as well as labor regulations. In addition, we continue to analyze and monitor othermarkets and may acquire or make investments in complementary businesses, technologies, services or products ifwe are able to identify attractive opportunities. Our anticipated future growth, combined with the requirementswe will face as a public company, will place a significant strain on our management, systems, and resources.There is a risk that our management, which has so far managed only a single manufacturing site, will havedifficulty managing multiple sites or will fail to satisfactorily integrate new personnel, operations, technology,software, products and services into its operations. We will need to continue to expand and maintain closecoordination among our technical, sales and marketing and accounting departments. We may not succeed in theseefforts, and such failure could adversely affect our revenues and results of operations.

We may fail to optimize our production capacity, and we may be liable to our customers for indirectdamages due to delayed deliveries.

Because our activities are based on orders varying in size and requiring different delivery schedules, we needto anticipate demand accurately and allocate our production capacity to such demand in order to meet deliveryrequirements, best recuperate our fixed costs and maximize our operating margins. In particular, we must makejudgments about when and how to allocate production capacity so as to generate the highest margins and

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optimize the use of our facilities. Any failure to forecast demand accurately or to allocate or organize ourproduction capacity optimally might adversely affect revenue and profitability.

In addition, contracts with customers may include clauses under which we will be responsible for substantialliquidated indirect damages resulting from a breach of contract including, without limitation, penalties for failure tomeet delivery schedules. If these clauses are invoked against us, we would likely need to defend against such claims incourt, which could be time consuming and expensive, and we might be found to be liable under such clauses.

We intend to increase the share of microchips used in our inlays that we purchase on our own account.

Historically, our customers have purchased most of the chips embedded in our inlays directly from chipmanufacturers. These customers then provided us with the chips, which we embedded in our inlays. This allowedus to conserve our cash and limit our exposure to inventory risks while we established our business. Morerecently, we have begun purchasing chips on our own account. We currently purchase between 70% and 80% ofthe microchips used in our standard inlays, and less than 50% of the microchips used in our ePassport inlays, onour own account (the remainder are still provided to us by our customers). We currently purchase only a verysmall portion of the microchips for our inlays for contactless payment cards on our own account. We intend toincrease these percentages in the future. As we increase the percentage of chips that we purchase on our ownaccount, our inventories will increase, our working capital requirements will increase and we will be exposed tothe risk of loss and general inventory risks relating to the chips.

The cost of the microchip represents a significant portion of the total price of a completed inlay. When ourcustomers supply us with chips they have purchased, we calculate our margin as a percentage of the sales price ofeach inlay, which does not include the cost of the chip, whereas when we provide customers with inlays includingchips we purchased on our own account, our margin is a percentage of the price of the complete inlays, includingthe price of the chips. Accordingly, although our profit per unit is slightly higher when we purchase chips on ourown account, our overall margin may be significantly lower. As we increase the share of chips we buy on our ownaccount, our margins will therefore be diluted.

We are exposed to currency risks.

We publish our audited combined and consolidated financial information in euros. A significant proportionof our revenues and costs, however, are generated in currencies other than the euro, in particular the U.S. dollarfor our revenues and the Thai baht for our costs. Fluctuations in the exchange rate between these currencies andthe euro can have a material impact on our reported results as we translate amounts denominated in thesecurrencies into euros for reporting purposes.

In addition, to the extent that we incur costs in one currency and make our sales in another, our profitmargins may be affected by changes in the exchange rate between the currencies. Our revenues and gross profitcan be highly sensitive to exchange rate fluctuations, principally between the euro, the Thai baht and theU.S. dollar. We cannot predict the effects of exchange rate fluctuations on our future results of operations. Wemay have difficulty managing currency risks and such fluctuations could affect our operating income from oneyear to the next and impact the Company’s share price.

Economic, political, legal and regulatory developments in Thailand may have an adverse effect on ourbusiness.

We rely on our Thai manufacturing facilities for both our current operations and for our future growthprospects. In the past, the political situation in Thailand has been unstable from time to time. Any future politicalinstability, or changes in legal and regulatory requirements in Thailand, could have an adverse effect on ourability to maintain and/or expand our Thai manufacturing facilities.

Our business and operations are also subject to the changing policies of the Thai government, which hasfrequently intervened in the Thai economy and occasionally made significant policy changes. The government’sactions to control inflation and affect other policies have included, among other things, wage and price controls,capital controls and limits on imports. Our business, financial condition and results of operations may beadversely affected by changes in policies affecting tariffs, exchange controls, taxation and other matters.

We are subject to import duties in certain countries we have targeted for future growth.

Our products are subject to import duties and other restrictions in certain countries we have identified aspotential growth markets for our inlays and tags. For example, our products are currently subject to significantimport duties in Brazil. If we fail in our strategy to open a local manufacturing facility in Brazil and remain

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subject to these duties, it could be unprofitable for us to sell products in Brazil and jeopardize our anticipatedgrowth prospects in this market. In addition, other countries may impose new or revise existing duties, quotas,tariffs or other restrictions to which we are subject, which could have a material adverse effect on our results ofoperations and margins in these markets.

Future acquisitions may adversely affect our business.

Our strategy to achieve growth may lead us to make significant acquisitions of businesses that we believe tobe complementary to our own. Our ability to do so depends in part on our ability to identify suitable acquisitiontargets, finance their acquisitions and obtain required regulatory and other approvals. Future acquisitions mayrequire us to use significant financial resources, to make potentially dilutive issuances of our equity securities, toincur debt and to incur impairments related to goodwill and other intangible assets. Acquisitions involvenumerous other risks, including the transfer of potential liabilities, difficulties in integrating the operations,technologies and products acquired and the employees of the acquired businesses, the diversion of management’sattention from other business concerns, the risk of entering geographic markets in which we have little or no priorexperience, and the potential loss of key employees of acquired businesses.

Many of our products are new, do not have an established performance record and may contain defects,subjecting us to costly warranty or other claims.

Our products are new and therefore do not have an established performance history. Consequently, they maycontain errors and defects that have yet to become apparent. Manufacturing or design flaws may render ourproducts defective. In adopting our products, end-customers make significant investments and changes to theirbusiness organizations or processes. The sensitive nature of the information stored and transmitted by ourproducts (such as ePassports and contactless payment cards) can magnify the significance and effects of a defect.In addition, products such as ePassports may have a long expected life of approximately 10 years, whichincreases our exposure to warranty or product liability claims. Product defects may not become apparent foryears. Serious defects or errors in our products could result in claims for damages, lost revenues, a delay inmarket acceptance or extend our products’ time-to-market, which would be detrimental to our reputation andcould cause us to lose existing customers or prevent us from securing new ones, thereby harming our business,results of operations and financial condition.

Such manufacturing or functional defects could also cause losses to our customers, in which case they couldattempt to seek compensation from us. These claims may be time-consuming and costly to defend and generateunfavorable publicity, causing us to lose customers. Certain laws or unfavorable judicial decisions may limit theeffectiveness of any limitation of liability provisions contained in our sales agreements.

Due to the lack of an established performance history for our products, product liability insurance iscurrently difficult to obtain on commercially acceptable terms. As a result, we do not carry product liabilityinsurance on our products.

The temporary tax benefits we currently enjoy may not be available in the future due to changes in therelevant tax rules or in the event that we breach the conditions upon which these exemptions have beengranted. In addition, our international expansion will subject us to taxation in other jurisdictions andcould cause our effective tax rate to increase.

As of the end of 2005, we had only been required to make nominal tax payments. In Thailand, we have beengranted certain temporary tax exemptions by the Thai Board of Investment. In order to continue to benefit fromthese tax exemptions, we are required, among other things, to maintain a specific level of investment in Thailand,to ensure that all machinery and equipment imported into Thailand complies with specified technology standards,and to meet specified annual production targets. If we fail to comply with any of these conditions, our taxexemptions could be revoked, we could be required to pay taxes for the periods during which we were exemptedfrom paying taxes and we may not be able to take advantage of the temporary tax exemptions in the future. Inaddition, these benefits may not be available in the future due to changes in the relevant tax rules, which couldcause our effective tax rate to increase in the future. Moreover, our planned operations in Germany and in theUnited States will be subject to German and United States taxation, respectively, without a corresponding taxexemption and may increase our effective tax rate.

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A change in the regulatory environment applicable to us could significantly increase our compliancecosts or subject us to fines and damages.

As the RFID market evolves, we expect that various governmental entities will enact and revise laws, rulesand regulations covering issues such as privacy, quality of products and services and the use of cryptography.Such laws, rules or regulations could significantly increase our compliance costs or, if we fail to comply, subjectus to fines and damages.

Risks related to the Global Offer

There has been no prior public market for the Company’s shares and an active public market may notdevelop or be sustained after the Global Offer

Prior to this Global Offer, there has not been a public market for the Company’s shares. We cannot predictthe extent to which a market will develop or how liquid that market might become. The Offer Price of our Shareswill be determined by negotiations between us and the Underwriters and may not be indicative of prices that willprevail in the trading market. See ‘‘The Global Offer — Price Range, Offering Periods, Offer Price andAllotment’’ for a discussion of the factors considered in determining the Offer Price.

Technology-related share prices are especially volatile, and this volatility may depress the Company’sshare price, and the trading in the Company’s shares may often experiences low volumes.

The stock market has experienced significant price and volume fluctuations, and the market prices oftechnology-related stocks have been highly volatile. Investors may not be able to sell their shares at or above theOffer Price. In the past, securities litigation has often been instituted against companies following periods ofvolatility in the market price of their securities. This type of litigation could result in substantial costs and divertmanagement’s attention and resources.

If the Company is unable to meet the continued listing standards of the exchange on which the Company’ssecurities trade, or if remaining as a publicly listed company is not considered economically justified, theCompany may delist and investors may not be able to resell their shares easily.

Our founder and other principal shareholders, whose interests may differ from other shareholders, willhave the ability to exercise significant control over the Company, even after completion of the GlobalOffer.

Following completion of the Global Offer, assuming full placement of the Shares and full exercise of theGreenshoe Option, our founder, Richard Bird, and our Chief Executive Officer, Manfred Rietzler, will, togetherwith their spouses, beneficially own approximately 54.6% of the Company’s shares, and other members ofmanagement (together with their family members) will together beneficially own approximately 4.8% of theCompany’s shares. These shareholders will effectively be able to control the Company’s general shareholders’meeting and thus influence all matters requiring approval by shareholders, including the election of members ofthe Management Board and the approval of significant corporate transactions. The interests of these shareholdersmay differ from the interests of the Company’s other shareholders.

Shareholders may face dilution if the Company decides to raise capital in the future through public orprivate equity securities or convertible debt.

The Company may decide to raise capital in the future through public or private equity securities, or rights toacquire these securities, or convertible debt and exclude or limit the pre-emption rights pertaining to theCompany’s then outstanding shares. If the Company raises significant amounts of capital by these or other means,it could cause significant dilution for the Company’s existing shareholders.

Future sales of our shares may depress the Company’s share price.

After this Global Offer, the Company will have 13,000,000 ordinary shares issued and outstanding. Sales ofa substantial number of the Company’s shares in the public market following this Global Offer, could cause areduction in the market price of the Company’s shares. After the completion of this Global Offer, the existingshareholders of the Company will continue to directly or indirectly hold an aggregate of approximately 61.2% ofthe shares in the Company (assuming the Greenshoe Option is exercized in full). RB Netherlands B.V., RichardbBird, TCL Netherlands B.V., Elisabeth Rietzler, Martin Kuschewski and Ronald Brown have agreed not to sellany shares in the Company for a period ending six months from the first day of trading of our shares on theFrankfurt Stock Exchange, and ICM Netherlands B.V., Mr. Manfred Rietzler and Dr. Christian Fischer (together

33

with his family members holding shares in the Company) have agreed not to sell any shares in the Company for aperiod ending twelve months after the first day of trading of our shares on the Frankfurt Stock Exchange, eachwithout the prior written consent of the Underwriters. After the expiry of the respective lock-up periods, theexisting shareholders of the Company will be free to sell their shares at any time. All the shares sold in thisGlobal Offer will also be freely tradable.

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IMPORTANT INFORMATION

No person is or has been authorized to give any information or to make any representation in connectionwith the offering or sale of the Shares, other than as contained in this Prospectus, and, if given or made, any otherinformation or representation must not be relied upon as having been authorized by the Company, the SellingShareholders or the Underwriters. The delivery of this Prospectus at any time after the date hereof will not, underany circumstances, create any implication that there has been no change in our affairs since the date hereof or thatthe information set forth in this Prospectus is correct as of any time since its date.

SMARTRAC accepts responsibility for the information contained in this Prospectus. To the best ofSMARTRAC’s knowledge and belief, having taken all reasonable care to ensure that such is the case, theinformation contained in this Prospectus is in accordance with the facts and contains no omission likely to affectits import. Potential investors should not assume that the information in this Prospectus is accurate as of any otherdate than the date of this Prospectus.

In connection with the Global Offer, Deutsche Bank acting as stabilization manager for the account ofthe Underwriters may over-allot or effect transactions that stabilize or maintain the market price of theordinary shares of the Company at levels above those which might otherwise prevail in the open market.Such transactions may be effected on the FSE, in the over-the-counter market or otherwise. There is noassurance that such stabilization will be undertaken and, if it is, it may be discontinued at any time andwill be undertaken between the date on which trading in the ordinary shares of the Company commencesand the thirtieth calendar day following such date.

Notice to Investors

The distribution of this Prospectus and the offering and sale of the Shares offered hereby in certainjurisdictions may be restricted by law. Persons in possession of this Prospectus are required to inform themselvesabout and to observe any such restrictions. This Prospectus may not be used for, or in connection with, and doesnot constitute, any offer to sell, or an invitation to purchase, any of the Shares offered hereby in any jurisdiction inwhich such offer or invitation would be unlawful.

Presentation of Financial and Other Information

In this Prospectus, the ‘‘SMARTRAC Group’’, ‘‘we’’, ‘‘our’’, ‘‘us’’ and similar terms refer to SMARTRACN.V. and its subsidiaries.

Our combined and consolidated financial information in the Prospectus has been prepared in accordancewith International Financial Reporting Standards (‘‘IFRS’’) endorsed by the EU. IFRS differ in certain significantrespects from US GAAP as they relate to our consolidated financial information. In making an investmentdecision, investors must rely upon their own examination of us, the terms of the Global Offer and the financialinformation provided herein. Potential investors should consult their own professional advisors for anunderstanding of the differences between IFRS and US GAAP.

Certain figures contained in this Prospectus, including financial information, have been subject to roundingadjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables contained inthis Prospectus may not conform exactly to the total figure given for that column or row.

All references in this Prospectus to ‘‘Euros’’ or ‘‘4‘‘ are to the currency introduced at the start of the thirdstage of the Economic and Monetary Union, pursuant to the Treaty establishing the European EconomicCommunity, as amended by the Treaty on the European Union. All references to ‘‘US dollars’’, ‘‘US$’’ or ‘‘$’’are to the lawful currency of the United States. See ‘‘Exchange Rates’’.

Unless the context otherwise requires or it is expressly provided to the contrary, this Prospectus assumes noexercise of the Greenshoe Option, as described in ‘‘Description of the Company, the Share Capital and CorporateGovernance — Share Capital’’.

Certain Radio Frequency Identification Device industry and other terms used in the Prospectus are defined in‘‘Glossary of Selected Terms’’.

Market Data

All references to market data, industry statistics and industry forecasts in this Prospectus consist of estimatescompiled by industry professionals, organizations, analysts, publicly available information or our own knowledgeof our sales and markets. The reports used include: Frost & Sullivan, ‘‘World Contactless Smart Card Markets

35

F275-33’’, 2006; Euromonitor, ‘‘The World Market for Financial Cards’’, 2004; Datamonitor, ‘‘RFID inManufacturing: The race to radio-tag is heating up in manufacturing’’, 2005; Smart Card Alliance, ‘‘ContactlessPayments: Delivering Merchant and Consumer Benefits’’, April 2004; Card Technology, ‘‘E-Passports Debut,And Not Everyone Is Cheering’’, September 1, 2005; Card Technology, ‘‘Three European Countries IssueE-Passports’’, November 2, 2005; CIA, ‘‘The World Factbook’’, 2005, and other publicly available third-partydata. Industry publications generally state that their information is obtained from sources they believe reliable butthat the accuracy and completeness of such information is not guaranteed and that the projections they contain arebased on a number of significant assumptions. Although we believe these sources are reliable, as we do not haveaccess to the information, methodology and other bases for such information we have not independently verifiedthe information and therefore cannot guarantee its accuracy and completeness.

In this Prospectus, we make certain statements regarding our competitive position and market leadership. Webelieve these statements to be true based on market data and industry statistics regarding the competitive positionof certain of our customers.

The information in this Prospectus that has been sourced from third parties has been accurately reproducedand, as far as we are aware and able to ascertain from the information published by that third party, no facts havebeen omitted that would render the reproduced information inaccurate or misleading.

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FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements. A forward-looking statement is any statementthat does not relate to historical facts and events. Forward-looking statements can be identified by the use ofwords such as ‘‘should’’, ‘‘may’’, ‘‘will’’, ‘‘believes’’, ‘‘assumes’’, ‘‘expects’’, ‘‘estimates’’, ‘‘plans’’, ‘‘intends’’,‘‘is of the opinion’’, ‘‘to the knowledge of’’, ‘‘according to estimates’’ and similar expressions.

This applies in particular to statements set forth in certain sections of this Prospectus containing informationon future financial results, plans, or expectations regarding our business and management, its future growth orprofitability as well as general economic and regulatory conditions and other matters affecting us.

Forward-looking statements are based on current estimates and assumptions made by the Company to thebest of its present knowledge. The occurrence or non-occurrence of a contingency could cause actual financialcondition and results of operation to differ materially from, or disappoint expectations expressed or implied by,such forward-looking statements. The SMARTRAC Group’s business is subject to a number of risks anduncertainties that could also cause a forward-looking statement, estimate or prediction to become inaccurate.Accordingly, investors are strongly advised to read the section entitled ‘‘Summary’’ and ‘‘Risk Factors’’,‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Business’’,which include more detailed descriptions of factors that might have an impact on SMATRAC’s business and theindustry in which it operates.

In light of the risks, uncertainties and assumptions, it is possible that the future events mentioned in thisProspectus may not occur, and forward-looking estimates and forecasts derived from third party studies (see‘‘Important Information — Market Data’’) may prove to be inaccurate. As a result, none of the Company, itsmanagement or the Underwriters can give any assurance regarding the future accuracy of the opinions set forth inthis Prospectus or as to the actual occurrence of any predicted developments. Neither the Company nor theUnderwriters assume any obligation to update such forward-looking statements or to adjust them to reflect futureevents or developments, save as required by law.

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DIVIDEND POLICY

The Company currently intends to retain future earnings, if any, to finance the growth and development ofour business. As a result, the Company does not anticipate paying any dividends for the foreseeable future.

The Company’s dividend policy will, however, be reviewed from time to time and payment of any futuredividends will be effectively at the discretion of the board of managing directors of the Company (the‘‘Management Board’’) after taking into account various factors including our business prospects, cashrequirements, financial performance, new product development, plans for international expansion and therequirements of Dutch law. In addition, payment of future dividends may be made only if the Company’sshareholders’ equity exceeds the sum of our called up and paid-in share capital plus the reserve required to bemaintained by law and by the Company’s articles of association (the ‘‘Articles of Association’’).

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EXCHANGE RATES

The Company publishes its combined and consolidated financial information in euros. The exchange ratesbelow are provided solely for information and convenience. No representation is made that the euro could havebeen, or could be, converted into US dollars at these rates.

The table below shows the high, low, average and end period exchange rates expressed in US dollars per41.00 for the years given as computed using the noon buying rate in New York City for cable transfers in foreigncurrencies as certified for customs purposes by the Federal Reserve Bank of New York (the ‘‘Noon BuyingRate’’) during the period indicated.

Year ended December 31,End of

High Low Average(1) period(US dollars per euro)

2001 **************************************************** 0.9535 0.8370 0.8909 0.8901

2002 **************************************************** 1.0485 0.8594 0.9495 1.0485

2003 **************************************************** 1.2597 1.0361 1.1321 1.2597

2004 **************************************************** 1.3625 1.1801 1.2478 1.3538

2005 **************************************************** 1.3476 1.1667 1.2449 1.1842

(1) The average of the Noon Buying Rates on the last business day of each month during the relevant period.

The table below shows the high and low Noon Buying Rates expressed in US dollars per 41.00 for the firstthree months during 2006.

High Low(US dollarsper euro)

January 2006******************************************************** 1.2287 1.1980

February 2006******************************************************* 1.2100 1.1860

March 2006 (through March 10) **************************************** 1.2028 1.1886

On March 10, 2006, the Noon Buying Rate for the euro was 41.00 = $1.1886.

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USE OF PROCEEDS

The Company will receive the net proceeds from the issue of New Shares in the Global Offer after deductingestimated fees and expenses payable under the Underwriting Agreement (these fees and expenses are expected toamount, at a minimum, to approximately 45 million, but may be higher depending on the amount of the proceeds;see ‘‘Plan of Distribution’’), a fee (in the amount of 1.00% of the gross proceeds to the Company of the GlobalOffer plus taxes and expenses payable to the Company’s IPO advisors and after taking into account the obligationto pay an IPO bonus to Dr. Fischer (in the amount of 1.00% of the gross proceeds to the Company from theGlobal Offer). An estimate of the size of the net proceeds to the Company from the Global Offer will be providedin the supplement (in the meaning of Article 16 of the Prospectus Directive) in which the price range will bepublished on March 17, 2006, at the earliest.

The Company intends to first use the net proceeds it receives from the Global Offer to repay approximately48.8 million of indebtedness existing as of December 31, 2005. For a description of this indebtedness, see‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity andCapital Resources — Historical Debt’’. In addition, the Company intends to repay the short term loan granted tothe Company in February 2006 by Deutsche Bank in the amount of 42 million. For more information, see‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation — Recent BusinessDevelopments and Outlook’’. The Company intends to use the majority of the net proceeds primarily to expandits current Thai production facilities and to finance new production facilities in Germany, the United States andBrazil. In addition, the Company intends to fund further research and development and strategic investments oracquisitions. The amounts to be spent on each measure will depend upon a variety of factors and currently cannotbe determined. However, notwithstanding the foregoing, the Company will retain broad discretion in allocatingthe net proceeds of the Global Offer.

The Company will not receive any proceeds from the sale of the Existing Shares in the Global Offer, all ofwhich will be paid to the Selling Shareholders.

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CAPITALIZATION

Capitalization

The table below sets forth the Company’s capitalization and indebtedness as of December 31, 2005. TheCompany’s capitalization will change after the Global Offer depending on the size of the capital increase and theOffer Price. An updated table with adjusted information reflecting the changes resulting from the Global Offerwill be contained in the supplement (in the meaning of Article 16 of the Prospectus Directive) to this Prospectusin which the price range, within which purchase orders may be submitted, will be published. On this supplementsee ‘‘The Global Offer — Price Range, Offering Period, Offer Price and Allotment’’.

You should read this table together with the Company’s combined and consolidated financial information2003-2005 and the related notes thereto, as well as the information under ‘‘Management’s Discussion andAnalysis of Financial Condition and Results of Operation’’. The table below is prepared for illustrative purposesonly and, because of its nature, may not give a true picture of the Company’s financial condition following theGlobal Offer. For a summary of the Company’s principal contractual obligations and commercial commitmentsover the next five years, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results ofOperation’’.

December 31,2005(1)

Actual(5 million)

Liquidity ************************************************************** 1.5Cash **************************************************************** 1.5

Cash equivalents******************************************************* 0

Current Financial Receivables ******************************************** 0

Shareholders’ Equity:Subscribed capital ***************************************************** 5.0

Share premium(2) ****************************************************** 4.9

Retained earnings****************************************************** 0

Shareholders’ equity, total *********************************************** 9.9

Non-current financial liabilities(3)****************************************** 0.2Current financial liabilities(4)(5)******************************************** 8.6

Total financial liabilities ************************************************* 8.8

Total capitalization****************************************************** 18.7

(1) Columns may not add due to rounding.

(2) The share premium results from the contribution of Smartrac Technology Limited (Thailand), Smartrac Technology Pte Ltd. (Singapore),Xytec Solutions Sdn. Bhd. (Malaysia) and Smartrac Technology GmbH (Germany) into the Company by its shareholders in February2006.

(3) As of December 31, 2005 non-current financial liabilities amounted to 40.2 million which are secured by Smartrac Technology Ltd.’sland and buildings. There were no guaranteed current financial liabilities as of December 31, 2005.

(4) As of December 31, 2005 current financial liabilities amounted to 48.6 million; of those 46.5 million were secured by standby letters ofcredits issued by Deutsche Bank AG, Singapore Branch, which are guaranteed by a member of the Supervisory Board. 40.1 million ofcurrent financial liabilities are secured by Smartrac Technology Ltd.’s land and buildings and 41.1 million are guaranteed by a member ofthe Supervisory Board.

(5) In February 2006, Deutsche Bank granted the Company a short term loan in the amount of 42 million (see ‘‘Management’s Discussionand Analysis of Financial Information — Recent Business Developments and Outlook’’).

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DILUTION

The Company’s consolidated net tangible book value on December 31, 2005, according to IFRS, wasapproximately 48.59 million, or 40.86 per share (based on the 10,000,000 ordinary bearer shares of the Companyprior to the capital increase in connection with this Global Offer). Consolidated net tangible book value per sharerepresents the amount of the Company’s total tangible assets (i.e., total assets less intangible assets and deferredtax assets) reduced by its total liabilities, divided by the number of shares outstanding. The net tangible bookvalue per share is expected to be diluted as a result of the completion of the Global Offer. A reliable estimate ofthe extent of the dilution expected to result from this Global Offer can only be given after the publication of theprice range in a supplement (in the meaning of Article 16 of the Prospectus Directive) on March 17, 2006, at theearliest.

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SELECTED COMBINED AND CONSOLIDATED FINANCIAL INFORMATION

SMARTRAC N.V. was incorporated on January 23, 2006 in the course of a series of restructuring steps. Theentities of the SMARTRAC Group existing prior to the restructuring and SMARTRAC N.V. are under commoncontrol within the meaning of IFRS 3 ‘‘Business Combination’’. The selected combined and consolidatedfinancial information set forth below is that of SMARTRAC’s subsidiaries and, since such subsidiaries have beencontributed to SMARTRAC N.V. upon its incorporation, of SMARTRAC N.V. The consolidated financialinformation for 2003 and 2004 comprises the activities of the Thai and German companies. The combined andconsolidated financial information for 2005 comprises the activities of the Thai and German companiesconsolidated with and combined with the activities of the Singporean company into one reporting entity.Reference is made to Note 1 to the SMARTRAC N.V. combined and consolidated financial information 2003-2005.

The combined and consolidated financial information 2003-2005 has been presented as if SMARTRAC N.V.already existed as at December 31, 2005 and the contribution in kind of all group companies had alreadyoccurred as at December 31, 2005. This pro forma method of presentation only relates to the classification ofequity elements in the balance sheet as of December 31, 2005 and does not affect the equity total.

The selected combined and consolidated financial information should be read in conjunction with‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation’’ and the combinedand consolidated financial information and notes thereto included elsewhere in this Prospectus. The year-endcombined and consolidated financial information is extracted from the Company’s combined and consolidatedfinancial information that has been audited by KPMG Accountants N.V., independent auditors. The combinedand consolidated financial information and management accounts from which the selected combined andconsolidated financial information set forth below has been derived were prepared in accordance with IFRSendorsed by the EU. The selected combined and consolidated financial information set forth below may notcontain all of the information that is important to you.

Year ended December 31,2003 2004 2005

(in thousands of Euro)

Selected Income Statement Data(1)

Revenue *********************************************************** 8,653 14,698 25,173

Cost of sales ******************************************************* (5,095) (9,062) (17,333)

Gross profit ******************************************************* 3,558 5,636 7,840Administrative expenses ********************************************** (2,301) (2,751) (4,255)

Other operating expenses ********************************************* (30) (441) (9)

Operating profit before financing costs (EBIT)(2) ************************ 1,227 2,444 3,576Financial income **************************************************** 414 290 3

Financial expenses*************************************************** (208) (389) (613)

Net financing income (expense)*************************************** 206 (99) (610)Share of profit of associates ******************************************* — — 15

Income tax benefit*************************************************** — — 37

Profit for the period ************************************************ 1,433 2,345 3,018

Selected Balance Sheet Data(1)

Property, plant and equipment ***************************************** 6,465 8,601 11,734

Intangible assets **************************************************** 136 116 1,293

Inventories ********************************************************* 1,631 2,011 3,824

Trade receivables**************************************************** 2,857 3,423 6,990

Cash and cash equivalents ******************************************** 194 360 1,500

Total assets ******************************************************** 11,550 15,006 26,703Total equity ******************************************************* 4,452 6,897 9,923Total non-current liabilities******************************************** — — 233

Total current liabilities *********************************************** 7,098 8,109 16,547

Total liabilities ***************************************************** 7,098 8,109 16,780

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Year ended December 31,2003 2004 2005(in thousands of Euro exceptfor selected operating data)

Selected Cash Flow DataNet cash provided by operating activities ********************************* 1,273 2,674 1,022

Net cash used in investing activities************************************** (2,654) (3,151) (4,376)

Net cash provided by financing activities********************************** 1,287 803 3,299

Selected Segment DataStandard Segment

Revenues************************************************************ 8,625 14,297 19,903

of which mass transit & access control ********************************* 8,586 13,974 18,540

of which logistics *************************************************** 39 323 1,363

Gross Profit ********************************************************* 3,570 5,794 6,381

EBITDA(3) ********************************************************** 1,925 3,808 4,111

High Security Segment

Revenues************************************************************ — — 5,010

of which ePayment************************************************** — — 2,255

of which ePassport************************************************** — — 2,755

Gross Profit ********************************************************* — — 1,419

EBITDA(3) ********************************************************** — — 944

Other Operations

Revenues************************************************************ 28 401 260

Gross Profit ********************************************************* (12) (158) 40

EBITDA(3) ********************************************************** (17) (321) (143)

Selected Operating DataUnits shipped (in millions)

Standard ********************************************************** 17.7 33.1 46.2

ePayment ********************************************************* — — 9.3

ePassport ********************************************************* — — 1.3

Manufacturing capacity (million units per month)*************************** 6.3 7.4 11.6

Employees (as of December 31,)

Direct ************************************************************ 142 169 332

Indirect *********************************************************** 318 407 772

(1) Columns may not add due to rounding.

(2) We define EBIT as operating profit for the period before financing costs, share of profits of associates and income tax expense. We presentEBIT because management believes it is a useful measure in evaluating our operating performance. EBIT is not a measure of operatingperformance or liquidity under IFRS. EBIT as presented by us may not be comparable to measures with similar names as presented byother companies. For a reconciliation of EBIT to profit for the period, see footnote (3), below.

(3) We define EBITDA as operating profit for the period before depreciation, amortization, financing costs, share of profits of associates,extraordinary costs and income tax expense. We present EBITDA because management believes it is a useful measure in evaluating ouroperating performance. EBITDA is not a measure of operating performance or liquidity under IFRS. EBITDA as presented by us may notbe comparable to measures with similar names as presented by other companies.

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The table below shows reconciliation of EBIT and EBITDA to profit for the period for the periods indicated:

Year endedDecember 31,

2003 2004 2005(in thousands of

Euro)

Group

Profit for the period ************************************************************** 1,433 2,345 3,018

Income tax benefit***************************************************************** — — (37)

Share of profit of associates ********************************************************* — — (15)

Net financing income (expense) ****************************************************** (206) 99 610

EBIT (operating profit before financing costs) ****************************************** 1,227 2,444 3,576

Depreciation and amortization ******************************************************* 681 1,043 1,336

EBITDA ************************************************************************ 1,908 3,487 4,912

Standard Segment

EBIT (operating profit before financing costs) ****************************************** 1,245 2,798 3,120

Depreciation and amortization ******************************************************* 681 1,010 991

EBITDA ************************************************************************ 1,925 3,808 4,111

High Security Segment

EBIT (operating profit before financing costs) ****************************************** — — 667

Depreciation and amortization ******************************************************* — — 277

EBITDA ************************************************************************ — — 944

Other operations

EBIT (operating profit before financing costs) ****************************************** (18) (354) (211)

Depreciation and amortization ******************************************************* 1 33 68

EBITDA ************************************************************************ (17) (321) (143)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of our financial condition and results of operations should be read inconjunction with the other information in this Prospectus, including our combined and consolidated financialinformation and related notes thereto beginning on page F-3 and the ‘‘Selected Combined and ConsolidatedFinancial Information’’. Our combined and consolidated financial information has been prepared in accordancewith IFRS, endorsed by the EU, which differ from US GAAP in certain significant respects.

This discussion and analysis contains forward-looking statements that are subject to known and unknownrisks and uncertainties. Our actual results and the timing of events could differ materially from those expressed orimplied by such forward-looking statements as a result of various factors, including those discussed below andelsewhere in this Prospectus, particularly under the headings ‘‘Forward-Looking Statements’’ and ‘‘RiskFactors’’.

Overview

Based on industry studies (including Frost & Sullivan, 2006), announced ePassport projects and our internalestimates, we believe we are the global leader in high-security RFID inlays for contactless payment cards andePassports. RFID inlays consist of a memory or microcontroller chip bonded to an antenna, which is embedded ina carrier material, such as plastic. Our inlays are integrated into our customers’ finished products (such as cards ortags) to enable them to transmit data to a reader via radio waves.

In the RFID value chain, we have positioned ourselves as a focused inlay manufacturer, located between oursuppliers (chip manufacturers) and our customers (card manufacturers and secure printing houses). Accordingly,our business consists primarily of manufacturing inlays, as opposed to producing completed cards and readers orproviding related system integration services. We have over 100 customers located in more than 27 countries,including Gemplus International, Axalto, Oberthur Card Systems, Bundesdruckerei (the German Federal PrintingOffice), Osterreichische Staatsdruckerei (the Austrian State Printing Office) and NagraID.

We conduct our business in two segments — ‘‘standard’’ and ‘‘high security’’. Secure RFID inlays producedin our standard segment have historically been our primary source of revenue. Although these inlays only containa memory chip, most of them contain security features such as password authentication and basic encryption.Most of the inlays produced in our standard segment are part of our ‘‘mass transit & access control’’ product line.These products have historically accounted for greater than 90% of our revenues in this segment. Our standardsegment also encompasses our ‘‘logistics’’ product line, which includes non-card related inlays and products usedfor logistical and verification applications (e.g., product tracking and tracing, animal ID implants, laundry tagsand casino chips). Although volumes for our logistics products are fairly low, they offer attractive margins. Ourstandard segment generated 419.9 million in revenues in 2005. We expect substantial revenue growth in thissegment, as the trend toward declining prices for higher capacity chips and the successful implementation oflarge-scale projects around the world encourage more transit companies to adopt RFID technology. In addition,we are working with our customers to develop new applications for RFID technology to supplement this growth.

Our high security segment includes two product lines — ‘‘ePayment’’ and ‘‘ePassports’’. Both of our highsecurity product lines feature inlays containing microcontroller chips that include sophisticated encryptionfunctions and which permit advanced calculations to be made. Our ePayment product line focuses onmanufacturing high security inlays for contactless banking, credit and debit cards. This product line generated42.3 million in revenues in 2005. We expect strong growth in this product line over the next few years as cardissuers migrate from traditional magnetic stripe and contact-based chip cards to contactless cards. In 2005,particularly in the United States, credit card organizations (e.g., VISA and MasterCard) and financial institutionsbegan introducing contactless payment systems.

We believe that our ePassports product line, in which we manufacture special inlays designed for electronicpassports, has the most attractive prospects for future growth. Revenues from our ePassports product line arecurrently small in proportion to overall revenues, totaling 42.8 million in 2005. However, with a significantnumber of governments having introduced ePassports at the end of 2005 (with more to follow in 2006) and theintroduction of RFID-enabled identification cards (e.g., ID cards and drivers’ licenses) expected to followthereafter, we believe ePassports will become our most attractive business.

In addition to our standard and high security segments, our other operations consist of selling and leasingequipment to our customers on a limited basis.

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In 2005, we generated revenues of 425.2 million, a gross profit of 47.8 million and EBITDA of 44.9 million,compared to 414.7 million, 45.6 million and 43.5 million in 2004, respectively. Revenues from our mass transit &access control product line represented 73.7% of our total revenues in 2005, while logistics accounted for 5.4%,ePayment accounted for 9.0% and ePassports accounted for 10.9% of total revenues, respectively. Our remainingrevenues were generated by our other operations. We expect the relative revenue contributions of our productlines to change rapidly as we expand our activities in the fast-growing secure contactless ePayment and ePassportmarkets.

Key Factors Affecting Our Results of Operations and Financial Condition

We believe the following factors have had and will continue to have a material effect on our results ofoperations and financial condition.

Timing of Project Implementation by End-Customers

We expect significant growth in our business overall, and particularly in our high security segment, as banks,retailers and governments continue implementing ePayment and ePassport systems that will allow them to takeadvantage of the benefits offered by RFID technology. As these systems become operational, banks andgovernments will need to quickly supply their clients and citizens with a large number of contactless cards andePassports. Our immediate customers, such as card manufacturers and secure printing houses, provide us withforecasts of their expected order volumes based in part on estimates of when banks, governments and others willimplement these new systems. Delays in the implementation of major projects may cause our customers toreduce, delay or cancel orders. The risk of such delays is particularly high with regard to ePassports, wheretechnical difficulties and political opposition to the introduction of electronic travel documents due to privacyconcerns have caused several countries to delay the implementation of ePassports. With regard to our ePaymentproducts, retailer reluctance to make significant investments in card readers may delay acceptance of contactlesscredit cards. Accordingly, our results of operations during any particular period may be significantly affected bythe timing of project implementation by end-customers using devices incorporating our products. For moreinformation, see ‘‘Risk Factors — The markets that we have targeted for a substantial part of our future growthare in the early stages of development, and may not develop rapidly or profitably.’’ and ‘‘Risk Factors — Ourquarterly results of operations have fluctuated in the past and we expect these fluctuations to continue.’’

Growth in our ePayment and ePassport product line

Over the next several years, we expect our high security segment to grow faster than our standard segment,which has historically been our only segment. Due to the higher security and quality standards in our ePassportproduct line, we are able to realize superior margins on these products compared to our other product lines.Accordingly, our profitability will be significantly affected by the timing of ePassport implementation by variouscountries. Our other high security product line, ePayment, is also expected to grow quickly in the near future. OurePayment product line has lower margins compared to our standard segment. Accordingly, while growth inePayments will improve our revenues and profits, it will tend to erode our current margins.

Capacity Management

During 2005, we succeeded in increasing our high-frequency production capacity by approximately 65%.The availability of sufficient capacity is one of our main competitive advantages. For this reason, we seek tomaintain up to 20% excess capacity to meet the growing demand of our customers. Our ability to secure orderand receive additional manufacturing equipment in a timely manner and our ability to set up new production linesand facilities quickly and efficiently may have a significant impact on our customer relations and results ofoperations. Our results of operations may also be affected by ramp up costs, such as staff training and a reductionin yield, output and utilization during the process of expanding production. Accordingly, opening new productionfacilities in Germany or in the United States may affect our results of operations.

Microchip Purchases

During 2005, we purchased between 70% and 80% of the microchips used in our standard segment, and lessthan 50% of the microchips used in our ePassport inlays, on our own account (with the remainder provided to usby our customers). We intend to increase these percentages in the future. In addition, we may increase thepercentage of chips we purchase for our ePayment products from the current low level. When we purchase themicrochips embedded in our inlays, the cost of the chips represents a significant portion of the price we chargefor each completed inlay. Accordingly, changes in the price of chips or in the percentage of inlays for which we

47

purchase chips may have a significant impact on our revenues. Our margins on the resale of microchips are lowerthan on the design and manufacture of inlays. Accordingly, although purchasing chips allows us to increase ourprofits, an increase in the share of chips we buy on our own account or in the price of such chips will dilute ourmargins. In addition, purchasing chips and maintaining an adequate chip inventory requires significant workingcapital. For more information, see ‘‘— Liquidity and Capital Resources — Overview’’.

Labor Costs

During 2005, more than 90% of our labor costs were generated in Thailand, where we benefit from lowlabor costs. In the first quarter of 2006, we began producing inlays in Germany and we expect to begin producinginlays in the United States late in 2006 or during the first half of 2007. In Germany, we face significantly higherlabor costs than in Thailand. Moreover, production volumes of the products currently produced in Germany aresignificantly lower than the volumes of products we produce in Thailand. Accordingly, our overall margin in ourePassport business will be affected to the extent that we are unable to charge a higher average price for ePassportsproduced in Germany compared to those produced in Thailand. In the United States, we expect significantlyhigher production volumes than in Germany, which we expect will mitigate the effects of higher labor costscompared to Thailand. To the extent that we are unable to achieve high production volumes in the United States,our results of operations may be significantly affected.

Costs Related to Corporate Restructuring

At the end of 2005, we initiated a restructuring process to implement a new group structure with a holdingstructure providing corporate services. In connection with this restructuring, we have made significant invest-ments in our management and systems to meet the demands of our expected future growth and to prepare for ourinitial public offering. These new structures will increase our overhead costs and will influence our margins if wedo not increase our sales accordingly.

Effect of Currency Fluctuations

We publish our combined and consolidated financial information in euros. A significant portion of ourrevenues and costs, however, are generated in currencies other than the euro, particularly the U.S. dollar for ourrevenues and the Thai baht for our costs. In addition, our bank loans are denominated in Thai baht. Because wedo not hedge against fluctuations in the exchange rates among these currencies and the euro, such fluctuations canhave, and have had, a material impact on our reported results when we translate amounts denominated in dollarsand baht into euros for reporting purposes.

In addition, to the extent that we incur costs in one currency and earn revenues in another, our profit marginsmay be affected by changes in the exchange rate between the currencies. Our revenues and gross profit can behighly sensitive to exchange rate fluctuations. It is estimated that a general decrease in the value of the euroagainst other foreign currencies would have decreased the Group’s profit before tax by approximately4155 thousand (comprising a 469 thousand impact on operating profit, and a 486 thousand impact on financialincome (expense)) for the year ended December 31, 2005.

Income Taxes

We have not incurred any significant tax liabilities since our inception in 2000. In Thailand, we have enjoyedcorporate income tax exemptions tied to a specific level of investment and specified production targets. Thesebenefits may not be available in the future if the relevant tax rules change, the exemptions expire, we fail to meetthe necessary requirements, or if we exceed the limits of the tax exemption, any of which could cause oureffective tax rate to increase. Based on a rate of 30%, the normal corporate income tax rate in Thailand, ourexpected 2005 tax expense would have been 4906 thousand. In addition, our planned operations in Germany andin the United States will be subject to German and United States taxation, respectively, without a correspondingtax exemption and may increase our effective tax rate. For more information, see ‘‘Risk Factors — The temporarytax benefits we currently enjoy may not be available in the future due to changes in the relevant tax rules or in theevent that we breach the conditions upon which these exemptions have been granted. In addition, ourinternational expansion will subject us to taxation in other jurisdictions and could cause our effective tax rate toincrease.’’

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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 and Year EndedDecember 31, 2003

Group

Revenues

Our revenues consist primarily of gross sales of inlays, cards and key fobs, less discounts, rebates and anyother price reductions that we offer our customers. We recognize revenue from the sale of goods when thesignificant risks and rewards of ownership have been transferred to the buyer. We do not recognize revenue ifthere are significant uncertainties regarding recovery of the consideration due, associated costs or the possiblereturn of the goods.

From 2004 to 2005, our revenues increased by 71.3% to 425.2 million in 2005, from 414.7 million in 2004.This growth was driven by initial sales in our high security segment combined with continued strong growth inour standard segment. From 2003 to 2004, our revenues increased by 69.9 %, from 48.7 million in 2003. Thisgrowth occurred within our standard segment, our only core segment in 2003 and 2004.

During 2005, our other operations contributed 4260 thousand in revenues, compared to 4401 thousand in2004 and 428 thousand in 2003.

The following table sets forth our revenues by product line for the periods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Product LineStandard ************************************************************ 8,625 14,297 19,903

Mass transit & access control***************************************** 8,586 13,974 18,540

Logistics ********************************************************** 39 323 1,363

High Security ******************************************************** — — 5,010

ePayment ********************************************************* — — 2,255

ePassports********************************************************* — — 2,755

Other operations****************************************************** 28 401 260

Total *************************************************************** 8,653 14,698 25,173

(1) Columns may not add due to rounding.

From 2004 to 2005, revenues in our standard segment increased by 39.2% and accounted for 79.1% of ourtotal revenues in 2005. This increase in revenues in our standard segment was primarily driven by increaseddemand for mass transit cards. In 2005, our high security segment generated revenues for the first time,contributing 19.9% of our total revenues. We expect the relative revenue contributions of our segments to changerapidly over the next few years, as more projects utilizing our high security products are implemented. From 2003to 2004, revenues in our standard segment increased by 65.8%. This increase was primarily due to the successfultransition of a number of large mass transit systems to contactless cards. For detailed information on oursegments, see ‘‘— Standard’’ and ‘‘— High Security’’.

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The following table sets forth our revenues by geographical segment for the periods indicated. In presentinginformation on the basis of geographical segments, segment revenues are based on the geographical location ofcustomers.

For the year ended December 31,2003 % of total 2004 % of total 2005 % of total

(in thousands of Euro)(1)

RegionEurope ******************************* 3,932 45.4% 8,761 59.6% 14,484 57.5%

Asia ********************************* 2,458 28.4% 3,616 24.6% 5,616 22.3%

North America ************************ 1,506 17.4% 1,438 9.8% 3,233 12.8%

Other ******************************** 757 8.7% 883 6.0% 1,840 7.3%

Total ******************************** 8,653 100% 14,698 100% 25,173 100%

(1) Columns may not add due to rounding.

In 2005, revenues grew strongly in all of our geographical segments. From 2004 to 2005, revenues fromsales in our largest geographic segments, Europe and Asia, grew by 65.3% and 55.3%, respectively. This revenuegrowth was primarily attributable to increased demand for contactless mass transit cards and to the introductionof ePassports in several countries. In addition, demand for contactless payment cards (ePayment) continued tobuild in Asia. Over the same period, revenues from sales to North America and to the Other region more thandoubled. The sharp increase in revenues from sales to North America is attributable to the successful introductionof both contactless payment cards (ePayment) and ePassports. Revenues from sales to Other regions increasedprimarily due to the successful implementation of additional contactless mass transit systems.

The 69.9% growth in revenues from 2003 to 2004 was primarily attributable to growing demand for masstransit & access control products in Europe, where sales more than doubled. Further growth is attributable to achange in our supply channel, whereby products that had previously been sold directly to customers in the UnitedStates were instead sold to a European manufacturer in 2004. Revenues from sales to Asia increased by 47.1%from 2003 to 2004, due primarily to growth in mass transit cards. Similarly, the completion of the contactlesscard system for the Sao Paulo mass transit system contributed to 16.6% growth in revenues from sales to theOther region. These positive developments were partially offset by a 4.5% reduction in sales to the United Statesin 2004 compared to 2003, primarily due to the changes in our supply channel described above.

Cost of Sales

Our cost of sales include production-related costs, including the cost of the chips we purchase to be includedin our inlays, costs for raw materials and manufacturing supplies, salary costs and payroll charges for employeesin manufacturing, depreciation of fixed assets and costs for repairs, maintenance, packing, freight, electricity andwater.

The following table sets forth our cost of sales for the periods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Chip modules ********************************************************* 2,127 4,264 10,051

Raw materials and manufacturing supplies ********************************* 1,082 1,846 2,685

Direct and indirect labor costs ******************************************* 723 1,162 1,939

Depreciation and amortization ******************************************* 616 967 1,168

Other manufacturing costs*********************************************** 547 823 1,490

Total **************************************************************** 5,095 9,062 17,333

(1) Columns may not add due to rounding.

From 2004 to 2005, our cost of sales increased by 91.3%. Expressed as a percentage of revenues, our cost ofsales increased from 61.7% in 2004 to 68.9% in 2005. This relative increase was attributable in part to an increasein the cost of chip modules for mass transit applications, as chips with 4 kilobytes of memory have replaced1 kilobyte memory chips as the transit industry standard. Although chip prices generally tend to decline overtime, the introduction of new technology or the use of more advanced technology often leads to a temporary

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increase in average chip prices. The relative increase in the cost of chip modules is also attributable to theintroduction of ePassports. We purchase a significant percentage of the chips embedded in our ePassport inlays,which use more sophisticated, and therefore more expensive, chips than are used in our standard segment — ouronly segment prior to 2005. The impact of the introduction of ePassports was offset by the introduction ofePayment products, for which we currently do not purchase any chips on our own account. Other elements of costof sales generally remained constant or declined when expressed as a percentage of revenues.

From 2003 to 2004, our cost of sales increased by 77.8%. Expressed as a percentage of revenues, our cost ofsales increased from 58.9% in 2003 to 61.7% in 2004. This relative increase was entirely attributable to anincrease in the percentage of chips we purchased for our own account and occurred despite an overall decline inaverage chip prices for our standard segment. The increase in the percentage of chips we purchase caused ourtotal 2004 costs for chip modules to double compared to 2003, rising to 29.0% when expressed as a percentage ofrevenues, compared to 24.6% in 2003. Growth in other elements of cost of sales was generally in line with overallrevenue growth.

Administrative Expenses

Our administrative expenses include salary and payroll charges for employees in sales and administration,rent, sales commissions and professional fees for consultants and other advisors, depreciation and amortization,office expenses, vehicle and travel expenses, and other administrative expenses.

The following table sets forth our administrative expenses for the periods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Personnel expenses ***************************************************** 643 760 1,315

Rental expenses ******************************************************** 89 135 94

Sales commission expenses*********************************************** 340 415 363

Professional fees ******************************************************* 659 500 860

Depreciation and amortization ******************************************** 65 76 168

Other administrative expenses********************************************* 505 865 1,455

Total ***************************************************************** 2,301 2,751 4,255

(1) Columns may not add due to rounding.

In absolute terms, administrative expenses increased by 54.7% from 2004 to 2005, although they declinedwhen expressed as a percentage of revenues, to 16.9% in 2005 from 18.7% in 2004. Personnel expenses includedin administrative expenses grew in line with revenues, while rent and sales commissions experienced an absolutedecline. Sales commission expenses declined due to reduced use of external sales consultants as we continued toconsolidate our sales structure in Thailand. Our expenses for professional fees were higher in 2005 due to costsfor financial consultants and to attorney fees related to pending litigation. Depreciation and amortization morethan doubled from 2004 to 2005 as we purchased additional depreciable manufacturing equipment to increaseproduction capacity.

Overall, administrative expenses increased by 19.6% from 2003 to 2004. This increase was significantlybelow growth in our business overall. Expressed as a percentage of revenues, administrative expenses declined to18.7% in 2004 from 26.6% in 2003. Significant items included personnel expenses and professional fees.Although personnel expenses included in administrative expenses increased by 18.2% from 2003 to 2004 inabsolute terms as our administrative staff grew, personnel expenses declined when expressed as a percentage ofrevenues, to 5.2% in 2004 from 7.4% in 2003. Over the same period professional fees declined by 24.1% due toreduced need for technical advisors and due to a program to reduce use of external sales consultants bydeveloping our internal sales structure. Our other administrative expenses increased in line with revenues.

Other operating expenses

Our other operating income include sales of scrap materials and gains on the sale of fixed assets. Our otheroperating expenses consist of impairment losses on inventory and on trade receivables.

From 2004 to 2005, net other operating expenses declined dramatically, to 49 thousand in 2005 from4441 thousand in 2004. This decline was largely due to the inclusion of a large impairment loss on trade

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receivables in 2004, whereas no such impairment losses were recorded in 2005. Write downs of inventoriesincreased by 28.6% from 2004 to 2005, but this increase was far below the growth rate in our revenues due to aswitch toward purchasing raw materials in sizes that allow them to be used for a variety of products, therebyreducing waste from unused specialty materials. Net other operating expenses were reduced by 411 thousand ingains on the sale of machinery, tooling and equipment and 470 thousand derived from scrap sales. The increase inincome from scrap sales in 2005 was due to the implementation of a more effective sales strategy.

From 2003 to 2004, net other operating expenses increased significantly from 430 thousand in 2003. Of our2004 operating expenses, 4377 thousand is attributable to impairment losses on trade receivables, most of whichreflects the bankruptcy of a single customer. Write downs of inventories also increased from 2003 to 2004 as ourmanufacturing activities grew. Scrap sales generated 46 thousand in income in 2004 and 43 thousand in 2003.

Operating profit before financing costs (EBIT)

From 2004 to 2005, our operating profit before financing costs (EBIT) increased by 46.3%, to43,576 thousand in 2005, from 42,444 thousand in 2004. As discussed above, this increase was primarily due tocontinued growth in sales from our standard segment, the initial contribution from sales in our new high securitysegment and a decline in administrative expenses expressed as a percentage of revenues. However, an increase inour cost of sales due to an increase in the percentage of chips we purchase on our own account, coupled with anincrease in the price of chips for mass transit applications, caused our EBIT margin to decline to 14.2% in 2005from 16.6% in 2004.

From 2003 to 2004, we increased our operating profit before financing costs by 99.2%, from41,227 thousand in 2003. As discussed above, this increase was primarily attributable to strong growth in salesand a decrease in administrative expenses relative to revenues. These factors combined to increase our EBITmargin to 16.6% in 2004 from 14.2% in 2003, despite a slight increase in our cost of sales (due to an increase inthe share of chips we purchased on our own account) and an impairment related to the bankruptcy of a customer.

Financial Income

Our financial income consists of interest income and net foreign exchange gains. From 2004 to 2005, netforeign exchange gains, which had contributed 4288 thousand in income in 2004, were eliminated as a result ofdepreciation of the Thai baht relative to the euro. As a result, our financial income declined by 99.0%, to43 thousand in 2005 from 4290 thousand in 2004. From 2003 to 2004, interest income remained flat while netforeign exchange gains declined significantly due to appreciation of the euro relative to the U.S. dollar. As aresult, from 2003 to 2004 our financial income declined by 30.0% from 4414 thousand in 2003.

Financial Expenses

Our financial expenses consist of interest expense, bank charges and foreign exchange losses. From 2004 to2005, these expenses increased by 57.6%, to 4613 thousand in 2005 from 4389 thousand in 2004, primarily dueto the assumption of additional debt used to pay for purchases of real property and manufacturing equipment.From 2003 to 2004, our financial expenses increased by 87.0% to 4389 thousand in 2004 from 4208 thousand in2003. This increase was almost entirely attributable to foreign exchange losses.

Share of profit of associates

Our share of profit of associates relates to our 2005 investment in 30% of the shares of Xytec SolutionsSdn. Bhd., a Malaysian company that produces most of our manufacturing equipment. In 2005, our share ofXytec Solutions Sdn. Bhd.’s profit amounted to 415 thousand.

Income Tax Benefit

In Thailand, we have been granted certain temporary tax exemptions by the Thai Board of Investment. Inorder to receive the benefit of these tax exemptions, we are required, among other things, to maintain a specificlevel of investment in Thailand, to ensure that all machinery and equipment imported into Thailand complies withspecified technology standards and to meet specified annual production targets. In Germany, although we havenot received any tax exemptions, we are currently able to use certain loss carry-forwards to offset our taxableprofits. Accordingly, we were not required to pay any taxes in Germany in 2005, although we expect to be subjectto German taxation beginning in 2006. Similarly we expect to be subject to United States taxation once we openour planned production facilities in the United States. Having satisfied the conditions of our Thai tax exemptions

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during 2005, 2004 and 2003, we were not required to pay corporate income taxes in those years. In 2005, werecognized a 437 thousand deferred tax benefit.

Profit for the Period

As a result of the foregoing, we were able to increase our profit by 28.7% to 43,018 thousand in 2005compared to 42,345 thousand in 2004. From 2003 to 2004, we were able to increase our profit by 63.6%, from41,433 thousand in 2003.

Standard

Our standard segment designs and manufactures inlays and other products that only contain memory chips,although some of them contain security features such as password authentication and basic encryption. Ourstandard segment encompasses two product lines. Our ‘‘mass transit & access control’’ product line includesinlays for use in contactless mass transit fare cards, highway toll payment tags and cards for physical and logicalaccess control. Our ‘‘logistics’’ product line includes non-card related inlays and products used for logistical andverification applications such as product tracking and tracing, animal ID implants, laundry tags and casino chips.

The following table sets forth summary income statement information for our standard segment for theperiods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Revenues**************************************************** 8,625 14,297 19,903

Mass transit & access control********************************* 8,586 13,974 18,540

Logistics ************************************************** 39 323 1,363

Gross profit************************************************** 3,570 5,794 6,381

EBITDA**************************************************** 1,925 3,808 4,111

(1) Columns may not add due to rounding.

Revenues

From 2004 to 2005, revenues in our standard segment increased by 39.2%. This increase was primarilydriven by growth in our mass transit & access control product line, where revenues increased by 32.7% over thesame period.

Demand for mass transit cards remained strong in 2005. Several cities completed implementation ofcontactless mass transit fare card systems, creating new demand for such cards, and demand from existingsystems increased. While more and more cities are expected to adopt contactless technology in their mass transitsystems in the future as chip prices fall and higher traffic makes investment in congestion-reducing contactlesscards attractive, we eventually expect the number of contactless cards to stabilize. Because such cards aredisposable, however, replacement is expected to provide recurring demand for new cards.

Growth in access control products also remained strong during 2005. Demand for inlays for ski tickets hasbeen particularly strong in Europe, and RFID-enabled ski ticket technology is now being implemented in theUnited States and Japan, as well. In addition, heightened security concerns around the world have contributed tosustained growth in demand for inlays for identification cards for both public and private buildings and includingboth office buildings and production facilities.

Building on momentum from 2004, growth in our logistics product line accelerated in 2005. Demand for keyfobs increased and we began producing RFID-enabled laundry tags and inlays for livestock identification ear tags.Accordingly, revenues from our logistics product line more than quadrupled from 2004 to 2005.

From 2003 to 2004, revenues in our standard segment (our only core segment during these years) increasedby 65.8%. This increase was primarily due to the implementation of contactless mass transit fare card systemsaround the world, including in Sao Paolo, and to continued demand for access control cards due to heightenedsecurity concerns. These factors combined to increase our revenues from our access control & mass transitproduct line by 62.8% from 2003 to 2004. Over the same period, revenues from our logistics product lineincreased more than seven-fold as the business began to ramp up.

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Gross profit

From 2004 to 2005, our gross profit in our standard segment increased by 10.1% due to significant salesgrowth in both of our standard segment product lines. Over the same period, our gross profit margin declined to32.1% in 2005 from 40.5% in 2004. This decline is primarily attributable to an increase in both the percentage ofthe chips we purchase in our standard segment, and to an increase in the average price of chips for mass transitapplications in the fourth quarter of 2005. Prices for these chips, which generally decline over time, increased as aresult of a change from 1 kilobyte chips to 4 kilobyte chips as the industry standard. In addition, the average saleprice for products in our standard segment declined slightly from 2004 to 2005.

From 2003 to 2004, our gross profit in our standard segment increased by 62.3%, primarily due to stronggrowth in our mass transit & access control product line. Our gross profit margin remained steady at 40.5%during 2004, compared to 41.4% during 2003.

EBITDA

From 2004 to 2005, our EBITDA in our standard segment increased by 8.0%. In contrast, our EBITDA grewby 97.8% from 2003 to 2004. The relatively modest growth in our EBITDA from 2004 to 2005 largely reflectsthe changes in chip purchasing and pricing described above, whereas the increase in EBITDA from 2003 to 2004reflects strong revenue growth and a relative decrease in administrative expenses.

High Security

Products in our high security segment contain microcontroller chips that include sophisticated encryptionfunctions and permit advanced calculations to be made. Our high security segment includes two product lines —‘‘ePayment’’ and ‘‘ePassports’’. Our ePayment product line focuses on manufacturing high security inlays forcontactless banking, credit and debit cards. Our ePassport product line includes inlays specifically designed forelectronic passports. We expect this product line to incorporate other electronic forms of governmentidentification, such as electronic drivers’ licenses and national ID cards, when these are introduced in the future.

The following table sets forth summary income statement information for our high security segment for theperiods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Revenues ************************************************************** — — 5,010

ePayment ************************************************************ — — 2,255

ePassport ************************************************************ — — 2,755

Gross profit ************************************************************ — — 1,419

EBITDA ************************************************************** — — 944

(1) Column may not add due to rounding.

Revenues

In 2005, our high security segment generated revenues for the first time, totaling 45,010 thousand or 19.9%of our total revenues. Of our high security segment revenues, 45.0% were generated by ePayment inlays, withinlays for ePassports generating 55.0%. The strong initial revenue contribution from our ePayment product line in2005 is attributable to our first volume shipments of inlays for MasterCard Paypass, Contactless Visa and othercontactless credit cards. Similarly, in 2005 we began volume production of ePassport inlays for the United States(among other countries) and expect revenues from this product line to continue to grow strongly in 2006.

Gross profit

Our 2005 gross profit margin in our high security segment was 28.3%, with a substantial portion of ourmanufacturing expenses attributable to chip purchases, especially in ePassports. We currently purchase only avery small percentage of the chips embedded in our ePayment products and less than 50% of the chips embeddedin our ePassport products. If we increase the percentage of chips purchased for our high security products, ourgross profit margin may decline.

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EBITDA

For 2005, our high security segment achieved an EBITDA of 4944 thousand.

Other operations

Our other operations consist of selling and leasing equipment to our customers on a limited basis. In 2005,our other operations generated revenues of 4260 thousand, compared to 4401 thousand and 428 thousand in 2004and 2003, respectively. Our 2005 EBITDA from our other operations amounted to 4–143 thousand, compared to4–321 thousand in 2004 and 4–17 thousand in 2003.

Liquidity and Capital Resources

Overview

From our inception in 2000 until 2006, we have funded our operations primarily through sales revenues, andthrough shareholder and bank loans guaranteed to a significant extent by a member of the Company’sSupervisory Board, Mr. Richard Bird. We expect to fund our operations over the next several years primarilyfrom sales revenues, our existing cash balances and the net proceeds of the Global Offer. As of December 31,2005, our cash and cash equivalents were approximately 41.5 million.

In our opinion, our working capital (i.e., our ability to access cash and other available liquid resources) issufficient for us to meet our liabilities as they become due for at least the next 12 months.

Our working capital needs are affected in part by our purchases of memory and microcontroller chips to beembedded in our products. When we purchase the embedded chips, such chips constitute a significant portion ofthe price we charge for each inlay. While some customers provide us with pre-purchased chips to be embedded inour inlays, others seek to benefit from our preferred pricing terms with chip manufacturers by having us purchasethe chips to be embedded. We currently purchase between 70% and 80% of the chips embedded in our standardsegment products, and less than 50% of the chips used in our ePassport inlays, although there is significantvariation in customer preferences regarding chip purchases for ePassports. We currently purchase only a verysmall percentage of the chips embedded in our ePayment products, although we may increase this percentage inthe future. Purchasing the required chips increases our required working capital and exposes us to other risks. Formore information, see ‘‘Risk Factors — We intend to increase the share of microchips used in our inlays that wepurchase on our own account’’. We seek to minimize risks related to our inventory of chips by matching chippurchases to customer orders and forecasts. In our high security segment, all chip purchases are matched tospecific customer orders. In our standard segment, where chips are largely fungible between products, wepurchase chips based on anticipated orders and seek to keep our chip inventories to a minimum. Nonetheless, dueto lengthy lead times on chip deliveries, the time required to manufacture inlays once chips have been receivedand customary payment terms in the industry, it is occasionally necessary for us to purchase chips up to threemonths in advance of receiving related revenues. We believe the disadvantages of increasing our working capitalare offset by the opportunity to increase our earnings by charging an appropriate margin on the chips we purchasefor our customers.

Historical Combined and Consolidated Cash Flow

The following table highlights selected cash flow data for the periods indicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)

Net cash provided by operating activities ********************************* 1,273 2,674 1,022

Net cash used in investing activities************************************** (2,654) (3,151) (4,376)

Net cash provided by financing activities********************************** 1,287 803 3,299

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

From 2004 to 2005, our net cash provided by operating activities declined significantly. Profit for the periodincreased significantly in 2005, to 43.0 million from 42.3 million in 2004. Depreciation and amortizationincreased by 40.3 million compared to 2004 due to new manufacturing equipment purchases. We also had anunrealized foreign exchange loss of 40.2 million in 2005, compared to a 40.3 million unrealized foreign exchangegain in 2004. Overall, the decline in cash provided by operating activities is primarily due to an increase in our

55

working capital. Inventories increased by 41.9 million from 2004 to 2005, while trade receivables increased by43.4 million, although a significant portion of this increase was offset by a 41.6 million increase in trade and non-trade payables. A 40.5 million increase in other current liabilities from 2004 to 2005 was partially offset by a40.3 million increase in other current assets.

Net cash used in investing activities increased from 2004 to 2005. Most of this increase was attributable to a41.3 million increase in purchases of property, plant and equipment. In 2005, we purchased property close to ourThai production facilities in order to secure room for future growth. Additionally, we increased ourmanufacturing equipment purchases in order to ensure that we maintain sufficient production capacity ascustomers increase their demand for ePayment and ePassport products. The increase in equipment purchases waspartially offset by proceeds received from the sale of certain equipment.

Net cash provided by financing activities increased significantly from 2004 to 2005. This was due to anincrease in net borrowings used to acquire Multitape GmbH and to fund our capital expenditures. We received42.5 million more in proceeds from such borrowings in 2005, than in 2004.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Our net cash provided by operating activities improved from 2003 to 2004. This improvement is largelyattributable to an increase in profit for the period, to 42.3 million in 2004 from 41.4 million in 2003. Depreciationand amortization increased by 40.4 million compared to 2003, while impairments on trade receivables increasedby 40.4 million and unrealized foreign exchange gains increased by 40.2 million. For more information on theimpairments on trade receivables, see ‘‘— Results of Operations — Year Ended December 31, 2005 Compared toYear Ended December 31, 2004 and Year Ended December 31, 2003 — Other operating expenses’’. Ourincreased sales led to a 41.0 million increase in trade receivables partially offset by a 40.8 million increase intrade and non-trade payables. Our higher manufacturing volumes in 2004 required us to increase our inventoriesby 40.5 million compared to 2003.

In 2004, we used 40.5 million more cash in investing activities than in 2003. This increase was entirelyattributable to an increase in manufacturing equipment purchases to support greater customer demand and to anadvance payment on a property purchased in 2005.

Our net cash provided by financing activities declined significantly from 2003 to 2004. This was primarilydue to a decrease in net new borrowing, as 45.1 million in new interest bearing loans was largely offset by therepayment of 44.4 million in similar loans. In 2004, we also received approximately 40.1 million in proceedsfrom a capital increase. This capital increase was necessary to increase our minimum registered capital to25 million Thai baht, as required to receive tax exemptions under the Thai tax exemption program.

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Historical Debt

The following table sets forth our financial liabilities as of the dates indicated:

As of December 31,2003 2004 2005(in thousands of Euro)(1)

Long-term financial liabilities

Secured installment loan *********************************************** — — 352

Total long-term debt **************************************************** — — 352

Short-term portion **************************************************** — — 120

Total long-term financial liabilities net of current portion ******************* — — 233Short-term financial liabilities

Current portion of secured instalment loan ******************************** — — 120

Secured bank borrowings ********************************************** 4,381 4,198 7,656

Loan from director**************************************************** 10 — 792

Loan from related parties ********************************************** — 574 —

Total short-term financial liabilities ************************************** 4,391 4,772 8,568

Total financial liabilities (actual) ***************************************** 4,391 4,772 8,801

(1) Columns may not add due to rounding.

As of December 31, 2005, we had 46.5 million of secured bank borrowings with Deutsche Bank Thailand.These are short-term revolving borrowings secured by standby letters of credit issued by Deutsche Bank AG,Singapore Branch, and which are guaranteed by Mr. Richard Bird. These loans will mature in 2006 and may berolled over for an additional term. The proceeds of these loans are used to finance our capital expenditures and toprovide us with working capital.

As of December 31, 2005, we had 41.1 million of secured bank borrowings with ABN Amro, SingaporeBranch. These borrowings are guaranteed by Mr. Richard Bird. We assumed these short-term borrowings as partof the acquisition of Smartrac Technology Pte. Ltd, Singapore, on October 5, 2005. At the time of the acquisition,the balance of the borrowings was 40.3 million.

As of December 31, 2005, we had a secured four-year installment loan totalling 40.4 million with SiamCommercial Bank in Thailand. This long-term loan is secured by our land and buildings and it matures in 2009.

Our loan from a director is from Mr. Richard Bird. The loan has no maturity date and was assumed onOctober 5, 2005 in conjunction with the acquisition of Multitape GmbH’s passport business. For information onour loan from Mr. Bird, see ‘‘Related Party Transactions — Relationship with Mr. Bird — Loan from Mr. Bird’’.

The loan from a related party was given to Smartrac Technology GmbH, Germany by Smartrac TechnologyPte. Ltd., Singapore and eliminated in preparing the combined and consolidated financial information for 2005.

The loans from Deutsche Bank and Siam Commercial Bank are subject to customary change of controlclauses. We intend to repay our debt using the proceeds of the Global Offer, see ‘‘Use of Proceeds’’. You can findadditional information about the liabilities listed in the table above in Note 20 to our combined and consolidatedfinancial information.

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Capital Expenditures

The following table sets forth our capital expenditures for tangible and intangible assets for the periodsindicated.

For the year endedDecember 31,

2003 2004 2005(in thousands of Euro)(1)

Tangible assets ********************************************************* 2,652 3,151 4,542

Intangible assets******************************************************** 2 — —

Capital expenditures *************************************************** 2,654 3,151 4,542

(1) Columns may not add due to rounding.

Our tangible assets increased by 43.1 million in 2005, from 48.6 million on December 31, 2004, to411.7 million on December 31, 2005. This increase was primarily due to purchases of manufacturing equipmentnecessary to increase capacity and the acquisition of property close to our Thai production facilities to secureadequate space for future growth. In 2005, our expenditures on tangible assets of 44.5 million more than offset41.3 million of depreciation and 40.2 million in disposals. These expenditures included:

) 41.5 million on real estate;

) 42.7 million on manufacturing equipment and machinery; and

) 40.3 million on operational, office and other equipment.

From 2004 to 2005, our intangible fixed assets increased by 41.2 million, to 41.3 million as of December 31,2005, from 40.1 million as of December 31, 2004. This significant increase is attributable to the acquisition ofMultitape GmbH’s ePassport business during the course of 2005.

Our tangible assets increased by 42.1 million in 2004, to 48.6 million on December 31, 2004 from46.5 million on December 31, 2003. This increase was primarily due to the purchase of manufacturing equipmentnecessary to increase our Thai production capacity in line with customer demand. In 2004, our expenditures ontangible assets of 43.2 million more than offset 41.0 million of depreciation. These expenditures included:

) 40.1 million on real estate;

) 42.9 million on manufacturing equipment and machinery; and

) 40.1 million on operational, office and other equipment.

Due to amortization, our intangible fixed assets declined by 420 thousand to 4116 thousand onDecember 31, 2004, from 4136 thousand on December 31, 2003.

Our tangible assets increased by 42.0 million in 2003, to 46.5 million on December 31, 2003 from44.5 million on December 31, 2002. This increase was almost entirely due to the purchase of manufacturingequipment for our Thai production facility. In 2003, our expenditures on tangible assets of 42.7 million more thanoffset 40.7 million of depreciation. These expenditures included:

) 40.1 million on real estate;

) 42.6 million on manufacturing equipment and machinery; and

) less than 40.1 million on operational, office and other equipment.

Expenditures on intangible assets of 42 thousand were insufficient to offset 420 thousand of amortizationduring 2003. As a result, our intangible fixed assets declined to 4136 thousand on December 31, 2003, from4154 thousand on December 31, 2002.

We do not capitalize any of our R&D or product development expenditures.

We have committed to capital expenditures totaling approximately 42.5 million during the remainder of2006. Of this amount, 41.6 million relates to the purchase of additional manufacturing equipment in orderincrease our production capacity, and approximately 40.7 million relates to a property we purchased adjacent toour current Thai production facilities, including payment of the remaining portion of the purchase price, and theinstallation of equipment and security features. We intend to fund these investments through our operating cashflow, the proceeds of the Global Offer and through bank debt.

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Summary of Commitments and Contingent Liabilities

The following table provides a maturity analysis of certain of our contractual obligations as of December 31,2005.

Contractual Obligations and CommitmentsPayments due in

TotalMore than Secured December 31,

Type of Obligations Up to 1 year 1 to 5 years 5 year by 2005(5 in thousands)

Shareholder loans*********************** 792 792

Bank loans **************************** 7,776 233 8,009

Trade accounts payable ****************** 3,229 3,229

Non trade & Other liabilities ************* 3,507 3,507

For information on our shareholder loans, see ‘‘Related Party Transactions — Relationship with Mr. Bird —Loan from Mr. Bird’’.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial risks due to our business and international operations. Our financial riskmanagement focuses specifically on the areas of currency risk, liquidity risk and the risk of changes in the pricingof raw materials and microchips. The overall objective of our risk management is to evaluate and eliminate, to theextent possible, any financial risk in order to maintain our profitability and financial performance.

Foreign currency risk

Our reporting currency is the Euro. Due to our international customer base, we have to conduct transactionsin several currencies, mainly the Euro and the US Dollar. As a result, Smartac has to carefully handle exchangerate fluctuations. However, since our manufacturing costs are in Euro and the US Dollar in an almost even ratio,this risk is reduced. Most of our materials are sourced in Europe and paid for in Euro. The other components ofour manufacturing costs are labor and supplies, which are mainly paid in for Thai baht. As the Thai baht isclosely linked to the US Dollar, we have a healthy split of the manufacturing cost between Euro and US Dollar.This ‘‘natural hedge’’ helps to reduce the risk of any losses driven by exchange rate fluctuations.

Any accumulated inbalance between Euro and US Dollar accounts is monitored and will be covered bydedicated hedging strategies.

Credit risk

Our credit risk reflects the fact that some of our customers might not be able to fulfill their contractualduties. We operate in a high technology industry that is relatively new and where the markets have yet to stabilize.Accordingly, certain of our customers may become insolvent.

To minimize this risk, we follow very strict customer credit lines. Each individual customer has assignedcredit limits, which are checked on each new planned shipment. In addition, we require either a down payment ora letter of credit before we accept orders from customers in critical regions such as China, Russia or SouthAmerica.

Liquidity risk

Our liquidity risk management focuses on the management of our cash inflows and cash outflows. Due to theimpact of chip purchases on our cash flow, the amount of chips we purchase is being carefully considered, inorder to avoid significantly reducing our cash flow by purchasing too many chips. We will continue to carefullyconsider customer requests that we purchase more chips on our own account.

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Price risk on chip prices

Chip prices generally tend to decline over time. Changes in global demand can lead to temporary increasesin demand, which might result in chip shortages and chip rationing. During periods of rationing, the lead timesfor chips and their prices increase.

Price risk on oil-based components

Most of our products are based on plastic materials such as PVC, PET or PC. These products are made outof oil. Accordingly, prices may fluctuate with oil prices. Such prices are generally passed on to consumers.

Interest rate risk

We are exposed to interest rate risks. Given that our bank liabilities are relatively limited, however, the riskof unplanned losses due to changes in interest rates is also limited.

Inflation risk

Inflation has not had a significant impact during the periods covered by our combined and consolidatedfinancial information. However, we face the risk of inflation with regard to one or more currencies in which wehave significant receivables or savings.

Recent Business Developments and Outlook

We anticipate continued positive developments in our business during 2006. With regard to our mass transit& access control product line, we expect growth due to the continuing implementation of RFID mass transitprojects in Europe, Asia and South America and to the introduction of RFID-enabled ski tickets using our inlaysin Asia and North America. In our logistics product line, we are increasing production of inlays for livestockidentification earmarks, which we expect to grow in importance due to the need to monitor the food supply chainto limit the spread of disease. We expect continued growth in our ePayment product line following the start ofmass production of contactless VISA cards during the first quarter of 2006 and as contactless payment systemsare implemented in the United States and Asia. With regard to ePassports, we recently began producing inlays forePassports in Germany, where we are negotiating a lease for, and may purchase, a new production facility. Inaddition, we expect to open a secure facility manufacturing inlays for ePassports in the United States late in 2006or during the first half of 2007. These facilities will help us meet expected demand for ePassport inlays prior toand following the August and October 2006 deadlines for ePassport implementation in the European Union andthe United States, respectively.

In February 2006, Deutsche Bank granted the Company a revolving credit line in the amount of 42 millionas short term financing on customary terms and conditions. The credit line may be utilized through short-termloans with fixed interest rates with credit periods of one month for short-term general corporate purposes of theCompany. The credit amount has been fully drawn by the Company. Negative developments in the exchange ratebetween the Thai baht and the euro since the end of 2005 caused expenses related to the Company’s indebtednessto increase. The Company intends to repay the loan received from Deutsche Bank, together with its otherindebtedness, using the proceeds it will receive from the Global Offer.

Since the end of 2005, our production capacity has remained stable, although it is expected to increasesignificantly in 2006 as we receive new manufacturing equipment ordered from Xytec. Our inventory hasincreased, and may increase further, depending on the percentage of chips incorporated in our inlays that wepurchase on our own account. Our revenues have increased since the end of 2005, a trend that we expect tocontinue in 2006, with growth expected to be particularly strong in the second half of 2006. Our expenses haveincreased since the end of 2005 as a result of, inter alia, recent investments in management and due to the costsof establishing our operations in Germany and The Netherlands. Additional expenses related to our corporaterestructuring, our initial public offering and foreign exchange effects related to the Company’s indebtedness. Dueto the factors described above, including a number of non-recurring items, the Company expects to report a lossduring the first quarter of 2006.

There have not been any other significant changes in our financial or trading position since December 31,2005.

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INDUSTRY BACKGROUND

RFID (Radio Frequency IDentification) is a contactless data transmission technology that is used in a widevariety of applications in the fields of logistics, access control and identification. The primary industry standardsfor RFID are ISO standards ISO 14443 A and B, and ISO 15693.

An RFID system consists of a transponder (data carrier) and a reading device (reader). When the transponderis within the reader’s working distance, it transmits data to the reader via radio waves. The technology iscontactless because the transponder does not have to have physical contact with the reader — it is sufficient if thetransponder is close to the reader (working distances range from a few centimeters to tens of meters depending onthe frequency and kind of transponder used). The transponder, in the form of a card, tag, key fob or label, consistsof a silicon chip component and an antenna. The chip can be a simple memory component, capable of storingfrom 128 bytes up to more than 64 kilobytes of information (e.g., the monetary balance on public transportcards), or a complex microcontroller with cryptographic functions used to keep highly sensitive data andapplications secure (e.g., ePassports). Passive transponders use energy emitted by the reader’s energy field topower the chip and communicate signals, whereas active transponders contain a battery that provides thenecessary energy.

The diagram below illustrates a common passive RFID system:

Microchip(Data Storage, Cryptography, Calculations)

Sending and Receiving Antenna

(Inlay)

Encasement(e.g., card) Energy Field

Reader

Data

Passive transponders are commonly found in the form of cards, known as contactless cards. The contactlessnature of such cards differentiates them from conventional contact-based chip cards (known as contact cards), inwhich the chips are not encased within the card, but rather embedded on the surface of the card. In contact cards,the chips must be located on the surface in order for readers to be able to establish contact with the chips andcommunicate with them. This is not necessary for contactless cards. Despite the use of the term ‘‘contactlesscard’’, contactless cards include certain devices not in card form that contain chips, such as electronic passports.Other common transponders, such as RFID-enabled ‘‘smart’’ labels used in supply chain management, orcontactless key fobs, are not classified as contactless cards.

RFID inlays consist of the chip bonded to the antenna, which is embedded in a carrier material, such asplastic, that forms the body of the inlay. The antenna can be produced with several different technologies. Themost reliable technology for high-security applications is wire-embedding, which uses a copper wire embeddedinto a carrier material or substrate. Alternatively, the antenna can be printed with silver paste or can be etched outof aluminum or other metals using a chemical solution.

RFID transponders and readers fall into one of three categories based on the radio frequency used: lowfrequency (LF, 125-148.5 kHz), high frequency (HF, 13.56 MHz) and ultra high frequency (UHF, 400 MHz to1 GHz). Low frequency devices, which are often based on older technology, are mainly used in special accesscontrol applications in which longer reading distances and low data transmission volumes are required, e.g., skipasses and industrial applications in harsh environments. Antennas for low frequency products consist of300-400 copper wire loops and are produced on specialized machines. In contrast, antennas for high frequencydevices consist of only four to six copper wire loops. High frequency devices are mainly used for access controland ID applications in which high data transmission rates are necessary and reading ranges can be limited to lessthan 10 centimeters for security reasons (e.g., contactless payment cards and government IDs). Ultra highfrequency RFID devices feature long working distances and are primarily useful for certain logistical

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applications, such as tracking pallets, containers and trucks in shipping yards. The table below provides anoverview of the different categories of transponders (each of which may also be active or passive).

Radio Working Licensing CommonTransponder frequency Data rate distance ISO standard requirements applications

Low frequency 125-148.5 kHz 4 kbit/ 30 centimeters ISO 11784 & Can be used Animal(LF) (original second to 1 meter ISO 11785 globally without identification,

standard), and a license inventory134.2 kHz tracking, and(international access controlstandard)

High frequency 13.56 MHz 26-106 kbit/ 10 centimeters ISO 14443, Can be used Access control,(HF) second (ISO 14443) ISO 15693 globally without logistical

50 centimeters a license tracking,to 1 meter contactless(ISO 15693) identification

and paymentcards

Ultra-high 400 MHz- 25 kbit/ Up to ISO 18000 Conflicting Pallet, containerfrequency 1 GHz second 25 meters licensing and truck(UHF) requirements tracking in

and permitted shipping yardsfrequenciesprevent globalusage

Regardless of application, RFID technology offers a number of advantages that are prized by both systemoperators (such as retailers, logistics companies, governments and private companies) and end-users. Thesefeatures include low maintenance costs and high durability due to the lack of moving parts, the fact that contact isnot necessary (reducing wear on readers and transponders) and robust construction. Other features include highsecurity and reliability due to the use of advanced chips, and high transaction efficiency, which allows moretransactions to be completed in less time and with less human assistance required.

The Value-Chain for Contactless Cards

The following diagram provides a graphic representation of the value chain for contactless cards andcomponents.

ChipManufacturers

InlayManufacturers

CardManufacturers

SystemIntegrators

Secure PrintingHouses

EndCustomers

The RFID industry is fairly stratified, with various players occupying distinct niches in the value chainwhere they focus on their respective core competencies. Silicon chip components and wafers are manufactured bymultinational chip manufacturers. This segment of the industry is very capital intensive. The individual chipsfrom each silicon wafer must be packaged into a module before they can be processed by the inlay manufacturer.Most of the chip manufacturers provide these packaging services.

The chip modules are processed by inlay manufacturers who bond the chip module and an antenna to acarrier material or substrate, such as plastic, that will form part of the finished product, whether it is an ID card, akey fob, a smart label, a contactless credit card or an ePassport. Each application places different demands on thechip and antenna embedding process, depending on the carrier material and the required durability and reliabilityof the finished product. The different processes used to produce antennas (embedding, etching or printing) andthe various techniques utilized by inlay manufacturers to connect antennas to chips (wire bonding or flip-chip)have distinct advantages and disadvantages with regard to these criteria. Utilizing the proper process is crucial formany RFID applications, both economically and practically. Unlike computers and mobile cellular phones, forexample, where the processing and memory chips are protected by a rigid casing and generally treated carefullyby users, RFID-enabled products often have a very thin and flexible casing that provides limited protection. Forexample, workplace ID cards are often sat on and scratched by keys, laundry tags are exposed to water and high

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temperatures, contactless payment cards may be exposed to the sun and ePassports may be bent or otherwisedeteriorate over a number of years. The quality of the inlay and of the bonding and embedding processes iscritical in ensuring that the chips continue to operate and that the antenna remains connected to the chip. Inlaymanufacturers sell the inlays to card manufacturers, secure printing houses and label printers.

Card manufacturers purchase sheets of inlays. The sheets are cut and processed by the card manufacturers ina lamination and printing process to produce functional RFID cards. At this stage, for example, the cards may beprinted with a bank’s logo and other information, but the cards do not contain personal information concerningthe end-user. Increasingly, card manufacturers are being asked to install software (an operating system andapplication software) on the chips embedded in their cards. Card manufacturers sell the cards to systemintegrators and end-customers (e.g., the owners of the access control or mass transit systems).

Governmental documents, such as ID cards, driver’s licenses and passports are produced by secure printinghouses. These secure printing houses can be private companies or governmental printers. To produce ePassports,secure printing houses purchase high security inlays from inlay manufacturers and incorporate them into thefinished ePassport or chip card. Secure printing houses sell the completed passports to system integrators andnational governments, who provide them to their citizens.

System integrators purchase printed and laminated cards from card manufacturers, printed and assembledePassport booklets from secure printing houses and, in certain instances, white cards from inlay manufacturers.To produce white cards, an inlay manufacturer conducts the lamination process and supplies a system integratorwith functional, but blank, white cards. The system integrator personalizes the cards and ePassports by puttingsoftware (an operating system and application software) and relevant data on the embedded chips. Thepersonalization process may also involve printing the end-user’s name and picture on the card or ePassport. Thesystem integrator supplies the finished cards to the client (e.g., a company installing a new employee securitysystem) or to the end-user directly (e.g., cards issued to customers of a credit card issuing bank).

RFID Applications, Products and Markets

The success of each RFID application is highly dependent on the development of common technicalstandards, economic feasibility, privacy protection and popular acceptance of RFID technology. Even after ageneral standard has been widely agreed upon, standards continue to evolve as new applications and technologiesemerge. As standards for many of the most common RFID applications have become established, relatedproducts have found greater acceptance. This has lead to remarkable growth rates in recent years. It is estimatedthat the number of contactless cards shipped increased by 54.1% in 2004, from 97.7 million units in 2003 to150.6 million units in 2004. Industry experts have forecast that total shipments of contactless cards will increaseto 1.2 billion by 2010 (Source: Frost & Sullivan, 2006). The RFID market as a whole (i.e., including readers andsystem integration services) is expected to increase in value from US$1.3 billion in 2004 to US$6.1 billion in2010. (Source: Datamonitor, 2005).

The following diagram provides a graphical overview of the global market for both card and non-cardcontactless products.

MassTransit

AccessControl

Payment GovernmentID (e.g.,

ePassports)

SecureTags and

SpecializedApplications

Smart Labels

Global Contactless Market

Contactless Non-card Products

Contactless Cards

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Contactless non-card products

RFID has recently become a useful tool for inventory tracking and supply chain management, propelled bymandates from the United States Department of Defense and Wal-Mart requiring large suppliers to attach RFIDlabels to their products in order to permit the Department of Defense and Wal-Mart to manage their complexsupply chains in real-time. RFID tags and labels are able to securely and accurately store and transmit far moredata than is currently possible with older technology, such as bar codes and optical character recognition. Theincreased data capacity makes it possible to create unique identifiers for each unit of a specific product, ratherthan generic identifiers for an entire product class, and the ability to read a large number of labels simultaneouslywithout a direct optical path to the label increases scanning speed and accuracy. Because this class of RFID labels(known as single item tags) competes directly with less expensive bar code technology and is used in low-endapplications, smart label manufacturers face intense pressure to reduce prices and have currently established agoal of reducing smart label prices to US$0.05 or less. Reaching this goal will require a significant decline in chipprices (the main cost component) and a significant increase in production volumes. Once this goal has beenachieved, it is expected that it will become economically feasible for retailers to use smart labels on a wide rangeof individual items. In the meantime, the market for RFID-based smart labels remains undeveloped and ischaracterized by strong price competition and low margins.

Other contactless non-card products include a variety of highly customized secure products produced forspecific applications. These products include customized key fobs or other tags in a non-label, non-card form. Byunit volume, such products represent a very small portion of the overall contactless market.

Mass Transit

In many areas of the world, contactless cards used to pay fares and tolls in mass transit and highway systemshave been the driving factor in consumer acceptance of contactless technology. Contactless cards have beenintroduced in many of the largest mass transit systems around the world, including the Sao Paolo transportationsystem, the Malaysian Road Toll System, the Singapore EZ Link, and the Oyster card in London. Such cardsreduce traffic congestion, improve efficiency, reduce the need for employees to handle cash and thereby improvesecurity. Many passengers find the cards more convenient to use than traditional tickets. In addition, such cardscan be combined with contactless payment functions (for use in restaurants and convenience stores, for example),which further increases passenger convenience. As such functions are combined, it is expected that contactlessmass transit cards will become more sophisticated and eventually incorporate a microcontroller chip to enable thecard to perform both functions.

Mass transit cards have historically accounted for the largest share of the contactless card market and haveconstituted the most practical and visible demonstration of the technology’s potential. Although growth in themarket for contactless mass transit cards is expected to continue, other contactless applications are expected torival it for significance in the future. It is estimated that 116.3 million contactless mass transit cards were shippedduring 2004. By 2010, industry experts expect annual shipments to more than triple to 396.2 million units(Source: Frost & Sullivan, 2006).

Access Control

RFID technology is also commonly applied to regulate access to events and buildings through corporate oremployee identification cards or key fobs. In addition to physical access control (e.g., to buildings), logical accesscontrol (e.g., to IT networks) is growing in importance as companies and governments seek to control access totheir electronic files and computer systems. These factors are expected to contribute to growth in shipments ofaccess control cards over the next few years. From an estimated 10.8 million access control cards shipped in2004, industry experts forecast that annual shipments will increase six-fold to approximately 61.8 million units in2010 (Source: Frost & Sullivan, 2006). Shipments of access control cards are expected to grow at a fairly constantrate during this period.

Payment

As RFID technology has stabilized, become more standardized and found wider consumer acceptance,banks and other financial institutions have begun to use it in advanced applications. Compared to many forms ofexisting technology, RFID offers high data transmission capacity and speed, improved convenience andadditional security features that make it ideal for use in sensitive applications, such as contactless paymentsystems. Various financial institutions have begun issuing RFID-based contactless payment cards which willeventually replace cards containing only a conventional magnetic stripe. MasterCard (Paypass), Visa (ContactlessVisa) and others have already begun rolling out contactless payment systems.

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Contactless cards offer improved security compared to conventional magnetic stripe bank, credit and debitcards, as the microchips include encryption algorithms and are, therefore, harder to copy or forge. Contactlesscards also do not have to leave their owner’s possession, which reduces the likelihood that illicit imprints of thecards will be made and makes such cards more convenient to use. Finally, as a result of a legal change in theUnited States that makes signatures unnecessary for purchases of less than US$25, contactless payment cardsallow transactions to be completed faster. Transaction speed is a distinct advantage compared to contact-basedtechnologies (such as magnetic stripe cards or cards containing microchips which must be physically inserted inspecial card readers) for retailers with a high volume of low-value transactions. According to research conductedby American Express, transactions using contactless payment cards are 53% faster than using standard magneticstripe credit cards and 63% faster than cash transactions. Similar results have been reported by Bank of America(Source: Smart Card Alliance, 2004). American Express and Bank of American have reported an increase inaverage transaction size of between 17 and 33% compared to cash, while MasterCard has reported a 12%increase in transaction volumes among merchants accepting its contactless PayPass card. (Source: Smart CardAlliance, 2004) An increase in transaction revenues serves to increasing the commissions earned by the issuingfinancial institutions.

Feedback from customers and retailers participating in contactless payment card pilot programs in theUnited States and other parts of the world has been positive, despite initial privacy concerns among consumeradvocates. These fears have largely been allayed by the limited reading distances for contactless payment cards(less than six centimeters), which greatly reduce the risk that such cards will be read without the owner’spermission. The positive reactions to the pilot programs may lead banks and retailers in the United States andother parts of the world to overcome their initial hesitancy due to the expense of investing in new point-of-salereaders and other required infrastructure.

In the European Union, the adoption of contactless payment cards is expected to be slower, due to thewidespread use of contact cards using the EMV (Europay, MasterCard, Visa) standard. EMV-based contact cardsalso include enhanced security features, but are slower and less convenient than contactless payment systems.Because many retailers and banks invested heavily in upgrading their systems to make them compatible with thisEMV-based technology, they are less likely to adopt the new contactless technology until it has first gainedacceptance elsewhere. In comparison, financial institutions in the United States have shown a greater willingnessto switch from their older magnetic stripe technology to RFID. Despite these obstacles, we believe that Europeanfinancial institutions will begin to adopt contactless payment cards in the medium term.

As a result of these changes, it is expected that contactless payment cards will grow strongly in the next fewyears, driven primarily by growth in the United States and Asia. While it is estimated that only 6.0 millioncontactless payment cards were shipped in 2004, industry experts have forecast that annual shipments ofcontactless payment cards will grow to approximately 111.9 million units by 2010 (Source: Frost & Sullivan,2006). Much of this growth is expected to occur in the near-term. With greater than 3.4 billion traditional contact-based credit and debit cards estimated to have been outstanding as of December 31, 2004 (a number that isforecast to reach 4.7 billion in 2008), and the total number of contact-based payment cards (including bankmachine or ATM cards) outstanding as of the same date estimated at over 5.2 billion, significant potential existsfor contactless payment cards to exceed these estimates. (Source: Euromonitor, 2004).

Government ID (including ePassports)

The security benefits of RFID technology are well-suited to use in passports, national ID cards and drivers’licenses as well. RFID-enabled passports (ePassports) contain an embedded integrated circuit chip that is used tostore and transmit identifying data, including biometric features such as pictures, fingerprints or iris scaninformation. Because ePassports are very difficult to forge and can store and quickly transmit a substantialamount of biometric information, they will make it substantially more difficult for people to travel under assumedidentities and will facilitate the rapid movement of passengers at ports of entry. In 2003, the International CivilAviation Organization (ICAO), a specialized agency of the United Nations that defines standards for electronictravel documents, selected contactless chips operating at 13.56 MHz in accordance with ISO 14443 as thestandard for electronic passport technology. The components used to produce ePassports must be particularlyrobust and of high quality in order to ensure that the ePassport will continue to operate over the lifetime of thepassport (typically ten years) despite the physical stress that often accompanies travel.

The introduction of ePassports has been driven by the United States government, which passed TheEnhanced Border Security and Visa Entry Reform Act in response to concerns raised by the events ofSeptember 11, 2001. After two delays due to technical and privacy concerns, the Department of HomelandSecurity has announced that all visitors to the United States that are citizens of the 27 ‘‘visa waiver countries’’

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(i.e., those countries whose citizens previously were not required to obtain a visa to visit the United States,including most countries in Western Europe) with a passport issued on or after October 26, 2006 will be requiredto present an ePassport when entering the United States. All but one of the 27 visa waiver countries are expectedto meet the October 26, 2006 deadline. Otherwise, citizens of these countries will be required to apply for a visain advance of their trip, a potentially expensive and time-consuming process. Additionally, under the proposedWestern Hemisphere Travel Initiative, all U.S. citizens traveling to and from Canada, Mexico and certain othercountries to which it is currently possible to travel without a passport will be required to carry a passport. Thisproposed requirement would apply to all air and sea travel beginning on December 31, 2006, and to all landborder crossings beginning on December 31, 2007. Since 2005, the United States has been operating a pilotprogram for diplomats, certain government employees and certain airline crew members. On December 13, 2004,the European Union required its member states to implement ePassports by August 28, 2006. Germany beganissuing ePassports on November 1, 2005. (Source: Card Technology, November 2, 2005)

As of March 1, 2006, ePassports were already being issued by both visa-waiver and non-visa waivercountries, including Australia, Austria, Belgium, Canada, Denmark, Germany, Iceland, Malaysia, Myanmar, TheNetherlands, New Zealand, Nigeria, Norway, Sweden, Thailand and the United States. It is expected that othernations will soon follow, including the remaining member states of the European Union, the remaining visa-waiver countries and other countries with ePassport programs. It is estimated that a total of 40 nations, with over300 million passports in circulation, are currently working toward implementing electronic passports. (Source:Card Technology, September 1, 2005).

We believe that after ePassports have been broadly introduced, a large number of countries will recognizethe advantages of using electronic ID documents for domestic purposes. Accordingly, we anticipate that countrieswill begin to replace national and local paper-based government ID documents (such as national identity cards,health care cards and drivers’ licenses) with RFID-based documents. The market for such ID cards anddocuments has the potential to exceed even the market for ePassports.

As a whole, the market for government ID is expected to grow very strongly in the coming years, withgrowth rates forecast to exceed those of all other contactless card applications. It is estimated that in 2004,17.5 million contactless government IDs were shipped. Due in part to the implementation of ePassports, whichare already expected to account for 25 to 35 million units in 2006, industry experts have forecast that shipmentsof government IDs will increase to almost 600 million units by 2010 (Source: Frost & Sullivan, 2006). Growth isexpected to be particularly strong in the near-term.

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BUSINESS

Overview

Based on industry studies (including Frost & Sullivan, 2006), announced ePassport projects and our internalestimates, we believe we are the global leader in high-security RFID inlays for contactless payment cards andePassports. RFID inlays consist of a memory or microcontroller chip bonded to an antenna, which is embedded ina carrier material, such as plastic. Our inlays are integrated into our customers’ finished products (such as cards ortags) to enable them to transmit data to a reader via radio waves.

In the RFID value chain, we have positioned ourselves as a focused inlay manufacturer, located between oursuppliers (chip manufacturers) and our customers (card manufacturers and secure printing houses). Accordingly,our business consists primarily of manufacturing inlays, as opposed to producing completed cards and readers orproviding related system integration services. We have over 100 customers located in more than 27 countries,including Gemplus International, Axalto, Oberthur Card Systems, Bundesdruckerei (the German Federal PrintingOffice), Osterreichische Staatsdruckerei (the Austrian State Printing Office) and NagraID.

We conduct our business in two segments — ‘‘standard’’ and ‘‘high security’’. Our standard segmentencompasses both our ‘‘mass transit & access control’’ and ‘‘logistics’’ product lines. Our high security segmentincludes our ‘‘ePayment’’ and ‘‘ePassports’’ product lines. The following diagram provides a graphicalillustration of our segments and product lines.

Segments}

Product Lines}Mass Transit &

Access Control Logistics ePayment ePassports

SMARTRAC

High SecurityStandard

Secure RFID inlays produced in our standard segment have historically been our primary source of revenue.Although these inlays only contain a memory chip, most of them contain security features such as passwordauthentication and basic encryption. Most of the inlays produced in our standard segment are part of our masstransit & access control product line, which has historically accounted for greater than 90% of our revenues inthis segment. Our standard segment also encompasses our logistics product line, which includes non-card relatedinlays and products used for logistical and verification applications (e.g., product tracking and tracing, animal IDimplants, laundry tags and casino chips). Although volumes for our logistics products are fairly low, they offerattractive margins. Our standard segment generated 419.9 million in revenues in 2005. We expect substantialrevenue growth in this segment, as the trend toward declining prices for higher capacity chips and the successfulimplementation of large-scale projects around the world encourage more transit companies to adopt RFIDtechnology. In addition, we are working with our customers to develop new applications for RFID technology tosupplement this growth.

Products in our new high security segment feature inlays containing microcontroller chips that includesophisticated encryption functions and permit advanced calculations to be made. Within our high securitysegment, our ePayment product line focuses on manufacturing high security inlays for contactless banking, creditand debit cards. This product line generated 42.3 million in revenues in 2005. We expect strong growth in thisproduct line over the next few years as card issuers migrate from traditional magnetic stripe and contact-basedchip cards (known as contact cards) to RFID-enabled contactless cards. In 2005, particularly in the United States,credit card organizations (e.g., VISA and MasterCard) and financial institutions began introducing contactlesspayment systems. The advantages of contactless card technology include the ability to store greater amounts ofdata and transmit it at higher throughput rates, reducing fraud and making transactions faster. These benefits haveled industry experts to forecast that annual shipments of contactless payment cards will grow from an estimated6.0 million units in 2004 to approximately 111.9 million units by 2010, with much of this growth expected tooccur in the near-term (Source: Frost & Sullivan, 2006). With more than 3.4 billion traditional contact-basedcredit and debit cards estimated to have been outstanding as of December 31, 2004, and the total number of

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contact-based payment cards (including bank machine or ATM cards) outstanding as of the same date estimatedat over 5.2 billion, significant potential exists for contactless payment cards to exceed these estimates (Source:Euromonitor, 2004). We are the first inlay manufacturer to receive VISA security approval to supply inlays andhave also been approved to supply inlays for MasterCard and several regional payment cards, such as Dexit andT-Money.

We believe that our ePassports product line, in which we manufacture special inlays designed for electronicpassports, has the most attractive prospects for future growth. Revenues from our ePassport product line arecurrently small in proportion to overall revenues, totaling 42.8 million in 2005. However, with a significantnumber of governments having introduced ePassports at the end of 2005 (with more to follow in 2006) and theintroduction of RFID-enabled identification cards (e.g., ID cards and drivers’ licenses) expected to followthereafter, we believe ePassports will become our most attractive business. Industry experts estimate that between25 and 35 million ePassports will be shipped in 2006 (Souce: Frost & Sullivan). With respect to eight countries,including the United States, Russia and Sweden, we have already provided at least an initial shipment of inlayswhich have been incorporated into issued ePassports. Moreover, our inlays are currently in various stages oftesting for use in the ePassports of over 15 other countries, including Germany, Spain, Canada and Taiwan. As ofJanuary 2006, we had already supplied inlays for a total of more than 1 million ePassports.

In addition to our standard and high security segments, our other operations consist of selling and leasingequipment to our customers on a limited basis.

In 2005, we generated revenues of 425.2 million, a gross profit of 47.8 million and EBITDA of 44.9 million,compared to 414.7 million, 45.6 million and 43.5 million in 2004, respectively. Revenues from our mass transit &access control product line represented 73.7% of our total revenues in 2005, while logistics accounted for 5.4%,ePayment accounted for 9.0% and ePassports accounted for 10.9% of total revenues, respectively. Our remainingrevenues were generated by our other operations. We expect the relative revenue contributions of our productlines to change rapidly as we expand our activities in the fast-growing, secure contactless ePayment and ePassportmarkets.

Our registered office and corporate headquarters are located in Amsterdam, The Netherlands. The registeredoffice of Smartrac Technology GmbH, our German subsidiary, is located in Stuttgart, together with our Europeansales office. Our primary administrative offices and manufacturing facilities are located in Ayutthaya, Thailand,approximately 76 kilometers north of Bangkok. We also have a sales office in Singapore. We are negotiating alease for, and may purchase, a production facility in Germany. As of December 31, 2005, we employed 1,104employees (99% of whom were located in Thailand). Of these, 332 were directly employed by us, and 772 wereindirectly employed through temporary staffing agencies.

Our Strengths

We believe the following core strengths will contribute to our future growth:

) Leadership position in fast-growing markets. Based on industry studies (including Frost & Sullivan,2006), announced ePassport projects and our internal estimates, we believe we are the global leader inhigh-security RFID inlays for contactless payment cards and ePassports. In addition, we have establisheda successful track record in producing inlays for mass transit cards, physical and logical access controlcards and customized identification tags, with approximately 100 million units shipped between 2003 and2005. Spurred by increasing awareness of the benefits of RFID technology, the market for memory-basedcontactless products has demonstrated significant growth over the past few years. Revenues from ourstandard segment grew at a compound annual growth rate (CAGR) of 52% from 48.6 million in 2003 to419.9 million in 2005, reflecting our ability to capture growth in this market.

We believe that our close relationships with customers and suppliers and our expertise in manufacturinginlays and tags for products in our standard segment naturally make us an attractive partner for customersmoving into the fast-growing market for high security RFID applications. Our high security segment,which includes contactless payment cards (ePayment) and ePassports, yields higher margins than ourstandard segment due to increased security and technical demands and will require high productionvolumes as existing credit cards and paper-based forms of identification are replaced. We began volumeproduction of inlays for contactless payment cards and ePassports in 2005 and we believe we haveestablished ourselves as the global leader in supplying inlays for both markets.

) Superior manufacturing technology and cost-efficient location. We have developed proprietaryprocesses that allow us to efficiently embed antennas and chips in inlay materials. We have also developedproprietary machinery that uses these processes to produce inlays on a fully or semi-automated basis. Our

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technical know-how allows us to maximize the efficiency of our capital expenditures and to increase ourproduction capacity on a timely basis. This technology, which allows us to efficiently produce high-quality inlays at low cost, is part of a portfolio of over 155 patents and gives us a significant competitiveadvantage. In 2005, to ensure a secure supply of this proprietary machinery while our business grows, weentered into an agreement with a group of specialized engineers to form Xytec Solutions Sdn. Bhd.(‘‘Xytec Solutions’’). We continuously refine the designs for our machinery, which Xytec Solutionsdelivers to us on an exclusive basis, thereby allowing us to focus on our core business.

Our primary manufacturing facilities are located in Thailand, where we benefit from low operating costs.To ensure adequate space for our anticipated growth, we purchased additional land adjacent to ourexisting facilities in February 2006.

) Largest high-security inlay production capacity. As of March 1, 2006, we had sufficientmanufacturing capacity to produce over 9 million high frequency inlays per month, which we expect toincrease to over 13 million high frequency inlays per month during 2006. As of March 1, 2006, we werealso able to produce 2 million low frequency units per month. We believe that our production capacitysignificantly exceeds our competitors’ capacity to produce high security inlays. Our ability to reliablydeliver inlays in high volumes allows us to reap a number of benefits. The continued roll-out of ePassportsand contactless payment cards is likely to require our customers to produce extraordinary unit volumeswithin a relatively short time frame, as existing passports and payment cards are replaced. Our customersrely on inlay manufacturers who can produce the required volumes without sacrificing quality. Our highmanufacturing capacity and commitment to quality allows us to secure contracts with the largest cardmanufacturers, system integrators and secure printers. In turn, because many of our customers place high-volume orders, we benefit from long production runs using our fully-automated proprietary equipment.This greatly increases efficiency and lowers our manufacturing costs. Finally, our high purchase volumesallow us to negotiate attractive terms and conditions with our suppliers, particularly chip manufacturers.

) Close relationships with customers and suppliers. Because we focus on producing inlays rather thancompleted cards or microchips, we do not compete with our customers or our suppliers. This has allowedus to develop strong relationships with leading companies, including card manufacturers, such as Axalto,Gemplus and Oberthur, and chip manufacturers, such as Philips and Infineon. These relationships provideus with insights into new technology and applications, allowing us to co-develop new products. To supportthis process, we have established an R&D and product development department with 21 dedicatedemployees, including 12 with engineering degrees. This team tests new chips and products to determineoptimal specifications for performance and durability. For example, our product development teamfocuses on improving card working distances, minimizing the stress placed on chips as a result of normalwear and tear and ensuring that chips operate across a wide range of temperatures. Our relationships witha diverse group of companies have also reduced our dependence on any one supplier or customer account.

) Positioned for growth in ePayment and ePassports. Credit card companies and issuers of othercontactless payment cards, as well as governments issuing ePassports, typically require componentmanufacturers to undergo a lengthy qualification and testing process to demonstrate their ability toprovide high quality products and meet stringent security standards. These security requirements areextensive, ranging from the installation of secure access control systems and video surveillance systemscovering the entire premises, to background and qualification checks on employees and the identificationand monitoring of all visitors. In the contactless payment sector, this qualification process may take up toone year, while it may take more than two years of testing to become approved to produce ePassportcomponents.

We have successfully secured a strong portfolio of security certifications. Our main Thai productionfacility is fully 9001:2000 ISO certified to provide consistently high quality. We have also received VISAapproval to supply inlays and are currently in the process of obtaining CC EAL4+ certification from TUVIT, a worldwide testing and certification agency. In addition, we are currently negotiating a lease for, andmay purchase, a certified high-security German production facility. Due to our high quality and securitystandards, eight countries (including the United States) have already incorporated our inlays in ePassportsthey have issued. Similarly, we became the first inlay manufacturer to receive VISA security approval tosupply inlays and have also been approved to supply inlays for MasterCard and several regional paymentcards. Our leading position in the field has led VISA to work with us to define the requirements formanufacturers who wish to produce inlays for their contactless cards.

) Experienced management team. Manfred Rietzler, our Chief Executive Officer and a significantshareholder of the Company, has played a central role in developing the manufacturing technology we use

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in our business. Mr. Rietzler holds an engineering degree and has over ten years of experience in the fieldof RFID technology, including significant experience in obtaining the quality and security certificationsthat are crucial to our business. Our Chief Operating Officer, Ronald Brown, who joined us in 2005 after along career at, among others, Seagate Technology and USI Manufacturing, has over 25 years ofexperience in manufacturing and high-volume production in Asia. Our Chief Financial Officer,Dr. Christian Fischer, joined us at the end of 2005 and became a member of the Management Board uponthe incorporation in January 2006. Mr. Fischer has significant experience managing the finances andfinancial strategy of multinational corporations. As a partner at Roland Berger Strategy Consultants and asCFO of Walter Bau AG, he became a respected member of the European financial community. We believethat this combination of technological, manufacturing and financial expertise provides us with asignificant advantage.

Our Strategy

Based on industry studies (including Frost & Sullivan, 2006), announced ePassport projects and our internalestimates, we believe we are the global leader in high-security RFID inlays for contactless payment cards andePassports. Our strategic goals are to maintain our strong market share and further enhance our market position.To achieve these objectives, we intend to:

) Strengthen our leading position. We intend to further strengthen what we believe is our leadingposition in the market for high-security inlays for contactless payment cards and ePassports. With respectto eight countries, including the United States, Russia and Sweden, we have already provided at least aninitial shipment of inlays which have been incorporated into issued ePassports. Moreover, our inlays arecurrently in various stages of testing for use in the ePassports of over 15 other countries, includingGermany, Spain, Canada and Taiwan. When these testing procedures have been completed, we expect toenter into additional contracts and increase production volumes further. We will continue to develop ourrelationships with the governments and secure printing houses testing our products in an attempt to securelong-term supply relationships and to position ourselves to capture the anticipated future growth in otherelectronic government identification documents. In order to serve governments that require that theirePassports be manufactured locally, we are currently negotiating a lease for, and may purchase, a securemanufacturing facility in Germany. Finally, we intend to open a secure manufacturing facility in theUnited States late in 2006 or during the first half of 2007.

) Increase production capacity. The markets we serve have recently experienced significant growth.Customers are increasingly requesting that we provide minimum capacity guarantees. Additional capacityis necessary to meet these and future demands and will allow us to secure larger contracts. We seek tomaintain excess capacity equal to 20% of our anticipated production requirements and to have such excesscapacity available three to four months before it is needed. In addition to the anticipated German andU.S. manufacturing facilities mentioned above, we have continuously increased capacity at our Thaimanufacturing facilities. During 2005, we succeeded in increasing our high-frequency production capacityby approximately 65% with no significant disruptions to our operations. Finally, we intend to open a newBrazilian manufacturing facility in the future. Our goal is to increase our global capacity in line withincreasing demand from our customers. This has been made considerably easier by our close relationshipwith Xytec Solutions, which supplies us with machines built to our proprietary specifications that arequalitatively superior, yet still significantly less expensive, than what is otherwise available. In addition,Xyec Solutions is able to provide us with new machines with lead times shorter than those of othermachinery manufacturers.

) Leverage proprietary technology to expand into new applications and markets. We intend toexpand our product line by applying our inlay technology and manufacturing expertise to applicationsbased on comparable technology. For example, we are working with our customers to develop securecontactless personal identification cards, such as national identity cards or drivers’ licenses, a market withthe potential to exceed even the market for ePassports. Our logistics product line also offers attractivegrowth opportunities, such as the market for animal identification tags. In 2005, we began producinginlays for Australian sheep identification earmarks and believe many similar applications will develop dueto the need to monitor the food supply chain to limit the spread of disease. We believe there is significantgrowth potential for RFID-based mass transit systems, toll collection systems and access controlapplications in South America, particularly in Brazil. Our planned future Brazilian manufacturing facilitywill improve our ability to capture anticipated growth in these markets and will allow us to avoid highimport duties levied by Brazil.

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) Expand chip-sourcing service. Historically, our customers have often provided us with microchips,which they purchased directly from chip manufacturers, to be integrated into our inlays. Negotiating chippurchases and arranging for delivery to our facilities can represent a significant administrative andlogistical burden on our customers and suppliers. As the volume of our own microchip purchases hasgrown and our relationships with major chip manufacturers have developed, our customers have foundthat we are often able to purchase microchips at lower prices than them, and have asked us to purchase thenecessary chips instead. We currently purchase between 70% and 80% of the chips used in our standardsegment and less than 50% of the chips used in our ePassport product line. We will continue to seek toincrease these percentages. In addition, in the future we may increase the percentage of chips we purchasefor our ePayment products from the current low level. In addition to reducing the administrative andlogistical burdens on our customers and suppliers, purchasing chips for our customers provides us withopportunities to increase our earnings and to strengthen our relationships with our customers.

) Continue to improve security and quality standards. Due to the highly sensitive nature of theinformation stored on our products, and the applications for which they are used (especially ePassportsand ePayment systems), many of our customers place high quality and security demands on theirsuppliers. Our high quality and security standards differentiate us from our competitors.

Although our higher than 98% yield rate significantly exceeds the industry average, we nonetheless intendto further improve our quality controls and have initiated an ambitious six sigma program at our mainThai production facility. Six sigma is a rigorous methodology that utilizes statistical analysis to measureand improve a company’s performance, practices and systems. Six sigma programs strive for near-perfection in manufacturing and product quality — defined as less than 3.4 defects per millionopportunities. Our six sigma program demonstrates our commitment to quality and is expected to furtherimprove our cost efficiency. We also intend to continuously improve our security standards to protect ourcustomers’ trust in us.

) Acquire complementary businesses or technologies. We continue to monitor the market foropportunities to broaden our product offerings, increase our market penetration in targeted geographicareas and expand our marketing and distribution capabilities through the acquisition of complementarybusinesses and technologies or the establishment of joint ventures. Our acquisition of the ePassportbusiness of Multitape GmbH in early 2005, for example, has broadened our product offerings and furtherstrengthened our technological leadership and market share in ePassports. We may acquire othercompanies or businesses in response to growing demand among card manufacturers and systemintegrators for us to provide additional services.

Products

Introduction

Our two segments are:

) Standard: We have historically generated most of our revenues in this segment, which includes our‘‘mass transit & access control’’ and ‘‘logistics’’ product lines. The products in our standard segmentcontain only memory chips and are, therefore, limited to basic security features, such as passwordauthentication and simple encryption codes.

) High Security: This segment includes our ePayment and ePassports product lines. In our ePaymentproduct line, we manufacture inlays for secure contactless banking, credit and debit cards. All majorcredit card companies are now moving to introduce contactless payment card systems. We are qualified toprovide inlays for the most significant credit card brands and began volume production in 2005. In ourePassports product line, we produce special inlays for use in electronic passports or ‘‘ePassports’’.ePassports are similar to conventional passports, but include a microchip and an antenna in the cover orholder page which store and transmit biometric and other identification data. Our high security productsall contain microcontroller chips that include sophisticated encryption functions and permit advancedcalculations.

We currently do not install software or personal information on the chips embedded in our inlays, but it ispossible that our customers may ask us to do so in the future. Currently, these services are generally provided bycard manufacturers or system integrators.

In our other operations, we occasionally lease manufacturing equipment to customers who require themachinery to produce specialized products.

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The following table shows the growth in our revenues by segment and product line for each of the threeyears ended December 31, 2005:

For the year endedDecember 31,

2003 2004 2005(in Euro)(1)

Product LineStandard ************************************************************ 8,625 14,297 19,903

Mass transit & access control***************************************** 8,586 13,974 18,540

Logistics ********************************************************** 39 323 1,363

High Security ******************************************************** — — 5,010

ePayment ********************************************************* — — 2,255

ePassports********************************************************* — — 2,755

Other operations****************************************************** 28 401 260

Total *************************************************************** 8,653 14,698 25,173

(1) Columns may not add due to rounding.

The following graph shows the increase in the number of units sold in each segment by quarter from 2003 to2005:

0

2

4

6

8

10

12

14

16

Q12003

Q22003

Q32003

Q42003

Q12004

Q22004

Q32004

Q42004

Q12005

Q22005

Q32005

Q42005

ePassport

Standard

ePayment

Units shipped 2003 - 2005 (in millions)

Note:

Growth in ePayment shipments during the fourth quarter of 2005 was temporarily limited by two factors. First, the fourth quarter of 2005 wasmarked by a temporary shortage in microcontroller chips. Second, card readers initially had difficulty reading microcontroller chips fortechnical reasons. As a result, customers chose to temporarily use memory chips until the technical issues were resolved and the supply ofmicrocontroller chips increased. Our shipments of ePayment products increased only slightly due to the fact that we classify all cards thatonly use memory chips as part of our standard segment. Accordingly, while shipments of ePayment cards only increased slightly, shipmentsof products in our standard segment increased substantially. Our customers’ choice of microchip has only a limited impact upon our earnings.

As ePassports and contactless payment cards are introduced on a widespread basis, we expect the relativecontribution of each product line to our net revenues to change significantly.

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Standard

This segment represents our historical business, which accounted for 79.1% of our revenues in 2005.

Mass transit & access control

In our mass transit and access control product line, we develop and manufacture inlays for use in thefollowing applications:

) Mass transit cards, including contactless fare cards and tags for highway toll collection. For example, wehave provided inlays used in the fare cards for the mass transit systems in London (Oyster Card) and SaoPaulo, the Malaysian Road Toll System, and the Singapore EZ Link.

) Access control tags, including physical and logical access control cards, such as company or universityID cards used to control access to public and private buildings, and cards and tickets used to regulateaccess to events or facilities. We provide the inlays used to regulate access to the Allianz Arena in Munichand we also manufacture the inlays for all ski tickets at ski resorts equipped by the market leader in thisarea, Ski Data. We expect RFID-enabled ski tickets, which have become popular in Europe, to beimplemented in the United States and Asia in 2006.

On a very limited basis and only upon customer request, we also produce white cards in our mass transit &access control product line.

Our mass transit & access control products use chips with a memory capacity ranging from 128 bytes to fourkilobytes. These products have a lifetime of two to four years. Applicable industry standards include form factorrequirements (relating to size and thickness) and radio frequency specifications (including ISO 14443 for shortrange transponders and ISO 15693 for long range transponders).

Logistics

Our logistics product line consists of non-card related inlays and products used for logistical and verificationapplications. These are often products for highly specialized applications, such as animal tags and implants,RFID-equipped laundry tags used by the military to sort uniforms and casino chips with integrated transpondersfor verification purposes. Although volumes for such products are low, they currently offer significantly highermargins than the high-volume, low-margin market for ‘‘smart’’ labels with integrated RFID technology, whichmay be used in future logistics and supply chain management applications, and which we currently do notproduce.

In 2005, we began producing inlays for livestock identification ear-tags. We expect such tags to grow inimportance due to the need to monitor the food supply chain to limit the spread of disease. This market holdsconsiderable potential, due to the high volumes involved and the need to continuously provide new tags asanimals are replaced.

Our logistics products use chips with a memory capacity ranging from 128 bytes to four kilobytes. Theseproducts have an average lifetime of five years. Applicable industry standards include radio frequencyspecifications (including ISO 14443 for short range transponders and ISO 15693 for long range transponders).

High Security

In 2005, our high security segment generated revenues for the first time, accounting for 19.9% of totalrevenues.

ePayment

In 2005, financial institutions, particularly in the United States, began issuing contactless payment cards,opening an important growth market for secure contactless technology. According to research conducted byAmerican Express, transactions using contactless payment cards are 53% faster than using standard magneticstripe credit cards and 63% faster than cash transactions. Similar results have been reported by Bank of America.(Source: Smart Card Alliance, 2004) American Express and Bank of American have reported an increase inaverage transaction size of between 17 and 33% compared to cash, while MasterCard has reported a 12%increase in transaction volumes among merchants accepting its contactless PayPass card. (Source: Smart CardAlliance, 2004) An increase in transaction revenues serves to increasing the commissions earned by the issuingfinancial institutions. As card issuers begin to replace conventional magnetic stripe or contact cards withcontactless cards, the market for our ePayment inlays is expected to grow significantly.

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During 2005, we entered into contracts with several card manufacturers, including Axalto, GemplusInternational, Giesecke & Devrient, Oberthur Card Systems, Versatile Card Technology and Inside Technologiesto produce inlays for ePayment products, such as MasterCard (‘‘Paypass’’) and VISA (‘‘Contactless VISA’’)cards. We began volume production of MasterCard Paypass cards in 2005 and of Contactless VISA cards in thefirst quarter of 2006. We are the first inlay manufacturer to be approved by VISA to supply inlays for use inContactless VISA cards and are also qualified to supply inlays for MasterCard, Dexit and T-Money.

ePayment cards have to comply with significantly higher security standards than cards used for standardapplications. This requires use of more sophisticated chips that, in addition to a memory function, include amicrocontroller capable of performing advanced calculations for encryption purposes. Chip memories rangebetween four and 64 kilobytes and the cards have an average lifetime of four years. Contactless payment cardsmust also be manufactured in secure facilities, unlike most of the products in our standard segment.

The applicable industry standard is ISO 14443 (13.56 MHz).

ePassports

It is estimated that 40 nations, with a total of over 300 million passports in circulation, are currently workingtoward implementing electronic passports. (Source: Card Technology, September 1, 2005) Of these, the memberstates of the European Union and the United States have committed to introducing ePassports by August andOctober of 2006, respectively. A number of countries began introducing ePassports during 2005 and others havefollowed during 2006 in advance of the deadlines. With respect to eight countries, including the United States,Russia and Sweden, we have already provided at least an initial shipment of inlays which have been incorporatedinto issued ePassports. In addition, our inlays are currently in various stages of testing for use in the ePassports ofover 15 other countries, including Germany, Spain, Canada and Taiwan.

Based on industry studies (including Frost & Sullivan, 2006), announced ePassport projects and our internalestimates, we believe we are the global leader in high-security RFID inlays for contactless payment cards andePassports. We believe our leading position in ePassports is supported by our use of Durasoft/P and a specialwoven-fabric inlay (Gewebeinlay). Durasoft/P is an ePassport inlay material recognized by several leadingpassport manufacturers, including the U.S. Government Printing Office, as superior material compared toalternative materials. Durasoft/P’s properties enable passport manufacturers to produce ePassports with the sameequipment used for conventional passports, thereby accelerating adoption of the new technology. By acquiringMultitape GmbH’s ePassport business in February 2005, we acquired its woven-fabric inlay technology for use inePassports, which has further strengthened our technological leadership and market share.

We began volume production of inlays for ePassports in a special high-security section of our centralmanufacturing facility in Thailand in 2005. In the first quarter of 2006, we began producing inlays for ePassportsin Germany. We are currently negotiating a lease for, and may purchase, a secure German production facility. Wealso plan to open a manufacturing site in the United States late in 2006 or during the first half of 2007.

ePassports currently use the most advanced chips of all products in our portfolio, with chip memories of64 kilobytes required to store the ePassport holder’s personal data, including a digitized picture and fingerprintdata. The chips used in ePassports also include advanced encryption features. The typical expected useful life ofan ePassport is ten years.

ISO 14443 (13.56 MHz) was defined as the applicable industry standard for ePassports by the InternationalCivil Aviation Organization (ICAO), a specialized agency of the United Nations that defines standards forelectronic travel documents.

Other operations

In our other operations, we occasionally lease manufacturing equipment to customers who require themachinery to produce specialized products. In 2005, our other operations accounted for 4260 thousand of ourtotal revenues.

Marketing

Our marketing efforts are coordinated by a team of 4 experienced marketing specialists who each holdengineering degrees. The technical qualifications of our marketing specialists allow them to effectivelycommunicate the advantages of our products and production techniques. These specialists are complemented by ateam of 25 sales support employees who coordinate logistical and administrative issues.

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We have two sales offices, one in Germany and one in Singapore. Our German sales office in Stuttgartcovers our European, U.S. and South American marketing activities, and our office in Singapore covers marketingactivities in the Asian market. Some of our sales agents are compensated on a pure commission basis while othersreceive a base salary and a performance-related bonus. We supplement our in-house marketing efforts by workingwith distributors and value-added resellers.

Our customers provide us with regular forecasts of their expected supply requirements, which we use toallocate our existing production capacity and to anticipate when it will be necessary to expand such capacity byacquiring additional equipment from Xytec Solutions on a timely basis.

Customers

We deliver our products to over 100 customers located around the world. Our customers are cardmanufacturers, secure printing houses, system integrators and customers with specialized needs. In general, wedo not sell our products to the end-user or end-customer, as inlays generally require further processing to producea finished product. Our top five customers accounted for 49% of our revenues in 2005.

Standard segment

Our primary customers in our mass transit & access control product line are the major card manufacturers,including Gemplus International, Axalto, Oberthur Card Systems and Giesecke & Devrient. Of these, our mostimportant customers by revenue are Gemplus and Axalto. In December 2005, Gemplus and Axalto announcedtheir intention to merge, creating the world’s largest card manufacturer (‘‘Gemalto’’). In 2005, Axalto andGemplus together accounted for approximately 30% of our total revenues. As our revenues from ePassportsincrease, however, we expect Gemalto’s relative significance to our business to decrease.

We typically enter into framework agreements with card manufacturers which specify pricing, productionvolumes, delivery terms and warranty and indemnity terms for the duration of the contract period, which isgenerally one year and is automatically extended. Binding orders are generally made by means of individualpurchase orders.

In addition to card manufacturers, we also provide certain customers with customized RFID tags designedfor application-specific purposes in our logistics product line. Our most significant civilian customers in thisproduct line include Shell (key fobs for cashless payments at gas stations) and Freedom Pay (cashless e-purse keyfob).

ePayment

In our ePayment product line, as in our mass transit & access control product line, our primary customers aremajor card manufacturers. Financial institutions that issue contact cards branded by Visa or MasterCard aregenerally required to use cards that meet the quality standards of the relevant card organization, and therefore touse cards and components produced by certified manufacturers. With regard to contactless payment cards,however, the card organizations are still in the process of the developing standards which are expected toeventually become mandatory for manufacturers of secure components. After becoming the first inlay supplier toreceive VISA security approval to supply inlays, we are now working together with VISA to define therequirements for manufacturers who wish to produce inlays for their contactless cards.

We are also qualified to supply inlays for contactless MasterCards and several regional contactless creditcards. Our high standards and the security certifications granted our manufacturing facilities by independenttesting agencies help attract customers and will enable us to continue operating without distraction or interruptionwhen industry standards are finalized.

Our framework agreements with our customers in our standard segment and our ePayment product linegenerally cover all of our card products (e.g., contactless mass transit, access control and payment cards). Theseagreements specify the prices for each product without individually specifying the quantity of each type of card tobe delivered.

ePassports

In our ePassports product line, our customers are governmental and private secure printing houses. In mostcases, we enter into framework agreements with our customers specifying pricing and delivery terms for theduration of the agreement. We also supply certain governments with ePassports on a month-to-month basis while

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they negotiate long-term supply agreements. Our contracts for ePassports generally include warranties, whichmay extend between 1 and 10 years.

With respect to eight countries, we have already provided at least an initial shipment of inlays which havebeen incorporated into issued ePassports. Moreover, our inlays are currently in various stages of testing for use inthe ePassports of over 15 other countries. Such testing may vary from initial testing of the physical characteristicsand durability of our inlays, to late-stage testing involving the use of thousands of samples to train personnel andcalibrate ePassport printing, lamination and binding machines prior to the commencement of volume production.

The following table provides greater detail on the current status of our ePassport activities and the potentialmarket:

Country Population(1) Notes(2) SMARTRAC Status(in millions)

USA ************** 295.7 ePassports scheduled to Initial ePassports with SMARTRAC inlays issuedbe introduced in 2006

Russia ************* 143.4 ePassports scheduled to Initial ePassports with SMARTRAC inlays issuedbe introduced in 2006

Czech Republic ***** 10.2 Initial ePassports with SMARTRAC inlays issued

Sweden ************ 9.0 Visa waiver country Initial ePassports with SMARTRAC inlays issued

Austria ************ 8.2 Visa waiver country Initial ePassports with SMARTRAC inlays issued

Norway************ 4.6 Visa waiver country Initial ePassports with SMARTRAC inlays issued

Singapore ********** 4.4 Visa waiver country Initial ePassports with SMARTRAC inlays issued

New Zealand ******* 4.0 Visa waiver country Initial ePassports with SMARTRAC inlays issued

Germany*********** 82.4 Visa waiver country Testing of SMARTRAC inlay in progress

France************* 60.7 Visa waiver country Testing of SMARTRAC inlay in progress

United Kingdom **** 60.4 Visa waiver country Testing of SMARTRAC inlay in progress

Italy*************** 58.1 Visa waiver country Testing of SMARTRAC inlay in progress

Spain************** 40.3 Visa waiver country Testing of SMARTRAC inlay in progress

Switzerland********* 7.5 Visa waiver country Testing of SMARTRAC inlay in progress

Denmark*********** 5.4 Visa waiver country Testing of SMARTRAC inlay in progress

Slovenia *********** 2.0 Visa waiver country Testing of SMARTRAC inlay in progress

Macedonia ********* 2.0 ePassports scheduled to Testing of SMARTRAC inlay in progressbe introduced in 2006

Iceland ************ 0.3 Visa waiver country Testing of SMARTRAC inlay in progress

Indonesia ********** 242.0 Testing of SMARTRAC inlay in progress

Brazil ************* 186.1 Testing of SMARTRAC inlay in progress

Pakistan *********** 162.4 Testing of SMARTRAC inlay in progress

South Korea ******** 48.4 Testing of SMARTRAC inlay in progress

Poland************* 38.6 Testing of SMARTRAC inlay in progress

Canada ************ 32.8 Testing of SMARTRAC inlay in progress

Taiwan ************ 22.9 Testing of SMARTRAC inlay in progress

China ************* 1,306.3 ePassports scheduled tobe introduced in 2006

Japan************** 127.4 Visa waiver country

Australia *********** 20.1 Visa waiver country

Netherlands********* 16.4 Visa waiver country

Portugal *********** 10.6 Visa waiver country

Belgium *********** 10.4 Visa waiver country

Finland ************ 5.2 Visa waiver country

Rep. of Ireland****** 4.0 Visa waiver country

Luxembourg ******** 0.5 Visa waiver country

Brunei************* 0.4 Visa waiver country

(1) Source: CIA Factbook (2005 estimate).

(2) Starting October 26, 2006, a citizen of a ‘‘visa waiver country’’ with a passport issued on or after such date will be required to present anePassport when entering the United States. All of the visa waiver countries except France are expected to meet the October 26, 2006deadline. Otherwise, citizens of these countries will be required to apply for a visa in advance of a trip to the United States.

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The following table shows the distribution of our 2005 revenues by geographic region:

Europe57.5%

Asia22.3%

North America12.8%

Others7.3%

Competition

As the market for RFID and secure contactless products develops and grows, competition is expected toincrease. We believe that our main competitors in our standard segment are Pioneer Oriental International (POI),a Hong Kong subsidiary of On Track Innovations; Sokymat, a subsidiary of Assa Abloy based in Switzerland;and Aontec Teoranta, based in Ireland. We face additional competition in certain geographic regions. Forexample, in the United States we face competition from Silone, in Brazil from Sonsun, and in South Korea from3B System. These competitors have only a limited capacity to manufacture high frequency inlays with embeddedwire antennas.

In our ePayment product line, our primary competitor is On Track Innovations. In Europe, we also facelimited competition from Aontec Teoranta. Our limited competition with regard to ePayment products is due tothe fact that, especially in the United States, wire-embedding technology is the only widely accepted technologyfor contactless payment cards. Most of our potential competitors use alternative technologies, such as antennaetching or printing, and lack the ability to reliably produce high-quality wire-embedded inlays in high volumes. Ifother technologies become more widely accepted, we will face additional competition. This risk is more evidentin Europe and Asia, where dual interface cards (i.e., cards that can be read by a contactless RFID reader or by atraditional contact-based magnetic strip or chip reader) have been introduced. Antenna etching, and to a lesserdegree antenna printing, are also accepted technologies for dual interface cards. Multitape is a German companythat produces inlays for dual interface cards using etched antennas and competes with us in certain areas.

Some of our competitors, such as Pioneer Oriental International and Sokymat, are subsidiaries of companiesthat produce finished cards and thereby compete directly with major card manufacturers. While this allows themto offer a greater variety of products and to capture a greater portion of the contactless card value chain, it createsa conflict of interest with their potential customers for inlays.

In ePassports, our primary competitors are Sokymat, Aontech Teoranta, LG Electronics’ United States-basedIris Technology Division, On Track Innovations, and Oberthur. As in the market for contactless payment cards,wire-embedding technology is considered the industry standard. Aontech Teoranta and On Track Innovations areusing wire-embedding technology, whereas Oberthur uses printed antennas and Sokymat uses coil windingtechnology. As in the ePassport business, many of these companies act as general contractors for ePassportprojects, which causes them to compete against companies that are their customers in other areas (such as Axaltoand Giesecke & Devrient). We also face limited competition from PAV CARD (to whom we sold a wire-embedding machine with limited capacity) and Nittoku Engineering (to whom we have licensed certain patents).

We are currently involved in patent litigations with a number of our competitors. For a description ofpending patent litigation brought against our CEO, the results of which may have important implications for ourbusiness, see ‘‘— Litigation’’. For a description of our patent infringement claims against Aontec Teoranta andOriental Power Technology (a Chinese company), see ‘‘Risk Factors — Enforcing our intellectual property rightscould cause us to incur distracting and costly litigation’’ and ‘‘— Litigation’’.

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As the market for our products grows, we may experience additional competition from companies that arecurrently our suppliers, customers and strategic partners, including systems integrators, card manufacturers andmicrochip manufacturers. For more information, see ‘‘Risk Factors — Prices for low-security RFID productshave fallen rapidly and competition in the high security contactless market is likely to increase.’’

Property, Plant and Equipment

We own several properties in a high technology park in Ayutthaya, Thailand, where we have our primaryproduction facilities. We are currently expanding our corporate headquarters in Amsterdam, The Netherlands. Welease office space in Stuttgart, Germany, where we have our European sales office and the registered office ofSmartrac Technology GmbH, our German subsidiary. We also lease office space in Singapore for our Asian salesoffice. Finally, we are currently negotiating a lease for, and may purchase, a secure manufacturing facility inGermany.

We recently purchased property adjacent to our current manufacturing facility in Thailand to allow us toexpand our production facilities as needed due to future growth. In addition to the German production facility weintend to lease or purchase, we intend to open a manufacturing facility in the United States late in 2006 or duringthe first half of 2007 to produce secure inlays. We also intend to open a facility in Brazil in the future to producemass transit cards, access control cards and contactless payment cards. These facilities will be financed by theproceeds of the Global Offer, through our operating cash flows and through bank debt.

Our main Thai production facilities are 9001:2000 ISO certified. In addition, we have received VISAsecurity approval to supply inlays and are currently in the process of obtaining CC EAL4+ certification fromTUV IT, a worldwide testing and certification agency. The German manufacturing facility we intend to lease orpurchase will be a certified high-security facility suitable for manufacturing ePassports. Although labor andoperating costs in Germany and in the United States are expected to be above those of our Thai productionfacilities, we expect these costs to be offset by higher prices, as ePassport inlays produced in secure locationsclose to the end-customer yield premium prices.

We use a variety of proprietary automated and semi-automated equipment to manufacture our high-frequency inlays and other products. In practice, the automated inlay machines are capable of producing either3.5 or 6.0 million high-frequency inlays annually, whereas the semi-automated machines are capable ofproducing either 2.7 or 4.5 million high-frequency inlays annually. Our coil-winding machines used to produceour low-frequency products are each capable of producing 0.9 million units annually. We acquired a substantialportion of our current equipment from AmaTech Automation GmbH and Excenga technologies GmbH in 2002and 2004, respectively. Our engineers, some of whom are former employees of these companies, helped developthis equipment. In the first quarter of 2005, we entered into an agreement with a group of specialized engineerswith whom we had collaborated on earlier projects. The Malaysian company, Xytec Solutions Sdn. Bhd. (‘‘XytecSolutions’’), builds manufacturing equipment for us on an exclusive basis and according to our proprietaryspecifications. This allows us to focus on our core business and ensures that we have an adequate supply ofmachinery as our business grows.

We currently hold a 30% interest in Xytec Solutions. We have entered into an agreement with XytecSolutions and the other Xytec Solutions shareholders that provides that Xytec Solutions may not sell equipmentmanufactured according to our proprietary specifications to third parties. The agreement specifies that theintellectual property used in producing such machinery is not licensed to Xytec Solutions for any other purpose.The shareholders agreement prohibits the other shareholders from selling their shares to any company or personthat competes with us or with Xytec Solutions. Similarly, the agreement provides that the Xytec Solutionsshareholders shall not approve the appointment of any director that competes with us or with Xytec Solutions.Finally, as an existing shareholder of Xytec Solutions, we generally benefit from a right of first refusal should anyof the other shareholders seek to sell their shares. An exception to this right is provided with respect to a sale ortransfer of up to 10% of the shares by one shareholder to a specified individual. The proprietary equipmentmanufactured by Xytec Solutions provides us with a significant cost and quality advantage vis-a-vis ourcompetitors.

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The following chart summarizes our facilities and indicates their current usage and practical productioncapacity:

No. of fully No. of coilautomated No. of semi- windingmachines automated machines Capacity

(high machines (high (low (millionLocation Owned or Leased Area (m2) frequency) frequency)(1) frequency) units /year) Use

Ayutthaya, Thailand **** Owned 7000 7 23 28 115 High Standard, contactlessfrequency(2) banking cards, and24 Low ePassportsfrequency

Amsterdam,

The Netherlands ******* Leased 19 n/a n/a n/a n/a Corporate head office

Stuttgart, Germany ***** Leased 220 n/a n/a n/a n/a Sales office

Singapore ************ Leased 139 n/a n/a n/a n/a Sales office

(1) Includes a semi-automated machine used to produce high frequency inlays that is currently located in Germany.

(2) Includes the semi-automated machine referenced in footnote (1).

As indicated by the table below, we have substantially increased our production capacity from over 7 millionunits per month as of January 2005 to over 11 million units per month as of March 1, 2006.

Smartrac Production Capacity 2005/2006

High Frequency

Low Frequency

Mil

lion

un

its

per

mon

th

0

2

4

6

8

10

12

Jan-05

Feb-05

Mar-

05

Apr-

05

May

-05

Jun-

05

Jul-0

5

Aug

-05

Sep-05

Oct-

05

Nov

-05

Dec

-05

Jan-06

Feb-06

We intend to further increase our capacity in line with customer demand during 2006. Lead times on newsemi-automated machines are eight weeks, as compared with twenty weeks for fully automated machines. Basedon customer forecasts, we seek to maintain excess capacity equal to 20% of our anticipated productionrequirements and to have such excess capacity available three to four months before it is needed.

Research & Development

Our R&D and product development department is located in Thailand and consists of 21 dedicatedemployees, including 12 with engineering degrees. We focus our R&D activities on developing new products andtechnologies for specific applications in response to concrete end-user needs. Working with chip suppliers andcustomers, this team tests new chips and products to determine optimal specifications for performance anddurability. For example, our product development team focuses on improving card working distances, which areimpacted by antenna design and the choice of carrier material. Our engineers also analyze and seek to minimize

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stress placed upon chips embedded in our inlays, which are often bent or otherwise mishandled. Another keydesign question relates to the bond between the antenna and the chip. As inlays are bent or subjected totemperature extremes, the bond between antenna and chip is more likely to be broken. Our extensive producttesting and our close relationships with customers and suppliers allow us to produce high quality products withadded durability and reliability.

Recently, we have begun developing and testing specialized materials for use in specific applications. We areworking with Durasoft/P, which was developed especially for electronic passport applications. Severalgovernments have recognized Durasoft/P’s advantages and publicly acknowledged its benefits compared toalternative materials. We recently developed a card inlay resistant to high temperatures for the New York FireDepartment.

We expense all of our costs related to R&D and product development.

Intellectual Property

We take appropriate measures under the intellectual property laws of applicable jurisdictions in an effort toprotect our rights to our inlay manufacturing technology. Performance in the RFID industry can depend, amongother factors, on patent protection. Our policy is to regularly identify patentable inventions within our companyand to systematically seek to acquire patent rights with regard to such technologies. We mainly develop andpatent technology in the fields of wire embedding, inlay and materials manufacturing and related products (tags,cards, and ePassports). We seek to obtain reasonably broad territorial protection for our patented technologies.

We currently have a portfolio of over 155 patents. This includes rights to technology that we have developedin house, as well as patents and licenses that we have acquired in the course of a number of acquisitionscompleted since 2002.

In 2002, as part of the bankruptcy proceedings for AmaTech AG, AmaTech Automation GmbH and otherAmaTech AG subsidiaries, we acquired certain assets from the AmaTech Automation GmbH bankruptcyadministrator. These assets included equipment and intellectual property. Furthermore, the bankruptcy admini-strator granted us a sublicense which gives us the right to use patents AmaTech licensed from Mr. ManfredRietzler and a co-owner of the patents. The IP rights we acquired in connection with this acquisition are thesubject of pending patent litigation or are otherwise threatened. For more information, see ‘‘— Litigation —AmaTech Patent Litigation’’. As part of these bankruptcy proceedings, we also received an option to acquire all ofthe shares of AmaTech Automation GmbH once the bankruptcy proceedings have concluded.

In 2003 and 2004, we acquired the assets of Sidetran GmbH and Excenga technologies GmbH, companieswhich were controlled by the former chief executive officer of Amatech AG. During Excenga technologiesGmbH’s bankruptcy proceedings, we purchased a variety of machines and technical data. We also acquiredlimited intellectual property rights, such as the company’s name and internet domain.

In February 2005, we acquired Multitape GmbH’s passport business, including the rights to their woven-fabric inlay technology, which can be used in certain ePassports.

Due to the importance of proprietary technology in the contactless card industry, our business involves asubstantial risk of overlap with third party patents and subsequent litigation with competitors or patent-holders.Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipmentdelays, cause us to enter into royalty-bearing licensing agreements or otherwise force us to change our businesspractices. For more information, see ‘‘Risk Factors — We face risks associated with challenges to intellectualproperty that we have developed or have acquired from other companies.’’

Manfred Rietzler, our Chief Executive Officer and the co-developer and co-owner of many of the patents welicensed from AmaTech Automation GmbH, is a party to pending litigation concerning two of such patents. Theplaintiff in these proceedings has also attempted to take action designed to result in the termination of thesublicense we acquired as part of the AmaTech bankruptcy proceedings. The results of this litigation and anyrelated subsequent proceedings may have important implications for our business. For more information, see‘‘— Litigation — AmaTech Patent Litigation’’ and ‘‘Risk Factors — Significant patents to which we currentlyclaim exclusive rights are or may become the subject of disputes and claims brought by the co-owner and co-developer of the patented technology’’.

Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copyaspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized useof our property is difficult, and while we are sometimes able to determine and reduce the extent to whichmisappropriation of our intellectual property rights occurs, such infringement can be expected to be a persistent

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problem. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extentas the laws of the European Union and the United States. Our means of protecting our proprietary rights mightnot be adequate and our competitors may be able to independently develop similar technology, products, anddesigns without infringing upon our patents and licenses. For more information, see ‘‘Risk Factors — Enforcingour intellectual property rights could cause us to incur distracting and costly litigation.’’

We currently believe that some of our competitors have been using technology which infringes upon ourpatents and violates our exclusive usage rights. To protect our rights, we have filed suit against two companies inGermany. For more information, see ‘‘— Litigation — Other Litigation’’.

As part of a cooperation with Melzer Maschinenbau GmbH, we have granted the company a limited licenseto use certain of our patents based on an agreed license fee. Similarly, we have granted Nittoku Engineering Co.,Ltd. the right to use three of the patents we sublicensed from AmaTech Automation GmbH in Japan in exchangefor royalty payments on each inlay produced. We have sold PAV CARD a licensed wire-embedding machine. Inthe course of certain settlement agreements, we granted Gemplus and its affiliates a royalty-free license to useone of our German patents and any corresponding patents in other jurisdictions and granted a royalty-free licenseto use one of our European patents and any corresponding patents in other jurisdictions to cubit electronicsGmbH. In the future, we may decide to further license our technology, including our patents related toePassports.

Employees

As of December 31, 2005, we employed 1,104 employees, of which 332 were directly employed by us, and772 were indirectly employed through temporary staffing agencies. In 2005, we employed an average of605 indirect employees. Ninety-nine percent of our employees were located in Thailand, with the remainingemployees located in Germany and Singapore. Our R&D and product development department consists of21 employees (including 12 with engineering degrees), while 864 direct and indirect employees worked inproduction and 29 direct employees worked in our sales and sales support departments. We do not belong to anyemployers’ associations and are not bound by any collective bargaining agreements. We have never experiencedany industrial action and believe we have a good relationship with our employees.

We are not required by Dutch law to establish a Works Council, as this requirement applies only to businessenterprises in The Netherlands with a work force of more than 50 persons. Similarly, we are not subject to co-determination in the form of the German One-Third Participation Act (Drittelbeteiligungsgesetz), which onlyapplies to companies incorporated in Germany with more than 500 employees. Accordingly, the Company is notrequired to have an employee representative on its Supervisory Board.

Litigation

AmaTech Patent Litigation

The core technology we use in our products and manufacturing processes is subject to patent protection. Weown or have arranged for exclusive or practically exclusive usage rights to over 155 patents and patentapplications, of which approximately 128 were sublicensed or purchased from the bankruptcy administrator ofanother company, AmaTech Automation GmbH (‘‘AmaTech’’), in 2002. Prior to the insolvency of AmaTech, ourChief Executive Officer, Manfred Rietzler, and a former colleague (the ‘‘Co-Owner’’) had granted AmaTech alicense (the ‘‘License’’) to use the various patents they had jointly developed, most of which had been registeredor applied for in Germany, the rest of Europe, the United States and Japan in both of their names (the‘‘Patents’’). Approximately 22 of the Patents have been registered or applied for in Germany (the ‘‘GermanPatents’’). At the time Mr. Rietzler and the Co-Owner granted the License to AmaTech, they were significantshareholders of AmaTech AG, the parent company of AmaTech. The License permits AmaTech to grantsublicenses to use the Patents. Although the License is not explicitly designated as an exclusive license, webelieve the intended effect of these provisions was to grant AmaTech the exclusive right to control use of thepatents covered by the License.

In 2002, AmaTech AG, AmaTech and other AmaTech AG subsidiaries entered into bankruptcy proceedings.In October 2002, we purchased various AmaTech assets from its bankruptcy administrator, including 10 patentsowned by AmaTech, and received the right to use 118 Patents by means of a sublicense (‘‘Our Sublicense’’).Some of these patents and patent applications concern the basic technology and processes used to manufacture awide variety of our products.

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On March 29, 2004, the Co-Owner brought an action designed to force Mr. Rietzler to consent to the sale bypublic auction of the ownership rights to two of the German Patents, neither of which is significant to ourbusiness. Following adverse rulings in the first and second instance, Mr. Rietzler applied to the German FederalCourt of Justice for leave to appeal (Nichtzulassungsbeschwerde). As part of these proceedings, the Co-Ownerdisclosed that he had committed to assign all of his rights stemming from the above litigation, together with all ofhis rights relating to the Patents, to Assa Abloy ITG AB, a member of the same group as one of our competitors,Sokymat. If the pending litigation should be ultimately decided in the Co-Owner’s favor, the two German Patentsthat are the subject of the action may be publicly auctioned. Under such circumstances, it is also possible thatsimilar claims could be made with regard to the remaining German Patents. Although we would be permitted toparticipate in any such auctions, we ultimately may not be the successful bidder and a third party, such as one ofour competitors, may acquire ownership of the German Patents. However, under German law, a transfer of patentownership would not, by itself, affect the License or Our Sublicense. Nevertheless, it cannot be excluded that anew owner of the German Patents might claim that either the License or Our Sublicense is void, unenforceable orterminable. In addition, a new owner could seek to invalidate the German Patents, with the effect that thetechnology would no longer be patent-protected in Germany and could be used by any party. As a result, ourcompetitive advantage would be reduced to the extent that we are unable to prevent competitors from using thePatents. Nonetheless, we believe we would retain the benefits provided by our manufacturing expertise,production capacity and security certifications.

Furthermore, in letters dated February 2006 and addressed to the AmaTech bankruptcy administrator and toMr. Rietzler, the Co-Owner sought to terminate the License for cause based, inter alia, upon Mr. Rietzler’salleged breach of trust and the AmaTech bankruptcy administrator’s alleged breach of contract. We believe thatthe allegations and arguments set forth in the letters to support the purported termination of the License arewithout merit. Together with our CEO, Mr. Rietzler, we intend to defend our rights under the License and OurSublicense. If, however, based on the Co-Owner’s action or the action of any third party, the License were to bedeclared by a court to be invalid, ineffective or unenforceable, we would lose the right to practice the Patents andthe usage rights would revert to Mr. Rietzler and the Co-Owner. Under such circumstances, Mr. Rietzler,personally, would be able to grant us a non-exclusive license to use the Patents in countries (such as the UnitedStates) where he, as a co-owner of the Patents, is able to independently license their use. However, if the GermanPatents were publicly auctioned as described above, and the License were validly terminated by a court, and wewere unable to use alternative non-infringing technology, the new owner might also be able prevent us frommaking and selling products made according to the Patents in Germany and a limited number of other countries.

Similarly, if Our Sublicense, but not the License, were, after a court proceeding, to be declared invalid,ineffective or unenforceable, we might lose the right to practice technology covered by the Patents. Such a casecould arise, for example, if a valid exclusive sublicense to use the Patents existed in favor of a third party at thetime we received Our Sublicense in October 2002. Although we are aware of a sublicense agreement withExcenga Technologies GmbH that predated Our Sublicense, the sublicense agreement was limited to Japan andcountries where the technology had not been patented. Moreover, the AmaTech bankruptcy administrator hasconfirmed to us that (a) he has not elected to require performance under the sublicense agreement with ExcengaTechnologies GmbH or any other sublicenses, and (b) he considers all sublicenses predating Our Sublicense tohave been cancelled. In addition, Excenga Technologies GmbH transferred certain of its rights under itssublicense and the transferee has waived and renounced such rights vis-a-vis AmaTech and Smartrac. We are notaware of any other licensing agreements that predate Our Sublicense.

We are of the opinion that both the License and Our Sublicense are valid and effective licenses that willcontinue to limit the rights of the owners of the Patents. We, together with Mr. Rietzler, intend to vigorouslydefend our continued right to use such patents and technology as are relevant to our business.

We may attempt to reach a settlement with regard to the pending litigation and the purported termination ofthe License by the Co-Owner. Preliminary discussions have occurred with the Co-Owner, but we do not expect tobe able to reach a settlement in the near term. To fully resolve the issues relating to the Patents, it would also benecessary to enter into a settlement agreement with Assa Abloy ITG AB.

Other Litigation

In February 2006, Mr. Rietzler, who was formerly employed as a managing director within the AmaTechgroup, which he left in December 2000, was contacted by a former member of the Supervisory Board andshareholder of AmaTech AG. This AmaTech, AG shareholder alleged that Mr. Rietzler improperly transferredcertain AmaTech group technology, intellectual property and know-how to us, and that Mr. Rietzler’s activitieson our behalf constituted a violation of his contractual obligations and of his duties owed to the AmaTech group

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companies. We believe the allegations and arguments are without merit. Nonetheless, similar claims may be madeby AmaTech AG shareholders and/or creditors against Mr. Rietzler or Smartrac and such claims may result informal litigation or settlement.

We currently believe that two of our competitors have been infringing upon one of our patents relating towire embedding technology to produce products sold on the European market. We filed infringement actionsagainst Oriental Power Technology (a Chinese company) and Aontec Teoranta (an Irish company) in Germany onMay 10, 2005 and June 3, 2005, respectively. Both actions seek damages and injunctions prohibiting furtherinfringement.

Insurance

It is our policy to carry property and casualty insurance. We do not carry product liability insurance. Webelieve that we have adequate coverage for which we pay fair and reasonable premiums. However, there can beno assurance that we will not incur losses that either are not covered by, or exceed the level of, our insurancepolicy coverage, or that we will be able to obtain adequate insurance coverage in the future.

Regulation

In connection with our operations, we are subject to a number of legal requirements in Thailand andelsewhere (laws, ordinances, administrative rules, court orders, official decrees, etc.). We believe that we complywith all applicable requirements that are necessary for the conduct of our business.

We are not involved in any legal proceedings relating to environmental, health or safety matters and are notaware of any claims or potential liability in this regard that could have a material impact on our business, financialsituation or results of operations.

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GROUP STRUCTURE AND RECENT CORPORATE RESTRUCTURING OF THESMARTRAC GROUP

Until the end of 2005, Smartrac Technology Limited, a company incorporated in Thailand on January 10,2000, was the principal operating company in the SMARTRAC Group. After a corporate restructuring that wasimplemented from November 2005 to February 2006 and is described in more detail below, the Company becamethe holding company of the SMARTRAC Group. The following chart shows the current corporate structure of theSMARTRAC Group:

SMARTRAC N.V.

Smartrac(1)

Technology Limited(Thailand)

SmartracTechnology Pte Ltd

(Singapore)

Xytec Solutions Sdn. Bhd.(Malaysia)

SmartracTechnology GmbH

(Germany)

99.99% 100% 30% 100%

SMARTRAC N.V.

Smartrac(1)

Technology Limited(Thailand)

SmartracTechnology Pte Ltd

(Singapore)

Xytec Solutions Sdn. Bhd.(Malaysia)

SmartracTechnology GmbH

(Germany)

99.99% 100% 30% 100%

(1) One share in Smartrac Technology Limited is held by each of Ms. Delia Chua Gek, Mr. Manfred Rietzler, Mr. Richard Bird,Ms. Elisabeth Rietzler, Mr. Wolfgang Schneider and Mr. Ronald Brown to satisfy legal requirements in Thailand (minimum number ofshareholders).

The structure shown in the chart above has been created by the contribution in kind by the shareholders ofthe shares in several other entities of the SMARTRAC Group, most notably Smartrac Technology Limited, intoSMARTRAC N.V. in several restructuring steps that were completed prior to the Global Offer. As a consequenceof these restructuring steps, the exact shareholder structure of the SMARTRAC Group changed.

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Prior to the corporate restructuring, the shareholding structure of the SMARTRAC Group was as follows:

50%

Manfred Rietzler

Ronald Brown

Wolfgang Schneider

Richard Bird

Martin Kuschewski

Elisabeth Rietzler

Delia ChuaGek

Smartrac Technology PteLtd

(Singapore)

Smartrac Technology Limited(Thailand)

Xytec Solutions Sdn. Bhd.(Malaysia)

Smartrac Technology GmbH(Germany)

50% 50%

45.5% 1% 1% 1% 5% 1%45.5%

30% 100%

Manfred Rietzler

Ronald Brown

Wolfgang Schneider

Richard Bird

Martin Kuschewski

Elisabeth Rietzler

Delia ChuaGek

Smartrac Technology PteLtd

(Singapore)

Smartrac Technology Limited(Thailand)

Xytec Solutions Sdn. Bhd.(Malaysia)

Smartrac Technology GmbH(Germany)

50%

45.5% 1% 1% 1% 5% 1%45.5%

30% 100%

After the corporate restructuring and immediately prior to the Global Offer, the shares of the Company areheld by several individuals and Dutch holding companies ultimately controlled by several individuals (ManfredRietzler, Elisabeth Rietzler, Richard Bird, Martin Kuschewski, Wolfgang Schneider, Dr. Christian Fischer andRonald Brown) and by Rosenberg Venture AG. The shareholding structure immediately prior to the Global Offeris as follows:

RonaldBrown

ManfredRietzler

RichardBird

ElisabethRietzler

MartinKuschewski

IntecHolding Ltd.

ICMHolding Ltd.

ICM Netherlands B.V.

SMARTRAC N.V.

RBHolding Ltd.

RB Netherlands B.V.

Padma Ltd.

TCLHolding Ltd.

TCL Netherlands B.V.

5.00% 1.00%

92.7% 7.3%

31.26% 46.13% 13.70%

Dr. Christian Fischer (1)

0.75%

Rosenberg Venture AG(2)

2.17%

100%

100%

100%

100% 100%

100% 100%

WolfgangSchneider

RonaldBrown

ManfredRietzler

RichardBird

ElisabethRietzler

MartinKuschewski

IntecHolding Ltd.

ICMHolding Ltd.

ICM Netherlands B.V.

SMARTRAC N.V.

Padma Ltd.

TCLHolding Ltd.

TCL Netherlands B.V.

5.00% 1.00%

92.7% 7.3%

31.26% 46.13% 13.70%

Dr. Christian Fischer (1)

0.75%

Rosenberg Venture AG(2)

2.17%

100%

100%

100%

100% 100%

100% 100%

WolfgangSchneider

RBHolding Ltd.

RB Netherlands B.V.

* Percentages may not add due to rounding.

(1) In February 2006, Dr. Fischer acquired 18,750 shares with a par value of then 41.00 in the Company from Manfred Rietzler (actingthrough ICM Holding Ltd.) and another 18,750 shares with a par value of then 41.00 from Richard Bird (acting through RB HoldingLtd.), for an aggregate purchase price of 4250,000 (approximately 46.66 per share with a par value of then 41.00). Dr. Fischer has sincetransferred all of his shares in equal parts of 25,000 shares to each of his wife and two daughters.

(2) The shares held by Rosenberg Venture AG were transferred to it by Manfred Rietzler (acting through ICM Holding Ltd.) prior to the IPOagainst payment of a cash amount that is expected to be substantially below the Offer Price taking into account prior supporting activitiesrendered to Manfred Rietzler.

The corporate restructuring as implemented from December 2005 until February 2006 does not have anyDutch tax implications. In particular, the contribution of the shares is a tax exempt transaction in TheNetherlands. For accounting purposes, the issued shares are paid up for 45 million by the contribution in kind.Any excess in value will be qualified as share premium in the 2006 financial statements of the Company.

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MANAGEMENT AND EMPLOYEES

General

Set out below is a summary of some relevant information concerning the Management Board and thesupervisory board of the Company (the ‘‘Supervisory Board’’) and a brief summary of certain significantprovisions of Dutch corporate law and the Company’s articles of association in respect of the Company’sManagement Board and Supervisory Board as resolved by the general meeting of shareholders (the ‘‘GeneralMeeting of Shareholders’’) on February 8, 2006 (the ‘‘Articles of Association’’) and which came into effect onMarch 9, 2006. See ‘‘Description of the Company, the Share Capital and Corporate Governance — General’’.

Management Structure

The Company has a two-tier board structure consisting of a Management Board (Raad van Bestuur) and aSupervisory Board (Raad van Commissarissen).

Management Board

Powers, Composition and Function

The Management Board is responsible for the day-to-day management of the Company’s operations underthe supervision of the Supervisory Board. The Management Board is required to keep the Supervisory Boardinformed, consult with the Supervisory Board on important matters and submit certain important decisions to theSupervisory Board for its approval, as more fully described below.

The Company’s Articles of Association provide that the Management Board may consist of at least oneManagement Board member A and in addition the General Meeting of Shareholders may appoint one or moreManagement Board members B. Both natural persons and legal entities may be members of the ManagementBoard. The Supervisory Board is authorized to determine the number of members of the Management Board.Members of the Management Board are appointed for a maximum period of four years and can be immediatelyre-appointed for a maximum period of four years.

The Management Board may perform all acts necessary or useful for achieving the Company’s corporatepurpose, other than acts that are prohibited by law or by the Company’s Articles of Association. TheManagement Board as a whole is authorized to represent the Company. In addition, each Management Boardmember A acting solely and a Management Board member A and a Management Board member B acting jointlycan represent the Company if the General Meeting of Shareholders has appointed any Management Boardmember B.

Members of the Management Board are appointed by the General Meeting of Shareholders, subject to theright of the Supervisory Board to make a binding nomination to appoint a Management Board member inaccordance with the relevant provisions of the Dutch Civil Code. The General Meeting of Shareholders mayresolve that the nomination submitted by the Supervisory Board is not binding by a resolution passed with amajority of at least two-thirds of the votes cast representing more than 50% of the Company’s issued sharecapital. If the Supervisory Board does not exercise its right to submit a binding nomination or does not do sowithin three months of a vacancy arising, the General Meeting of Shareholders shall be free to appoint aManagement Board member.

The General Meeting of Shareholders may suspend or dismiss Management Board members at any timewith a majority of at least two-thirds of the votes representing more than 50% of the Company’s issued sharecapital. If, however, a proposal to suspend or dismiss a member of the Company’s Management Board is made bythe Company’s Supervisory Board, no qualified majority or quorum is required at the General Meeting ofShareholders. The Supervisory Board may also suspend Management Board members at any time. In accordancewith the Company’s Articles of Association, decisions of the Management Board are taken by majority vote.

Under the Articles of Association, the Management Board requires the approval of the Supervisory Boardfor such resolutions as the Supervisory Board has specified in a resolution to that effect and notified to the

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Management Board. The Supervisory Board has resolved that the Management Board is required to obtain theprior approval of the Supervisory Board concerning acts or resolutions of the Management Board relating to:

) the budget of the Company;

) acquisitions, encumbrances or disposals of assets (including but not limited to registered property,companies, enterprises and IP rights) if the value of the assets exceeds 42,000,000 in an individualtransaction;

) the borrowing of funds exceeding 42,500,000 in an individual case; and

) the termination of material business operations of the Company.

The above approval requirement also applies in respect of acts or resolutions of subsidiaries of the Company,if the Management Board has to approve decisions of the relevant subsidiary in exercising the Company’sfunction as shareholder of the subsidiary. The Management Board is not required to obtain the approval of theSupervisory Board if the acts or resolutions concerned have been included in the approved budget of theCompany.

The Articles of Association provide that decisions of the Management Board concerning a major change inthe character or identity of the Company are subject to the approval of the General Meeting of Shareholders. Suchchanges include:

) a transfer of the whole or almost the whole of the Company’s business to any third party;

) the entering into or the dissolution of a sustainable cooperation of the Company or a subsidiary withanother legal entity or company, or as fully liable member of a limited partnership (commanditairevennootschap) or a general partnership (vennootschap onder firma), if this cooperation or dissolution is ofmajor meaning for the Company;

) the acquisition or divesture of a participation in the share capital of a company by the Company or any ofits subsidiaries, amounting to at least one-third of the amount of assets according to the consolidatedbalance sheet and explanatory notes as shown in the latest annual accounts of the Company.

In addition, the Management Board may propose to the General Meeting of Shareholders to resolve

) to amend the Articles of Association;

) on a statutory merger (juridische fusie);

) on a legal demerger (juridische splitsing); and

) on the dissolution of the Company.

Such resolution of the General Meeting of Shareholders is capable of being passed with an absolute majorityof the votes cast; if such proposal has not been made by the Management Board, then these resolutions shall onlybe capable of being passed with a majority of at least two thirds of the votes validly cast in the General Meetingof Shareholders in which at least 75% of the issued share capital is represented, all unless mandatory lawprovides otherwise.

If the quorum described above is not met, then a second meeting shall be called, to be held not earlier thanthree and not later than six weeks after the first meeting. At this second meeting, the resolution can be passedwith a majority of two thirds of the votes validly cast, irrespective of the issued share capital present.

Members of the Management Board

The Management Board is currently composed of the following members:

Name Age Position Member Since Term

Manfred Rietzler *** 44 Management Board member A January 23, 2006 December 31, 2009

Dr. Christian Fischer 37 Management Board member A January 23, 2006 December 31, 2009

Ronald Brown ***** 55 Management Board member B March 9, 2006 Until the first GeneralMeeting of Shareholdersin 2008

Anthony Edward 69 Management Board member B March 9, 2006 Until the first GeneralDriessen ******** Meeting of Shareholders

in 2008

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The business address of all members of the Management Board is Parnassusweg 103, 1077 DE Amsterdam,The Netherlands.

Manfred Rietzler

Mr. Rietzler has a degree in electrical engineering from the Technical University of Munich and is an expertin RFID technology, semiconductor packaging, SmartCard technologies and transponder applications. He hasspecialized in electrical engineering and automated production technologies. After graduating from University,Mr. Rietzler worked as a scientific assistant in a research project on autonomous mobile robots at the Universityof Munich in 1987. From 1987 to 1993, Mr. Rietzler was the head of electronic assembly of Maho AG, Pfronten(Germany). Mr. Rietzler gained extensive management experience in the AmaTech-group of which he was a co-founder. At AmaTech GmbH & Co. KG, Mr. Rietzler served in various functions, including technical directorand chief technical officer for development and production, from 1993 to 2000. From 2000 to 2001, Mr. Rietzlerwas a 20% shareholder in and held the function of a general manager of Louda Systems GmbH, Gersthofen(Germany), a company specialized in the manufacturing of plastic card production equipment. Mr. Rietzler joinedSmartrac Technologies Limited (Thailand) as a major shareholder in 2001 and became chief executive officer in2003. Since January 2006, Mr. Rietzler has been a member of the Management Board of the Company.

Dr. Christian Fischer

Dr. Christian Fischer has a degree in business administration and has a doctorate in financial economicsfrom the University of Hohenheim (Stuttgart). He started his career at Robert Bosch GmbH in 1996 where he wasa project manager in corporate planning and controlling. In 1999, Dr. Fischer joined Roland Berger StrategyConsultants Competence Center Restructuring and Corporate Finance where he became partner in 2003. In 2004,Dr. Fischer was appointed chief financial officer and chief restructuring officer of Walter Bau-AG and became amember of the management board (Mitglieds des Vorstands). Dr. Fischer joined SMARTRAC as chief financialofficer at the end of 2005 and became a member of the Management Board upon the incorporation of theCompany in January 2006.

Ronald Brown

Mr. Brown, our chief operating officer, manages our production, quality management, engineering,purchasing and operations. He has over 35 years of experience in the high-tech electronics industry in the fieldsof manufacturing, purchasing and operations and has held multiple senior management positions within theseareas, among others, senior positions at Seagate Technology in California and Singapore and USI Manufacturingin California. Mr. Brown has acquired extensive experience in Asia. As Vice President Far East Materials forSeagate Technology, he managed all procurement, materials, manufacturing, scheduling and inventories for themanufacturing locations in Singapore, Malaysia, Thailand and China as well as Japan, Korea, Hong Kong andTaiwan. Mr. Brown joined SMARTRAC in 2005 and became a member of the Management Board in March2006.

Anthony Edwards Driessen

Mr. Driessen graduated from Leiden University law faculty in 1962 and became a partner of NautaDutilhN.V., an international Dutch law firm, in 1970, to which, after his retirement in 2002, he still acts as advisor.Mr. Driessen has been extensively involved in oil and gas related matters and is specialized in corporate law,M&A, joint ventures and reorganizations. As of March 2006, in addition to his consultancy position withNautaDutilh N.V., Mr. Driessen has become a member of the Management Board of the Company. Mr. Driessencurrently also sits on the management boards of Sierra European Retail Real Estate Asset Holdings B.V(Netherlands) (since 2004) and Cairn Energy Netherlands Holding B.V. (Netherlands) (since 2001).

Supervisory Board

Powers, Composition and Function

The Supervisory Board is responsible for supervising the conduct of and providing advice to theManagement Board and supervising the Company’s business generally. In performing its duties, the SupervisoryBoard is required to act in the interests of the Company’s business as a whole. The members of the SupervisoryBoard are not authorized to represent the Company in dealings with third parties.

Under the Articles of Association, the General Meeting of Shareholders shall appoint the members of theSupervisory Board and shall at all times be empowered to suspend or dismiss each and any member of the

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Supervisory Board. The Supervisory Board may make a non-binding nomination for each vacancy, within threemonths after the vacancy has arisen.

The Articles of Association provide that the Supervisory Board will consist of three or more members. Inaddition, the Articles of Association provide that if for any reason whatsoever one or more members of theSupervisory Board are permanently absent, the remaining members shall, as long as at least one member is inoffice, constitute a body capable of acting until the next General Meeting of Shareholders, which shall then fillthe vacancies. Furthermore, the Articles of Association contain a provision which allows the Supervisory Boardto determine the number of members of the Supervisory Board.

The current members of the Supervisory Board have been appointed for the terms set out in the table below.The Supervisory Board itself appoints a chairman and a deputy chairman from among its members. Under theArticles of Association, the General Meeting of Shareholders may at any time suspend or dismiss SupervisoryBoard members with an absolute majority, subject to the quorum requirement, if any, as provided in the Articlesof Association. The Articles of Association provide that the Supervisory Board members have a retirementschedule in order to avoid, to the extent possible, a situation in which several members of the Supervisory Boardretire at the same time.

Under the Articles of Association, the Supervisory Board can pass its resolutions with an absolute majorityof the votes of all the members of the Supervisory Board in office. In the event of an equal division of votes, thechairman of the Supervisory Board shall have the casting vote.

Members of the Supervisory Board

At the time of completion of the Global Offer, the Supervisory Board will be composed of the followingmembers:

Name Age Position Member Since Term

Professor Dr. Bernd Dieter Fahrholz ** 58 Chairman Appointed with effect as of the date of 2009issuance of the New Shares.

Richard Bird********************** 65 Member January 23, 2006 2010

Wolfgang Huppenbauer ************* 52 Member Appointed with effect as of the date of 2009issuance of the New Shares.

The business address of the member of the Company’s Supervisory Board is Parnassusweg 103, 1077 DEAmsterdam, The Netherlands.

Professor Dr. Bernd Dieter Fahrholz

Professor Dr. Fahrholz has been appointed as the chairman of the Supervisory Board with effect as of thedate of the issuance of the New Shares. Professor Dr. Fahrholz is a highly renowned corporate executive withwide experience in the financial sector. From 1969 to 1973 Professor Dr. Fahrholz studied law at the universitiesof Goettingen and Hamburg, Germany, and thereafter trained with the higher regional court of Hamburg as partof his education. His traineeship was followed by a research fellowship at the Institute for Finance and Fiscal law,Hamburg, where Professor Dr. Fahrholz received his doctorate degree in 1977. Professor Dr. Fahrholz started hisbusiness career at Dresdner Bank AG, Frankfurt (Germany) in 1977 as a member of the legal department. Hisposition in the legal department was followed by several senior positions in the Dresdner Bank Group. In 1998Professor Dr. Fahrholz joined the management board of Dresdner Bank AG (Vorstand), where he was appointedspeaker of the board in May 2000. Following the friendly takeover by Allianz AG, Munich (Germany) ofDresdner Bank AG, Professor Dr. Fahrholz served as chairman of the management board (CEO) of DresdnerBank AG and deputy chairman of the management board (Vorstand) of Allianz AG, Munich (Germany), fromJuly 2001 to March 2003 when he resigned. Professor Dr. Fahrholz is now active as a partner for the internationallaw firm Dewey Ballantine LLP. In addition to his function as chairman of the Supervisory Board atSMARTRAC, Professor Dr. Fahrholz currently sits on the supervisory board (Aufsichtsrat) of Fresenius MedicalCare AG, Bad Homburg v. d. Hohe (Germany), and until May 2004 sat on the supervisory board (Aufsichtsrat) ofBMW AG, Munich (Germany), and HeidelbergCement AG, Heidelberg (Germany). In addition, he advises themanagement board of Deutsche Bahn on the envisaged initial public offering of Deutsche Bahn, ProfessorDr. Fahrholz holds an honorary professorship in Commercial, Corporate and Tax Law at the Johann WolfgangGoethe-University, Frankfurt (Germany). Professor Dr. Fahrholz is a German citizen. His home domicile isBerlin, Germany.

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Richard Bird

Mr. Bird is the founder of the SMARTRAC Group. He has a bachelor of arts from the University of Red-Land, California. Mr. Bird has been active as an entrepreneur in the contract manufacturing business since 1969,with a special focus on sub-contracting. He became an expert in these business areas and is particularly well-known in the Asian business community. Prior to founding the SMARTRAC Group, Mr. Bird founded andoperated several different companies, most recently TPW Industries Limited which manufactures computercomponents such as hard disk drive arms and hard disk cases. Mr. Bird sold his shares in TPW Industries Ltd. inthe year 2002. Mr. Bird has been a member of the Supervisory Board since the incorporation of the Company.Mr. Bird is a Swiss citizen with Ruvigliana, Switzerland, as his place of origin (Heimatort). His home domicile isSingapore.

Wolfgang Huppenbauer

Mr. Huppenbauer worked as an insurance broker with Allianz Insurance Company from 1972 to 1975. In1975, he joined Ford Motors Company as a salesman in Stuttgart. In 1980, Mr. Huppenbauer joined the overseastraining Department of Daimler Benz where he was, at first, responsible for the European countries and, from1984 onwards, for the Asia/Pacific region. From then on, Mr. Huppenbauer has worked for Mercedes-Benz (andDaimlerChrysler) in various management functions in Australia, Asia and Europe. In 2002, Mr. Huppenbauerwas appointed as president/managing director of the Singapore operations of DaimlerChrysler South East Asia,the wholesale company for Mercedes-Benz and Chrysler products for the Singapore market. Since October 2005,Mr. Huppenbauer has been vice president, sales and marketing of the Mercedes Car Group and CommercialVehicles for DaimlerChrysler South East Asia in addition to managing the Singapore operations.Mr. Huppenbauer has been appointed as a member of the Supervisory Board with effect as of the date of theissuance of the New Shares. Mr. Huppenbauer is a German citizen. His home domicile is Singapore.

Senior Management

The Company’s Management Board is supported by the following other members of the management team(‘‘Senior Management’’):

Dr. Linda Cheng

Dr. Cheng, who joined the SMARTRAC Group in 2003, is the division manager of the semiconductorpackaging & product development department of Smartrac Technology Ltd., Thailand. She began her work in thefield of manufacturing techniques in 1980, when she won the British Petroleum scholarship to do research on theformulation of PVC compounds to alter its mechanics and thermal performance. Within two years of the start ofher scholarship, she completed her Ph.D. from the Imperial College of Science & Technology (University ofLondon). In 1983, Ms. Cheng joined General Electric’s R&D unit in Singapore responsible for product reliabilitytesting and quality improvement. From 1984 until 1988, Ms. Cheng worked as Regional Director for EuropeanSemiconductor, Singapore. This position was followed by a position as general manager with SmartronTechnology, Singapore. Prior to Ms. Cheng joining the SMARTRAC Group, she worked as Vice President forSokymat Asia, Singapore and was responsible for transponder manufacturing in Singapore.

Mayuree Chaowalertseree

Ms. Chaowalertseree is the head of finance and administration of Smartrac Technology Ltd.Ms. Chaowalertseree joined the SMARTRAC Group in 2002 after working for thirteen years as Director ofFinance and Administration at T.P.W Industries Ltd., Thailand. Before that, she was working for more than tenyears in the finance department of Hong Kong International. Ms. Chaowalertseree has a diploma in accountingfrom the Bangkok Commercial Campus.

Martin Kuschewski

Mr. Kuschewski holds the function of sales director responsible for the ePassport business line. He is thegeneral manager for Smartrac Technology GmbH, our German subsidiary, and responsible for sales and businessdevelopment in Europe. He joined the SMARTRAC Group in 2001 and is an indirect shareholder of theCompany. Mr. Kuschewski is employed by Smartrac Technology GmbH under a consulting agreement with hisconsulting agency, the ITA Ingenieurburo, Ruderatshofen (Germany). Mr. Kuschewski holds a degree inelectrical engineering from the University of Applied Science in Kempten. During his studies, Mr. Kuschewskiworked as a freelance engineer for Filser Electronic GmbH, Waal (Germany). In 1999, he joined AmaTech AG,Pfronten (Germany), as head of the development department. Since 1997, Mr. Kuschewski has been operating his

90

own engineering and consulting office, ITA Ingenieurburo, Marktoberdorf (Germany). In 2000, Mr. Kuschewskileft AmaTech AG to join the management team of the SMARTRAC Group. Since then, Mr. Kuschewski has beenengaged in the management, business development and sales efforts of our group and is exclusively working forus.

Wolfgang Schneider

Mr. Schneider is the Group Sales Director, responsible for the sales of the SMARTRAC Group across allbusiness lines. Mr. Schneider holds a degree in engineering (Diplomingenieur). He started his career at INAWalzlager Schaeffler KG where he worked as a sales engineer and assistant to the director of sales overseas from1984 to 1989. From 1989 to 1997, Mr. Schneider was the representative for South East Asia of INA WalzlagerSchaeffler KG. From 1997 to 2000, Mr. Schneider worked as representative and agent of Elektro Feindraht AG,Switzerland, and as a self-employed representative for the AmaTech-group. Mr. Schneider joined theSMARTRAC Group in 2001 and has since been active for the SMARTRAC Group as a representative and salesdirector.

Remuneration and Equity Holdings

The Supervisory Board determines the remuneration and further conditions of employment for everymember of the Management Board within the scope of the Company’s remuneration policy and subject to theprovisions mentioned in section 135 Book 2 of the Dutch Civil Code.

Management Board and Senior Management

The total remuneration (including bonuses, housing allowance and other benefits) we paid to or for thebenefit of members of Senior Management and Mr. Brown, who then was not yet a member of the ManagementBoard, in 2005, excluding remuneration paid to members of the Company’s Management Board, amounted toapproximately 4413 thousand (payments to Mr. Schneider and Mr. Kuschewski were consulting and agencycommissions as they were working as agents for the Company in 2005; the aggregate number includes travelexpenses and expenses for the Singapore office paid to Mr. Schneider and expenses to Mr. Kuschewski).

The total remuneration (including housing allowance and other benefits) we paid to or for the benefit ofMr. Rietzler in 2005 amounted to approximately 472 thousand.

Compensation of Management Board Members

New employment contracts were entered into between the Company and Mr. Rietzler and Dr. Fischer inFebruary 2006. The term of the employment contracts lasts for the duration of their appointment as members ofthe Management Board.

Pursuant to his employment contract, Mr. Rietzler is entitled to receive total annual compensation of4144,000. In addition, housing and other expenses of Mr. Rietzler in Thailand are borne by the Company. Thecompensation of Dr. Fischer under his employment contract consists of an annual base compensation of 4240,000and a variable compensation of 1.00% of the EBITDA of the SMARTRAC Group in the respective year. Inaddition, Dr. Fischer has been granted a one-time IPO-bonus that will amount to 1.00% of the gross proceeds tothe Company from the capital increase in connection with this Global Offer. Further, Dr. Fischer will be eligibleto participate in the Company’s stock option program. In addition, both members of the Management Board havebeen provided with a company car. The Company has provided both members of the Management Board withgeneral coverage accident insurance in a usual amount.

Under his employment agreement with the Company, Mr. Brown is entitled to receive total annualcompensation of US$200,000, Mr. Driessen is entitled to receive annual compensation from the Company in theamount of 425,000.

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The numbers of ordinary shares (excluding options to purchase the Company’s ordinary shares, see‘‘— Option Plans’’) owned by members of the Management Board and Senior Management as of February 28,2006 were as follows:

Number ofOrdinary Shares

Owned

Manfred Rietzler(1)***************************************************** 3,125,500

Dr. Christian Fischer *************************************************** 75,000

Ronald Brown ******************************************************** 100,000

Wolfgang Schneider**************************************************** 500,000

Total**************************************************************** 3,800,500

(1) The holding is indirect. The shares are directly held by ICM Netherlands B.V. which is a fully owned subsidiary of ICM Holding Ltd., acorporation incorporated in Malta, which is in turn a fully owned subsidiary of Intec Holding Ltd., a corporation incorporated in Maltaand 100% owned by Manfred Rietzler. In addition, Mr. Rietzler’s wife Elisabeth Rietzler holds 92.7% of the shares of Padma Ltd. whichindirectly holds 13.7% of the shares in the Company.

In addition, as of February 28, 2006, Martin Kuschewski indirectly held 7.3% of the shares in TCLNetherlands B.V. which held 1,370,000 shares (13.7%) in the Company.

Supervisory Board

The remuneration of each member of the Supervisory Board is fixed by the General Meeting of Shareholdersat 410,000 p.a. and the remuneration of the chairman of the Supervisory Board is fixed at 450,000 p.a.

The numbers of ordinary shares owned by members of the Supervisory Board as of February 28, 2006 were asfollows:

Number ofOrdinary Shares

Owned

Richard Bird(1) ******************************************************** 4,612,500

(1) The holding is indirect. The shares are directly held by RB Netherlands B.V. which is a fully owned subsidiary of RB Netherlands Ltd., acorporation incorporated in Malta and 100% owned by Mr. Richard Bird.

Other Information Relating to Members of the Supervisory Board, the Management Board and SeniorManagement

Except as described below, in relation to each of the members of the Supervisory Board, the ManagementBoard and Senior Management, we are not aware of (i) any convictions in relation to fraudulent offences in theprevious five years, (ii) any bankruptcies, receiverships or liquidations of any entities in which such membersheld any office, directorships or senior management positions in the previous five years, or (iii) any official publicincrimination and/or sanctions of such person by statutory or regulatory authorities (including designatedprofessional bodies), or disqualification by a court from acting as a member of the administrative, management orsupervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer for atleast the previous five years.

Mr. Manfred Rietzler was a co-founder of and served in different functions in the AmaTech-group. Mr. Rietzlerheld less than 10% of the shares of AmaTech AG, a public company, which, through its subsidiaries, previouslydeveloped, manufactured and distributed RFID systems and components. Mr. Rietzler left the AmaTech Group in2000. Approximately 18 months after Mr. Rietzler’s departure and resignation, AmaTech AG and its subsidiariesentered into bankruptcy proceedings. For more information, see ‘‘Business Description — Litigation’’.

From September 2000, Mr. Rietzler held 20% of the shares and was a managing director (Geschaftsfuhrer)of Louda Systems GmbH. Mr. Rietzler left Louda Systems GmbH, Gersthofen (Germany), in May 2001. LoudaSystems GmbH entered into bankruptcy proceedings in 2003.

As a restructuring and corporate finance specialist for Roland Berger Strategy Consultants and Partner in theCompetence Center Restructuring and Corporate Finance, Dr. Christian Fischer advised a significant number of ailingcompanies between 1999 and 2003. As of January 2004, Dr. Fischer was appointed the chief financial officer andchief restructuring officer of Walter Bau-AG with the specific mandate to restructure the company and prepare themerger with Ed. Zueblin AG. As of June 2004, Dr. Fischer was appointed to the Board of Directors of Walter

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Construction Group Limited in Australia, a 100 % subsidiary of Walter Bau-AG. As of February 1, 2005, themanagement board of Walter Bau-AG and Walter Construction Group Limited voted to open insolvency proceedings.Pursuant to local rules in Queensland, Australia, all persons who were directors of Walter Construction Group Limitedat the time of the opening of the insolvency proceedings were automatically precluded from being a director, secretaryor influential person for a company licensed in the building services area in Queensland for a period of five years.Together with the Walter Bau-AG insolvency administrator, Werner Schneider, Dr. Fischer developed andimplemented the restructuring concept until December 2005 when he decided to join SMARTRAC.

Upon nomination of Dresdner Bank Lateinamerika AG. Professor Dr. Bernd Fahrholz was appointed as anon-executive director to the board of the Argentine bank Banco General de Negocios S.A. in April 2001. InJanuary 2002, upon obtaining knowledge of alleged severe fraudulent activities within Banco General deNegocios S.A., Professor Dr. Fahrholz immediately resigned from this position. As became public later, thesefraudulent activities had been perpetrated for several years without having been detected by either internal orexternal audits. Banco General de Negocios S.A. ultimately became insolvent and went into liquidation.

Conflicts of Interest of Members of the Management Board, Supervisory Board and Senior Management

With respect to potential conflicts of interests of members of the Management Board, Supervisory Board andSenior Management, see under ‘‘Related Party Transactions’’. Except as described under ‘‘Related PartyTransactions’’, to the best knowledge of the Company, there are no potential conflicts of interest between theduties of any member of the Management Board, Supervisory Board or Senior Management to the Company andtheir private interests or other duties.

No member of the Management Board, Supervisory Board or Senior Management has entered into a servicecontract with any company of the SMARTRAC Group which provides for benefits upon termination ofemployment.

Mr. Rietzler and Mr. Kuschewski are second cousins. Other than that, no members of the ManagementBoard, Supervisory Board and Senior Management are related to each other.

Stock Option Plan

The Company has implemented a stock option plan to permit its Management Board, its Supervisory Boardand selected employees to participate in our continued success following completion of the Global Offer.

In connection with the new stock option plan that the Company recently implemented, it intends to grant themembers of the Management and Supervisory Boards, as well as Senior Management and selected employees(who can be determined by the Management Board in its absolute discretion), rights to purchase shares in theCompany (the ‘‘Stock Options’’). The exercise price for the Stock Options issued within six weeks of theadmission of the Company’s shares to trading will be the Offer Price. The exercise price for Stock Options issuedthereafter will correspond to the weighted average price of the Company’s shares (based on XETRA closingvaluations) during the ten business days immediately preceding the grant of the Stock Options. Each StockOption entitles its holder to purchase one share of the Company. Under the current plan, Stock Options can begranted for a period ending December 31, 2009. The number of Stock Options granted under the stock optionplan may not exceed 5% of the Company’s issued share capital immediately following the Global Offer. Inaddition, the number of Stock Options that can be granted to the Management Board and the Supervisory Boardis limited to 1.0% and 0.5 %, respectively, of the Company’s issued share capital immediately following theGlobal Offer. The remaining Stock Options can be granted to the employees of the Company or its affiliates. TheSupervisory Board is responsible for making decisions relating to the issuance of Stock Options to members ofthe Management Board. With respect to members of the Supervisory Board and employees, these decisions are tobe made by the Management Board. In addition, the Management Board may from time to time resolve to extendor reduce the categories of eligible participants in the stock option plan. Stock Options may only be grantedwithin three weeks after publication of the quarterly results. In addition, a minimum holding period of two yearsapplies. The Stock Options expire unless exercised within six years. Outstanding non-assignable Stock Optionsmay only be exercised in multiples of 100 and may not be exercised during any four week period endingimmediately prior to the scheduled publication of the Company’s quarterly reports. In addition, Dutch andGerman insider laws must be strictly observed when exercising the Stock Options. If a change of controlinvolving the Company occurs, the Management Board may terminate the stock option plan. In such event, allholders of outstanding Stock Options shall receive from the Company compensation equal to the hightest priceper share paid by the person or persons acquiring control of the Company less the applicable exercise price forthe relevant Stock Option. If, in case of a change of control, the compensation offered to the Company’s

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shareholders are shares or other securities, the Management Board shall in good faith determine the fair value ofsuch shares or other securities for purposes of calculation of the compensation payment.

Employment and Severance Agreements

New employment contracts have been entered into between the Company and Mr. Rietzler and Dr. Fischerin February 2006. The term of the employment contracts runs for the duration of their appointment as membersof the Management Board. Both members of the Management Board have been granted a right to extraordinarytermination of their employment contracts in the event of a change of control in the Company (defined as theacquisition of more than 50% of the shares in the Company by a third party).

Directors Insurance and Indemnification

In order to attract and retain qualified and talented persons to serve as members of the Management Board,Supervisory Board, Senior Management or in other senior management functions in respect of a sector, region,product group or other internal company structure or segment, the Company provides such persons withprotection through a directors’ and officers’ insurance policy. Under this policy, any of the Company’s past,present or future directors or officers or the directors or officers of any of the Company’s subsidiaries will beinsured against any claim made against any one of them for any wrongful act in their respective capacities asdirectors or officers, except for and to the extent that they are separately indemnified by us. The policy also coversthe Company’s losses arising from any such indemnified claim, but only when and to the extent that the Companyis legally required or permitted to indemnify the directors or officers for such loss.

Further, pursuant to the Articles of Association, the Company will indemnify each member of theManagement Board or Supervisory Board, executive or holder of a power of attorney of the Company and eachformer member of the Management Board or Supervisory Board, executive or attorney of the Company who wasor is involved, or threatens to become involved, in that capacity as a party to any past, present or anticipatedfuture actions or proceedings of any nature whatsoever, against all conceivable financial loss or harm that he hasin fact and in all reasonableness suffered in connection with the actions or proceedings, to the extent that this ispermitted. Such indemnification shall apply with respect to actions or proceedings taken or commenced either bya third party, including a shareholder and bondholder, or by the Company itself, on the understanding that if thedamage was caused by seriously culpable conduct on the part of the relevant member of the Management orSupervisory Board, executive or attorney or former member of the Management or Supervisory Board, executiveor attorney, no right to indemnification shall exist.

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PRINCIPAL AND SELLING SHAREHOLDERS

Selling Shareholders

Holdings Prior to the Global Offer and Participation in the Global Offer

The following table presents information about the ownership of the issued and outstanding ordinary sharesof the Company as of the date of this Prospectus for (i) each Selling Shareholder and (ii) each person or group ofaffiliated persons we know to beneficially own 5% or more of the Company’s issued and outstanding ordinaryshares. See ‘‘Description of the Company, the Share Capital and Corporate Governance — Share Capital.’’

Total Existing Shares to be sold inShares owned immediately after thethe Global Offer(1)

Global Offer(1)Existing Shares owned Without exerciseprior to the closing of Without exercise of With full exercise ofof the With full exercise

the Global Offer(1) the Greenshoe Option the Greenshoe OptionGreenshoe of the GreenshoeTotal % Option Option Total % Total %

Richard Bird(2) ********* 4,612,500 46.13 1,020,731 1,350,000 3,591,769 27.63 3,262,500 25.10

Manfred Rietzler(3)(4) **** 3,125,500 31.26 75,610 100,000 3,049,890 23.46 3,025,500 23.27

TCL Netherlands B.V.(5) 1,370,000 13.70 370,488 490,000 999,512 7.69 880,000 6.77

Ronald Brown ********* 100,000 1.00 7,561 10,000 92,439 0.71 90,000 0.69

Wolfgang Schneider***** 500,000 5.00 75,610 100,000 424,390 3.26 400,000 3.08

Other(6) *************** 292,000 2.92 0 0 292,000 2.25 292,000 2.25

Free Float************* 0 0 0 0 4,550,000 35.00 5,050,000 38.85

Total***************** 10,000,000 100 1,550,000 2,050,000 13,000,000 100 13,000,000 100

(1) Columns may not add due to rounding.

(2) The holding is indirect. The shares are directly held by RB Netherlands B.V., which is a fully owned subsidiary of RB Holding Ltd., acorporation incorporated in Malta and 100% owned by Mr. Richard Bird. The amount reflects that Mr. Bird (acting through RB HoldingLtd) has transferred 18,750 shares with a par value of then 41.00 to Dr. Fischer in February 2006.

(3) This amount reflects that Manfred Rietzler (acting through ICM Holding Ltd.) transferred 108,500 shares with a par value of then 41.00to Rosenberg Venture AG prior to this Global Offer. The amount also reflects that Mr. Rietzler (acting through ICM Holding Ltd.) hastransferred 18,750 shares with a par value of then 41.00 to Dr. Fischer in February 2006.

(4) The holding is indirect. The shares are directly held by ICM Netherlands B.V., which is a fully owned subsidiary of ICM Holding Ltd., acorporation incorporated in Malta, which is in turn a fully owned subsidiary of Intec Holding Ltd., a corporation incorporated in Maltaand 100% owned by Mr. Manfred Rietzler.

(5) All of the shares in TCL Netherlands B.V. are held by TCL Holding Ltd., a corporation incorporated in Malta all of the shares of whichare held by Padma Ltd. 92.7% of the shares in Padma Ltd., a corporation incorporated in Malta, are held by Ms. Elisabeth Rietzler and7.3% of the shares in Padma Ltd. are held by Mr. Martin Kuschewski.

(6) This number includes 75,000 shares held by Dr. Fischer’s wife and two daughters, Dr. Fischer had acquired 18,750 shares from Mr. Bird(acting through RB Holding Ltd) and 18,750 shares from Mr. Rietzler (acting through ICM Holding Ltd), each with a par value of then41.00. Dr. Fischer then transferred on these shares to his wife and two daughters in equal parts.

Except as disclosed above, we are not aware of any person who, as of the date of this Prospectus, directly orindirectly, has an interest as beneficial owner in shares which represent 5% or more of issued and outstandingshares of the Company.

The Selling Shareholders have the same voting rights as other holders of ordinary shares.

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RELATED PARTY TRANSACTIONS

Relationship with Mr. Bird and entities controlled by Richard Bird

The SMARTRAC Group has entered into the following transactions with its major shareholder and memberof the Supervisory Board, Richard Bird, in the Company’s fiscal years 2003, 2004 and 2005:

Guarantee by Mr. Bird

The Company has borrowed a total of 46,527 thousand under short-term borrowings from Deutsche BankThailand. These short term borrowings are secured by standby letters of credit issued by Deutsche Bank AG,Singapore Branch, which are in turn guaranteed by Mr. Bird. A description of this short-term borrowing can befound under ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources — Historical Debt’’.

Loan from Mr. Bird

Mr. Bird has granted us a loan in the amount of 4792 thousand. This loan has no maturity date and bearsinterest at the rate of 2.5% per annum. The loan was assumed by the Group on October 5, 2005 in conjunctionwith the acquisition of a business by Smartrac Technology Pte Ltd.

Acquisitions of assets from Safehaven Investment Ltd and Safehaven Trading Ltd

In 2002, as part of the bankruptcy proceedings for AmaTech AG, AmaTech Automation GmbH and otherAmaTech AG subsidiaries (see under ‘‘Business’’), the SMARTRAC Group acquired certain assets from theAmaTech Automation GmbH bankruptcy administrator. The acquisition of these assets was financed bySafehaven Investments Ltd, Hong Kong, and Safehaven Trading Ltd, Singapore. Both Safehaven Investments Ltdand Safehaven Trading Ltd are entities 100% controlled by Mr. Bird. SMARTRAC repaid this financing in twoinstallments of approximately 41.53 million due in 2003 and 41.55 million due in 2004. No further payments arepayable under these financings from SMARTRAC to Safehaven Investment Ltd; payments in the total amount of4480 thousand are payable by SMARTRAC to Safehaven Trading Ltd by the end of 2006.

Relationship with Mr. Rietzler and Intec Holding GmbH

From 2003 to 2005, SMARTRAC received technical support, including consulting services, office space andspare parts from Intec Holding GmbH, a company incorporated in Germany and 100% owned by Mr. Rietzler.The aggregate consideration paid by SMARTRAC amounted to approximately 4299 thousand in 2003,approximately 4276 thousand in 2004 and approximately 4211 thousand in 2005. It has been agreed that from2006 on, no further consulting services will be rendered from Intec Holding GmbH to SMARTRAC.

In addition, the Company uses patents, patent applications and other intellectual property of Intec HoldingGmbH free of charge, among them the trademark for Durasoft/P. It is intended to transfer these patents, patentapplications and other intellectual property to SMARTRAC at no charge.

Relationships with Smartrac Technology AG (now Emsquares AG) and Smartrac Technology Inc.

Sales of the SMARTRAC-Group in the U.S. and Germany were in the past carried out through SmartracTechnology AG, Germany, and Smartrac Technology Inc., U.S., entities that were controlled by the sameshareholders as those of Smartrac Technology Ltd, Thailand, the subsidiary of the Company and primaryoperating company of the SMARTRAC Group. After a reorganization of the sales processes of the SMARTRACGroup, such sales processes no longer involve these entities. Smartrac Technology Inc. has since been liquidated.The majority of the shares of Smartrac Technology AG was sold to employees in a management buy-out in 2004,and Smartrac Technology AG changed its name into Emsquares AG. The Company’s major shareholder andmember of the Management Board, Manfred Rietzler, continues to hold 12.3% of the shares of Emsquares AG,and the Company’s shareholder and member of Senior Management Martin Kuschewski continues to hold 20%of the shares in Emsquares AG.

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In 2004, Smartrac Technology Ltd, Thailand, sold standard components to Smartrac Technology AG in anamount of approximately 481 thousand (2003: approximately 41.71 million) and purchased goods and servicesfrom Smartrac Technology AG in an amount of 40 (2003: approximately 4183 thousand) from SmartracTechnology AG. In 2005, Smartrac Technology Ltd, Thailand, sold standard components to Smartrac TechnologyAG in an amount of approximately 48 thousand and purchased goods and services from Smartrac Technology AGin an amount of approximately 419 thousand.

In 2004, Smartrac Technology Ltd, Thailand, sold standard components to Smartrac Technology Inc. in anamount of approximately 41 thousand (2003: approximately 4260 thousand) and purchased goods and servicesfrom Smartrac Technology Inc. in an amount of approximately 41 thousand (2003: approximately 472 thousand).No further transactions between Smartrac Technology Ltd, Thailand, and Smartrac Technology Inc. took place in2005.

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DESCRIPTION OF THE COMPANY, THE SHARE CAPITAL AND CORPORATE GOVERNANCE

General

SMARTRAC is a public company with limited liability (naamloze vennootschap) incorporated onJanuary 23, 2006 under Dutch law. The Company is established for an indefinite term and is registered with theTrade Register of the Chamber of Commerce and Industry (Kamer van Koophandel en Fabrieken) of Amsterdam,The Netherlands under number 34241345. As a public company with limited liability incorporated underNetherlands law, the Company is subject to the laws of The Netherlands. The Company’s corporate seat is inAmsterdam, The Netherlands. The Company’s business address is Parnassusweg 103, 1077DE Amsterdam, TheNetherlands (tel: +31 (0)20 5755 600).

On February 8, 2006, the General Meeting of Shareholders of the Company resolved to amend the Articlesof Association. The amendment came into effect on March 9, 2006.

Set out below is a summary of certain relevant information concerning the Company, its share capital,certain significant provisions of Dutch corporate law and a brief summary of certain provisions of the Company’sArticles of Association.

This summary does not purport to give a complete overview and should be read in conjunction with theCompany’s Articles of Association, or with relevant provisions of Dutch law, and does not constitute legal adviceregarding these matters and should not be considered as such. The full text of the Company’s Articles ofAssociation is available, in Dutch and English, at the Company’s registered office in Amsterdam during regularbusiness hours. The Articles of Association are also available in Dutch and English, on the Company’s website atwww.smartrac-group.com and at the trade register of the Chamber of Commerce and Industry in Amsterdam. See‘‘General Information’’.

Corporate Purposes

Pursuant to Article 3 of the Company’s Articles of Association, the Company’s corporate purposes are:

) to incorporate, to participate in any way whatsoever, to manage, to supervise, to operate and to promoteenterprises, businesses and companies;

) to finance businesses and companies;

) to borrow, to lend and to raise funds, including the issue of bonds, promissory notes or other securities orevidence of indebtedness as well as to enter into agreements in connection with the aforementioned;

) to supply advice and to render services to enterprises and companies with which the Company forms agroup and to third parties;

) to render guarantees, to bind the Company and to pledge its assets for obligations of the companies andenterprises with which it forms a group and on behalf of third parties;

) to obtain, alienate, manage and exploit registered property and items of property in general;

) to trade in currencies, securities and items of property in general;

) to develop and trade in patent, trade marks, licenses, know-how and other industrial property rights; and

) to perform any and all activity of industrial, financial or commercial nature;

as well as everything pertaining to the foregoing, relating thereto or conducive thereto, all in the widestsense of the word.

Share Capital

Authorized and Issued Share Capital

At the time of its establishment, the Company’s authorized share capital amounted to 425,000,000 and wasdivided into 25,000,000 ordinary shares each with a par value of 41.00; the issued share capital of the Companyamounted to 45,000,000 and was divided into 5,000,000 ordinary shares with a par value of 41.00. OnFebruary 8, 2006, the General Meeting of Shareholders resolved by way of an amendment of the Articles ofAssociation to split each ordinary share with a par value of 41.00 into two ordinary shares with a par value of40.50. The amendment came into effect on March 9, 2006. Following this stock split and as of the date of thisProspectus, the Company’s authorized capital amounts to 425,000,000 and is divided into 50,000,000 ordinary

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bearer shares each with a par value of 40.50. The Management Board has been authorized to utilize theauthorized capital until March 9, 2011 and to exclude the pre-emptive rights for the issuance of new ordinarybearer shares, see ‘‘— Pre-emption Rights’’ below.

The issued share capital of the Company currently amounts to 45,000,000 and is divided into 10,000,000ordinary bearer shares with a par value of 40.50. Currently, none of the issued ordinary shares in the Company’sshare capital are held by the Company or any of its subsidiaries.

All ordinary bearer shares that are issued and outstanding at the date of this Prospectus are fully paid up.

After the capital increase in connection with the Global Offer, the Company expects to have up to13,000,000 ordinary bearer shares issued and outstanding. Information on the extent of immediate dilutionresulting from the Global Offer will be published in the form of a supplement (in the meaning of article 16 of theProspectus Directive) to this Prospectus pertaining to the price range within which purchase orders may besubmitted. On this supplement see ‘‘The Global Offer — Price Range, Offering Period, Offer Price andAllotment’’.

Issue of Shares

The Articles of Association provide that the Company may issue ordinary shares and rights to subscribe forshares. Under the Articles of Association, the issuance of shares and rights to subscribe for shares may only beeffectuated pursuant to a resolution of the General Meeting of Shareholders or by the Management Board if theauthority to issue shares and rights to subscribe for shares has been delegated to the Management Board in theArticles of Association or by means of a resolution of the General Meeting of Shareholders for a fixed period oftime not exceeding five years. The General Meeting of Shareholders resolved on February 8, 2006 to amend theArticles of Association, including an authorization of the Management Board for a period of five years (beginningMarch 9, 2005) to issue shares, or to issue rights to take shares, until the issued share capital amounts to413,000,000.

No resolution of the Management Board or of any other body of the Company is required for an issue ofshares pursuant to the exercise of a previously granted right to subscribe for shares.

Pre-emption Rights

Dutch law and the Company’s Articles of Association give shareholders pre-emption rights (if not limited orexcluded) to subscribe on a pro rata basis for any issue of new shares or upon a grant of rights to subscribe forshares, subject to certain exceptions. Exceptions to these pre-emption rights include the issue of shares and thegrant of rights to subscribe for shares (i) to employees of the Company or of another company in theSMARTRAC Group, (ii) in return for non-cash consideration, or (iii) the issue of shares to persons exercising apreviously-granted right to subscribe for shares.

A shareholder may exercise pre-emption rights during a period of at least two weeks after the date of theannouncement of the issue or grant. The pre-emption rights may be limited or excluded by a resolution of theGeneral Meeting of Shareholders or by the Management Board if the General Meeting of Shareholders hasdelegated this authority to the Management Board in the Articles of Association or by resolution for a fixedperiod not exceeding five years. A resolution by the General Meeting of Shareholders to delegate to theManagement Board the authority to exclude or restrict pre-emption rights will require a majority of at least two-thirds of the votes cast, if less than 50% of the Company’s issued share capital is present or represented at theGeneral Meeting of Shareholders. If the General Meeting of Shareholders has not delegated this authority to theManagement Board, the General Meeting of Shareholders may itself vote to restrict or exclude pre-emption rightsand will also require a majority of at least two-thirds of the votes cast, if less than 50% of the Company’s issuedshare capital is present or represented at the General Meeting of Shareholders.

The Articles of Association provide that the Management board is entitled to limit or exclude the pre-emptive right for a period of five years ending March 9, 2011. For more information, see ‘‘Risk Factors —Shareholders may face dilution if the Company decides to raise capital in the future through public or privateequity securities or convertible debt.’’

Reduction of Share Capital

The General Meeting of Shareholders may resolve to reduce the Company’s issued and outstanding sharecapital by cancelling shares of the Company, or by amending the Company’s Articles of Association to reducethe par value of the Company’s shares. The decision to reduce the Company’s share capital requires a majority of

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at least two-thirds of the votes cast, if less than 50% of the Company’s issued share capital is present orrepresented at the General Meeting of Shareholders.

Dividends and Other Distributions

The Company may only make distributions to its shareholders to the extent the Company’s shareholders’equity exceeds the sum of the paid-in and called-up share capital plus the reserves as required to be maintained byDutch law or by the Company’s Articles of Association. Under the Company’s Articles of Association, the profitsshown in the adopted annual accounts shall first be applied to the reserves to such an amount as the ManagementBoard shall determine. The remaining profit shall be at the unrestricted disposal of the General Meeting ofShareholders.

The Company may only make a distribution of dividends to its shareholders after the adoption of theCompany’s statutory annual accounts demonstrating that such distribution is legally permitted. The ManagementBoard is permitted however, subject to certain requirements, to declare interim dividends.

Claims to dividends and other distributions not made within five years from the date that such dividends ordistributions became payable will lapse and any such amounts will be considered to have been forfeited to theCompany (verjaring).

Acquisition of Own Shares

The Company may acquire its own fully paid shares at any time for no consideration (om niet), or, subject tocertain provisions of Dutch law and the Company’s Articles of Association, if (i) the Company’s shareholders’equity less the payment required to make the acquisition, does not fall below the sum of called-up and paid-inshare capital and any statutory reserves, and (ii) the Company and its subsidiaries would thereafter not holdshares or hold a pledge over the Company’s shares with an aggregate nominal value exceeding 10% of theCompany’s issued share capital.

Other than those shares acquired for no consideration, shares may only be acquired subject to a resolution ofthe Management Board, authorized by the General Meeting of Shareholders. Authorization from the GeneralMeeting of Shareholders to acquire the Company’s shares must specify the number of shares that may beacquired, the manner in which shares may be acquired and the price range within which shares may be acquired.Such authorization will be valid for no more than 18 months.

The General Meeting of Shareholders has authorized the Management Board on February 8, 2006 for aperiod of 18 months to repurchase up to 10% of the issued share capital of the Company at the time of repurchasefor a minimum consideration of at least 80% of the stock price of the Company’s ordinary shares at the date ofsuch repurchase and a maximum consideration of 120% of such stock price of the Company’s ordinary shares atthe date of such repurchase.

Any shares the Company holds in its own capital may not be voted or counted for voting and quorumpurposes.

Issue of Options

The Management Board may issue options to purchase the Company’s ordinary shares, as described in‘‘Management and Employees — Remuneration and Equity Holdings — Stock Option Plan’’, being new shares oragainst shares the Company holds or acquires for such purpose. An issue of new shares for the purpose of issuingoptions must be done in accordance with the manner set out in the Company’s Articles of Association, asdescribed above. The issuance of options to members of the Management Board is subject to the approval of theSupervisory Board. The General Meeting of Shareholders has approved on February 8, 2006 that theManagement Board may receive options up to 1% of the issued share capital of the Company immediatelyfollowing the Offering under the terms and conditions the Stock Option Plan of the Company.

Corporate Governance

General Meetings of Shareholders and Voting Rights

The annual General Meeting of Shareholders must be held within six months after the end of each financialyear. An Extraordinary General Meeting of Shareholders may be convened by any member of the ManagementBoard or of the Supervisory Board. Shareholders representing alone or in aggregate at least one-tenth of theCompany’s issued and outstanding share capital may, pursuant to the Dutch Civil Code and the Company’sArticles of Association, request that a General Meeting of Shareholders be convened. If such General Meeting of

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Shareholders has not been called in such a manner that the meeting can be held within four weeks after therequest has been made, the shareholders requesting such General Meeting of Shareholders are authorized to callsuch General Meeting of Shareholders themselves.

The notice convening any General Meeting of Shareholders must include an agenda indicating the items fordiscussion included therein by the Management Board and Supervisory Board. The agenda shall further includesuch items as one or more shareholders and others entitled to attend the meetings, representing at least 1% of theCompany’s issued and outstanding share capital or by one or more shareholders collectively representing a valueof at least 450.000.000 (or any other amount determined by order in counsel (algemene maatregel van bestuur))have requested the Management Board to include on the agenda, provided the Company receives such proposalsno later than the 60th day before the General Meeting of Shareholders, and provided that such proposal does notconflict with the Company’s important interest, the Company will have the proposals included in the notice itpublishes in a national newspaper in The Netherlands as well as in a reputable financial news publication in eachof the other countries in which the Company’s shares are admitted to listing on a stock exchange as well as in anyother publication as required in connection with the listing at least 15 days before the meeting.

The Management Board may determine a record date to establish which shareholders are entitled to attendand vote in the General Meeting of Shareholders.

Each of the Company’s ordinary shares is entitled to one vote. Shareholders may vote by proxy. The votingrights attached to any of the Company’s shares held by itself are suspended as long as they are held in treasury.

Decisions of the General Meeting of Shareholders are taken by an absolute majority of the votes validly cast,except where Dutch law or the Company’s Articles of Association provide for a special majority. Unless a largerquorum is stipulated elsewhere in the Articles of Association or by law, resolutions by the General Meeting ofShareholders can only be passed if at least one fifth of the issued share capital is represented. If such a quorum isnot present, a second meeting shall be called within six weeks (but not earlier than within three weeks) in whichthe resolution can be passed with an absolute majority of the votes validly cast irrespective of the share capitalrepresented at the meeting.

Under the Articles of Association, resolutions by the General Meeting of Shareholders

) to amend the Articles of Association;

) on a statutory merger (juridische fusie);

) on a legal demerger (juridische splitsing); and

) on the dissolution of the Company

shall be capable of being passed with an absolute majority of the votes cast if the proposal to that effect has beenmade by the Management Board. If such proposal has not been made by the Management Board, then theseresolutions shall only be capable of being passed with a majority of at least two thirds of the votes validly cast atthe General Meeting of Shareholders in which at least 75% of the issued share capital is represented, all unlessprovided otherwise by mandatory law.

If at any General Meeting of Shareholders a quorum provided for in the Articles of Association is not met, asecond meeting shall be called unless the Articles of Association provide otherwise. This second meeting shall becapable of passing the resolution with an absolute majority of the votes validly cast, irrespective of the sharecapital present. The convocation of the second meeting shall state that and why a resolution can be adopted in thesecond meeting irrespective of the share capital present or represented.

Dutch Corporate Governance Code

On December 9, 2003, the Dutch Corporate Governance Committee, also known as the TabaksblatCommittee, released the Dutch Corporate Governance Code (the ‘‘Code’’). The Code contains 21 principles and113 best practice provisions for management boards, supervisory boards, shareholders and general meetings ofshareholders, financial reporting, auditing, disclosure, compliance and enforcement standards.

Dutch companies listed on a government-recognized stock exchange, whether in The Netherlands orelsewhere, are required under Dutch law to disclose in their annual reports whether or not they apply theprovisions of the Code that are addressed to the management board or supervisory board and, if they do notapply, to explain the reasons why. This disclosure requirement commenced with those annual reports for financialyears beginning on or after January 1, 2004. The Code provides that if a company’s general meeting of

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shareholders explicitly approves the corporate governance structure and policy and endorses the explanation forany deviation from the best practice provisions, such company will be deemed to have applied the Code.

The Company acknowledges the importance of good corporate governance. The Management Board andSupervisory Board have reviewed the Code, agree with its basic provisions and goals, and therefore intend tosubstantially comply with the best practice provisions of the Code. At the date of this Prospectus, the Companydoes not apply the following provisions of the Code:

) The Company departs from best practice provision II.2.1 of the Code. The vesting period of optionsgranted to the members of the Management Board is two years and not three years as provided by bestpractice provision II.2.1 of the Code. The explanation for this deviation from the Code is that the vestingperiod for options granted to employees is also two years and that there is in our view no reason to treatthe members of the Management Board differently.

) In addition, best practice provision II.2.1 provides that a member of the Management Board has to fulfillpre-determined performance criteria in order to be entitled to exercise the options. Our Stock Option planmakes the exercise of the Stock Options not dependent on the fulfillment of certain pre-determinedperformance criteria but only on the lapse of a vesting period of two years. The exercise price for theStock Options is equal to the average share price over a certain period preceding the date of grant. It willdepend on the performance of the Management Board whether the stock option price for the Company’sShares will be higher after the vesting period than the exercise price. The Company is of the opinion thatadditional specific performance criteria are not required.

) The Company deviates from best practice provision II.2.4 of the Code which provides that the exerciseprice for Stock Options shall be fixed at a level not lower than a verifiable price average in accordancewith the official listing during a pre-determined period of not more than five trading days prior to the dayon which options are granted. The Company’s stock option plan provides for a pre-determined period often trading days. The Company believes that the average price over a period of ten trading days gives afairer exercise price than the average price over a period of five trading days because more trading daysare taken into account.

) The Company deviates from best practice provision III.7.1 of the Code which provides that a Companyshall not grant options to a member of the Supervisory Board. According to the Company’s stock optionplan it can grant options to members of the Supervisory Board. The reason for this deviation is that theCompany believes that the granting of options to a member of the Supervisory Board does not have anynegative influence upon the performance of that member of the Supervisory Board. It is a way to attractqualified members of the Supervisory Board.

) The Company deviates from the best practice provision IV.1.1 of the Code which provides that in case acorporate body like the Supervisory Board has the right to make a binding nomination with respect to theappointment of members of the Management Board the shareholders meeting can overrule such a bindingnomination by an absolute majority of the votes validly cast representing at least one third of the issuedshare capital is represented. According to the Company’s Articles of Association the General Meeting ofShareholders can only overrule a binding nomination by the Supervisory Board in respect of theappointment and dismissal of members of the Management Board by a majority of two thirds of the votesvalidly cast representing more than 50% of the issued share capital. The reason for the deviation is that theCompany is of the opinion that the Supervisory Board should have significant influence over theappointment and the dismissal of members of the Management Board. Such significant influence shouldstrengthen the continuity of the management of the Company.

Dissolution and Liquidation

The Company may only be dissolved by a resolution of the General Meeting of Shareholders passed with anabsolute majority of the votes cast if the proposal to that effect has been made by the Management Board. If suchproposal has not been made by the Management Board, then these resolutions shall only be capable of beingpassed with a majority of at least two thirds of the votes validly cast in the General Meeting of Shareholders inwhich at least 75% of the issued share capital is represented.

In the event of dissolution, the Company’s business will be liquidated in accordance with Dutch law and theCompany’s Articles of Association and the liquidation shall be arranged by the Management Board undersupervision of the Supervisory Board, unless the General Meeting of Shareholders appoints other liquidators.During the liquidation proceedings, the provisions of the Company’s Articles of Association will remain in forceas far as possible.

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The balance of the Company’s remaining equity after payment of debts and liquidation costs will bedistributed to the shareholders in proportion to the number of ordinary shares that such shareholder holds.

Liability of Directors

Under Dutch law, members of management may be liable to the Company for damages in the event ofimproper or negligent performance of their duties. They may be jointly and severally liable for damages to theCompany and to third parties for infringement of the Company’s Articles of Association or of certain provisionsof the Dutch Civil Code. In certain circumstances, members of management may also incur additional specificcivil and criminal liabilities. Members of the Management Board and certain executive officers are insured underan insurance policy against damages resulting from their conduct when acting in the capacities as such membersor officers. Also, the Company provides the members of the Management Board and members of the Company’sSupervisory Board with protection through indemnification by the Company to the fullest extent permitted by lawagainst risks of claims and actions against them arising out of their service to and activities on behalf of theCompany. See also ‘‘Management and Employees — Directors Indemnification and Insurance’’.

Disclosure of Information

The Company must promptly disclose all new facts relating to its business that are not publicly known andthat could materially affect the market price of its shares. The Company’s shares will be listed in Germany, andthe Company is, therefore, subject to essentially the same obligation to disclose new facts under German law.Dutch and German laws contain specific rules intended to prevent insider trading and price manipulation.Pursuant to these rules, the Company has adopted a code of conduct in respect of the reporting and regulation oftransactions in its securities. Also, as the Company’s shares will be listed on the official market of the FSE and onthe sub-sector of the official market with additional obligations arising from admission (Prime Standard), theCompany will be required to prepare and publish audited consolidated annual financial statements within fourmonths from the balance sheet date, and to prepare on the same basis, and publish quarterly consolidatedfinancial statements for each of the first three quarters of the Company’s financial year within two months fromthe end of each relevant quarter.

Obligations of Shareholders to Make a Public Offer

Currently, there is no obligation under Dutch law for a shareholder whose interest in a company’s sharecapital or voting rights passes a certain threshold to launch a public offer for all or part of the outstanding sharesin the share capital of the company. However, when the EU Takeover Directive is implemented in TheNetherlands, a shareholder who has acquired an interest in the Company’s share capital or voting rights thatexceeds a certain threshold will be obliged to launch a public offer for all outstanding shares in the Company’sshare capital unless an exception applies. The legislative proposal that was submitted on December 23, 2005 forthe implementation of the EU Takeover Directive in The Netherlands proposes to set such threshold at 30%.

Although the Company’s shares will be listed in Germany, the Company does not qualify as a ‘‘targetcompany’’ (Zielgesellschaft) under the German Takeover Act (Wertpapiererwerbs- und Ubernahmegesetz)because it is not incorporated in Germany. There is no obligation, therefore, under German law to launch a publicoffer upon reaching certain share capital or voting right thresholds in the Company.

Dutch Squeeze-out Proceedings

Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who for its own account holds at least95 percent of the Company’s issued share capital may institute proceedings against the Company’s joint othershareholders (gezamelijke minderheidsaandeelshouders) for the transfer of their shares to the claimant. Theproceedings are held before the Enterprise Chamber of the Court of Appeal in Amsterdam (ondernemingskamervan het gerechtshof te Amsterdam) and must be instituted by means of a writ of summons served upon theminority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure (Wetboek vanBurgerlijke Rechtsvordering). The Enterprise Chamber may only grant the claim for squeeze out in relation to allminority shareholders and will determine the price to be paid for the shares, if necessary after appointment of oneor three experts who will give an opinion to the Enterprise Chamber on the value to be paid for the shares of theminority shareholders. Once the order to transfer of the Enterprise Chamber becomes final, the person acquiringthe shares shall give written notice of the date and place of payment and the price to the holders of the shares tobe acquired whose addresses are known to him. Unless the addresses of all of them are known to him, he shallalso publish the same in a daily newspaper with a national circulation.

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With the implementation of the EU Takeover Directive, the rules for squeeze out procedures will besupplemented. The legislative proposal for the implementation of the Takeover Directive explicitly confirms thatthe offeror under a public offer is also entitled to start a squeeze out procedure if it holds on its own account 95%of the issued share capital. If there is an obligation to make a mandatory public offer, the price in the public offer,in principle, also has to be accepted by minority shareholders in a squeeze out. In the event of a voluntary publicoffer, the offered price is in principle the price at which minority shareholders can be squeezed out if 90 percentof the shares have been acquired at such a price in the public offer. The claim of a squeeze out needs to be filedwith the Enterprise Chamber within three months after the end of the period for tendering shares in the publicoffer. Should the offeror’s offer of a squeeze out not be forthcoming, the legislative proposal for theimplementation of the Takeover Directive also entitles those minority shareholders that have not previouslytendered their shares to the right of a squeeze out. This right will be conditional on the offeror having acquired95 percent of the share capital and representing at least 95 percent of the voting rights. The same procedure as forsqueeze out procedures initiated by an offeror applies to the price and the claim also needs to be filed with theEnterprise Chamber within three months after the end of the period for tendering shares into the public offer.

Obligations of Shareholders to Disclose Holdings

Shareholding Disclosure and Reporting Obligations under German law

Upon the admission of the shares to trading pursuant to an official listing on the FSE, as a company listed onthe FSE, the Company will become subject to the provisions of the German Securities Trading Act (Wertpapier-handelsgesetz) with respect to shareholder disclosure and reporting duties. The German Securities Trading Actprovides that a company incorporated outside Germany but listed on the regulated market of a German stockexchange is obligated to publish in an official national publication for statutory stock market notices approved bythe stock exchanges in the Federal Republic of Germany (Borsenpflichtblatt) the fact that any person’s votinginterest in it attains, exceeds or falls below 5%, 10%, 25%, 50% or 75% through acquisition, sale or other means.Such publication has to be made within nine calendar days of obtaining knowledge of such fact. Evidence of thepublication has to be submitted to the BaFin. In connection with this requirement, the German Securities TradingAct contains several provisions that are designed to ensure that shareholdings are attributed to those persons whoactually control the voting rights associated with the shares. For example, shares owned by a third-party companyare attributable to a company controlling such third-party company. Shares held by a third-party company onbehalf of a company or on behalf of the companies controlled by such company are attributed to such company.Failure to comply with the publication duty may result in the imposition of a fine.

Shareholding Disclosure and Reporting Obligations under Dutch law

Current Regime

Holders of the Company’s shares may be subject to disclosure and reporting obligations under the Dutch1996 Act on Disclosure of Holdings in Listed Companies (Wet melding zeggenschap in ter beurze genoteerdevennootschappen 1996) (the ‘‘Disclosure of Holdings Act’’). Pursuant to the Disclosure of Holdings Act, anyperson holding an interest in the Company’s capital and/or voting rights at the time of admission of theCompany’s shares to listing on the FSE, must give written notice to the Company and, by means of a standardform, the AFM within four weeks of such admission, unless such person holds less than 5% of the capital andvoting rights of the Company. In addition, any person who, directly or indirectly, acquires or disposes of aninterest in the Company’s capital and/or voting rights must without delay give written notice of such acquisitionor disposal to the Company and, by means of a standard form, to the AFM if, as a result of such acquisition ordisposal, the percentage of capital interest and/or voting rights held by such person falls within a differentpercentage range than prior to such acquisition or disposal. The percentage ranges referred to in the Disclosure ofHoldings Act are 0-5%, 5-10%, 10-25%, 25-50%, 50-662/3% and over 662/3%. The term ‘‘shares’’ within themeaning of the Disclosure of Holdings Act includes depository receipts issued for shares and rights under anagreement to acquire shares or depository receipts issued for shares.

Pursuant to section 2a of the Disclosure of Holdings Act, every member of the Company’s ManagementBoard and Supervisory Board must notify the Company and the AFM (a) without delay after the shares have beenadmitted to listing on the FSE, of the number of Shares he holds and the number of votes he is entitled to cast inrespect of the Company’s issued capital, and subsequently (b) of each change in the number of Shares he holdsand each change in the number of votes he is entitled to cast in respect of the Company’s issued capitalimmediately after such change. If a member of the Company’s Management Board is a legal entity, the abovenotification obligations will apply mutatis mutandis to the natural persons determining the day-to-day policy of

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such legal entity and to the natural persons supervising the management policy and the general course of affairsthereof.

Non-compliance with the obligations of the Disclosure of Holdings Act is an economic offence and maylead to criminal prosecution. The AFM may impose administrative penalties or a cease-and-desist order underpenalty for non-compliance. In addition, a civil court can impose measures against any person who fails to notifyor incorrectly notifies the Company or the AFM of matters required to be correctly notified under the Disclosureof Holdings Act. A claim requiring that such measures be imposed may be instituted by the Company and/or oneor more shareholders who alone or together with others represent(s) at least 5% of the Company’s issued sharecapital.

The measures that the civil court may impose include:

) an order requiring the person violating the Disclosure of Holdings Act to make appropriate disclosure;

) suspension of voting rights in respect of such person’s shares for a period of up to three years asdetermined by the court;

) voiding a resolution adopted by the General Meeting of Shareholders, if the court determines that theresolution would not have been adopted but for the exercise of the voting rights of the person who isobliged to notify, or suspension of a resolution until the court makes a decision about such voiding; and

) an order to the person violating the Disclosure of Holdings Act to refrain, during a period of up to fiveyears as determined by the court, from acquiring our shares and/or voting rights in our shares.

Expected New Regime

On July 3, 2003, a legislative proposal was submitted in The Netherlands to replace the Disclosure ofHoldings Act. This legislative proposal, entitled the Act on Disclosure of Voting and Capital Interest in ListedCompanies (Wet Melding Zeggenschap en Kapitaalbelang in Effectenuitgevende Instellingen) (the ‘‘Act onDisclosure’’) is pending in Parliament and is expected to come into force in the summer of 2006. The proposal,subsequent ministerial memoranda of amendments and the draft implementation decree (Besluit ter uitvoeringvan de Wet melding zeggenschap en kapitaalbelang in effectenuitgevende instellingen) currently include thefollowing material changes with regard to the notification obligations of shareholders in Dutch listed companies:

) a shareholder will be required to notify within four weeks the AFM if on December 31, at 12 a.m. that thecomposition of its substantial interest compared to its previous notification has changed due to (i) theconversion of a ‘‘potential’’ interest into an actual interest (for example, the conversion of a convertiblebond into shares) or (ii) the exercise of rights pursuant to an agreement to acquire voting rights or viceversa; and

) a shareholder will be required to notify the AFM whenever the percentage of its capital interest (in termsof capital or voting rights) exceeds or falls below the revised threshold of 5%, 10%, 15%, 20%, 25%,30%, 40%, 50%, 60%, 75% or 95% of the Company’s issued and outstanding share capital.

The Act on Disclosure will implement part of the Transparency Directive (2004/109/EC). The Act onDisclosure also introduces more extensive notification obligations for listed companies themselves with respect tochanges in their issued and outstanding capital and the voting power that can be exercised.

Disclosure on ‘‘directors’ dealings’’

Disclosure requirements under German law

Following the Company’s application for admission to trading of its shares, all persons carrying managerialresponsibilities (‘‘Executives’’) in the Company and other persons related to such persons (‘‘Relatives’’) mustpursuant to Section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz) notify the Company andthe BaFin in writing of their own dealings in the Company’s shares or related financial instruments within fiveworking days of the transaction. The Company is then required to publish such notification and submit a copy ofsuch publication to the BaFin without undue delay. Executives within the meaning of Section 15a of the GermanSecurities Trading Act (Wertpapierhandelsgesetz) include (i) members of any management, administrative orsupervisory body of the issuer, and (ii) any other individuals who have regular access to insider information andare authorized to take substantial entrepreneurial decisions not subject to the approval of the Management Board.Relatives are spouses, registered life partners (eingetragene Lebenspartner), dependent children and otherrelatives who have been living in the Executive’s household for at least one year. Legal entities (juristischePersonen) for which an Executive or a Relative performs executive tasks are also covered by these rules. These

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provisions further apply to partnerships and legal entities which are directly or indirectly controlled by, have beenestablished for the benefit of, or whose economic interests are closely linked to, an Executive or a Relative.

Dealings below an aggregate volume of 45,000 per calendar year (calculated as the total volume of alltransactions conducted by the Executive and his or her Relatives) are exempted from the disclosure obligation.

Dutch Securities Act of 1995

Pursuant to the Dutch 1995 Act on the Supervision of the Securities Trade (Wet toezicht effectenverkeer1995, the ‘‘Dutch Securities Act of 1995’’) members of the Company’s Management and Supervisory Boards andany other person discharging day-to-day (co) managerial responsibilities or having the authority to makedecisions affecting the Company’s future developments and business prospects and who has regular access toinside information relating, directly or indirectly, to the Company, are required to notify the AFM of theexistence of transactions conducted on his own account in shares of the Company or in securities the value ofwhich is determined by the value of the shares of the Company.

In addition, persons designated by the governmental decree promulgated under the Dutch Securities Act of1995 dated September 14, 2005 (Besluit Marktmisbruik) (the ‘‘Market Abuse Decree’’) who are closelyassociated with our members of our Management Board, Supervisory Board or any of the key managers (asdescribed above), are required to notify the AFM of the existence of any transactions conducted on their ownaccount relating to the Company’s shares or securities which value is determined by the value of the Company’sshares. The Market Abuse Decree defines the following categories of persons: (i) the spouse or any partnerconsidered by national law as equivalent to the spouse, (ii) dependent children, (iii) other relatives who haveshared the same household for at least one year at the relevant transaction date, (iv) any legal person, trust orpartnership, amongst other things, whose managerial responsibilities are discharged by a person referred to under(i), (ii) or (iii) above.

The AFM shall be notified of transactions relating to the shares of the Company or securities which have avalue that is determined by the value of the shares of the Company within five business days following thetransaction date. This notification may be postponed until the date the value of the transactions amounts to 45,000or more per calendar year.

The Company is also required to have a code of conduct in respect of the reporting and regulation oftransactions in its securities by the members of the Management Board and the Supervisory Board as well as ofemployees of the SMARTRAC Group and to draw up a list of persons working for the Company, under a contractof employment or otherwise, who could have access to inside information, to regularly update this list of personsand to inform persons on this list about the relevant prohibitions and sanctions in respect of insider information(voorwetenschap) and market abuse.

The AFM keeps a public register of all notifications made pursuant to the Dutch Securities Act of 1995.

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MARKET INFORMATION

Frankfurt Stock Exchange

The Company has applied for admission of the Shares to listing and trading on the official market of the FSEand on the sub-sector of the official market with additional obligations arising from admission (Prime Standard).Due to its listing in Germany, the Company will be subject to German securities regulations, in particular withregard to insider trading and disclosure of information and will also be subject to supervision by the BaFin inthese areas.

In addition, due to its listing on the sub-sector of the official market of the FSE with additional obligationsarising from admission (Prime Standard), the Company will be obligated to:

) present its consolidated financial statements according to IFRS or U.S. GAAP;

) publish its quarterly reports with certain minimum information;

) publish an annual financial calendar;

) hold an annual analyst conference at least once a year; and

) publish any ad-hoc announcements in accordance with the German Securities Trading Act (Wertpapier-handelsgesetz) simultaneously in English.

Market Regulation

The market regulator for the supervision of market conduct in The Netherlands is the AFM. The AFM alsohas supervisory powers with respect to the application of takeover regulations. As the Company does not haveany securities that are admitted to trading on a regulated market in The Netherlands, Dutch rules relating to thepublication of insider information with respect to the Company do not apply. Pursuant to the implementation ofthe Prospectus Directive 2003/71/EC in The Netherlands on July 1, 2005, the AFM in general is the competentauthority for approving prospectuses relating to an offering or listing of shares of issuers who have their corporateseat in The Netherlands.

The market regulator in Germany is the BaFin. The BaFin is the competent authority in Germany forapproving all prospectuses published for admission of securities to trading on the FSE (except for prospectusesapproved in other EEA states that are used in Germany in accordance with applicable passporting rules) and hassupervisory powers with respect to the publication of inside information by listed companies and marketmanipulation matters. German takeover regulations do not apply to the Company as its corporate domicile is notin Germany. The surveillance unit of the FSE will continue to monitor and supervise all trading operations onthe FSE.

This Prospectus was reviewed by the AFM as the Company’s corporate seat is in The Netherlands. TheProspectus was passported into Germany in accordance with the passporting rules of the Prospectus Directive.

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TAXATION

Taxation in Germany

The following section contains a short summary of certain German tax principles that may be or maybecome relevant with respect to the acquisition, holding, or transfer of the Shares. This summary is not and doesnot purport to be a comprehensive or exhaustive description of all German tax considerations that may berelevant to shareholders. In particular, it does not comprehensively treat the tax considerations that may apply toa shareholder that resides outside Germany, including foreign residents with a permanent establishment inGermany. The summary is based upon the domestic tax laws of the Federal Republic of Germany in effect as onthe date hereof and therefore does not take into account any amendments introduced at a later date andimplemented with or without retroactive effect. The relevant rules as well as their interpretation by the Germantax courts or tax authorities may change, possibly with retroactive effect.

Shareholders or prospective shareholders are therefore strongly advised to consult their tax advisersregarding the tax consequences of any purchase, ownership or disposal of the Shares. The specific taxsituation of each shareholder can only be adequately addressed by individual tax advice.

Taxation of Dividends

If an individual who is a tax resident of Germany (i.e., a person whose residence or habitual abode is locatedin Germany) holds Shares as non-business (private) assets, 50% of all dividends are included in taxableinvestment income (the ‘‘half-income method’’, Halbeinkunfteverfahren). These taxable dividends are subject to aprogressive income tax rate (up to 42%), plus a 5.5% solidarity surcharge thereon (i.e., an aggregate maximumrate of up to 44.31%). Only one half of the expenses having an economic nexus with these dividends(Werbungskosten) are tax-deductible.

Individuals who hold Shares as non-business (private) assets are entitled to a ‘‘savers’ exemption’’(Sparerfreibetrag) in the amount of 41,370 (or 42,740 for married couples filing jointly) per calendar year withrespect to their investment income. In addition, such persons are entitled to a lump-sum deduction in the amountof 451 (or 4102 for married couples filing jointly) for expenses (Werbungskostenpauschale), unless proof ofhigher income-producing expenses is furnished. 50% of the shareholder’s dividends, plus other investmentincome, are subject to taxation only if and to the extent they exceed the savers’ exemption after deduction ofactual expenses (in the case of dividends, only a 50% deduction applies) or the lump-sum deduction for expenses.

If the Shares form part of a business property, taxation depends upon whether the shareholder is acorporation, sole proprietor or partnership.

) Dividend income received by resident corporations (i.e., corporations whose registered domicile oreffective place of management of control is located in Germany) is generally exempt from corporateincome tax and the solidarity surcharge. However, 5% of the dividends are deemed to be non-deductiblebusiness expenses for tax purposes and, as such, are subject to corporate income tax at a rate of 25%, plusa 5.5% solidarity surcharge thereon (which add up to a total tax liability of approximately 26.375%).Besides this, actual business expenses directly related to the dividends are deductible.

) If the Shares form part of the business property of a sole proprietor (Einzelunternehmer) who is a taxresident of Germany, one half of the dividends is considered income for purposes of calculating theshareholder’s income tax liability. Only one half of the business expenses having an economic nexus tothe dividends is tax-deductible.

) If the shareholder is a partnership, personal income tax or corporate income tax is assessed only at thelevel of each partner. If the partner is a corporation, dividends are generally tax-exempt; however 5% areconsidered non-deductible business expenses and, therefore, subject to corporate income tax at a rate of25% (plus solidarity surcharge thereon). If the partner is an individual, one half of the dividends is subjectto personal income tax at a rate of up to 42%, plus solidarity surcharge thereon.

If an individual shareholder is a tax resident of Germany, all or part of the Dutch withholding tax which waswithheld from the dividends and which is not refundable under the Tax Treaty between Germany and TheNetherlands may be credited against the shareholder’s personal income tax liability if evidenced by a withholdingcertificate. Alternatively, an individual shareholder may, under certain circumstances, elect to deduct the non-refundable Dutch withholding tax in determining his or her taxable income.

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If a corporate shareholder is a tax resident of Germany, Dutch withholding tax which was withheld from thedividends and which is not refundable under the Tax Treaty between Germany and The Netherlands may not becredited against the shareholder’s corporate income tax liability.

If the Shares form part of a business property dividends will also generally be subject to trade tax. Thecorporate income tax and personal income tax exemptions described above (95% exemption on dividends forcorporations, 50% exemption on dividends for individuals) should apply to trade tax accordingly if theshareholder has held at least 10% of the Issuer’s registered share capital since the beginning of the relevant taxassessment period. In all other cases, the full amount of dividend payments will be subject to trade tax.

If the shareholder to whom the dividends are taxable (including a partner of a partnership holding theShares) is an individual, trade tax is partly or entirely creditable against the shareholder’s personal income taxliability depending on the applicable trade tax rate and the individual circumstances.

If a shareholder not resident in Germany holds the Shares as part of the business property of a permanentestablishment or fixed base in Germany or as part of a business property for which a permanent representative inGermany has been appointed, rules similar to those described for the taxation of resident shareholders apply.

Taxation Under the Foreign Tax Act

If shareholders resident in Germany and certain expatriate German citizens (former residents) in theaggregate, directly or indirectly, should hold more than 50% of the issued share capital or of the voting rights ofthe Issuer, under German controlled foreign corporation legislation, any German resident shareholder’s pro ratashare in certain passive income (including, for example, but without limitation, certain interest income) earned bythe Issuer and subject to a low-tax regime (i.e., in principle an effective tax burden of less than 25%) may betaxed to such shareholder, irrespective of whether such income is distributed or retained by the Issuer. Upondistribution of a dividend, the attribution of non-distributed income may be reversed or the dividend may beexempt from German tax. Moreover, any single shareholder resident in Germany may be taxed on his pro ratashare in certain investment type income derived by the Issuer or its subsidiaries and subject to a low-tax regime(as defined under German tax law) irrespective of whether this income is distributed by the Issuer.

Taxation of Capital Gains

Half of the capital gains realized on the disposition of Shares held as non-business (private) assets by anindividual who is a tax resident of Germany are generally subject to income tax plus solidarity surcharge, if thedisposition takes place within one year after the acquisition of the Shares. Capital gains are not taxed if, incombination with other profits from personal sales transactions in the same calendar year, they total less than4512. A capital loss may be off-set only against capital gains from private transactions during the same calendaryear or, absent such profits, against positive income from private disposition transactions of the previous year orsubsequent years if certain requirements are met.

If the Shares are held as non-business (private) assets of an individual who is a tax resident of Germany, halfof the capital gains realized on the disposition of Shares is subject to taxation based upon the applicableindividual income tax rate, plus a solidarity surcharge in the amount of 5.5% thereon, even after expiration of theaforementioned one-year period, if the individual or, in the event of a gratuitous transfer, the individual’s legalpredecessor or, in the event of several successive gratuitous transfers, any legal predecessor of the individual has,at any point during the five years immediately preceding the transfer, held, directly or indirectly, at least 1% ofthe share capital of the Issuer. Generally, only half of the losses from the disposition of Shares and half of theexpenses having an economic nexus thereto may be claimed as tax deductions.

If the Shares form part of a business property, the taxation of capital gains realized on the disposition ofShares depends upon whether the shareholder is a corporation, sole proprietor, or partnership.

) Capital gains realized on the disposition of Shares by taxpayers resident in Germany and subject tocorporate income tax are generally, irrespective of the amount and holding period of the investment,exempt from corporate income tax (including solidarity surcharge); however, 5% of capital gains areconsidered non-deductible business expenses and, as such, are subject to corporate income tax (plussolidarity surcharge). Losses incurred from dispositions of Shares or any other reductions of profits relatedto such Shares generally do not qualify as tax-deductible business expenses.

) If the Shares form part of the business property of a sole proprietor (Einzelunternehmer) who is a taxresident of Germany, half of the capital gains realized on the disposition of the Shares are subject to

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income tax and the solidarity surcharge. Likewise, only half of the losses from the disposition of theShares and half of the expenses having an economic nexus thereto may be claimed as tax deductions.

) If the shareholder is a partnership, personal income tax or corporate income tax is assessed only at thelevel of each partner. Taxation depends upon whether the partner is a corporation or an individual: if thepartner is a corporation, 95% of capital gains generally are tax-exempt. If the partner is an individual, halfof the capital gains are subject to income tax, plus solidarity surcharge.

In addition, if the Shares form part of the business property of a permanent establishment maintained inGermany, capital gains realized on the disposition of the Shares are generally also subject to trade tax. Thecorporate income tax and personal income tax exemptions described above (95% exemption on dividends forcorporations, 50% exemption on dividends for individuals) apply to trade tax accordingly if the business of theIssuer fulfils certain activity requirements and the shareholder has held at least 10% of the Issuer’s registeredshare capital since the beginning of the relevant tax assessment period.

If the Shares form part of the business property of a partnership trade tax is levied at the level of thepartnership. The corporate income tax and personal income tax exemptions described above (95% capital gainsexemption for corporations, half of the capital gains exemption for individuals) also apply accordingly forpurposes of trade tax to the extent the partnership has corporations or individuals, respectively, as partners. If thepartner to whom the dividends are taxable (including a partner of a partnership holding the Shares) is anindividual, the trade tax apportionable to that partner and paid by the partnership is generally credited against thepartner’s personal income tax liability in accordance with a lump-sum tax credit method.

If the Shares are sold by an individual who resides abroad and is subject to non-resident taxation in Germanyand if such individual holds the Shares as part of the business property of a permanent establishment or fixed basein Germany or as part of a business property for which a permanent representative in Germany has beenappointed, rules similar to those described for the taxation of resident shareholders apply.

Special rules for banks, financial services institutions, financial enterprises, life insurance and healthinsurance companies and pension funds

To the extent banks and financial service institutions hold Shares that are, pursuant to Section 1(12) of theGerman Banking Act (Kreditwesengesetz), attributable to the trading book (Handelsbuch), neither the so-calledhalf-income system (Halbeinkunfteverfahren) nor the tax exemption usually applicable to corporations applies todividends received or to capital gains or losses realized on the disposition of Shares; i.e., dividend income andcapital gains are fully subject to corporate income tax and, if applicable, trade tax. The same applies to Sharesthat were acquired by financial enterprises (within the meaning of the German Banking Act) in order to realizeshort-term trading gains (kurzfristige Eigenhandelserfolge). This also applies to banks, financial servicesinstitutions and financial enterprises with their seat in another member state of the European Union or anothermember state of the European Economic Area Treaty. In the same way, to the extent life insurance and healthinsurance companies or pension funds hold Shares that are attributable to their capital investments (Kapitalanla-gen), neither the so-called half-income system (Halbeinkunfteverfahren) nor the tax exemption applies todividends received or to capital gains realized on the disposition of Shares. Certain exceptions may apply tocorporate shareholders incorporated in another EU member state if the EU Parent-Subsidiary Directive (EUDirective 90/435/EEC dated July 23, 1990, as amended) is applicable to such shareholders.

Inheritance and gift tax

The transfer of Shares by way of inheritance or gift is subject to German inheritance and gift tax only if oneof the following circumstances applies:

(i) the testator, donor, heir, donee or any other beneficiary has his or her residence or habitual abode inGermany at the time of the transfer, or is a German citizen who has spent no more than five consecutiveyears outside Germany without maintaining a residence in Germany; or

(ii) regardless of these personal circumstances, the testator’s or donor’s Shares were held as part of abusiness property for which a permanent establishment is maintained in Germany or for which arepresentative in Germany was appointed at the time of the transfer.

Special rules apply to certain German expatriates and former German citizens.

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Other German taxes

No German stock exchange transfer tax, value added tax, stamp duty or similar tax is levied on theacquisition, the sale or other disposition of Shares. Under certain circumstances an entrepreneur may opt to havevalue added tax levied on a transaction involving the disposition of Shares, when such transaction is executed forthe enterprise of another entrepreneur. Net wealth tax (Vermogensteuer) is, at present, not levied in Germany.

Taxation in The Netherlands

General

The information set out below is a general summary of certain Dutch tax consequences in connection withthe acquisition, ownership and transfer of the Company’s ordinary shares. The summary does not purport to be acomprehensive description of all the Dutch tax considerations that may be relevant for a particular holder of theordinary shares, who may be subject to special tax treatment under any applicable law and this summary is notintended to be applicable in respect of all categories of holders of the ordinary shares. The summary is basedupon the tax laws of The Netherlands as in effect on the date of this Prospectus, as well as regulations, rulingsand decisions of The Netherlands and its taxing and other authorities available on or before such date and nowin effect. All of the foregoing is subject to change, which could apply retroactively and could affect the continuingvalidity of this summary. As this is a general summary, we recommend investors or shareholders to consult theirown tax advisers as to the Dutch or other tax consequences of the acquisition, ownership and transfer of theordinary shares, including, in particular, the application to their particular situations of the tax considerationsdiscussed below.

The following summary does not address the tax consequences arising in any jurisdiction other than TheNetherlands in connection with the acquisition, ownership and transfer of the ordinary shares.

Withholding Tax

Ordinary Shares

Dividends paid on the ordinary shares to a holder of such shares are generally subject to a withholding tax of25% imposed by The Netherlands. The term ‘‘dividends’’ for this purpose includes, but is not limited to:

) distributions in cash or in kind, deemed and constructive distributions, and repayments of paid-in capitalnot recognized for Dutch dividend withholding tax purposes;

) liquidation proceeds, proceeds of redemption of shares or, generally, consideration for the repurchase ofshares in excess of the average paid-in capital recognized for Dutch dividend withholding tax purposes;

) the par value of shares issued to a shareholder or an increase of the par value of shares, as the case maybe, to the extent that it does not appear that a contribution to the capital recognized for Dutch dividendwithholding tax purposes was made or will be made; and

) partial repayment of paid-in capital, recognized for Dutch dividend withholding tax purposes, if and to theextent that there are net profits (zuivere winst), within the meaning of the Dividend Withholding Tax Act1965 (Wet op de dividendbelasting 1965), unless the General Meeting of Shareholders has resolved inadvance to make such a repayment and provided that the par value of the shares concerned has beenreduced by a corresponding amount by way of an amendment of the Company’s Articles of Association.

A holder of the ordinary shares who is, or who is deemed to be, a resident of The Netherlands or, if he is anindividual, who opts to be taxed as a resident of The Netherlands for purposes of Dutch taxation (a ‘‘Resident ofThe Netherlands’’) and who is not a holder of shares which benefit from the Dutch participation exemption, asset out in the Dutch Corporate Income Tax Act of 1969 (Wet op de vennootschapsbelasting 1969), can generallycredit the withholding tax against his Dutch income tax or Dutch corporate income tax liability and is generallyentitled to a refund of dividend withholding taxes exceeding his aggregate Dutch income tax or Dutch corporateincome tax liability, provided certain conditions are met, unless such Resident of The Netherlands is notconsidered to be the beneficial owner of the dividends. A holder of the ordinary shares, who is the recipient ofdividends (the ‘‘Recipient’’) will generally not be considered the beneficial owner of the dividends if, generallyas a consequence of a combination of transactions, a person other than the Recipient wholly or partly benefitsfrom the dividends, whereby such person retains, directly or indirectly, an interest in the shares on which thedividends were paid and the person who retains, directly or indirectly, an interest in the shares on which thedividends were paid, is entitled to a credit, reduction or refund of dividend withholding tax that is less than that ofthe Recipient (‘‘Dividend Stripping’’).

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With respect to a holder of the ordinary shares, who is not treated as a resident or deemed resident of TheNetherlands for purposes of Dutch taxation and, in the event such holder is an individual, who has not opted to bea resident for purposes of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001) (a ‘‘Non-Resident ofThe Netherlands’’) and who is considered to be a resident of The Netherlands Antilles or Aruba under theprovisions of the Tax Convention for the Kingdom of The Netherlands (Belastingregeling voor het Koninkrijk), orwho is considered to be a resident of a country other than The Netherlands under the provisions of a doubletaxation convention The Netherlands has concluded with such country, the following may apply. Suchshareholder may, depending on the terms of and subject to compliance with the procedures for claiming benefitsunder the Tax Convention for the Kingdom of The Netherlands or such double taxation convention, be eligible fora full or partial exemption from or a reduction or refund of Dutch dividend withholding tax. In addition, subjectto certain conditions and based on Dutch legislation implementing the Parent Subsidiary Directive (Directive90/435/EEG, as amended) an exemption from Dutch dividend withholding tax will generally apply to dividendsdistributed to certain qualifying entities that are resident of another EU member state.

The concept of Dividend Stripping, described above, may also be applied to determine whether a Non-Resident of The Netherlands may be eligible for a full or partial exemption from, reduction or refund of Dutchdividend withholding tax.

Generally the dividend withholding tax will not be for the account of the Company.

Taxes on Income and Capital Gains

General

The description of taxation set out in this section of this Prospectus is not intended for any holder of theordinary shares, who is:

) an individual and for whom the income or capital gains derived from the ordinary shares are attributableto employment activities the income from which is taxable in The Netherlands;

) an individual and who holds, or is deemed to hold a substantial interest in us (as defined below);

) an entity that is a Resident of The Netherlands and that is not subject to or is exempt, in whole or in part,from Dutch corporate income tax; or

) an investment institution (beleggingsinstelling) as defined in the Dutch Corporate Income Tax Act 1969.

Generally a holder of ordinary shares will have a substantial interest in us (‘‘Substantial Interest’’) if heholds, alone or together with his partner, whether directly or indirectly, the ownership of, or certain other rightsover, shares representing 5% or more of the Company’s total issued and outstanding capital (or the issued andoutstanding capital of any class of shares), or rights to acquire shares, whether or not already issued, thatrepresent at any time 5% or more of the Company’s total issued and outstanding capital (or the issued andoutstanding capital of any class of shares) or the ownership of certain profit participating certificates that relate to5% or more of the annual profit and/or to 5% or more of the liquidation proceeds. A holder of the ordinary shareswill have a Substantial Interest in us if certain relatives of that holder or of his partner also have a SubstantialInterest in us. If a holder of ordinary shares does not have a Substantial Interest, a deemed Substantial Interestwill be present if (a) (part of) a Substantial Interest has been disposed of, or is deemed to have been disposed of,or (b) he is an individual and has transferred an enterprise in exchange for shares on a non-recognition basis.

Residents of The Netherlands

Individuals

A Resident of The Netherlands who is an individual and who holds the ordinary shares is subject to Dutchincome tax on income and/or capital gains derived from the ordinary shares at the progressive rates (up to 52%)if:

(i) the holder has an enterprise or an interest in an enterprise, to which enterprise the ordinary sharesare attributable; or

(ii) the holder derives income or capital gains from the ordinary shares that are taxable as benefits from‘‘miscellaneous activities’’ (resultaat uit overige werkzaamheden).

If conditions (i) and (ii) mentioned above do not apply, any holder of the ordinary shares who is anindividual will be subject to Dutch income tax on a deemed return regardless of the actual income and/or capitalgains benefits derived from the ordinary shares. The deemed return amounts to 4% of the average value of the

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holder’s net assets in the relevant fiscal year (including the ordinary shares) measured, in general, at thebeginning and end of the relevant fiscal year, insofar as that average of the net assets measured, in general, at thebeginning and end of every calendar year exceeds the exempt net asset amount (heffingvrij vermogen). Thedeemed return is taxed at a flat rate of 30%.

Entities

A Resident of The Netherlands who is an entity will generally be subject to Dutch corporate income tax withrespect to income and capital gains derived from the ordinary shares, provided that the income and capital gainsare not exempt under the provisions of the Dutch participation exemption. The participation exemption isgenerally available if the holder of the ordinary shares owns at least 5% of the Company’s nominal paid-up sharecapital. The Dutch corporate income tax rate is 25.5% over the first 422,689 of taxable income and 29.6% overthe taxable income exceeding 422,689.

Non-Residents of The Netherlands

A Non-Resident of The Netherlands who holds the ordinary shares is generally not subject to Dutch incomeor corporate income tax (other than dividend withholding tax described above) on the income and capital gainsderived from the ordinary shares, provided that:

) such Non-Resident of The Netherlands who is an individual does not derive profits from an enterprise ordeemed enterprise, whether as an entrepreneur (ondernemer) or pursuant to a co-entitlement to the networth of such enterprise (other than as an entrepreneur or a shareholder) which enterprisse is, in whole orin part, carried on through a permanent establishment or a permanent representative in The Netherlandsand to which enterprise or part of an enterprise, as the case may be, the ordinary shares are attributable ordeemed attributable;

) in the case of a Non-Resident of The Netherlands who is an individual does not derive income or capitalgains from the ordinary shares that are taxable as benefits from ‘‘miscellaneous activities’’ in TheNetherlands (resultaat uit overage werkzaamheden in Nederland);

) such Non-Resident of The Netherlands which is a corporate entity does not derive profits from anenterprise or deemed enterprise, which enterprise is, in whole or in part, carried out through a permanentestablishment or a permanent representative in The Netherlands (Nederlandse onderneming) and to whichenterprise or part of an enterprise, as the case may be, the ordinary shares are attributable or deemedattributable; and

) in the case of a Non-Resident of The Netherlands which is a corporate entity does not have a SubstantialInterest or deemed Substantial Interest in us, or if such holder does have such Substantial Interest, it formspart of the assets of an enterprise.

Gift, Estate or Inheritance Taxes

Dutch gift, estate or inheritance taxes will not be levied on the transfer of the ordinary shares by way of giftby or on the death of a holder, unless:

) the holder is or is deemed to be a resident of The Netherlands for the purpose of the relevant provisions;or

) the transfer is construed as an inheritance or bequest or as a gift made by or on behalf of a person who, atthe time of the gift or death, is or is deemed to be a resident of The Netherlands for the purpose of therelevant provisions; or

) the ordinary shares are attributable to an enterprise or part of an enterprise which is carried on through apermanent establishment or a permanent representative in The Netherlands; or

) the holder of such ordinary shares is entitled to a share in the profits of an enterprise effectively managedin The Netherlands, other than by way of the holding of securities or through an employment contract, towhich enterprise such ordinary shares are attributable.

For purposes of Dutch gift, estate and inheritance tax, an individual who is of Dutch nationality will bedeemed to be a resident of The Netherlands if he has been a resident in The Netherlands at any time during theten years preceding the date of the gift or his death. For purposes of Dutch gift tax, an individual who is not ofDutch nationality will be deemed to be resident of The Netherlands if he has been a resident in The Netherlandsat any time during the 12 months preceding the date of the gift.

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Value-Added Tax

There is no Dutch value-added tax payable in respect of payments in consideration for the Offer and sale ofthe ordinary shares.

Other Taxes and Duties

There is no Dutch registration tax, capital tax, customs duty, stamp duty or any other similar tax or dutyother than court fees payable in The Netherlands by a holder of the ordinary shares in respect of or in connectionwith the execution, delivery and enforcement by legal proceedings (including any foreign judgment in the courtsof The Netherlands) of the ordinary shares.

Residence

A holder of the ordinary shares will not become or be deemed to become a resident of The Netherlandssolely by reason of holding the ordinary shares.

Taxation in Switzerland

The discussion set forth below is a summary of the material Swiss tax consequences of the acquisition,ownership and disposition of the Shares. This summary is not exhaustive and it does not take into account anyspecial circumstances of any particular investor. It is given for informational purposes only and does not addressevery potential tax consequence of an investment in Shares under the laws of Switzerland.

This summary is based on the tax laws, regulations and regulatory practices of Switzerland as in effect onthe date hereof, which are subject to change (or subject to changes in interpretation), possibly with retroactiveeffect. Shareholders and potential investors are advised to consult their own tax adviser in light of theirparticular circumstances as to the Swiss tax laws, tax regulations and regulatory practices of the taxadministrations that could be relevant for them in connection with the acquisition, ownership and disposition ofthe Shares.

Taxation of Dividends

Preliminary remark

Dividend payments and similar cash or in-kind distributions made by the Company to a shareholder may besubject to Dutch withholding tax at a rate of 25% (see ‘‘Taxation in The Netherlands — Withholding Tax’’). Basedon the double taxation treaty concluded between Switzerland and The Netherlands, Swiss residents may beentitled to a full or partial refund of this withholding tax if meeting the refund requirements as set forth in thetreaty. The application for a refund must be filed on the tax form R-NL 1 (810) with the competent cantonal taxadministration.

Individuals

An individual who is a Swiss resident for tax purposes or a non-Swiss resident holding Shares as part of aSwiss permanent establishment is required to report any dividend payments (including dividends in kind,liquidation proceeds in excess of the nominal value of Shares, bonus shares) in the personal tax return or incomestatement relevant for Swiss income taxes and will be subject to federal, cantonal and communal tax on any nettaxable income for the respective tax period. Upon request, a tax credit may be granted for any non-refundableDutch withholding tax (Pauschale Steueranrechnung). Such request must be filed on the tax form DA-1 togetherwith the tax return.

Legal entities

Legal entities resident in Switzerland and non-Swiss resident legal entities holding Shares as part of a Swisspermanent establishment are required to recognize any taxable distributions received on the Shares in their profitand loss statement relevant for Swiss corporate income tax and will be subject to Swiss federal, cantonal andcommunal corporate income tax, as the case may be, on any net taxable earnings for such period. Upon request, atax credit may be granted for any non-refundable Dutch withholding tax (Pauschale Steueranrechnung). Suchrequest must be filed on the tax form DA-2 together with the tax return.

A participation relief (Beteiligungsabzug) may apply in respect to dividends received by a Swiss corporateentity or a foreign corporate entity holding Shares as part of a Swiss permanent establishment if the entity ownseither at least 20% of the dividend paying Company or Shares with a fair market value of at least CHF 2 million.

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Taxation of Capital Gains

Individuals

Swiss resident individuals holding Shares in their private property (Privatvermogen) will generally not besubject to any federal, cantonal or communal income taxation of gains realized upon disposal of the Shares.However, capital gains realized upon repurchase of Shares by the Company may be considered taxable income inthe amount of the difference between the repurchase price and the nominal value of the Shares if the Sharesrepurchased by the Company are not resold within a six year period or if the Shares are repurchased for a capitalreduction.

Swiss resident individuals holding Shares as part of their business assets (Geschaftsvermogen) or non-resident individuals holding Shares as part of their Swiss business operations or Swiss permanent establishmentare required to include any capital gain (or loss) in their income statements relevant for Swiss income taxes andwill be subject to federal, cantonal and communal tax on any net taxable income for the respective tax period.The same tax treatment applies to Swiss resident individuals who, for income tax purposes, are classified as‘‘professional securities dealers’’ (Wertschriftenhandler).

Legal entities

Legal entities resident in Switzerland and non-Swiss resident legal entities holding Shares as part of a Swisspermanent establishment are required to recognize any capital gains (or losses) upon disposal of the Shares intheir profit and loss statement relevant for Swiss corporate income tax and will be subject to Swiss federal,cantonal and communal corporate income tax, as the case may be, on any net taxable earnings for such period.

A participation relief (Beteiligungsabzug) may apply in respect to capital gains realized upon disposal of theShares if the Shares sold represented at least a 20% participation in the Company and were held as such for atleast one year.

Wealth Taxes

Swiss resident individuals and non-resident individuals holding Shares as part of their Swiss businessoperations or Swiss permanent establishment are required to report their Shares as part of their taxable wealth andwill be subject to a cantonal and communal wealth tax levied on the fair market value of the Shares if theindividual’s taxable net wealth exceeds the applicable allowances.

Taxation upon Acquisition and Disposal of Shares

The acquisition and disposal of the Shares may be subject to a federal transfer stamp tax (Umsatzabgabe) ofup to 0.3% on the sale proceeds if the sale occurs through or with a Swiss or Liechtenstein bank or othersecurities dealer as defined in the Swiss Federal Stamp Tax Act.

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THE GLOBAL OFFER

Introduction

The Global Offer consists of an offering of up to 3,000,000 New Shares by the Company and up to1,550,000 Existing Shares by the Selling Shareholders. In addition, over-allotments of up to 500,000 existingordinary shares of the Company provided by the Selling Shareholders to Deutsche Bank, acting for the account ofthe Underwriters, may be effected as part of the Global Offer. The Company will apply for the admission of all ofits ordinary shares to listing and trading on the official market (Amtlicher Markt) of the FSE and the sub-sector ofthe official market with additional obligations arising from admission (Prime Standard).

The Global Offer consists of a public offering in Germany and Switzerland and private placements outsideGermany, Switzerland and the United States to institutional investors. The Company will receive the net proceedsfrom the sale of the New Shares but will not receive any proceeds from the sale of Existing Shares, all of whichwill be paid to the Selling Shareholders. The issue of the New Shares is expected to take place on March 21, 2006at the earliest.

The rights of holders of New Shares and Existing Shares will rank pari passu with each other and with all ofthe Company’s other ordinary shares. In addition, the Selling Shareholders have granted to Deutsche Bank actingfor the account of the Underwriters, the Greenshoe Option, exercisable within 30 calendar days after thecommencement of trading of the shares of the Company on the official market of the FSE and on the sub-sectorof the official market with additional obligations arising from admission (Prime Standard), pursuant to whichDeutsche Bank as stabilization manager, acting for the account of the Underwriters, may require such SellingShareholders to sell up to 500,000 additional existing ordinary shares at the Offer Price. For more information onthe Greenshoe Option, see ‘‘Plan of Distribution — Stabilization/Potential Over-Allotments’’.

Price Range, Offering Period, Offer Price and Allotment

The price range within which purchase orders may be submitted, and definitive times for the start and end ofthe offering period, will be published on our website (www.smartrac-group.com) in the form of a supplement (inthe meaning of Article 16 of the Prospectus Directive) to this Prospectus and on an electronic information systemsuch as Reuters and Bloomberg. The supplement will also be available from the Company and the Underwritersat no charge during regular business hours. One bank workday in Frankfurt am Main after the price range hasbeen determined, a notice of the publication of the supplement will appear in the Frankfurter Allgemeine Zeitung.Starting March 14, 2006, the Company together with the Underwriters will begin marketing the Shares prior tothe announcement of the price range and the start of the offering period.

The Global Offer, during which investors will have the opportunity to submit offers to purchase the shares,will begin on Monday, March 20, 2006, at the earliest. The offering period will extend over approximately threebank workdays. The start and end of the offering period will be published together with the price range.Interested investors are asked to pay attention to announcements in the media mentioned in the precedingparagraph for information on the details of the Global Offer. During the offering period, offers to purchase sharesmay be submitted in the branch offices of the Underwriters. On the last day of the offering period, retail investorswill be able to submit offers to purchase shares until 12:00 p.m. CET, and institutional investors will be able tosubmit offers to purchase Shares until 2:00 p.m. CET.

The Company and the Selling Shareholders reserve the right, together with the Underwriters, to increase ordecrease the number of offered shares, to increase the upper limit and/or decrease the lower limit of the pricerange, and/or to extend or shorten the offering period. Changes in the number of offered shares, changes to theprice range or the extension or shortening of the offering period will not result in the expiration of the purchaseoffers which have already been submitted. Investors who agreed to purchase shares before a supplement (in themeaning of Article 16 of the Prospectus Directive) was published have the right to withdraw these purchaseoffers. Investors may also change these purchase offers submitted before the supplement was published or placenew limited or unlimited purchase offers within two bank workdays after publication of the supplement. To theextent that the terms of the Global Offer are changed, such change will be published by means of electronicinformation systems (such as Reuters or Bloomberg), and, if required by the German Securities Trading Act(Wertpapierhandelsgesetz), German Prospectus Act (Wertpapierprospektgesetz) or applicable Dutch law, as anad-hoc announcement and as a supplement (in the meaning of Article 16 of the Prospectus Directive) to thisProspectus. Investors who have submitted offers to purchase shares will not be individually notified.

After the expiration of the offering period, on March 22, 2006 at the earliest, the Offer Price will together beset by the Company, the Selling Shareholders and the Underwriters on the basis of an order book prepared during

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the bookbuilding process. The basis for the bookbuilding process will be the price range, which will be publishedprior to the start of the offering period in the form of a supplement (in the meaning of Article 16 of the ProspectusDirective) to this Prospectus. The determination of the Offer Price will depend upon the aforementioned orderbook, in which the offers to purchase the Shares have been collected. The offers to purchase will be evaluatedbased on the price bid and the expected orientation of the relevant investor. The Offer Price and the number ofshares offered will be determined on this basis, taking into account the goal of maximizing the proceeds. Inaddition, it will be considered whether, in light of the demand for the Company’s shares, the Offer Price and thenumber of Shares offered reasonably support the expectation that the share price in the secondary market willdevelop in a stable manner. The mix of investors that would result from a potential price and allotment, and theanticipated behaviour of investors will also be considered.

After the Offer Price has been set, the offered shares will be allotted to investors on the basis of the purchaseoffers then available. The Offer Price is expected to be published on March 22, 2006 at the earliest, by means ofan ad-hoc announcement on an electronic information system and on the Company’s website (www.smartrac-group.com), and, no earlier than the following bank workday, in the Frankfurter Allgemeine Zeitung. Investorswho have placed purchase orders with one of the Underwriters are expected to be able to obtain information fromthat Underwriter concerning the Offer Price and the number of shares allotted to them beginning on March 22,2006 at the earliest. Book-entry delivery of the allotted shares against payment of the Offer Price is expected tooccur two bank workdays following the first day of trading of the Company’s shares on the FSE. In case thenumber of offered shares is inadequate to fill all purchase orders at the Offer Price, the Underwriters reserve theright not to accept, or to only partially accept, offers to purchase shares.

Timetable

The timetable below lists certain expected key dates for the Global Offer.

Event Time and Date

Approval of the Prospectus by the AFM and notification to the BaFin ***** March 13, 2006

Publication of the Prospectus and the German summary on SMARTRAC’swebsite******************************************************* March 13, 2006

Notification of publication of the Prospectus in the Frankfurter AllgemeineZeitung; marketing to begin ************************************** March 14, 2006

Approval of the Prospectus supplement with respect to the price range bythe AFM and notification to the BaFin; publication of the Prospectussupplement including price range on SMARTRAC’s website *********** March 17, 2006 at the earliest

Notification of publication of the Prospectus supplement in the FrankfurterAllgemeine Zeitung; bookbuilding to begin************************** March 20, 2006 at the earliest

Admission resolution (Zulassungsbeschluss) by the FSE***************** One bank workday prior toexpiration of the offeringperiod

End of bookbuilding; pricing; expected allotment of Shares ************** March 22, 2006 at the earliest

First day of trading on the FSE ************************************* One bank workday after theexpiration of the offeringperiod

Settlement Date************************************************** Two bank workdays after thefirst day of trading on theFSE

The timetable for the Global Offer can be accelerated or extended.

The Prospectus and the German summary will be published on our website at www.smartrac-group.com. Inaddition, the Prospectus and the German summary are expected to be available as of March 13, 2006 from theCompany and the Underwriters at no charge during regular business hours.

General Allotment Criteria

There are no agreements on the allotment method between the Company, the Selling Shareholders and theUnderwriters before the offering period commences. The Company, the Selling Shareholders, and theUnderwriters intend to adhere to the ‘‘Principles for the Allotment of Share Issues to Retail Investors (Grundsatze

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fur die Zuteilung von Aktienemissionen an Privatanleger)’’ issued on June 7, 2000, by the Exchange Commissionof Experts (Borsensachverstandigenkommission) of the German Federal Ministry of Finance (Bundesministeriumder Finanzen) (the ‘‘Allotment Principles’’). After the end of the offering period, the Company, the SellingShareholders, and the Underwriters will determine the details of the allotment method and publish them inaccordance with the Allotment Principles.

Sole Global Coordinator and Joint Bookrunners

Deutsche Bank is acting as Sole Global Coordinator, and Deutsche Bank and UBS Investment Bank areacting as Joint Bookrunners and Lead Managers in connection with the Global Offer.

Designated Sponsors

Deutsche Bank and UBS Investment Bank will act as the designated sponsors of the Company’s ordinaryshares traded on the FSE with each of Deutsche Bank and UBS Investment Bank being entitled to designate anappropriately admitted third party to perform its functions. Pursuant to the designated sponsor agreementsbetween the Company and Deutsche Bank and UBS Investment Bank, respectively, Deutsche Bank and UBSInvestment Bank will, among other things, place limited purchase and sell orders for the Company’s shares in theelectronic trading system of the FSE during the daily trading time. By doing this, the Company expects that thedesignated sponsors will create a more liquid market for the shares.

Paying Agent and Depositary Agent

Deutsche Bank is the Paying Agent and Depositary Agent.

The address of Deutsche Bank is: Deutsche Bank Aktiengesellschaft, Post-IPO Services, Taunusanlage 12,60262 Frankfurt am Main, Germany.

Form and Representation of the Shares

The Company’s ordinary shares have been and, according to the Company’s current Articles of Association,will be issued as ordinary bearer shares with a par value of 40.50 each. The Company’s existing issued sharecapital in the amount of 45,000,000 will be represented by one or several global share certificates without globaldividend coupons, which will be deposited with Clearstream Banking AG, Frankfurt am Main. The New Sharesfrom the capital increase against cash contribution will be represented by an additional global share certificatewithout global dividend coupons, which will then be deposited with Clearstream Banking AG. The deposit of theglobal share certificate representing the New Shares with Clearstream Banking AG will occur no later than onebank workday before the close of the offering period. The Company’s Shares, which are the subject matter of theGlobal Offer, provide holders thereof with the same rights as all of the Company’s other shares and do notprovide any rights or advantages in excess thereof.

Payment, Delivery, Clearing and Settlement

Payment for the Shares and payment for any shares subject to the Greenshoe Option, provided thisGreenshoe Option has been exercised prior to the Settlement Date, will take place on the Settlement Date.

The Shares will be ordinary shares in bearer form. Application will be made for the Shares to be acceptedfor clearance through the book-entry facilities of Clearstream Banking AG, Frankfurt am Main.

Delivery of the Shares is expected to take place on March 27, 2006 at the earliest (the ‘‘Settlement Date’’)through the book-entry facilities of Clearstream Banking AG, Frankfurt am Main, in accordance with itssettlement procedures applicable to equity securities and against payment for the Shares in immediately availablefunds.

There are certain restrictions on the transfer of the Company’s registered book-entry shares, as detailed in‘‘Selling and Transfer Restrictions’’.

Share Trading Information

ISIN: NL 0000186633

German Securities Identification Number (WKN): AOJEHN

Common Code: 024774287

Trading Symbol: SM7

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Listing and Trading of the Ordinary Shares

On or about March 13, 2006, the Company will apply for admission of its entire current share capital and theadditional capital from the capital increase against cash contribution to the official market (Amtlicher Markt) ofthe FSE and simultaneously to the sub-sector of the official market with additional obligations arising fromadmission (Prime Standard). The Company expects that its shares will be admitted to listing on the officialmarket (Amtlicher Markt) of the FSE and on the sub-sector of the official market with additional obligationsarising from admission (Prime Standard) one bank workday prior to the expiration of the offering period and thattrading in the Company’s ordinary shares on the FSE will commence one bank workday after the expiration ofthe offering period. The Settlement Date, upon which the closing of the Global Offer and delivery of the Shares isscheduled to take place, is expected to be two bank workdays after the first day of trading on the FSE.

Investors that wish to enter into transactions in the Company’s ordinary shares prior to the Settlement Dateshould be aware that the closing of the Global Offer may not take place on the Settlement Date or at all if certainconditions or events referred to in the Underwriting Agreement (see ‘‘Plan of Distribution’’) are not satisfied orwaived or occur on or prior to such date. Such conditions include the receipt of officers’ certificates and legalopinions and such events include the suspension of trading on the FSE or a material adverse change in theCompany’s financial condition or business affairs or in the financial markets. If closing of the Global Offer doesnot take place on the Settlement Date or at all, the Global Offer will be withdrawn, all subscriptions for theShares will be disregarded, any allotments made will be deemed not to have been made, any subscriptionpayments made will be returned without interest or other compensation and all transactions in the Company’sordinary shares on the FSE will be cancelled. All dealings in the Company’s ordinary shares on the FSE prior tosettlement and delivery are at the sole risk of the parties concerned.

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PLAN OF DISTRIBUTION

The Global Offer includes an offering of up to 4,550,000 Shares consisting of a public offering in Germanyand Switzerland (including to certain institutional investors) and an offering to certain institutional investorsoutside Germany, Switzerland and the United States. The Selling Shareholders are offering up to 1,550,000Existing Shares in the Global Offer, and the Company is offering up to 3,000,000 New Shares in the GlobalOffer. Furthermore, over-allotments of up to 500,000 existing ordinary shares of the Company provided by theSelling Shareholders by way of a share lending agreement to Deutsche Bank, acting for the account of theUnderwriters, may be effected as part of the Global Offer.

Deutsche Bank is the Sole Global Coordinator, Deutsche Bank and UBS Investment Bank are JointBookrunners and Lead Managers, and Deutsche Bank is the Paying Agent and Depositary Agent. The fees andexpenses payable under the underwriting agreement (the ‘‘Underwriting Agreement’’) by the Company and theSelling Shareholders to the Underwriters are expected to amount to between 3.0% and 4.0% of the gross proceedsof the offering (i.e. proceeds from the Global Offer including over-allotments, if any), provided, however, that theminimum aggregate fees payable to the underwriters will amount to approximately 45 million depending on thesize of the offering proceeds. In addition, the Company and the Selling Shareholders may pay discretionary feesof up to 1.0% of the proceeds of the offering, (i.e. proceeds from the Global Offer and from any over-allotments,if any). Pursuant to the Underwriting Agreement entered into on March 9, 2006, the Underwriters will havecertain costs and expenses incurred in connection with the Global Offer reimbursed.

Subject to certain conditions set forth in the Underwriting Agreement among the Company, the SellingShareholders, and the Underwriters, the Company and the Selling Shareholders have agreed to sell to theUnderwriters, and the Underwriters have severally agreed to purchase from the Company and the SellingShareholders, the number of Shares listed opposite the names of the Underwriters below.

MaximumNumber

Underwriters of Shares

Deutsche Bank *********************************************************** 2,957,500

UBS Investment Bank ***************************************************** 1,592,500

Total ******************************************************************* 4,550,000

The Company expects that its shares will be admitted to trading on the FSE on the first bank workday priorto the expiration of the offering period, that trading will commence one bank workday after the expiration of theoffering period and that closing and settlement will occur two bank workdays after the first day of trading on theFSE. If the closing of the Global Offer does not take place on the Settlement Date or at all, the Global Offer willbe withdrawn, all subscriptions for the Shares will be disregarded, any allotments made will be deemed not tohave been made, any subscription payments made will be returned without interest or other compensation and alltransactions in the Company’s ordinary shares on the FSE will be cancelled. All dealings in the Company’sordinary shares on the FSE prior to settlement and delivery are at the sole risk of the parties concerned.

The Underwriters and any dealer purchasing from them have agreed to certain restrictions regarding theoffer and sale of the Shares as part of their distribution.

If an Underwriter defaults, the Underwriting Agreement provides that in certain circumstances, the purchasecommitment of the non-defaulting Underwriter may be increased or the Underwriting Agreement may beterminated.

In the Underwriting Agreement, the Company and each of the Selling Shareholders have made certainrepresentations and warranties and agreed to indemnify the several Underwriters against certain liabilities,including liabilities under the Securities Act.

The Underwriting Agreement provides that, upon the occurrence of certain events, such as a suspension ormaterial limitation in trading in securities generally on the New York Stock Exchange, the London StockExchange, a suspension or material limitation in trading securities generally on the Frankfurt Stock Exchange orthe New York Stock Exchange, a general moratorium on banking activities in Frankfurt, London or New Yorkdeclared by the relevant authorities or a material disruption in commercial banking or securities settlement orclearing services in the Federal Republic of Germany, the United Kingdom, The Netherlands, Thailand or theUnited States, a material loss or interference with respect to the Company’s business or that of any of itsSubsidiaries, any material adverse change, or any development involving a prospective material adverse change,in or affecting the Company’s or its Subsidiaries’ general affairs, business, prospects, management, consolidatedfinancial position, shareholders’ equity or result of operations, or certain other conditions, the Underwriters have

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the right, collectively but not individually, to withdraw from the Global Offer before delivery of the Shares if theyconsider it impracticable or inadvisable to proceed with the Global Offer. All dealings in the Company’s Shareson the FSE prior to settlement and delivery are at the sole risk of the parties concerned.

Lock-up Arrangements

The Company has agreed that, other than with the prior written consent of the Underwriters, the Companywill not during the period commencing on the Settlement Date and ending six months from the Settlement Date(A) announce or effect an increase of the share capital of the Company out of authorized capital, (B) submit aproposal for a capital increase to any meeting of the shareholders for resolution; or (C) announce to issue, effector submit a proposal for the issuance of any securities convertible into shares of the Company, with option rightsfor shares of the Company or any economically similar transaction. The Company may, however, issue shares inconnection with any acquisition, strategic partnership or joint venture, provided that the subscriber or transfereeof such Shares has agreed to comply with the restrictions on disposals described above.

RB Netherlands B.V., Richard Bird, TCL Netherlands B.V., Elisabeth Rietzler, Martin Kuschewski and RonBrown have agreed that, other than with the prior written consent of the Underwriters, they will not, during theperiod commencing on the Settlement Date and ending six months from the Settlement Date, and ICMNetherlands B.V., Manfred Rietzler and Dr. Christian Fischer (together with his family members holding sharesin the Company) have agreed that, other than with the prior written consent of the Underwriters, they will not,during the period commencing on the Settlement Date and ending twelve months from the Settlement Date,(A) offer, pledge, allot, sell, contract to sell, sell any option or contract to purchase, purchase any option to sell,grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any of theCompany’s shares or any securities convertible into or exercisable or exchangeable for the Company’s shares;(B) enter into any swap or other arrangement that transfers to another, in whole or in part, the economic risk ofownership of the Company’s shares; whether any such transaction described in clause (A) or (B) above is to besettled by delivery of the Company’s shares or such other securities, in cash or otherwise (C) make any demandfor or exercise any right with respect to, the registration under U.S. securities laws of any of the Company’sshares or any security convertible into or exercisable or exchangeable for the Company’s shares, or (D) proposeany increase in the Company’s share capital, vote in favor of such a proposed increase or otherwise support anycapital increase proposed with respect to the Company.

Stabilization/Potential Over-Allotments

In connection with the Global Offer, Deutsche Bank acts as stabilization manager and may, either by itselfor through affiliates, undertake measures aimed at supporting the exchange or market price of the Company’sshares (stabilization measures) in order to offset any selling pressure in those securities.

The stabilization manager is not obligated to initiate stabilization measures. Therefore, there is no guaranteethat stabilization measures will be initiated at all. In the event that stabilization measures are initiated, they can bestopped at any time without prior notification. Such measures may be taken as from the date on which trading inthe Company’s shares commences on the official market (Amtlicher Markt) of the FSE and must end no later thanon the thirtieth calendar day following such date, such period hereinafter referred to as the ‘‘StabilizationPeriod’’.

These measures may result in an exchange or market price of the Company’s shares that is higher than itwould be without taking such measures. In addition, the exchange or market price may reach a level that cannotbe maintained on a permanent basis.

In view of possible stabilization measures and in addition to the up to 4,550,000 Shares to be placed in theGlobal Offer, up to 500,000 additional of the Company’s ordinary shares may be allocated to investors inconnection with the allotment of shares in the Global Offer (so called over-allotment). The Company’s sharesrequired for a potential over-allotment have been temporarily provided to Deutsche Bank by the SellingShareholders on the basis of a share lending agreement at no charge.

In this context, the Selling Shareholders have granted to Deutsche Bank the Greenshoe Option to acquire upto 500,000 additional shares of the Company at the Offer Price (less agreed commissions), exercisable for30 calendar days following the commencement of trading in the Company’s shares on the official market(Amtlicher Markt) of the FSE. The Greenshoe Option may be exercised only to the extent shares have been over-allotted.

Following the end of the Stabilization Period, it will be announced within one week by publication in theFrankfurter Allgemeine Zeitung, whether or not a stabilization measure was undertaken, the date at which

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stabilization started, the date at which stabilization last occurred as well as well as the price range within suchwhich stabilization measures were carried out (for each date on which a stabilization measure was carried out).The exercise of the Greenshoe Option, the date of such exercise, as well as the period, number and type ofsecurities involved will also be publicly announced in the manner described above for the publication ofinformation regarding the undertaking of stabilization measures following the end of the Stabilization Period.

Relationships and Transactions with Directly Interested Parties

Deutsche Bank and its affiliates have from time to time been engaged in, and the Underwriters may in thefuture engage in, commercial banking, investment banking and financial advisory transactions and services in theordinary course of their business with us or any parties related to us; in particular, Deutsche Bank has granted asecured short-term borrowing to us, see ‘‘Management’s Discussion and Analysis and Results of Operation —Liquidity Capital Resources — Historical Debt’’. In addition, both Underwriters are employed as designatedsponsors of the shares of the Company. With respect to certain of these transactions and services, the sharing ofinformation is generally restricted for reasons of confidentiality, internal procedures or applicable rules andregulations (including those issued by the AFM). The Underwriters have received and will receive customary feesand commissions for these transactions and services and may come to have interests that may not be aligned orcould potentially conflict with your and our interests.

No Public Offering Outside Germany and Switzerland

No action has been or will be taken in any jurisdiction other than Germany and Switzerland that is directedat and would permit a public offering of the Shares, or the possession, circulation or distribution of thisProspectus or any other material relating to us or the Shares in any jurisdiction where action for that purpose isrequired. Accordingly, the Shares may not be offered or sold, directly or indirectly, and neither this Prospectusnor any other offering material or advertisements in connection with the Shares may be distributed or published,in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any suchcountry or jurisdiction.

Purchasers of the Shares may be required to pay stamp taxes and other charges in accordance with the lawsand practices of the country of purchase in addition to the Offer Price.

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SELLING AND TRANSFER RESTRICTIONS

European Economic Area

In relation to each member state of the European Economic Area which has implemented the ProspectusDirective (each, a ‘‘Relevant Member State’’), each Underwriter has represented and agreed that with effectfrom and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the‘‘Relevant Implementation Date’’) it has not made and will not make an offer of Shares to the public in thatRelevant Member State prior to the publication of a prospectus in relation to the Shares which has been approvedby the competent authority in that Relevant Member State or, where appropriate, approved in another RelevantMember State and notified to the competent authority in that Relevant Member State, all in accordance with theProspectus Directive, except that it may, with effect from and including the Relevant Implementation Date, makean offer of Shares to the public in that Relevant Member State at any time:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not soauthorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during thelast financial year; (2) total balance sheet assets of more than 443,000,000 and (3) an annual net turnover ofmore than 450,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances which do not require the publication by the Company of a prospectuspursuant to the Prospectus Directive.

For the purposes of this provision, the expression an ‘‘offer of Shares to the public’’ in relation to any Sharesin any Relevant Member State means the communication to persons in any form and by any means of sufficientinformation on the terms of the offer and the Shares to be offered so as to enable an investor to decide to purchaseor subscribe the Shares, as the same may be varied in that Relevant Member State by any measure implementingthe Prospectus Directive.

United Kingdom

Neither this Prospectus nor any other offering material has been submitted to the clearance procedures of theFinancial Services Authority in the United Kingdom. The Shares have not been offered or sold and, prior to theexpiry of a period of six months from the sale of the Shares, will not be offered or sold to persons in the UnitedKingdom except to ‘‘qualified investors’’ as defined in section 86 of the Financial Services and Markets Act 2000(the ‘‘FSMA’’).

Each Underwriter will represent, warrant and agree that: (i) it is a person whose ordinary activities involve itin acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of itsbusiness; (ii) it has not offered or sold and will not offer or sell the Shares other than to persons whose ordinaryactivities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) forthe purposes of their businesses; (iii) it has only communicated or caused to be communicated and will onlycommunicate or cause to be communicated an invitation or inducement to engage in investment activity (withinthe meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the Shares incircumstances in which section 21(1) of the FSMA does not apply to the Issuer or in respect of which anexemption (as set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005) applies;and (iv) it has complied and will comply with all applicable provisions of the FSMA with respect to anythingdone by it in relation to the Shares in, from or otherwise involving the United Kingdom.

France

Neither this Prospectus nor any other offering material relating to the Shares has been submitted to theclearance procedures of the Autorite des marches financiers in France. The Shares have not been offered or soldand will not be offered or sold, directly or indirectly, to the public in France. Neither this Prospectus nor anyother offering material relating to the Shares has been or will be (i) released, issued, distributed or caused to bereleased, issued or distributed to the public in France or (ii) used in connection with any offer for subscription orsale of the Shares to the public in France. Such offers, sales and distributions will be made in France only toqualified investors (investisseurs qualifies) and/or to a restricted circle of investors (cercle restreintd’investisseurs), in each case investing for their own account, all as defined in and in accordance withArticle L.411-2 of the French Code monetaire et financier and French Decree No. 98-880 dated October 1, 1998.Such Shares may be resold only in compliance with Articles L.411-1, L.411-2 and L.412-1 of the French Code

123

monetaire et financier. Investors in France and persons who come into possession of offering materials arerequired to inform themselves about and observe any such restrictions.

Japan

The Shares have not been and will not be registered under the Securities and Exchange Law of Japan (LawNo. 25 of 1948, as amended), and are not being offered or sold and may not be offered or sold, directly orindirectly, in Japan or to or for the account of any resident of Japan (which term as used herein includes anycorporation or other entity organized under the laws of Japan), or to others for offering or sale, directly orindirectly, in Japan or to, or for the account of, any resident of Japan, except (i) pursuant to an exemption fromthe registration requirements of the Securities and Exchange Law of Japan and (ii) in compliance with any otherapplicable requirements of Japanese law.

Spain

The offer of Shares has not been registered with the Comision Nacional del Mercado de Valores in Spain.Accordingly, no Shares will be offered or sold in Spain nor may this Prospectus or any other offer material bedistributed or targeted at Spanish resident investors save in compliance and in accordance with the requirementsof the Spanish Securities Market Law 24/1998, Royal Decree 291/1992 on Issues and Public Offers of Securities,both as amended, and any regulation issued thereunder.

Belgium

The Shares may not be offered publicly, directly or indirectly, in Belgium at the time of the Global Offer.The Global Offer has not been notified to, and the offering documents (including this Prospectus) have not beenapproved by, the Belgian Banking and Finance Commission. The Shares may be sold in Belgium only toprofessional investors as defined in Article 3 of the Royal Decree of July 7, 1999 on the public nature of financialtransactions acting for their own account, and this Prospectus may not be delivered or passed on to any otherinvestors.

Italy

The Global Offer has not been cleared by Consob pursuant to Italian securities legislation and, accordingly,the Underwriters will not offer, sell, or deliver any Shares or distribute copies of this Prospectus or of any otherdocument relating to the Shares in the Republic of Italy, except to professional investors, as defined in Article 31,second paragraph, of Consob Regulation n. 11522 of July 1, 1998, as amended, and provided that suchprofessional investors will act in their capacity and not as depositaries or nominees for other shareholders.

Luxembourg

Each Underwriter has represented, warranted and agreed that no public offerings or sales of the Shares orany distribution of this Prospectus or any other offering material relating to the Shares will be made to the publicin or from Luxembourg, except for the Shares in respect of which the requirements of Luxembourg lawconcerning a public offering of securities in Luxembourg have been fulfilled.

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INDEPENDENT AUDITORS

The Company’s audited, combined and consolidated financial information as of and for each of the years inthe three-year period ended December 31, 2003, 2004 and 2005, appearing in this Prospectus have been auditedby KPMG Accountants N.V. (‘‘KPMG’’), Burgemeester Rijinderslaan 10, 1185 MC Amstelveen,P.O. Box 74500, 1070 DE Amsterdam, The Netherlands, independent auditors, as stated in their report thereonappearing elsewhere herein. KPMG are members of the Royal Dutch Institute of Chartered Accountants(Koninklijk Nederlands Instituut voor Registeraccountants).

125

GENERAL INFORMATION

Available Information

The Management Board is required to prepare annual accounts, accompanied by an annual report and anaccountants’ certificate, within five months of the end of the Company’s fiscal year, unless the General Meetingof Shareholders has extended this period (which it may do for up to a maximum of six months due to specialcircumstances). The annual accounts must be signed by all members of the Management Board and theSupervisory Board. The annual accounts, annual report and accountant’s certificate as well as the deed ofincorporation and the Articles of Association of the Company will be available to shareholders without charge atour head office in Locatellikade 1, Parnassustoren, 1076AZ Amsterdam, The Netherlands, during regular businesshours from the day of notice convening the annual General Meeting of Shareholders. The annual accounts andannual report are also available from our website www.smartrac-group.com.

Copies of the Company’s combined and consolidated financial information for the years endedDecember 31, 2003, 2004 and 2005 and the Company’s Articles of Association may also be obtained free ofcharge by sending a request in writing to us at our business address: Parnassusweg 103, 1077DE, Amsterdam,The Netherlands. In addition, copies of this Prospectus may also be obtained from our website or free of chargeby sending a request in writing to Deutsche Bank or UBS Investment Bank at the following addresses:

Deutsche Bank AktiengesellschaftTaunusanlage 12D-60262 Frankfurt am MainGermany

Deutsche Bank AktiengesellschaftUraniastrasse 98001 ZurichSwitzerland

UBS LimitedStephanstr. 14-16D-60313 Frankfurt am MainGermany

UBS LimitedEuropastr. 18152 OpfikonSwitzerland

Copies of the following documents are available from our website from the date of this Prospectus for atleast a period of 12 months:

) the Company’s Articles of Association (statuten).

Corporate Resolutions

The Management Board is expected to resolve on or about March 20, 2006 to issue such amount of ordinaryshares to the extent necessary for this Global Offer and to exclude the related pre-emptive rights of the existingholders of shares in the Company. The Management Board is designated in the Company’s Articles ofAssociation as the corporate body competent to issue shares and to limit or exclude the pre-emptive rights for aperiod of five years ending in 2011. See ‘‘Description of the Company, the Share Capital and CorporateGovernance — Issue of Shares, Pre-emption Rights’’.

Material Contracts

The following contracts are the only contracts (other than contracts entered into in the ordinary course ofbusiness) that we have entered into within the two years immediately preceding the date of this Prospectus which

126

are material or which were entered into at any other time and which contain provisions under which we have anobligation or entitlement that is material as of the date of this Prospectus:

Shareholders’ agreement with respect to our 30% holding in Xytec Solutions Sdn. Bhd

On February 24, 2006, we entered into an amended shareholders’ agreement with Xytec Solutions Sdn. Bhdand the other shareholders of Xytec Solutions Sdn. Bhd. A more detailed description of this agreement can befound under ‘‘Business — Property, Plant and Equipment’’.

Agreement with Amatech Automation GmbH

On October 7, 2002, we purchased various assets from AmaTech Automation GmbH, a company whichentered insolvency proceedings in September 2002. Among the assets we purchased were certain patents ownedby AmaTech Automation GmbH and the right, by means of a sublicense, to use certain patents or patentapplications which AmaTech Automation GmbH had previously licensed from Mr. Manfred Rietzler and theother co-owner and co-developer of the patented technology. Under our sublicense, we are permitted to grantfurther sublicenses, provided such sublicenses do not conflict with any existing agreements. In addition, we weregranted the right to initiate patent infringement proceedings with respect to the licensed patents. In connectionwith the purchase of these assets, the AmaTech AG bankruptcy administrator later granted us an option whichwill allow us, within three months of when the AmaTech-Group bankruptcy proceedings conclude, to acquire allof the shares of AmaTech Automation GmbH for 41. Any liability of the insolvency administrator with respect tothe shares has been excluded. For more information, see ‘‘Business — Litigation — AmaTech Patent Litigation’’.

Our framework contract manufacturing agreement with Infineon Technologies AG, Munich

On June 10, 2005, Smartrac Technology Ltd. entered into a framework contract manufacturing agreementwith Infineon Technologies AG (‘‘Infineon’’) regarding the procedures for the delivery of certain semiconductordevices by Infineon to us and the processing thereof by us for delivery to Infineon. Binding purchase ordersincluding price, quality and logistic arrangements as well as technical specifications are made by individualpurchase orders. The framework agreement has a five year term that, unless terminated, is automatically renewedfor a term of one year. The products delivered by us to Infineon are covered by the framework agreement’swarranty and liability provisions, whereas warranty periods are set forth in the binding purchase orders. Theframework agreement provides for certain liquidated damages if we are in delay with our delivery obligations. Inaddition, the framework agreement obliges us to indemnify Infineon for any product liability claims due todefects in the products caused by us. Furthermore, we may be liable to Infineon under the warranty provision ofthe framework agreement if our products delivered to Infineon are infringing third party intellectual propertyrights, unless such infringement claims relate to information or devices provided to us by Infineon.

Our framework supply agreements with two of the largest card manufacturers

Smartrac Technology Ltd. entered into two framework supply agreements with two of the largest cardmanufacturers (the ‘‘Card Manufacturers’’) in which we agreed to provide each of the Card Manufacturers withsuch quantities of pre-laminated inlays as each of them may require. Under the Framework Agreements, each ofthe Card Manufacturers provides us with non-binding forecasts of its expected requirements. Binding orders aremade by means of individual purchase orders. Each of the framework agreements specifies the applicablemaximum production lead-time and provides for specified liquidated damages if we fail to meet agreed deliverydeadlines. In one case, such liquidated damages may materially exceed the remuneration we receive for suchorder. The framework agreements also specify the purchase prices that apply for the term of the respectiveagreement and are to be re-negotiated in good faith from time to time. Products sold to the respective CardManufacturer are covered by the applicably framework agreement’s warranty and liability provisions. In addition,as part of the agreements, Smartrac Technology Ltd. agreed to indemnify the Card Manufacturers against anyliability for infringement of third party intellectual property rights in case its products infringe any patent,copyright, trademark or other property rights. Both agreements are entered into until 2007, but, unless terminated,are automatically renewed for one year terms.

Infineon Technologies Asia Pacific Pte Ltd framework supply agreement

On May 6, 2005, Smartrac Technology Ltd. entered into a framework supply agreement with InfineonTechnologies Asia Pacific Pte Ltd (‘‘Infineon Asia’’) in which Infineon Asia agreed to deliver to us and oursubsidiaries certain products. Under the agreement we agreed to provide non-binding forecasts of ourrequirements for Infineon Asia’s products. Binding orders, however, are made by means of individual purchase

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orders to be accepted by Infineon Asia. In addition, the framework agreement specifies the applicable deliveryand grace periods for Infineon Asia’s products. If Infineon Asia exceeds its delivery window and a pre-agreedgrace period, we may cancel our individual purchase order or may, upon proof of losses, claim liquidateddamages up to a certain percentage of the purchase price. Any other liability of Infineon Asia due to delay inperformance has been excluded. Products sold to us are covered by the framework agreement’s warranty andliability provisions, which materially limit Infineon Asia’s liability towards us. The framework supply agreementhas been entered into for an indefinite term, but may be terminated by either party with three months writtennotice.

Independent Auditors

We confirm that the information in the Auditor’s Report on page F-31 has been accurately reproduced.

Selling Shareholders’ Business Addresses

RB Netherlands B.V. ********************** Parnassusweg 103, 1077DE Amsterdam, TheNetherlands

ICM Netherlands B.V. ******************** Parnassusweg 103, 1077DE Amsterdam, TheNetherlands

TCL Netherlands B.V. ******************** Parnassusweg 103, 1077DE Amsterdam, TheNetherlands

Wolfgang Schneider *********************** Smartrac Technology Pte Ltd, 6 GreenleafWalk, Amsterdam Building 2-8, Singapore279226

Ronald Brown**************************** Smartrac Technology Ltd., 142 Moo 1, Hi-TechIndustrial Estate, Tambon Ban Laean AmphorBang-pa-in, Phra Nakorn Si Ayutthaya 13160,Thailand

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INDEX TO THE COMBINED AND CONSOLIDATED FINANCIAL INFORMATION

SMARTRAC N.V.Corporate seat: Amsterdam

Corporate head office:Parnassusweg 1031077DE AmsterdamThe Netherlands

Financial InformationPage

Combined and Consolidated Income Statement for the Years ended December 31, 2003,2004, 2005****************************************************************** F-4

Combined and Consolidated Balance Sheet as at December 31, 2003, 2004, 2005********** F-5

Combined and Consolidated Statement of Cash Flows for the Years ended December 31,2003, 2004, 2005************************************************************* F-6

Combined and Consolidated Statement of Changes in Shareholders’ Equity for the Yearsended December 31, 2003, 2004, 2005 ******************************************* F-7

Notes to the Combined and Consolidated Financial Information************************* F-8

Auditor’s Report *************************************************************** F-31

F-1

Smartrac N.V. Combined and consolidated financial information2003-2005

F-2

SMARTRAC N.V.

Combined and consolidated financial information 2003-2005

CONTENT

Page

Combined and consolidated income statement ********************************************** F-4

Combined and consolidated balance sheet ************************************************* F-5

Combined and consolidated statements of cash flows **************************************** F-6

Combined and consolidated statement of changes in shareholders’ equity************************ F-7

Notes to the combined and consolidated financial information ********************************* F-8

Auditors’ report ********************************************************************** F-31

F-3

Smartrac N.V.

Combined and consolidated income statement

For the years ended 31 December

Combined andconsolidated Consolidated Consolidated

Note 2005 2004 2003

In thousands of euro

Revenue ***************************************** 3 25,173 14,698 8,653

Cost of sales************************************** 6 17,333 9,062 5,095

Gross profit ************************************** 7,840 5,636 3,558Administrative expenses***************************** 7 (4,255) (2,751) (2,301)

Other operating income and expenses ***************** 9 (9) (441) (30)

Total operating expenses *************************** (4,264) (3,192) (2,331)Operating profit before financing costs*************** 3,576 2,444 1,227Financial income ********************************** 3 290 414

Financial expenses ********************************* (613) (389) (208)

Net financing income (expense) ********************* 10 (610) (99) 206Share of profit of associates ************************* 15 — —

Profit before tax ********************************** 2,981 2,345 1,433Income tax benefit ********************************* 11 37 — —

Profit for the period******************************* 3,018 2,345 1,433

Basic earnings per share (euro) ********************* 12 — 10.95 7.17Pro-forma earnings per share (euro)***************** 12 0.30 0.23 0.14Pro-forma diluted earnings per share (euro)* ********* 12 0.23 0.18 0.11

* Pro-forma earnings per share are based on the number of shares of Smartrac N.V. outstanding upon incorporation of the Company.Pro-forma diluted earnings per share are based upon the maximum number of shares outstanding after the intended initial public offering.

The accompanying notes are an integral part of the combined and consolidated financial information.It is imperative that users read note 1 to understand the basis of presentation of the

combined and consolidated financial information.

F-4

Smartrac N.V.

Combined and consolidated balance sheet

As at 31 December

Combined andconsolidated Consolidated Consolidated

Note 2005 2004 2003In thousands of euro

ASSETSProperty, plant and equipment ********************** 13 11,734 8,601 6,465

Intangible assets ********************************** 14 1,293 116 136

Investment in associates**************************** 5 48 — —

Deferred tax assets******************************** 11 37 — —

Other non-current assets *************************** 80 13 13

Total non-current assets ************************** 13,192 8,730 6,614Inventories ************************************** 15 3,824 2,011 1,631

Other current assets ******************************* 16 1,197 482 254

Trade receivables ********************************* 17 6,990 3,423 2,857

Cash and cash equivalents************************** 18 1,500 360 194

Total current assets ****************************** 13,511 6,276 4,936

Total assets ************************************* 26,703 15,006 11,550

EQUITY*Share capital************************************* 1, 19 5,000 620 520

Share premium *********************************** 1, 19 4,923 — —

Retained earnings********************************* — 6,277 3,932

Total equity ************************************* 9,923 6,897 4,452LIABILITIESSecured installment loan *************************** 20 233 — —

Total non-current liabilities *********************** 233 — —Bank overdraft *********************************** 18 1,207 20 180

Current portion of secured installment loan ************ 20 120 — —

Interest-bearing loans and borrowings **************** 20 8,448 4,772 4,381

Non-interest-bearing loans************************** 20 — — 10

Employee benefits ******************************** 21 36 24 16

Trade and non-trade payables *********************** 22 4,936 2,906 2,102

Other current liabilities **************************** 23 1,800 387 409

Total current liabilities *************************** 16,547 8,109 7,098

Total liabilities ********************************** 16,780 8,109 7,098

Total equity and liabilities ************************ 26,703 15,006 11,550

* Combined and consolidated equity as at 31 December 2005 is the pro forma equity of Smartrac N.V. at its incorporation date (23 January2006).

The accompanying notes are an integral part of the combined and consolidated financial information.It is imperative that users read note 1 to understand the basis of presentation of the

combined and consolidated financial information.

F-5

Smartrac N.V.

Combined and consolidated statement of cash flows

For the years ended 31 December

Combined andconsolidated Consolidated Consolidated

Note 2005 2004 2003In thousands of euro

Cash flows from operating activitiesNet profit **************************************** 3,018 2,345 1,433

Reconciliation of net profit to net cash provided by(used in) operating activities:

Depreciation and amortization************************ 1,336 1,043 681Impairments on trade receivables ********************* — 377 —Write down of inventories *************************** 90 70 33Unrealized loss (gain) on foreign exchange ************* 166 (287) (108)Gain on disposal of assets*************************** (11) — —Share of profit of associates ************************* (15) — —Deferred tax benefit ******************************** (37) — —

Decrease (increase) in operational assets:Other non current assets **************************** (65) — (6)Inventories *************************************** (1,901) (451) (716)Other current assets ******************************** (340) (227) (107)Trade receivables ********************************** (3,369) (1,001) (1,737)Employee benefits ********************************* 12 8 8Trade and non-trade payables ************************ 1,636 815 1,480Other current liabilities ***************************** 502 (18) 311

Net cash provided by operating activities************* 1,022 2,674 1,273

Cash flows from investing activitiesInvestment in associates***************************** (33) — —Proceeds from sale of equipment ********************* 122 — —Purchases of property, plant and equipment************* (4,465) (3,151) (2,652)Purchases of intangible assets ************************ — — (2)

Net cash used in investing activities ***************** (4,376) (3,151) (2,654)

Cash flows from financing activitiesProceeds from interest-bearing loans and borrowings and

secured installment loan ************************** 7,563 5,094 1,385Repayments of interest-bearing loans and borrowings and

secured installment loan ************************** (4,264) (4,381) —Repayments of non interest-bearing loan *************** — (10) (98)Proceeds from share capital increases****************** — 100 —

Net cash provided by financing activities ************* 3,299 803 1,287

Net change in cash and cash equivalents and bankoverdrafts ************************************** (55) 326 (94)

Cash and cash equivalents and bank overdrafts at1 January ************************************** 340 14 109

Effect of exchange rate fluctuations on cash and cashequivalents and bank overdrafts ******************** 8 — —

Cash and cash equivalents and bank overdrafts at31 December *********************************** 18 293 340 15

See note 4 for an analysis of assets and liabilities assumed through a business acquisition in 2005.

The accompanying notes are an integral part of the combined and consolidated financial information.It is imperative that users read note 1 to understand the basis of presentation of the

combined and consolidated financial information.

F-6

Smartrac N.V.

Combined and consolidated statement of changes in shareholders’ equity

For the years ended 31 December 2005, 2004 and 2003

Issued andpaid-up share Share Translation Retained

capital premium reserve earnings** Total

In thousands of euro

Balance — beginning of year 2003************ 520 — — 2,499 3,019Profit for the year************************** — — — 1,433 1,433

Balance — end of year 2003**************** 520 — — 3,932 4,452Issuance of share capital ******************** 100 — — — 100Profit for the year************************** — — — 2,345 2,345

Balance — end of year 2004**************** 620 — — 6,277 6,897Translation adjustment ********************** — — 8 — 8Profit for the year************************** — — — 3,018 3,018

Net equity before contribution**************** 620 — 8 9,295 9,923Group restructuring* *********************** (620) — (8) (9,295) (9,923)Newly issued shares upon contribution in kind* 5,000 4,923 — — 9,923

Pro forma balance — end of year 2005* ***** 5,000 4,923 — — 9,923

* Combined and consolidated equity as at 31 December 2005 is the pro forma equity of Smartrac N.V. at its incorporation date (23 January2006), as if Smartrac N.V. already existed as at 31 December 2005 and the contribution in kind of all group companies had alreadyoccurred as at 31 December 2005. This pro forma method of presentation only relates to the classification of equity elements, and does notaffect the equity total.

** Retained earnings include an amount of euro 15,000 relating to the share of profits of the associate, which is restricted.

The accompanying notes are an integral part of the combined and consolidated financial information.It is imperative that users read note 1 to understand the basis of presentation of the

combined and consolidated financial information.

F-7

Smartrac N.V.

Notes to the combined and consolidated financial information

1. Group restructuring

Smartrac N.V. (the Company) is a company domiciled in Amsterdam, the Netherlands. The Company wasincorporated on 23 January 2006, for the purpose of becoming a holding company for the Smartrac Group (theGroup), comprising of the following entities:

OwnershipCountry of and voting

Company incorporation Date of incorporation Business type interest

SubsidiariesSmartrac Technology Ltd. ************* Thailand 1 January 2000 Manufacturing 100%

Smartrac Technology GmbH ************ Germany 17 November 2003 Manufacturing 100%

Smartrac Technology Pte. Ltd. ********** Singapore 7 October 2005 Trading 100%

AssociateXytec Solutions Sdn. Bhd ************** Malaysia 13 December 2004 Manufacturing 30%

Prior to the corporate restructuring, the shareholding structure of the Smartrac Group, under commoncontrol was as follows:

Manfred Rietzler

Ronald Brown

WolfgangSchneider

Richard Bird

MartinKuschewski

Elisabeth Rietzler

Delia ChuaGek

Smartrac Technology PteLtd

(Singapore)

Smartrac Technology Limited(Thailand)

Xytec Solutions Sdn. Bhd.(Malaysia)

Smartrac Technology GmbH(Germany)

50% 50%

1% 1% 5% 1%1%454545.5%45.5%

30% 100%

The legal and tax restructuring process to form the Smartrac Group started in November 2005 and wasfinalized in February 2006. As consideration for the above subsidiaries and associate, the Company issued5,000,000 shares with a par value of euro 1.00 each against the contribution in kind of the subsidiaries andassociate by their shareholders with economic effect as at 31 December 2005.

At 31 December 2005, the value of the total net assets of the subsidiaries and the associate amounts toeuro 9,923,000. The difference between the total net assets of the Group as at 31 December 2005 and the parvalue of the 5,000,000 shares (euro 4,923,000) is presented as share premium.

On 7 February 2006, the shareholders resolved to amend the Company’s Articles of Association by splittingand converting each existing euro 1.00 share into two shares of euro 0.50 each. Following this amendment theauthorised share capital of the Company is euro 25,000,000, comprising of 50,000,000 shares with a par value ofeuro 0.50 each.

The consolidated financial information for 2003 and 2004 comprises the activities of the Thai and Germancompanies. The combined and consolidated financial information for 2005 comprises the activities of the Thaiand German companies consolidated and combined with the activities of the Singaporean company into onereporting entity. The Malaysian associate is accounted for under the equity method. This method of presentationreflects the economic substance of the combining companies as a single economic enterprise at 31 December2005, although the legal parent-subsidiary relationships were not established until February 2006.

F-8

2. Significant accounting policies

(a) Statement of compliance

The combined and consolidated financial information 2003-2005 is prepared in accordance with Internatio-nal Financial Reporting Standards (IFRSs) and interpretations of the International Accounting Standards Board(IASB) as adopted by the European Union (EU).

(b) Basis of preparation

The combined and consolidated financial information is presented in euro rounded to the nearest thousand. Itis prepared on the historical cost basis.

The preparation of the combined and consolidated financial information in conformity with IFRSs adoptedby the EU requires management to make judgements, estimates and assumptions that affect the application ofpolicies and reported amounts of assets and liabilities, income and expenses. The estimates and associatedassumptions are based on historical experience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgements about carrying values of assetsand liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised if the revision affects only that period, or inthe period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the combinedand consolidated financial information and estimates with a significant risk of material adjustment in the nextyear are discussed within their respected notes, if any.

The accounting policies set out below have been applied consistently to all periods presented in thecombined and consolidated financial information.

The accounting policies have been applied consistently by Group entities.

(c) Basis of combination and consolidation

(i) Combined and consolidated financial information

The group restructuring explained in note 1 involved companies under common control. The combined andconsolidated financial information is prepared using the historical cost method in a manner similar to the unitingof interests method as the restructuring involved companies under common control during the relevant periods.This method of presentation reflects the economic substance of the combining companies as a single economicenterprise, although the legal parent-subsidiary relationships were not established until February 2006. Thiscombined and consolidated financial information is a combination or aggregation of all the financial statements ofthe companies in the Group as a single economic enterprise from either the first day of the first reporting periodpresented or the date they became commonly controlled.

(ii) Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power,directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from itsactivities. In assessing control, potential voting rights that presently are exercisable or convertible are taken intoaccount. The financial statements of subsidiaries are included in the consolidated financial statements from thedate that control commences until the date that control ceases.

(iii) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financialand operating policies. The combined and consolidated financial information includes the Group’s share of thetotal recognised gains and losses of associates on an equity accounted basis, from the date that significantinfluence commences until the date that significant influence ceases. When the Group’s share of losses exceeds itsinterest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses isdiscontinued except to the extent that the Group has incurred legal or constructive obligations or made paymentson behalf of an associate.

F-9

(iv) Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragrouptransactions, are eliminated when preparing the combined and consolidated financial information. Unrealisedgains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity.Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is noevidence of impairment.

(d) Foreign currency

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured or remeasured (when,such as in Thailand, local law requires the use of the local currency for the recording of transactions in an entity’saccounting records) using the currency of the primary economic environment in which the entity operates (thefunctional currency). Remeasurement to the functional currency is performed by translating balances usingapproximate exchange rates at the dates of the relevant transactions; with all resulting differences recorded toforeign exchange gains (losses). The combined and consolidated financial information is presented in euros,which is the Company’s presentation currency.

In the combined and consolidated financial information, all separate financial statements of subsidiaries,originally presented in a currency different from the Group’s presentation currency, have been converted intoeuros. Assets and liabilities have been translated into euros at the closing rate at the balance sheet date. Incomeand expenses have been converted into the Group’s presentation currency at the average rates over the reportingperiod. Any differences arising from this procedure have been charged (credited) to the cumulative translationreserve in equity.

The exchange rates used to convert transactions and balances denominated in other currencies to thefunctional currency are as follows:

2005 Period 2005 Period 2004 Period 2004 Period 2003 Period 2003 PeriodCurrency end rate average rate end rate average rate end rate average rate

USD to EUR ***************** 1.1842 1.2450 1.3538 1.2438 1.2597 1.1321

BHT to EUR ***************** 48.6367 50.0113 53.1473 50.0474 49.7664 46.8636

SGD to EUR ***************** 1.9754 2.0710 2.2243 2.1034 2.1227 1.9697

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailingat the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactionsand from the translation at year-end of monetary assets and liabilities denominated in foreign currencies arerecognised in the income statement.

(e) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) andimpairment losses (see accounting policy j). Where parts of an item of property, plant and equipment havedifferent useful lives, they are accounted for as separate items of property, plant and equipment.

(ii) Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost ofreplacing part of such an item when that cost is incurred if it is probable that the future economic benefitsembodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costsare recognised in the income statement as an expense as incurred.

F-10

(iii) Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives ofeach part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are asfollows:

) buildings and building improvements ************************************ 5 - 20 years

) machinery ********************************************************** 10 years

) building improvements************************************************ 5 years

) tools and equipment************************************************** 5 years

) furniture and fixtures ************************************************* 5 years

) office equipment***************************************************** 5 years

) motor vehicles ****************************************************** 5 years

The residual values and useful lives are subject to annual reassessment.

(f) Intangible assets

(i) Patents and patent rights

Patents and patent rights are acquired by the Group and are stated at cost less accumulated amortisation (seeaccounting policy f (iv)) and impairment losses (see accounting policy j).

(ii) Software

Software acquired by the Group is stated at cost less accumulated amortisation (see accounting policy f (iv))and impairment losses (see accounting policy j).

(iii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technicalknowledge and understanding, is recognised in the income statement as an expense as incurred.

Expenditure on development activities, should there be any and whereby research findings are applied to aplan or design for the production of new or substantially improved products and processes, is capitalised if theproduct or process is technically and commercially feasible and the Group has sufficient resources to completedevelopment. The expenditure capitalised includes the cost of materials, direct labour and an appropriateproportion of overheads. Other development expenditure is recognised in the income statement as an expense asincurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairmentlosses (see accounting policy j).

(iv) Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives ofintangible assets from the date they are available for use. The estimated useful lives for patents and patent rightsare 10 to 20 years and for software is 5 years. The useful lives are subject to annual reassessment.

(g) Trade and other receivables

Trade and other receivables are stated at amortized cost using the effective interest method less impairmentlosses (see accounting policy j).

(h) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimatedselling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Thecost of inventories is based on the moving-average principle and includes expenditure incurred in acquiring theinventories and bringing them to their existing location and condition. In the case of manufactured inventories andwork in progress, cost includes an appropriate share of overheads based on normal operating capacity.

F-11

(i) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable ondemand and form an integral part of the Group’s cash management are included as a component of cash and cashequivalents for the purpose of the statement of cash flows.

(j) Impairment

The carrying amounts of the Group’s assets, other than inventories (see accounting policy h) and deferredtax assets (see accounting policy p), are reviewed at each balance sheet date to determine whether there is anyindication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (seeaccounting policy j (i)).

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unitexceeds its recoverable amount. Impairment losses are recognised in the income statement.

(i) Calculation of recoverable amount

The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the presentvalue of estimated future cash flows, discounted at the original effective interest rate. Receivables with a shortduration are not discounted.

The recoverable amount of other assets is the greater of their net selling price and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to the asset. For an assetthat does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(ii) Reversals of impairment

An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increasein recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss hadbeen recognised.

(k) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subse-quent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference betweencost and redemption value being recognised in the income statement over the period of the borrowings on aneffective interest basis.

(l) Employee benefits

Defined benefit plans

The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each planby estimating the amount of future benefit that employees have earned in return for their service in the currentand prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets isdeducted. The discount rate is the yield at the balance sheet date on Thai Government bonds that have maturitydates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuaryusing the projected unit credit method.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service byemployees is recognised as an expense in the income statement on a straight-line basis over the average perioduntil the benefits become vested. To the extent that the benefits vest immediately, the expense is recognisedimmediately in the income statement.

Actuarial gains and losses that arise in calculating the Group’s obligation in respect of a plan are recognisedin the income statement in accordance with IAS 19.93.

F-12

(m) Trade and other payables

Trade and other payables are stated at amortised cost.

(n) Revenue

Revenue from the sale of goods is recognised in the income statement when the significant risks and rewardsof ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertaintiesregarding recovery of the consideration due, associated costs or the possible return of goods also continuingmanagement involvement with the goods.

(o) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis overthe term of the lease. Lease incentives received are recognised in the income statement as an integral part of thetotal lease expense.

(ii) Net financing costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest ratemethod. Interest income is recognised in the income statement as it accrues, using the effective interest method.

(p) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised inthe income statement except to the extent that it relates to items recognised directly in equity, in which case it isrecognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted orsubstantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differencesbetween the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used fortaxation purposes. Temporary differences relating to (i) the initial recognition of assets or liabilities that affectneither accounting nor taxable profit, and (ii) differences relating to investments in subsidiaries to the extent thatthey will probably not reverse in the foreseeable future, are not recognised. The amount of deferred tax providedis based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, usingtax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will beavailable against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as theliability to pay the related dividend.

(q) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products orservices (business segment), or in providing products or services within a particular economic environment(geographical segment), which is subject to risks and rewards that are different from those of other segments.

3. Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. Theprimary format, business segments, is based on the Group’s management and internal reporting structure.

Segment results include items directly attributable to a segment as well as those that can be allocated on areasonable basis. Other operating expenses have been allocated to segments based on the volume of unitsproduced by each segment. Assets and liabilities and capital expenditure are not allocated to segments becausethey are utilized in the production of both standard and high security components.

F-13

Business segments

The Group comprises the following main business segments:

) Standard components. The manufacture and sale of embedded memory chips that have low securityfeatures, such as basic encryption, for use in applications such as access control and logistics.

) High security components. The manufacture and sale of embedded memory chips with high securityfeatures such as sophisticated data encryption, controlled data access and mutual authentication, for use inapplications such as ePayment and ePassport.

) Other operations. The disposal of assets and other incomes that cannot be attributed to standard or highsecurity components.

Consolidated segment information at 31 December 2003:

Standard High security Othercomponents components operations Consolidated

In thousands of euro

RevenueExternal sales*********************************** 8,625 — 28 8,653

ResultGross profit ************************************ 3,570 — (12) 3,558

Other operating expenses ************************* (2,325) — (6) (2,331)

Operating profit ********************************* 1,245 — (18) 1,227

Net financing costs ****************************** 206

Profit for the period****************************** 1,433

Supplemental informationOperating profit ********************************* 1,245 — (18) 1,227

Depreciation and amortization ********************* 680 — 1 681

Segment EBITDA ******************************* 1,925 — (17) 1,908

Consolidated segment information at 31 December 2004:

Standard High security Othercomponents components operations Consolidated

In thousands of euro

RevenueExternal sales*********************************** 14,297 — 401 14,698

ResultGross profit ************************************ 5,794 — (158) 5,636

Other operating expenses ************************* (2,996) — (196) (3,192)

Operating profit ********************************* 2,798 — (354) 2,444

Net financing costs ****************************** (99)

Profit for the period****************************** 2,345

Supplemental informationOperating profit ********************************* 2,798 — (354) 2,444

Depreciation and amortization ********************* 1,010 — 33 1,043

Segment EBITDA ******************************* 3,808 — (321) 3,487

F-14

Combined and consolidated segment information at 31 December 2005:

Standard High security Other Combined andcomponents components operations consolidated

In thousands of euro

RevenueExternal sales ********************************* 19,903 5,010 260 25,173

ResultGross profit *********************************** 6,381 1,419 40 7,840

Other operating expenses ************************ (3,261) (752) (251) (4,264)

Operating profit******************************** 3,120 667 (211) 3,576

Net financing costs ***************************** (610)

Share of profit of associate ********************** 15 15

Income tax benefit ***************************** 37

Profit for the period **************************** 3,018

Supplemental informationOperating profit******************************** 3,120 667 (211) 3,576

Depreciation and amortization ******************** 991 277 68 1,336

Segment EBITDA ****************************** 4,111 944 (143) 4,912

The Group began producing and selling high security components in 2005.

Revenues by subsegment were as follows:

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Standard components— Mass transportation / access control ********************** 18,540 13,974 8,586

— Logistics ******************************************** 1,363 323 39

19,903 14,297 8,625

High Security components— ePayment ******************************************** 2,255 — —

— ePassport ******************************************** 2,755 — —

5,010 — —

Other operations**************************************** 260 401 28

25,173 14,698 8,653

Geographical segments

In presenting information on the basis of geographical segments, segment revenue is based on thegeographical location of customers. Segment assets are based on the geographical location of the assets. TheGroup’s principal geographical areas are Europe, Asia and North America.

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

RevenuesEurope************************************************* 14,484 8,761 3,932

Asia *************************************************** 5,616 3,616 2,458

North America ****************************************** 3,233 1,438 1,506

Others ************************************************* 1,840 883 757

25,173 14,698 8,653

F-15

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

AssetsEurope************************************************* 579 655 63

Asia *************************************************** 26,124 14,351 11,487

26,703 15,006 11,550

4. Acquisition of a business

On 5 October 2005, Smartrac Technology Pte Ltd. was incorporated in the Republic of Singapore by theCompany’s directors with the purpose of acquiring a business for the Group. Smartrac Technology Pte Ltd. thenentered into agreements with Mr. Richard Bird and Ms Chua Ai Lek to acquire certain assets and to assumecertain liabilities of their business, trading as Smartrac Technology, in return for having to have its assetstransferred to Smartrac Technology Pte Ltd for consideration of SGD 1.00. For the purposes of the combined andconsolidated financial information, Smartrac Technology Pte Ltd. is a subsidiary under common control.

The amounts recognized for each class of the acquiree’s assets and liabilities recognised at the transferreddate are as follows:

Assets LiabilitiesIn thousands of euro

Intangible assets ********************** 1,216 Interest bearing borrowings ************* 1,070

Property, plant and equipment *********** 78 Other payable ************************ 375

Interest bearing promissory notes********* 696 Other liabilities *********************** 895

Other current assets******************** 349 Equity (1)

2,339 2,339

Mr. Richard Bird continues to serve as a director of Smartrac Technology Pte Ltd.

Intangible assets comprise patents and patent rights related to technical inventions and innovations (to be)used in the production process of the Group.

Interest bearing promissory notes included an amount due from Smartrac Technology GmbH, a subsidiary ofthe Company, with a carrying amount of euro 508,000 at the date of acquisition. This intragroup balance has beeneliminated in preparing the combined and consolidated financial information.

Interest bearing borrowings included a loan from Mr. Richard Bird amounting to euro 792,000 (see note 29)and a short term loan from ABN Amro in Singapore amounting to euro 278,000 (see note 20).

5. Investment in an associate

The Group acquired a 30% equity interest in Xytec Solutions Sdn. Bhd. (Xytec) by way of a capital injectionof MRT 150,000 into the associate on 23 June 2005. The investment is accounted for under the equity method.Xytec is the only investment the Group has in associates.

CombinedOwnershipand

Country of consolidated Consolidated ConsolidatedCompany incorporation 2005 2004 2003

Xytec Solutions Sdn. Bhd********************** Malaysia 30% 0% 0%

F-16

Xytec shares are not listed on a stock exchange and hence the fair value of its shares cannot be determined.Financial information can be summarised as follows:

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Assets ************************************************* 1,178 — —Liabilities ********************************************** 965 — —Revenues *********************************************** 1,360 — —Profit ************************************************** 101 — —Profit attributable to the Group ***************************** 15 — —

All transfers of funds from Xytec to the Group, ie distribution of cash dividends, are subject to the approvalof at least 51% of all shareholders of the associate. The Group has not received any dividends from the associate.100% of revenues of Xytec relates to deliveries of production equipment to Smartrac Technology Ltd.

6. Cost of salesCombined and

consolidated Consolidated Consolidated2005 2004 2003

In thousands of euro

Chip module ******************************************** 10,051 4,264 2,127

Raw materials and manufacturing supplies******************** 2,685 1,846 1,082

Direct and indirect labour costs***************************** 1,939 1,162 723

Depreciation and amortization****************************** 1,168 967 616

Other manufacturing costs ********************************* 1,490 823 547

17,333 9,062 5,095

7. Administrative expensesCombined and

consolidated Consolidated Consolidated2005 2004 2003

In thousands of euro

Personnel expenses*************************************** 1,315 760 643

Rental expenses ***************************************** 94 135 89

Sales commission expenses ******************************** 363 415 340

Professional fees***************************************** 860 500 659

Depreciation and amortization****************************** 168 76 65

Other administrative expenses ****************************** 1,455 865 505

4,255 2,751 2,301

8. Personnel expenses

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro,

except numbers of workers

Wages and salaries *************************************** 1,780 1,090 799

Compulsory social security contributions ********************* 40 46 12

Employee benefits *************************************** 12 8 7

Subcontractor fees *************************************** 1,355 741 525

Other ************************************************** 67 37 23

3,254 1,922 1,366

Number of staff employed (workers) ************************ 332 169 142

Number of subcontractors (workers)************************* 772 407 318

Total (workers) ****************************************** 1,104 576 460

F-17

The total personnel expenses comprise of both administrative expenses and direct and indirect labour costs.

9. Other operating income (expenses)

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Scrap sales ********************************************* 70 6 3

Write down of inventories ********************************* (90) (70) (33)

Impairment loss on trade receivables ************************ — (377) —

Gain on sales of fixed assets ******************************* 11 — —

(9) (441) (30)

10. Net financing income (expense)

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Interest income ****************************************** 3 2 2

Foreign exchange gains *********************************** — 288 412

Financial income **************************************** 3 290 414

Interest expense ***************************************** (271) (146) (161)

Bank charges******************************************** (57) (47) (47)

Foreign exchange losses*********************************** (285) (196) —

Financial expense **************************************** (613) (389) (208)

(610) (99) 206

11. Corporate income tax

Tax privileges

Almost the entire taxable income of the Group for 2003, 2004 and 2005 was generated in Thailand bySmartrac Technology Limited. The normal corporate income tax rate in Thailand is 30%. However, under thespecial promotional privileges granted by the Thailand Government (see note 26), Smartrac Technology Limitedis entitled to the following corporate income tax facility relating to its production and sale of transponders inThailand:

) Exemption from corporate income tax for seven years (until 2008) on taxable profits generated under thesubsidiary’s first Board of Investment licence,

) Exemption from corporate income tax for seven years (until 2011), or a maximum of Baht 183.5 million(approximately euro 3.7 million), whichever occurs first, on taxable profits generated under thesubsidiary’s second Board of Investment licence.

Recognised in the income statement

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Current corporate tax expense ****************************** — — —

Deferred tax benefit ************************************** 37 — —

Income tax benefit *************************************** 37 — —

F-18

Reconciliation of effective tax charge

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Profit before tax **************************************** 2,981 2,345 1,433Expected tax expense based on rate of 30% ****************** 906 704 430

Tax exempt income relating to promotional activities *********** (999) (856) (451)

Tax exempt income relating to equity accounted investment****** (5) — —

Non-deductible permanent differences *********************** 31 15 12

Add back as temporary differences************************** 30 137 9

Carry forward tax losses ********************************** 37 — —

Actual tax expense *************************************** — — —

Deferred tax assets

Deferred tax assets recognised are in respect to the following item:

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Tax losses carried forward ********************************* 37 — —

Deferred tax assets *************************************** 37 — —

At 31 December 2005, deferred tax assets have not been recognised in respect of deductible temporarydifferences amounting to euro 30,000 (2004: euro 137,000, 2003: euro 9,000) because it is expected that thesebenefits will be utilized during Smartrac Technology Limited’s tax exemption periods.

12. Earnings per share and pro-forma earning per share

Profit attributable to ordinary shareholders

The calculation of basic earnings per share at 31 December 2005 was based on the profit attributable toordinary shareholders.

Weighted average number of ordinary shares

Consolidated Consolidated2004 2003In thousands of shares

Issued ordinary shares at 1 January*************************************** 200 200

Effect of shares issued in May 2004 ************************************** 7 —

Effect of shares issued in October 2004 *********************************** 7 —

Weighted average number of ordinary shares at 31 December ***************** 214 200

Earnings per share

Consolidated Consolidated2004 2003

In thousands of euro andshares, except earnings

per share

Profit attributable to ordinary shareholders ********************************* 2,345 1,433

Weighted average number of ordinary shares at 31 December ***************** 214 200

Earnings per share **************************************************** 10.95 7.17

F-19

Pro-forma earnings per share

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro and shares,

except earnings per share

Pro-forma number of ordinary shares at 31 December 2005 ***** 10,000 10,000 10,000

Profit attributable to ordinary shareholders******************** 3,018 2,345 1,433

Pro-forma earnings per share******************************* 0.30 0.23 0.14

Pro-forma weighted average number of ordinary shares assumes both (i) the combination of the subsidiariesin the Group (which legally occurred on 23 January 2006), and (ii) the splitting and converting of shares (whichwas resolved by the shareholders on 7 February 2006), as described in note 1, took place on, or before, 1 January2003.

Pro-forma diluted earnings per share

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro and shares,

except earnings per share

Pro-forma number of ordinary shares at 31 December 2005 ***** 10,000 10,000 10,000Maximum number of shares to be issued with intended initial

public offering in 2006 ********************************* 3,000 3,000 3,000

Pro-forma number of diluted ordinary shares at 31 December2005************************************************* 13,000 13,000 13,000

Profit attributable to ordinary shareholders******************** 3,018 2,345 1,433

Pro-forma earnings per share******************************* 0.23 0.18 0.11

Pro-forma weighted average number of diluted ordinary shares assumes (i) the combination of thesubsidiaries in the Group (which legally occurred on 23 January 2006), (ii) the splitting and converting of shares(which was resolved by the shareholders on 7 February 2006), as described in note 1, and (iii) the maximumsubscription of new shares issued during the intended initial public offering in 2006, took place on, or before,1 January 2003.

13. Property, plant and equipment

Buildings and Furniturebuilding Tools and and Office Construction

In thousands of euro Land improvements Vehicles Machinery equipment fixtures equipment in progress Consolidated

Cost

Balance at 1 January 2003 *** 255 1,188 33 3,042 352 78 112 — 5,060

Acquisitions*************** — 59 — 2,290 264 16 23 — 2,652

Balance at 31 December 2003 255 1,247 33 5,332 616 94 135 — 7,712

Accumulated depreciation

Balance at 1 January 2003 *** — 63 5 434 55 11 20 — 588

Depreciation charge for theyear ******************* — 88 6 432 92 17 24 — 659

Balance at 31 December 2003 — 151 11 866 147 28 44 — 1,247

Carrying amounts

At 1 January 2003 ********* 255 1,094 28 2,608 297 68 129 — 4,479

At 31 December 2003 ****** 255 1,096 22 4,466 469 66 91 — 6,465

Cost

Balance at 1 January 2004 *** 255 1,247 33 5,332 616 94 135 — 7,712

Acquisitions*************** — 129 25 2,847 76 34 16 24 3,151

Balance at 31 December 2004 255 1,376 58 8,179 692 128 151 24 10,863

F-20

Buildings and Furniturebuilding Tools and and Office Construction

In thousands of euro Land improvements Vehicles Machinery equipment fixtures equipment in progress Consolidated

Accumulated depreciation

Balance at 1 January 2004 *** — 151 11 866 147 28 44 — 1,247

Depreciation charge for theyear ******************* — 102 7 726 130 21 29 — 1,015

Balance at 31 December 2004 — 253 18 1,592 277 49 73 — 2,262

Carrying amounts

At 1 January 2004 ********* 255 1,096 22 4,466 469 66 91 — 6,465

At 31 December 2004 ****** 255 1,123 40 6,587 415 79 78 24 8,601

Cost

Balance at 1 January 2005 *** 255 1,376 58 8,179 692 128 151 24 10,863

Acquisitions/Transfer ******* 193 1,267 — 2,329 421 136 220 (24) 4,542

Disposal****************** — — — (152) (3) — — — (155)

Balance at 31 December 2005 448 2,643 58 10,356 1,110 264 371 — 15,250

Accumulated depreciation

Balance at 1 January 2005 *** — 253 18 1,592 277 49 73 — 2,262

Depreciation charge for theyear ******************* — 154 10 888 163 31 52 — 1,298

Disposal****************** — — — (43) (1) — — — (44)

Balance at 31 December 2005 — 407 28 2,437 439 80 125 — 3,516

Carrying amounts

At 1 January 2005 ********* 255 1,123 40 6,587 415 79 78 24 8,601

At 31 December 2005 ****** 448 2,236 30 7,919 671 184 246 — 11,734

14. Intangible assets

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Patents and patent rights ********************************** 1,281 96 108

Software *********************************************** 12 20 28

1,293 116 136

Patents and patent rights

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

CostBalance at 1 January ************************************* 120 120 118

Acquisitions ******************************************** — — 2

Acquired through business combinations ********************* 1,213 — —

Balance at 31 December ********************************** 1,333 120 120

AmortisationBalance at 1 January ************************************* 24 12 —

Amortisation ******************************************** 28 12 12

Balance at 31 December ********************************** 52 24 12

Carrying amountsAt 1 January ******************************************** 96 108 118

At 31 December ***************************************** 1,281 96 108

F-21

The patents and patent rights relate to technical inventions and innovations used (or to be used) in productionby the Group and/or licensed to other parties. They are held by Smartrac Technology Ltd. and SmartracTechnology Pte Ltd.

Software

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

CostBalance at 1 January ************************************* 40 40 40

Acquisitions ******************************************** — — —

Balance at 31 December ********************************** 40 40 40

AmortisationBalance at 1 January ************************************* 20 12 4

Amortisation ******************************************** 8 8 8

Balance at 31 December ********************************** 28 20 12

Carrying amountsAt 1 January ******************************************** 20 28 36

At 31 December ***************************************** 12 20 28

The amortisation of intangible assets is charged through cost of sales.

15. Inventories

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Raw materials and consumables **************************** 3,179 1,498 1,134

Work in progress **************************************** 507 223 298

Finished goods ****************************************** 138 290 199

3,824 2,011 1,631

16. Other current assets

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Advances for equipment purchases ************************** 114 208 —

Prepayments to vendor************************************ 156 — —

Prepaid expenses***************************************** 745 84 77

Other current assets ************************************** 182 190 177

1,197 482 254

F-22

17. Trade receivables

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Trade receivables with related parties ************************ 161 152 539

Trade receivables **************************************** 7,206 3,648 2,318

Impairments ******************************************** (377) (377) —

6,990 3,423 2,857

Trade receivables are shown net of impairments amounting to euro 378,000 recognised in 2004; of whicheuro 221,000 arises from a customer that has gone bankrupt; euro 146,000 is from a related party, SmartracTechnology AG (a former sales agent of Smartrac Technology Ltd) which has been outstanding since 2003 and isno longer considered recoverable; and the remaining is due from non-related parties.

18. Cash and cash equivalents

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Cash and cash equivalents ********************************* 1,500 360 194

Bank overdraft ****************************************** (1,207) (20) (180)

Cash and cash equivalents in the statement of cash flows******** 293 340 14

At 31 December 2005, the Group had a total of unused credit facilities amounting to euro 1,617,000(2004: euro 1,392,000 and 2003: euro 409,000)

19. Equity

Share capital

Ordinary Shares of Ordinary Shares ofSmartrac N.V. Smartrac Technology Ltd.

Combined andconsolidated Consolidated Consolidated

2005 2004 2003

In thousands of shares

On issue at 1 January ********************************* — 200 200

Issued for cash *************************************** — 50 —

Issued for contributed subsidiaries *********************** 10,000 — —

On issue at 31 December — fully paid ******************* 10,000 250 200

Authorised share capital

Smartrac N.V. was incorporated on 23 January 2006 with an authorised share capital of 25,000,000 shares ofeuro 1.00 each and issued and paid up share capital of 5,000,000 shares of euro 1.00 each. On 7 February 2006,the shareholders resolved to amend the Company’s Articles of Association by splitting and converting eachexisting euro 1.00 share into two shares of euro 0.50 each. Following this amendment the authorised share capitalof the Company is euro 25,000,000, comprising of 50,000,000 shares with a par value of euro 0.50 each.

The number of authorised shares of Smartrac Technology Ltd. as at 31 December 2003 was 200,000 with apar value of BHT 100 each. The authorised capital was increased in 2004 by 50,000 shares.

Share premium reserve

The share premium reserve represents the excess of the equity value of the contributed subsidiaries at31 December 2005 over the par value of the shares issued to shareholders at the date of incorporation(see note 1).

F-23

20. Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loan and bankborrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, seenote 24.

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Non-current liabilitySecured instalment loan *********************************** 233 — —

Current liabilitiesCurrent portion of secured instalment loan******************** 120 — —

Interest-bearing loans and borrowings

Secured bank borrowings********************************** 7,656 4,198 4,381

Loan from related party *********************************** — 574 —

Loan from Mr. Richard Bird ******************************* 792 —

8,448 4,772 4,381

Non-interest-bearing loans

Loan from director *************************************** — — 10

— — 10

8,801 4,772 4,391

All of the loans are denominated in Thai Baht except for secured bank borrowings totalling 1,129,000 andthe loan from Mr. Richard Bird which are denominated in euro.

Terms and debt repayment schedule

Secured four-year instalment loan totalling of euro 352,000 is with Siam Commercial Bank in Thailand. Theinstalment loan is secured by Smartrac Technology Ltd.’s land and buildings and it matures in 2009. Interest onthe loan is calculated based on the bank’s Minimum Loan Rate which is 6.25% per annum as at 31 December2005. Monthly repayments are euro 10,000.

Secured bank borrowings totalling euro 6,527,000 (2004: 4,198,000 and 2003: 4,381,000) are with DeutscheBank Thailand. These short term borrowings are secured by standby letters of credit issued by Deutsche BankAG, Singapore Branch, which are guaranteed by Mr. Richard Bird. Short term borrowings are payable on the lastday of the term with rollover permitted at the end of the term. The Group has exercised its right to rollover thebank borrowings to another year so that they now mature in 2006. Interest on the short term borrowings is basedon market rates, approximately 4.2% - 6.0% per annum (2004: 3.5% - 4.5% per annum and 2003: 3% perannum).

Secured bank borrowings totalling euro 1,129,000 are with ABN Amro, Singapore Branch and areguaranteed by Mr. Richard Bird. These short term borrowings were assumed by the Group from the proprietor inthe Republic of Singapore (see note 4) on 5 October 2005, which at the time of the acquisition, the balance waseuro 278,000. The borrowings bear interest at the rate of 2.5% to 2.8% per annum.

The loan from Mr. Richard Bird has no maturity date and bears interest at the rate of 2.5% per annum. Theloan was assumed by the Group on 5 October 2005 in conjunction with the acquisition of a business by SmartracTechnology Pte Ltd (see note 4).

The loan from related party was between the proprietor in the Republic of Singapore and SmartracTechnology GmbH. The loan has been eliminated in preparing the combined and consolidated financialinformation for 2005. The loan bears interest at the rate of 3% per annum.

21. Employee benefits

Under Thai law the Group is required to make severance payments to employees who reach retirement agewhile employed at Smartrac Technology Ltd. These lump sum payments are accounted for as unfunded postemployment benefits in the balance sheet.

F-24

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Present value of unfunded obligations *********************** 37 25 17

Unrecognised actuarial gains and losses ********************** (1) (1) (1)

Total employee benefits *********************************** 36 24 16

Expense recognised in the income statement

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Current service costs ************************************* 11 7 7

Interest on obligation ************************************* 1 1 1

12 8 8

Liability for defined benefit obligations

Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):

Combined andconsolidated Consolidated Consolidated

2005 2004 2003

Discount rate at 31 December ****************************** 5.0% 5.5% 4.0%

Future salary increases************************************ 7.0% 7.0% 10.0%

Price inflation ******************************************* 3.0% 3.0% 3.0%

The Group has used the yield on 16-year Thai Government Bonds as the discount rate and nominal salaryinflation in Thailand for determining the current fair value of employee benefits. If salary inflation were toincrease, the Group’s unrecognized actuarial gain would increase with the risk that the severance payments wouldbe greater.

22. Trade and non-trade payables

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Trade payables due to related parties ************************ 17 34 103

Other trade payables************************************** 3,212 1,053 1,283

Total trade payables ************************************** 3,229 1,087 1,386

Non-trade payables due to related parties********************* 1,132 1,617 495

Other non-trade payables ********************************** 575 202 221

Total non-trade payables ********************************** 1,707 1,819 716

Total trade and non-trade payables ************************** 4,936 2,906 2,102

23. Other current liabilities

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Accrued expenses **************************************** 888 287 322

Prepayments from customers******************************* 447 29 58

Other liabilities****************************************** 465 71 29

Total other current liabilities ******************************* 1,800 387 409

F-25

24. Financial instruments

Exposure to credit, interest rate and currency risks arises in the normal course of the Group’s business.Derivative financial instruments are not used to hedge exposure to fluctuations in foreign exchange rates andinterest rates.

Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does notrequire collateral in respect of financial assets.

Deposits are only made with counterparties that have good credit ratings. Given their high credit ratings,management does not expect any counterparty to fail to meet its obligations.

At 31 December 2003, 2004 and 2005 there were no significant concentrations of credit risk. The maximumexposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Interest rate risk

The Group’s policy is to obtain short term borrowings with interest rates based on current market rates atthat time.

The Group’s exposure to interest rate risk due to repricing or maturity dates is disclosed in the respectivenotes for each class of financial asset and financial liability. The effective interest rates on financial assets andfinancial liabilities do not differ significantly from the nominal rates disclosed in these notes.

Foreign currency risk

The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in acurrency other than the euro. The currencies giving rise to this risk are primarily U.S. Dollars and Thai Baht.

The majority of the Group’s bank borrowings are in Thai Baht (see note 20).

Sensitivity analysis

At 31 December 2005, it is estimated that a general increase of one percentage point in interest rates woulddecrease the Group’s profit for the year before tax by approximately euro 54,000 (2004: euro 48,000 and 2003:euro 20,000).

It is estimated that a general decrease of one percentage point in the value of the euro against other foreigncurrencies would have decreased the Group’s profit before tax by approximately euro 155,000 (comprisingeuro 69,000 operating profit impact and euro 86,000 financial income (expense) impact) for the year ended31 December 2005 (2004: euro 95,000 and 2003: euro 95,000).

Fair values

There were no financial instruments at balance sheet date which have fair values significantly different fromcarrying amounts.

Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of financialinstruments.

Interest-bearing loans and bank borrowings

Fair values approximate carrying amounts due to the relatively short-term maturity of the loans andborrowings.

Trade and other receivables/payables

For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflectthe fair value.

F-26

25. Operating leases

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Less than one year *************************************** 11 26 21

Between one and five years******************************** 55 43 62

Smartrac Technology Ltd. leased its office under operating leases which expired in January 2005. The leasewas not renewed. Smartrac Technology Ltd. also leases vehicles under operating lease rentals which expire in2008.

During the year ended 31 December 2005, euro 17,000 was recognised as an expense in the incomestatement in respect of operating leases (2004: euro 24,000 and 2003: euro 1,000).

26. Promotional privileges

By virtue of the provisions of the Thai Government’s Industrial Investment Promotion Act B.E. 2520,Smartrac Technology Ltd. has been granted two promotional privileges relating to its manufacturing oftransponders and electronic parts or components in Thailand. The promotional privileges include, among otherthings:

) Exemption from corporate income tax on net earnings from the promotional activities for up to sevenyears (see note 11)

) Exemption from corporate income tax on dividends received from companies using similar promotionalprivileges.

) Exemption from withholding tax deductions on distributions of net earnings of promoted activities paid toforeign shareholders during the tax exemption period.

) Permission to transfer foreign exchange in and out of Thailand.

The promotional privileges apply to the production of approximately 86 million pieces per year. SmartracTechnology Ltd. must also comply with specific conditions contained within the promotional certificates such asmaintaining appropriate books and records, working capital and quality standards.

27. Capital commitments

In November 2005, Smartrac Technology Ltd. entered into a contract to purchase land and buildings forapproximately euro 1.1 million with the placement of a 10% cash deposit. Smartrac Technology Ltd. anticipatescompleting the purchase of land in early February 2006.

In 2005, Smartrac Technology Pte Ltd. and Smartrac Technology Ltd. entered into a commitment withXytec to purchase machinery totalling approximately euro 1.9 million. Delivery is scheduled for 2006.

28. Contingencies

Legal claims

The core technology the Group uses in its products and manufacturing processes is subject to patentprotection. The Group owns or has arranged for exclusive or practically exclusive usage rights to over 158 patentsand patent applications, of which approximately 128 were sublicensed or purchased from the bankruptcyadministrator of another company, AmaTech Automation GmbH (‘‘AmaTech Automation’’), in 2002. Prior to theinsolvency of AmaTech Automation, the Group’s Chief Executive Officer, Manfred Rietzler, and a formercolleague (the ‘‘Patent Co- Owner’’) had granted AmaTech Automation a license (the ‘‘Primary License’’) to usethe various patents they had jointly developed, most of which had been registered or applied for in Germany, therest of Europe, the United States and Japan in both of their names (the ‘‘Joint Patents’’).

In 2002, AmaTech AG, AmaTech Automation and other AmaTech AG subsidiaries entered into bankruptcyproceedings. In October 2002, The Group purchased various AmaTech Automation assets from its bankruptcyadministrator, including 10 patents owned by AmaTech Automation, and received the right to use 118 Joint

F-27

Patents by means of a sublicense (‘‘the Sublicense’’). Some of these patents and patent applications concern thebasic technology and processes used to manufacture a wide variety of the Group’s products.

On March 29, 2004, the Patent Co-Owner brought an action designed to force Mr. Rietzler to consent to thesale by public auction of the ownership rights to two of the German Joint Patents, neither of which is significantto the Group’s business. If the pending litigation should be ultimately decided in the Patent Co-Owner’s favour,the two German Joint Patents that are the subject of the action may be publicly auctioned. Under suchcircumstances, it is also possible that similar claims could be made with regard to the remaining German JointPatents. In the worst case scenario, the Group’s competitive advantage would be reduced to the extent that theGroup is unable to prevent competitors from using the Joint Patents. Nonetheless, the Group’s managementbelieves the Group would retain the benefits provided by its manufacturing expertise, production capacity andsecurity certifications.

Furthermore, in letters dated February 13, 2006 and February 14, 2006, addressed to the AmaTechbankruptcy administrator and to Mr. Rietzler, the Patent Co-Owner sought to terminate the Primary License forcause based, inter alia, upon Mr. Rietzler’s alleged breach of trust and the bankruptcy administrator’s allegedbreach of contract. The Group’s management believes that the allegations and arguments set forth in the letters tosupport the purported termination of the Primary License are without merit. The Group intends to defend itsrights under the Primary License and its Sublicense. If, however, based on the Patent Co-Owner’s action or theaction of any third party, the Primary License were to be declared by a court to be invalid, ineffective orunenforceable, the Group would lose the right to use the Joint Patents and the usage rights would revert toMr. Rietzler and the Patent Co-Owner. In that case, the Group still expects that Mr. Rietzler, personally, would beable to grant the Group a nonexclusive license to practice the Joint Patents in countries (such as the United States)where he, as a co-owner of the Joint Patents, is able to independently license their use.

However, if the German Joint Patents were publicly auctioned as described above, and the Primary Licensewere validly terminated by a court, and the Group would be unable to use alternative non-infringing technology,the new owner might be able prevent the Group from making and selling products made according to the patentsin Germany and a limited number of other countries.

In the worst case scenario, the Group may attempt to reach a settlement with regard to the pending litigationand/or the purported termination of the Primary License by the Patent Co-Owner. Such a settlement may requirethe Group to pay a substantial amount of money and/or to grant to the Patent Co-Owner and/or Assa Abloy ITGAB certain rights to the Joint Patents in countries where the Group currently claims exclusive rights, which mayaffect the Group’s competitive advantage and could have a material adverse effect on the Group’s business,liquidity, results of operations and future prospects.

Based on legal advice, the directors do not expect the outcome of the actions, even if the plaintiff issuccessful, would have a major effect on the Group. For this reason, no impairments or provisions have beenaccounted for as per 31 December 2005.

Off balance sheet commitments

At 31 December 2003, 2004 and 2005, the Group has various bank guarantees granted to utility suppliersamounting approximately euro 14,000, 20,000 and 30,000, respectively.

29. Related parties

Identity of related parties

The Group has a related party relationship with its subsidiaries (see note 1), associate (see note 5), and withits directors and executive officers and entities controlled by its directors and executive officers.

Transactions with key management personnel

Directors of the Company and their immediate relatives control 93 per cent of the voting shares of theCompany.

A loan from a director, Mr. Richard Bird, as at 31 December 2005 amounted to euro 792,000 and is includedin ‘‘interest bearing borrowings’’ (see note 20).

F-28

Total remuneration is included in ‘‘personnel expenses’’ (see note 8):

Combined andconsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Directors *********************************************** 95 22 —

Executive officers **************************************** 105 68 66

200 90 66

Transactions with associates

During the year ended 31 December 2005, the Group purchased goods from its associate wortheuro 1,464,000 (2004: nil and 2003: nil). Transactions with associates are priced on an arm’s length basis. Nodividends were received from associates.

Related party transactions and balances

Related parties are summarised below:

Name Type of business Relationship Directors/shareholders

Smartrac Technology AG ********* Trading Hold shares Mr. Manfred RietzlerMr. Martin Kuschewski

Safehaven Trading *************** Trading Hold shares Mr. Richard Bird

Smartrac Technology USA ******** Trading Hold shares Mr. Richard BirdMr. Manfred RietzlerMr. Wolfgang Schneider

Emsquare AG******************* Development and Hold shares Mr. Manfred Rietzlersale of reading Mr. Martin Kuschewskidevices

Safehaven Investments Ltd. ******* Investment and Hold shares Mr. Richard Birdtrading

Intec Holding GmbH************* Technical advice Hold shares Mr. Manfred Rietzlerand trading

Xytec Solutions Sdn Bhd ********* Trading Hold 30% shares Smartrac NV (30%)

Mr. Richard Bird and Mr. Manfred Rietzler are both directors and shareholders of Smartrac N.V. whereasMr. Wolfgang Schneider and Mr. Martin Kuschewski are only shareholders of Smartrac N.V.

F-29

The Group has the following transactions with related parties.

Combined andConsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

SalesEmsquare AG ************************************* 8 7 2Smartrac Technology AG **************************** — 81 1,711Smartrac Technology USA*************************** — 1 260

8 89 1,973

PurchasesEmsquare AG ************************************* 19 3 21Intec Holding GMBH ******************************* 204 239 341Safehaven Investments Ltd. ************************** — 1,552 1,533Safehaven Trading********************************** — — 515Smartrac Technology AG **************************** — — 183Smartrac Technology USA*************************** — 1 72Xytec Solutions Sdn Bhd **************************** 1,360 — —

1,583 1,795 2,665

The balances of receivable and payables with related parties are shown below.

Combined andConsolidated Consolidated Consolidated

2005 2004 2003In thousands of euro

Trade receivableEmsquare AG ******************************************* 15 6 2

Smartrac Technology AG********************************** 146 146 490

Smartrac Technology USA ******************************** — — 47

161 152 539

Trade payablesIntec Holding GMBH************************************* — 18 69

Emsquare AG ******************************************* 4 3 —

Smartrac Technology USA ******************************** — — 21

Safehaven Trading *************************************** 13 13 13

17 34 103

Non-trade payablesIntec Holding GMBH************************************* 12 — —

Safehaven Investments Ltd. ******************************** 200 1,150 28

Safehaven Trading *************************************** 467 467 467

Xytec Solutions Sdn Bhd********************************** 453 — —

1,132 1,617 495

30. Subsequent events

The Group is in the process of setting up a manufacturing plant in Germany and is negotiating to lease afacility.

The Group is seeking to have its shares listed on the Frankfurt Stock Exchange (Frankfurter Wertpapier-borse) (‘‘FSE’’) in March 2006. The Company has applied for admission of its shares for listing and trading onthe official market of the FSE and on the Prime Standard sub-sector of the official market, which has additionalobligations arising from admission.

F-30

AUDITORS’ REPORT

Introduction

We have audited the combined and consolidated financial information of Smartrac N.V., Amsterdam, for theyears 2003, 2004 and 2005 as set out on pages 1 to 35, which comprises the combined and consolidated balancesheets, combined and consolidated income statements, combined and consolidated cash flow statements,combined and consolidated statements of changes in shareholders’ equity and the related notes, prepared inaccordance with International Financial Reporting Standards as adopted by the EU. This combined andconsolidated financial information is the responsibility of the company’s management. Our responsibility is toexpress an opinion on this combined and consolidated financial information based on our audit.

Scope

We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the combinedand consolidated financial information is free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the combined and consolidated financial information.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the combined and consolidated financial information. We believethat our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the combined and consolidated financial information gives a true and fair view of thefinancial position of the company as at 31 December 2003, 31 December 2004 and 31 December 2005 and of theresults of its operations and the cash flows for the years then ended in accordance with International FinancingReporting Standards as adopted by the EU.

Amstelveen, 14 February 2006

KPMG ACCOUNTANTS N.V.

/s / J.M.A. Eskes RA

J.M.A. Eskes RA

F-31

GLOSSARY OF SELECTED TERMS

Active transponder************ A transponder which contains a battery that provides the energy needed totransmit information and receive data (See also ‘‘Passive transponder’’).

Contact card ***************** Device in which the chip must have physical contact with the reader toallow data transmission. The chip must therefore be located on the surfaceto allow readers to establish contact with the chips and communicate withthem (See also ‘‘Contactless card’’).

Contactless card ************** Device (not always in card form) containing a chip which does not have tohave physical contact with a reader to transmit data. Accordingly, the chipsmay be encased within the card instead of being embedded on the card’ssurface (See also ‘‘Contact card’’).

Embedding ****************** One of several technologies used to produce a transponder’s antenna. Inthis process, a wire is embedded in exactly the right thickness into a plasticfoil using pressure and heat (See also ‘‘Etching’’, ‘‘Embedding’’ and‘‘Wire-bonding’’).

Encryption codes ************* Encryption codes use encryption algorithms to encode and decode data.The key and not the message is encoded. Each time it is used, the code/keychanges and cannot therefore cannot be decoded.

ePassport ******************** An RFID-enabled passport containing an embedded integrated circuit chipthat is used to store and transmit identifying data, including biometricfeatures such as pictures, fingerprints or iris scan information.

ePayment ******************** RFID-based payment systems allowing cashless payments usingcontactless payment cards.

Etching********************** One of several technologies used to produce a transponder’s antenna. Inthis process, the antenna is etched out of aluminum or other metals by achemical solution (See also ‘‘Printing’’ and ‘‘Embedding’’).

Flip-chip********************* One of several technologies used by inlay manufacturers to connect anantenna to a transponder’s chip. This process does not require any wirebonds. Instead, the final wafer processing step deposits solder beads on thechip pads. The flip chip is then mounted upside down on a package and thesolder is reflowed (See also ‘‘Wire-bonding’’).

High frequency (HF) ********** See ‘‘Radio frequency’’.

ISO 14443 a/b**************** The international industry standard for contactless cards that operate(i.e., can be read or written to) at a distance of less than 10 centimeters(4 inches) (applicable for short range transponders).

ISO 15963 ******************* See ‘‘ISO 14443 a/b’’. This standard applies to long range transponderswhich offer a maximum read distance of 1-1.5 meters.

Key fob********************** Small item, usually attached to a key chain that uses RFID technology forcashless payments at gas stations, for example.

Label *********************** See ‘‘Smart label’’.

Low frequency (LF)*********** See ‘‘Radio frequency’’.

Memory chip***************** Integrated circuit used as a data storage device.

Microcontroller chip ********** Integrated circuit that includes a microcontroller, i.e. a highly integratedcomputer chip that contains all the components comprising a controller.Since they can include sophisticated encryption functions and permitadvanced calculations to be made, microcontroller chips are often used inapplications where data security and integrity are essential.

Non-secure RFID products ***** RFID products that contain only a memory chip, as opposed to amicrocontroller chip (See also ‘‘Secure RFID Products’’).

G-1

Passive transponder *********** A transponder which uses energy emitted by the reader’s electromagneticfield to power the chip and communicate signals (See also ‘‘Activetransponder’’).

Printing ********************* One of several technologies used to produce a transponder’s antenna. Inthis process, the antenna is printed on PVC foil with a silver paste using asilk screen process (See also ‘‘Etching’’ and ‘‘Embedding’’).

Radio frequency ************** The frequency of the electromagnetic waves used to transmit data from atransponder to a reader in an RFID system. The standard transmissionfrequencies for RFID systems are: low frequency (LF, 125-148.5 kHz),high frequency (HF, 13.56 MHz) and ultra high frequency (UHF, 400 MHzto 1 GHz). Differentiating characteristics include manufacturing costs ofthe individual components, data transmission rates and effective range.

Reader ********************** A device used to read (and sometimes write) data stored on the chip in atransponder.

RFID (Radio FrequencyIdentification) ************** Technology allowing for the contactless transmission of data between a

chip and a reader via radio waves.

RFID system ***************** An RFID system consists of a transponder and the reader. When thetransponder is within the reader’s working distance, it transmits data to thereader via radio waves.

Secure printing house ********* Secure printing houses (which include private companies andgovernmental printers) produce official governmental documents such asID cards, drivers’ licenses and passports.

Secure RFID products********* RFID products that contain a microcontroller chip (See also ‘‘Non-secureRFID products’’ and ‘‘Microcontroller chip’’).

Smart label ****************** RFID technology used for inventory tracking and supply chain manage-ment. For example, large suppliers attach labels including an RFID chipand an antenna to their products in order to enable the US Department ofDefense and Wal-Mart to manage their complex supply chains in real time.

Substrate ******************** Carrier material, such as plastic, that forms part of the finished product (forexample, an ID card or key fob).

System integrators ************ System integrators purchase printed and laminated cards from cardmanufacturers and printed and assembled ePassport booklets from secureprinting houses. They personalize the cards and ePassports by puttingsoftware and personal data on the embedded chips and then supply thecustomized cards to the client or end-user.

Tag ************************* General designation for industrial transponders with a customized housing.

Tracking********************* Process by which individual objects or pallets are tracked as they movethrough logistic systems.

Transponder ***************** A transponder is a data carrier which comes in the form of a card, tag, keyfob or label. It is a microelectronic circuit consisting of a microchip and anantenna bonded to a carrier material substrate.

Ultra high frequency (UHF)**** See ‘‘Radio frequency’’.

Wire-bonding **************** One of several technologies used by inlay manufacturers to connect theantenna to a transponder’s chip (See also ‘‘Embedding’’ and ‘‘Flip-chip’’).

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