As filed with the Securities and Exchange Commission on April 12, 2006
--------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)

[_]         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                                       OR

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

                   For the fiscal year ended December 31, 2005

                                       OR

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

                                       OR

[_]            SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

           Date of event requiring this shell company report__________

          For the transition period from _________ to ________________

                         Commission File Number 1-15134

                                    HEAD N.V.
             (Exact Name of Registrant as Specified in its Charter)

                                 The Netherlands
                 (Jurisdiction of Incorporation or Organization)
                                    Rotterdam
                                 The Netherlands

                    (Address of Principal Executive Offices)
                                    Rokin 55
                                1012 KK Amsterdam
                                 The Netherlands
                                 +31-20-625-1291
                                 ---------------

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

<TABLE>
<CAPTION>
<S>                                          <C>
       Title of Each Class                   Name of Each Exchange on Which Registered
  Ordinary Shares of (euro)0.20 each                New York Stock Exchange
</TABLE>



<PAGE>

              Securities registered or to be registered pursuant to
                        Section 12(g) of the Act : None


        Securities for which there is a reporting obligation pursuant to
                        Section 15(d) of the Act : None


         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.

            36,219,902 Ordinary Shares Nominal Value (euro)0.20 each

         Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

                                      Yes   X   No
                                  ---      ---
         If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.

                                      Yes   X   No
                                  ---      ---

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                   X  Yes      No
                                  ---      ---

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):


        Large accelerated filer     Accelerated filer X  Non-accelerated filer
                                ---                  ---

         Indicate by check mark which financial statement item the registrant
has elected to follow.

                                   Item 17   X  Item 18
                              ---           ---

         If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                      Yes   X   No
                                  ---      ---



                                       2
<PAGE>

                                TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................1
   ITEM 1:     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........2
   ITEM 2:     OFFER STATISTICS AND EXPECTED TIMETABLE........................2
   ITEM 3:     KEY INFORMATION................................................2
     3.A.     Selected Financial Data.........................................2
     3.B.     Capitalization and Indebtedness.................................4
     3.C.     Reasons for the Offer and Use of Proceeds.......................4
     3.D.     Risk Factors....................................................4
   ITEM 4:     INFORMATION ON THE COMPANY.....................................7
     4.A.     History and Development of the Company..........................7
     4.B.     Business Overview...............................................8
     4.C.     Organizational Structure.......................................25
     4.D.     Property, Plant and Equipment..................................25
   ITEM 5:     OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................26
     5.A.     Operating Results..............................................26
     5.B.     Liquidity and Capital Resources................................37
     5.C.     Research and Development, Patents and Licenses.................38
     5.D.     Trend Information..............................................38
     5.E.     Off-Balance Sheet Arrangements.................................39
     5.F.     Disclosures of Contractual Obligations.........................39
   ITEM 6:     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................40
     6.A.     Directors and Senior Management................................40
     6.B.     Compensation...................................................42
     6.C.     Board Practices................................................44
     6.D.     Employees......................................................44
     6.E.     Share Ownership................................................45
   ITEM 7:     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............47
     7.A.     Major Shareholders.............................................47
     7.B.     Related Party Transactions.....................................47
     7.C.     Interest of Experts and Counsel................................47
   ITEM 8:     FINANCIAL INFORMATION.........................................47
     8.A.     Consolidated Statements and Other Financial Information........47
     8.B.     Significant Changes............................................48
   ITEM 9:     THE OFFER AND LISTING.........................................48
     9.A.     Offer and Listing Details......................................48
     9.B.     Plan of Distribution...........................................48
     9.C.     Markets........................................................49
     9.D.     Selling Shareholders...........................................49
     9.E.     Dilution.......................................................49
     9.F.     Expenses of the Issue..........................................49
   ITEM 10:       ADDITIONAL INFORMATION.....................................49
     10.A.    Share Capital..................................................49
     10.B.    Articles of Association........................................50
     10.C.    Material Contracts.............................................53
     10.D.    Exchange Controls..............................................54
     10.E.    Taxation.......................................................54
     10.F.    Dividends and Paying Agents....................................61
     10.G.    Statement by Experts...........................................61
     10.H.    Documents on Display...........................................61
     10.I.    Subsidiary Information.........................................61
   ITEM 11:       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK................................................61
   ITEM 12:       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.....62
   ITEM 13:       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES............62
   ITEM 14:       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
                  HOLDERS AND USE OF  PROCEEDS...............................62
   ITEM 15:       CONTROLS AND PROCEDURES....................................63
   ITEM 16:       [RESERVED].................................................63
     16.A.    Audit Committee Financial Expert...............................63
     16.B.    Code of Ethics.................................................63

<PAGE>

     16.C.    Principal Accountant Fees and Services.........................63
     16.D.    Exemption from the Listing Standards for Audit Committee.......64
     16.E.    Purchase of Equity Securities by the Issuer and
              Affiliated Purchasers..........................................64
   ITEM 17:       FINANCIAL STATEMENTS.......................................64
   ITEM 18:       FINANCIAL STATEMENTS.......................................64
   ITEM 19:       EXHIBITS...................................................64



                                       3
<PAGE>


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements that are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. The words "anticipates", "believes",
"estimates", "expects", "plans", "intends" and similar expressions are intended
to identify these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements are subject to various risks,
uncertainties and contingencies which could cause our actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and contingencies
include, but are not limited to, the factors set out in "Item 3 -- Risk Factors"
("cautionary statements").

     Actual results and events could differ materially from those contemplated
by these forward-looking statements as a result of factors such as those
described by the cautionary statements. In light of these risks and
uncertainties, there can be no assurance that the results and events
contemplated by the forward-looking statements contained in this report will in
fact occur. You are cautioned not to place undue reliance on these
forward-looking statements. We do not undertake any obligation to update or
revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements.



                                    * * * * *



     In this annual report, references to the "Company", "we", "us" or "our" are
to Head N.V. and its subsidiaries, references to "Head Holding" are to our
intermediate holding company subsidiary, Head Holding Unternehmensbeteiligung
GmbH and its predecessor company, and references to "HTM" are to our primary
operating subsidiary HTM Sport-und Freizeitgerate AG.

     "Head", "Head Titanium Tennis", "Head Intelligence", "Head Intellifiber",
"Head Chipsystem", "Thang", "Flexpoint", "Tyrolia", "Free Flex", "Rail Flex",
"Powerframe", "Protector", "Penn", "Mares", "Dacor", "San Marco", "Cyber",
"Munari", "Contour Tech", "Nemo" and "Sporasub" are our trademarks. All other
trademarks, service marks or brand names appearing in this annual report are the
property of their respective holders.



                                       1
<PAGE>

ITEM 1:  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not applicable.

ITEM 2:  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

ITEM 3:  KEY INFORMATION

3.A.Selected Financial Data

         The following table provides our selected consolidated financial data
for the periods indicated. The historical financial data for the years ended
December 31, 2001, 2002, 2003, 2004 and 2005 have been derived from our
consolidated financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States, or U.S. GAAP, and
have been audited by PricewaterhouseCoopers, our independent auditors.
Historical results are not necessarily indicative of the results that may be
expected for any future period.

         The selected financial data should be read in conjunction with our
historical consolidated financial statements, the notes thereto and "Item 5--
Operating and Financial Review and Prospects" included elsewhere in this annual
report.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                      2001        2002              2003         2004            2005
                                                   ---------- -------------------------------------------------------
                                                      (in thousands, except per share data)
<S>                                                <C>        <C>           <C>              <C>          <C>
Statement of Operations Data:
Product revenues ..................................$ 384,010  $ 379,089     $   421,507      $ 466,701    $  444,303
Licensing revenues ................................    8,011      8,398           9,701         11,059        12,219
                                                    ---------  ---------     -----------      ---------    ----------
Total revenues ....................................  392,021    387,487         431,208        477,759       456,522
Other revenues ....................................    1,088      1,246           1,394          1,326         1,446
Sales deductions ..................................   (8,318)    (8,783)        (10,272)       (12,071)      (11,086)
                                                    ---------  ---------     -----------      ---------    ----------
Total net revenues ................................  384,791    379,950         422,330        467,014       446,882
Cost of sales .....................................  233,971    233,402         266,023        294,360       272,532
                                                    ---------  ---------     -----------      ---------    ----------
Gross profit ......................................  150,820    146,548         156,307        172,654       174,351
Selling and marketing expense .....................   94,864     95,082         108,193        118,511       116,529
General and administrative expense ................   34,843     32,524          38,847         41,883        38,602
Non-cash compensation expense .....................    2,025      1,632             654            555           863
Gain on sale of property (1) ......................     (871)      (443)             --         (5,650)       (7,246)
Restructuring charge (2) ..........................      838         --           8,368          2,347         6,173
                                                    ---------  ---------     -----------      ---------    ----------
Operating income ..................................   19,121     17,753             245         15,008        19,431
Interest expense ..................................  (11,275)   (11,677)        (13,999)       (25,699)      (16,081)
Interest income ...................................      892        940           1,050          2,121         2,685
Foreign exchange gain (loss) ......................    5,828     (7,387)         (1,103)          (606)        2,763
Other income (expense), net .......................        7        387             (18)           (97)          125
                                                    ---------  ---------     -----------      ---------    ----------

Income (loss) from continuing operations
     before income taxes and extraordinary items...   14,573         15         (13,825)        (9,274)        8,923
Income tax benefit (expense) (3) ..................
     Current ......................................   (2,169)    (2,410)         (2,278)        (2,504)       (1,873)
     Deferred .....................................   (1,863)      (220)          1,446        (25,156)          944
                                                    ---------  ---------     -----------      ---------    ----------
                                                      (4,032)    (2,630)           (832)       (27,661)         (929)
Share of loss from equity investment, net of tax..    (1,117)        --              --             --            --
                                                    ---------  ---------     -----------      ---------    ----------
Net income (loss) .................................$   9,424     (2,615)        (14,657)       (36,935)        7,994
                                                    =========  =========     ===========      =========    ==========
Earnings per share - basic (4)
     Net income (loss) ............................$    0.25  $   (0.07)    $     (0.40)     $   (1.02)   $     0.22
Earnings per share - diluted (4)
     Net income (loss) ............................$    0.24  $   (0.07)    $     (0.40)     $   (1.02)   $     0.21
Weighted average shares outstanding (4)
     basic ........................................   38,083     37,356          36,285         36,198        36,220
     diluted ......................................   39,816     37,356          36,285         36,198        37,467

Other Financial Data:
Cash provided by operating activities .............$  35,921  $  23,279     $    17,342      $   7,789    $   39,983
Cash used in investing activities .................$ (19,913) $ (18,804)    $   (16,554)     $ (28,762)   $  (13,255)
Cash provided by (used in) financing activities....$     393  $       2     $    (2,007)     $  36,437    $  (21,092)

</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                                    2001         2002        2003       2004          2005
                                                  -------      --------     --------   --------    ---------
                                                               (in thousands, except dividend)
<S>                                              <C>          <C>          <C>         <C>         <C>
Balance Sheet Data:
Cash (5).........................................$   22,128     $  37,598   $  44,154   $  66,019   $   58,348
Total assets.....................................$  416,519     $ 473,853   $ 537,586   $ 587,520   $  511,954
Total debt ......................................$  122,966     $ 154,893   $ 184,833   $ 242,708   $  190,428
Capital Stock....................................$    7,067     $   7,067   $   7,067   $   7,067   $    7,067
Number of shares issued..........................    39,821        39,821      39,821      39,821       39,821
Dividend paid....................................$     0.28     $    0.13   $      --   $      --   $       --
Dividend paid....................................(euro)0.25   (euro) 0.14  (euro)  --   (euro) --  (euro)   --
Total shareholders' equity.......................$  212,539     $ 229,824   $ 241,716   $ 216,942   $  204,506
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)   In 2001 and 2002, gain on sale of property included gains on the sale of a
      building in Italy. In 2004 we recorded a gain from the sale of our
      premises in Ireland. In 2005, the gain on the sale of property resulted
      from the sale of our property in Estonia.
(2)   Restructuring charge included employee terminations in 2001. In 2003
      restructuring included employee terminations of $5.2 million, impairment
      of fixed assets of $2.6 million, excess rent of $0.4 million and other
      related restructuring program costs of $0.2 million. In 2004 restructuring
      charge included costs for facility closures in Ireland of $1.6 million and
      Estonia of $0.7 million. Restructuring charge in 2005 consisted of $3.9
      million in which $1.0 million related to severance payments for employee
      terminations, $1.8 million related to impairment of fixed assets and $1.1
      million related to production inefficiency, as a result of the outsourcing
      of 90% of the tennis racquet production from Kennelbach and Budweis to
      China, $0.7 million employee severance cost resulting from the
      restructuring of the ski bindings production and $1.6 million personnel
      costs in connection with the restructuring program in Italy.
(3)   The increase in income tax expense in 2004 was mainly due to a reduction
      in the Austrian tax rate which led to a decrease in deferred tax assets
      resulting from tax losses carried forward of $24.9 million.
(4)   Earnings per share and weighted average shares outstanding on a diluted
      basis give effect to all outstanding options calculated under the treasury
      stock method. For the years ended December 31, 2002, 2003 and 2004, the
      number of options that were outstanding but not included in the
      computation of diluted net loss per share because their effect would have
      been anti-dilutive was 1,789,490 options, 1,347,773 options, and 1,278,201
      options, respectively.
(5)   Cash includes cash and cash equivalents, and in 2003, 2004 and 2005
      included restricted cash of $2.8 million, $6.4 million and $4.7 million,
      respectively.

Exchange Rates

         In this report, references to "U.S. dollars," "dollars" or "$" are to
United States dollars and "euro" or "(euro)" means the common currency for
twelve member states of the European Monetary Union. We have rounded percentages
and some amounts contained herein for ease of presentation, and sometimes
amounts may not add due to this rounding. We have presented most amounts in U.S.
dollars. In some cases, this report contains translations of euro amounts into
U.S. dollars at specified rates solely for the convenience of the reader. You
should not construe these translations as representations that the euro amounts
actually represent these U.S. dollar amounts or could be converted into U.S.
dollars at the rate indicated.

         Unless otherwise indicated, U.S. dollar amounts have been translated
from euro amounts to U.S. dollars based on the European Central Bank rates. On
December 31, 2005, the rate was (euro) 0.847673 = $1. Our inclusion of such
translations is not meant to suggest that the euro amounts actually represent
such U.S. dollar amounts or that such amounts could have been converted into
U.S. dollars at such rate or any other rate. For a discussion of the impact of
the exchange rate fluctuations on our financial condition and results of
operations, see "Item 3.D -- Risk Factors", "Item 5 -- Operating and Financial
Review and Prospects" and "Item 11 -- Quantitative and Qualitative Disclosures
about Market Risk". We did not use the rates listed below in the preparation of
our financial statements. On April 10, 2006, the rate was (euro) 0.8265 = $1.



                                       3
<PAGE>


         The table below shows information concerning the European Central Bank
rates for euro for the years ended December 31, 2001, 2002, 2003, 2004 and 2005
expressed in euro per one U.S. dollar.


                                              Year ended December 31,
                           -----------------------------------------------------
                              2001        2002      2003      2004      2005
                           ---------   ---------  --------  --------  ----------

High....................... 1.19275     1.16577   0.96367   0.84731   0.85712
Low........................ 1.04767     0.95356   0.79177   0.73351   0.74036
Average (1)................ 1.11594     1.06703   0.88973   0.80486   0.79961
End of period.............. 1.13469     0.95356   0.79177   0.73416   0.84767


(1) The average of the European Central Bank rates for euro on the last business
    day of each month during the applicable period.


         The table below sets forth the period end, high and low exchange rates,
expressed in euro per one U.S. dollar, for six prior months.


                                         --------------------------------
                                           Period
Months                                      end         High       Low
                                         ---------   ---------  ---------

October 2005............................. 0.83174     0.83801    0.82345
November 2005............................ 0.84969     0.85712    0.83050
December 2005............................ 0.84767     0.85492    0.83195
January 2006 ............................ 0.82522     0.84559    0.81341
February 2006 ........................... 0.84211     0.84374    0.82699
March 2006............................... 0.82617     0.83942    0.82068

3.B.Capitalization and Indebtedness

       Not applicable.

3.C.Reasons for the Offer and Use of Proceeds

       Not applicable.

3.D.Risk Factors

The sporting goods industry is highly competitive and our success depends upon
our ability to respond quickly to changes in consumer preferences.

         The sporting goods industry is highly competitive and includes many
regional, national and international companies, some of which have achieved
substantial market share. We compete primarily on the basis of product features,
brand recognition, quality and price, and the failure to remain competitive
could adversely affect our results of operations and financial condition. Some
of these competitors offer types of sports products that we do not sell and some
of our competitors are larger and have substantially greater financial and other
resources than us.

         Our success also depends partly on our ability to anticipate and
respond quickly to changing merchandise trends, consumer taste and consumer
preferences. Any failure to so respond could adversely affect consumer
acceptance of our brand names and product lines and could harm our business.

Changes in the tastes of the sporting public affect the demand for our products,
and in recent years, we have observed a declining interest in skiing and tennis.

         In recent years we have observed declining demand overall in the global
ski and tennis markets. An estimated 6.5 million pairs of skis were sold per
year worldwide in the late 1980's, whereas approximately 4.1 million pairs were
sold in 2005. New trends like the park and pipe skis could stabilize demand, and
snowboard sales have developed from approximately 0.8 million boards sold in
1995 to a peak of approximately 1.6 million in 2000, and approximately 1.3
million sold in 2005. The general decline in demand in the tennis market has
been observed since the period of peak demand in the early 1990's. We believe
this decline is due to competing leisure activities, including computer games
and the Internet. We and the sporting goods industry in general are dependent on
the tastes of the sporting public and its priorities in spending on leisure
activities. A further decrease in interest in skiing and tennis would cause a
decline in the size of the markets from which we derive most of our sales and
could thus cause a decline in our revenues.

Our failure to introduce innovative products to the market could adversely
affect our sales and margins.



                                       4
<PAGE>

         Our success is dependent in part on our introduction of innovative
products that represent an improvement over existing products that we or other
manufacturers offer. We believe that our future growth and success will depend
significantly on our continued ability to identify, develop, introduce and
market innovative sports products such as our Head Intelligence skis and
snowboard equipment, our Head Titanium, Head Intelligence and Head Liquidmetal
series of tennis racquets, and our Mares and Dacor lines of diving equipment,
although we cannot assure you of our ability to do so. Our operating results may
fluctuate as a result of the amount, timing and market acceptance of new
products that we or our competitors introduce. In addition, our failure to
introduce new, innovative products will adversely affect our margins because
margins on the sales of sports products tend to decline over time with the entry
of competitive products into existing markets.

Economic and other factors beyond our control have caused and could continue to
cause a decline in demand for our products.

         We and the sporting goods industry in general are dependent on the
economies in which we sell our products and levels of consumer spending.
Economic conditions affect not only the ultimate consumer, but also retailers,
our primary customers. As a result, our results may be adversely affected by
downward trends in the economies in which we sell our products, such as the
recession in Japan during the 1990's and the current general worldwide economic
slowdown. In addition, the occurrence of events that adversely affect economies,
such as the September 11, 2001 attacks on the United States and subsequent acts
of terrorism, continue to adversely affect leisure travel and related
discretionary consumer spending, which can have a particularly negative impact
on our diving business. We cannot assure you that any prolonged economic
downturn would not adversely affect us. In addition, a decline in the size of
the market for sports products from which we derive sales, whether from a
decrease in the popularity of particular products or adverse weather conditions,
such as lack of snowfall, could cause a decline in sales.

We may not successfully realize the savings of our cost reduction program.

         The cost savings described under "Item 4.B Business Overview--Our
Strategy--Reduce Costs" represent the savings we anticipate to result from the
full implementation of our cost reduction program described in that section.
These future cost savings are based upon a number of estimates. We may not
realize the cost savings from our cost reduction program if, among other things:

         o   our estimates are proved incorrect;
         o   there are additional unanticipated costs; and/or
         o   the implementation of the program is not completed for any reason
             in the time periods envisaged, including disruptions and delays in
             transferring our operations from one plant to another as described.

         Accordingly, the estimated cost savings are not necessarily indicative
of our future financial results which may be affected by a number of other
factors, including demand and pricing for our products, pricing for raw
materials and other costs associated with our production, distribution and other
operations.

Shifts in currency exchange rates may adversely affect our results of
operations.

         We operate in a multi-currency environment in which a portion of our
revenues and expenses are denominated in currencies other than the euro. We are,
as a result, subject to currency translation risk and, to a lesser extent,
currency transaction risk. Currency translation risk arises because we measure
and record the financial condition and results of operations of each of our
subsidiaries in their functional currency and then translate these amounts into
our reporting currency, the U.S. dollar. We incur transaction risk when one of
our subsidiaries enters into a transaction using a currency other than its
functional currency, although we reduce this risk by seeking, when possible, to
match our revenues and costs in each currency. Accordingly, shifts in currency
exchange rates, particularly between the euro and the U.S. dollar, may adversely
affect our results of operations.

We are dependent in part on the performance of third-party suppliers, which may
cause delays in filling orders, affect the quality of some products or affect
the image of our trademarks.

         Approximately 50% of our cost of sales in 2005 consisted of fees paid
to third-party manufacturers located in Europe, such as in Austria (snowboards),
Estonia, Italy and Bulgaria (diving products), and in Asia, such as in China
(accessories and snowboards, bindings, boots, helmets, body protection) and
Thailand (diving products). In 2005, we outsourced the remaining part of our
tennis racquet production and now rely on several contract manufacturers located
in China. Furthermore, a substantial number of our third party licensees, who
produce apparel and other products under the Head brand, outsource their
manufacturing to third parties.

         As a result of this outsourcing, we, as well as our third party
licensees, are dependent in part on the performance of third-party suppliers in
order to deliver quality products in a timely manner. We and our licensees are
also increasingly subject to risks relating to the local economic and political
conditions in the countries to which we outsource our manufacturing operations.
Although these factors have not had an adverse impact on our operations to date,
we cannot assure you that these factors will not affect quality control, orders
and shipments, or the image of our trademark in the case of licensees. In
addition, our ability to fulfill orders and our cost of sales may be adversely
affected in the event we are required to shift the manufacturing of some of our
products from one geographical location, or from one contract manufacturer, to
another.



                                       5
<PAGE>

We are indirectly controlled by one shareholder whose interests may conflict
with yours.

         Head Sports Holdings N.V, controlled 18,987,344 shares, or
approximately 47.7% of our issued shares, as of March 31, 2006. Head Sports
Holdings N.V., a Netherlands Antilles corporation, is controlled by Johan
Eliasch and his family members. Head Sports Holdings N.V. has the power to
approve the nominations of our executive officers, approve the proposed actions
of the Supervisory and Management Boards, change our core business, cause us to
engage in transactions with affiliated companies, cause or restrict the sale of
our assets, control our dividend policy and make other fundamental corporate
decisions.

         The business of Head N.V. is carried out primarily by a Management
Board, which appoints our executive officers, and is overseen by a Supervisory
Board. Under Head N.V.'s articles of association, a Dutch foundation called the
Stichting Head Option Plan has the power to nominate all members of the
Management Board, appoint one-third of the Supervisory Board and nominate the
remaining members of the Supervisory Board. The Board of the Stichting is
controlled by Head Sports Holdings N.V., the entity controlled by Johan Eliasch
and his family members, jointly with Johan Eliasch.

         The special power of the Stichting ceases when Johan Eliasch or his
affiliates or family members cease to control the Stichting or cease to
beneficially hold any of Head N.V.'s shares. In general, a two-thirds majority
of shareholders voting at a general meeting of shareholders may remove members
of the Management and Supervisory Boards, and the articles of association,
including the rights of the Stichting, also may be amended (at the proposal of
the Management Board and with approval of the Supervisory Board) by a two-thirds
majority of shareholders. Therefore, as a result of his control over the
Stichting, Johan Eliasch will retain the power to nominate and essentially
control the election of the Management and Supervisory Board members and other
executive officers so long as he holds any of Head N.V.'s shares until there is
an amendment to the articles of association to remove the rights of the
Stichting.

We are dependent on patents and trademarks and inadequate protection of patents
and trademarks or patent or trademark litigation would adversely affect our
business.

         We rely on a combination of patents, trademarks, trade secrets and
confidentiality agreements to protect our proprietary technology, rights and
know-how. We hold several hundred patents and trademarks, several of which are
filed in multiple jurisdictions, including Europe, the United States and Japan.
Our major trademarks are registered in our key markets and numerous other
countries. We believe our patents and trademarks to be among our most valuable
marketing assets and generally seek protection for them, particularly the names
Head, Tyrolia, Penn and Mares in countries where significant existing or
potential markets for our products exist. We believe we have taken adequate
measures to protect our proprietary information, trade names and trademarks in
all our major markets, although not all our trade names and trademarks are
proprietary to us for all of our products in all our markets. For example, we do
not own the trademark "Liquidmetal" but rather license the name pursuant to an
agreement we have with Liquidmetal Technologies, Inc. This agreement had an
initial term of four years commencing January 1, 2003, and the parties agreed to
extend the agreement under similar terms to December 31, 2008.

         We cannot assure you that the measures we (or our licensors from whom
we license patents and trademarks) take to protect our intellectual property
will afford us adequate protection against patent and trademark infringements,
that pending patent and trademark applications will eventually be issued or that
the claims allowed for any of our existing or future patents and trademarks will
provide competitive advantages for our products or will not be successfully
challenged or circumvented by competitors. In addition, we cannot assure you
that we will be able to continue to license names for which we do not currently
hold trademarks, such as "Liquidmetal", under the same terms as our existing
license agreements or at all.

         In the United States, patent applications are maintained in secrecy for
a period after filing and the right to a patent is given to the first to invent,
not the first to file, a patent application. We cannot be sure that our products
or technologies do not infringe patents that may be granted in the future under
pending patent applications, or that our products do not infringe any patents or
proprietary rights of third parties. The validity and enforceability of third
party claims could prevent us from selling our products or could require us to
obtain licenses from the owners of these patents or to redesign our products to
avoid infringements. We cannot assure you that we could accomplish any of these
alternatives successfully, and our inability to do so if necessary could
adversely affect our business. In addition, we cannot assure you that our
employees and third parties with whom we have entered into confidentiality
agreements will respect these obligations, or that our competitors will not use
our trade secrets or proprietary information. In addition, the laws of some
countries do not protect our products and intellectual property rights to the
same extent as the laws of the United States or Europe. Litigation may be
necessary to defend against claims of infringement, to enforce our patents or
trademarks, or to protect trade secrets and could result in substantial costs to
us. We cannot assure you that we would prevail in these types of litigation.

Environmental regulations by European Union, national and local regulatory
bodies could adversely affect our business.

         Our operations are subject to European Union, national and local laws
governing, among other things, water pollution, air pollution, noise pollution
and hazardous substance discharges. We believe that our business, operations and
facilities have been and are being operated in compliance in all material
respects with applicable environmental and health and safety laws. However, the
operation of manufacturing plants entails risks in these areas. As a result, we
cannot assure you that we will not incur material costs or liabilities. In
addition, we could incur significant costs in order to comply with any future
European Union, national or local environmental and



                                       6
<PAGE>

health and safety laws that may be adopted or to respond to stricter
interpretations or stricter enforcement of existing laws in the future.

         We believe that the overall impact of complying with regulations and
legislation protecting the environment will not have a material adverse effect
on our future financial position or operating results. We cannot assure you,
however, that this will be the case. Capital expenditures and expenses in 2005
attributable to compliance with environmental laws were not material.

We have product liability exposure resulting from the use of our products.

         Some of our products are used in relatively high-risk recreational
settings, and from time to time we are named as a defendant in lawsuits
asserting product liability claims relating to our sporting goods products. To
date, none of these lawsuits has had a material adverse effect on us, and we do
not believe that any lawsuit now pending could reasonably be expected to have
such an effect. We maintain product liability and general liability insurance
coverage. No assurances can be given that such insurance will continue to be
available at an acceptable cost or that such coverage will be sufficient to
cover one or more large claims, or that the insurers will not successfully
disclaim coverage as to a pending or future claim.

Changes in Austrian tax law may affect our net income dramatically.

         As of December 31, 2005, we recognized $74.3 million of deferred tax
assets on Austrian tax losses carried forward. We believe it is more likely than
not that these deferred tax assets will be realized. Austria allows an unlimited
carryover of net operating losses. However, a change in Austrian tax law
lowering the applicable tax rate could occur, as it did in 2004, requiring us to
write down a portion of our deferred tax assets. Such a writedown would cause a
tax expense and negatively affect our net income.

We may be affected by raw material and energy price increases.

         Our production is dependent on the timely availability of certain raw
materials whose prices are driven by the oil and steel price development on the
world market. Such raw materials are used in manufacturing, among other items,
plastic components for bindings, skiboots and fins, carbon-fibers for racquets
and metal parts for binding components and ski edges. Changing raw material
prices historically have had a material impact on our earnings and cash flows,
and are likely to continue to have a significant impact on earnings and cash
flows in future periods.

In the event we decide to de-list our shares from the New York Stock Exchange,
it will no longer be possible to trade our shares on a national market in the
United States, and our share price may decrease. If possible, we may also
deregister our shares from the U.S. Securities and Exchange Commission.

         At our last Annual General Meeting in May, 2005, our shareholders
authorized the Management Board to apply for a de-listing from the New York
Stock Exchange and to terminate the "Common Share Agreement" between The Bank of
New York and us. The de-listing, if carried out, would mean that it is no longer
possible to trade our shares on a national market in the United States. Our
share price may decrease as a result. In addition, a de-lisiting from the New
York Stock Exchange may be followed by the de-registration of our shares from
the U.S. Securities and Exchange Commission, if possible under applicable
regulations.



ITEM 4:  INFORMATION ON THE COMPANY

4.A.History and Development of the Company

         We are a leading global manufacturer and marketer of branded sporting
goods serving the skiing, tennis and diving markets. We have created or acquired
a portfolio of brands -- Head (principally alpine skis, ski boots and snowboard
products and tennis, racquetball and squash racquets), Penn (tennis balls and
racquetball balls), Tyrolia (ski bindings) and Mares and Dacor (diving
equipment). Our key products have attained leading market positions and have
gained visibility through their use by many of today's top athletes.

         With a broad product offering marketed mainly to middle to high price
points, we supply sporting equipment and accessories to all major distribution
channels in the skiing, tennis and diving markets, including pro shops,
specialty sporting goods stores and mass merchants. Our products are sold
through over 30,000 customers in over 85 countries and target sports enthusiasts
of varying levels of ability and interest ranging from the novice to the
professional athlete. Our strongest presence has traditionally been in Europe,
and we have been successful in building market share in the United States, the
next largest market for our products after Europe.

         Our Head ski division traces its origins to 1950 when it was founded by
Howard Head, the inventor of the metal ski. In 1970 and 1971, AMF Incorporated
acquired the predecessors of our Head ski, Tyrolia bindings and Mares diving
divisions, which collectively became known as AMF's Sport Product Group. In
1989, HTM Sports Holding B.V., a company formed by Freeman Spogli & Co. and a
group of Japanese investors, acquired the companies that comprised the Sports
Product Group in addition to the predecessor of our ski boot and trekking shoes
division. In 1993, this company was sold to Austria Tabak, the then Austrian
government-owned tobacco



                                       7
<PAGE>

monopoly, which held them through what today is known as HTM Sport-und
Freizeitgerate AG, or "HTM". Following its purchase by Austria Tabak, HTM began
experiencing financial difficulties. In January 1996, our intermediate holding
company subsidiary, Head Holding Unternehmensbeteiligung GmbH, or "Head
Holding", acquired HTM from Austria Tabak for ATS 10 million ($0.8 million)
pursuant to a Share Purchase Agreement dated September 20, 1995.

         Over the last 56 years, we have become one of the world's most widely
recognized developers and manufacturers of innovative, high-quality and
technologically advanced sporting equipment. Our focus continues to be on our
core products of skiing, tennis and diving equipment. In order to expand market
share and maximize profitability, we have increased our emphasis on marketing
and new product development, leveraging further our brands, global distribution
network and traditional strength in manufacturing. We have added complementary
product lines and premier brands through acquisitions, including diving products
company Dacor in 1998 for $2.3 million and the tennis ball manufacturer Penn for
$40.6 million in 1999. In October 1999, we acquired the Blax and Generics
snowboard business for $0.7 million, and we now market their products under the
Head brand.

         Principal capital investments and divestitures. In 2003, we purchased a
manufacturing facilitiy in Litovel, Czech Republic, for $2.6 million, to which
we transferred our ski boot production from Tallinn, Estonia. In 2004, we closed
our tennis ball production in Mullingar, Ireland, and sold our property there
for (euro)5.7 million ($6.9 million). In 2005, our property in Tallinn, Estonia,
was sold for $9.5 million and we realized a gain of $7.2 million. In 2005, we
signed an agreement for the establishment of a company in the British Virgin
Islands to found a Chinese company which will manufacture tennis balls for sale
exclusively to us. We and our partner in this enterprise have a 70% and 30%
interest in the newly formed venture, respectively. We expect that the total
amount to be invested by our partner and us will be approximately $12.0 million,
of which we had invested $0.8 million as of December 31, 2005.

         For a description of capital expenditures incurred in connection with
the replacement and/or improvement of our manufacturing equipment, see "Item 5.B
-- Liquidity and Capital Resources".

         Corporate information. Head N.V. was incorporated as a holding company
under the laws of The Netherlands on August 24, 1998 as a public company with
limited liability (naamloze vennootschap) or an N.V. Our corporate seat is in
Rotterdam, The Netherlands. We are registered under number 24286737 at the
Commercial Register in Rotterdam, The Netherlands. Our executive offices are
located at Rokin 55, 1012 KK Amsterdam, The Netherlands. Our telephone number is
+31-20-625-1291. Our website address is www.head.com. Our agent in the United
States is CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY
10011.


4.B.Business Overview

         Statements in this report regarding market size and trends, as well as
our own competitive position, consist of estimates based on (i) industry reports
concerning market share and market position, (ii) industry data for our various
lines of business compiled by industry analysts for our major markets, (iii) our
knowledge of our sales and markets, and (iv) claims by other sporting goods
products manufacturers. These sources of information are not always consistent
with each other, either in method or conclusions, and no source is recognized as
authoritative. As a result, the statements included in this report regarding
market size and trends and our competitive position are not necessarily
definitive or recognized by the entire market.


Industry Overview

Winter Sports Market

         We define the winter sports market as the market for alpine skis, ski
boots and bindings, and snowboard equipment. We estimate that there are
approximately 50 million skiers and 8 million snowboarders active worldwide and
that the market for winter sports equipment in 2005 was approximately $1.5
billion at the wholesale level, consisting of $530 million of skis, $200 million
of bindings, $360 million of boots and $410 million of snowboard equipment. The
ski market is split predominantly among Europe, the United States and Japan,
with Europe constituting approximately 64% of the world market in 2005, the
United States and Canada approximately 23% and Japan approximately 10%. The
snowboard market is led by North America, followed by Europe and then Japan.

         Ski sales have traditionally been the primary component of the winter
sports market, with ski sales patterns having a relational effect on the sales
of bindings, ski boots and other ski accessories. The market for skis, however,
has undergone a transformation in the past 15 years by declining from an
estimated 6.5 million pairs sold per year worldwide in the late 1980's to
approximately 4.1 million pairs sold in 2005. The reduction in ski sales
resulted primarily from a shift in consumer preference from skiing to
snowboarding in the early 1990's, an absence of significant product innovation
prior to the introduction of the carving ski and the severe decline in the
Japanese market, caused by the economic difficulties experienced in Japan in
recent years. In the last ten years, the snowboard market developed into a new
form of winter sport, and the market has increased from 800,000 boards sold in
1995 to a peak of 1.6 million in 2000. In 2005, 1.3 million boards were sold.



                                       8
<PAGE>

         The bindings market declined from approximately 5.9 million pairs sold
per year in the early 1990's to approximately 3.9 million pairs in 2005. The ski
boot market increased from 3.6 million pairs sold in 2003 to 3.9 million pairs
in 2005.

         The ski and snowboard industries have faced pricing pressures as a
consequence of the market decline and, to a lesser extent, as a result of the
increasing concentration of sales to sporting goods specialty chains, resulting
in consolidation within the industry as weaker brands are acquired or go out of
business. The ability of a manufacturer to offer packages of skis, bindings and
boots has become more important.

         Carving skis have proved popular with skiers. Carving is designed to
capture the feel of snowboarding with greater control and allows for turns to be
executed at high speed making skiing a more effortless and easier experience for
skiers of all abilities. Based on our market knowledge and experience we expect
that these features will make skiing more fashionable for all groups, that
carving will continue to dominate the category at the expense of traditional
skis and that some snowboarders will shift to carving skis. Industry observers
also believe that growth in carving skis has helped to stabilize the overall ski
market, thereby partially offsetting the declining industry trend. New trends
like the park&pipe skis, skiercross skis and fat offpiste (freeride) skis show
the vitality of the sport. Products targeted specifically at women are becoming
a strong factor in sporting goods in general and in winter sports products in
particular.

Racquet Sports Market

         We define the racquet sports market as the market for tennis, squash
and racquetball racquets and tennis balls and racquetball balls. We estimate
that the market for tennis racquets in 2005 was approximately 10 million units,
with a value of approximately $380 million at the wholesale level. We believe
the markets increased by approximately 6% in local currencies in revenue in 2005
compared to 2004. The market is divided predominantly among the United States,
Europe and Japan. The United States and Europe each represents approximately 30%
and Japan approximately 10% of the 2005 world market.

         Measured in unit volume, the worldwide tennis racquet market has
declined from its peak in the early 1990's, as a result of various factors,
including reduced interest in the sport, particularly from younger people. The
decline in interest is believed to be due to competing leisure activities, such
as alternative sports, computer games and the Internet.

         We estimate worldwide sales of tennis balls at approximately $230
million at wholesale in 2005, with approximately 20.8 million dozen tennis balls
sold. The United States and Europe each represented more than 30% of the 2005
world market. In 2005, the global market for tennis balls was generally
perceived to have declined by approximately 3% in revenue measured in constant
currencies compared to 2004. While the U.S. tennis ball market was stable in
revenue terms, the European market decreased by approximately 4% in value in
2005, and the Japanese market decreased by approximately 6% in value in 2005.

Diving Market

         We define the diving market as the market for diving equipment,
wetsuits, dry suits and diving accessories. We estimate the market at the end of
2005 to have been approximately $580 million. We believe that the overall diving
market was generally declining, with the important Western European and Japanese
markets showing, according to some estimates, a downturn in demand in 2005 of up
to 10% and 14%, respectively compared to 2004. This overall decline was, we
believe, principally due to the decrease in international travel to diving
destinations and, to a lesser extent, the general worldwide economic slowdown.
Only certain markets in areas such as South East Asia and Eastern Europe showed
some general improvement in 2005. We believe that the diving market may recover
in the event there is a decline in customers' concern about the threat of
terrorism. The popularity of diving is increasing as reflected by increased
sales of diving equipment in many emerging economies like Russia, Poland,
Croatia, Serbia, Ukraine, Thailand and South Africa with significant increases
in sales especially diving centers. The diving equipment market can be divided
into a lower segment sold through chain stores with lower average prices and an
upper segment sold through specialty stores and diving centers. The lower
segment of the market consists primarily of equipment for snorkelling while the
upper segment of the market consists of equipment for scuba diving.

         The diving industry is fragmented with well over 30 brands. While there
are various companies which produce a number of diving products, Mares is the
only company which designs and manufactures a complete line of products under
one trademark.

Our Competitive Advantages

         We have a leading market share in key product areas. We believe we hold
leading market position in skiing, tennis and diving products.

         o   Skis. In 2005, we believe, based on our market knowledge and
             experience, that Head skis were the number two selling skis in
             Europe, the largest market for ski equipment in the world based on
             units sold. We believe we held the number three position globally
             with 14% of the world market based on units sold.

         o   Bindings. Tyrolia bindings also have long been a market leader, and
             we believe, based on our market knowledge and experience, that
             Tyrolia was the top selling brand of ski bindings worldwide in 2005
             in terms of numbers of units sold. In the 2005 season,



                                       9
<PAGE>

             we also believe we were the largest manufacturer of ski bindings
             worldwide in terms of numbers of units produced (including ski
             bindings manufactured for others).

         o   Ski boots. In 2005, we believe based on our market knowledge that
             Head ski boots was the number three selling brand in quantity
             worldwide with a market share of approximately 16%. Our market
             position reflects a positive trend in volume and average price
             since the introduction of the Head brand for ski boots in the
             1998/1999 season.

         o   Racquets. In tennis, we believe Head maintained the number one
             market position in Europe and the number two position globally in
             retail sales in 2005.

         o   Ball Penn. is the world's leading manufacturer of tennis and
             racquetball balls by volume sold. In 2005, we estimate that Penn
             sold half the tennis balls purchased in the United States and held
             more than 30% of the tennis ball market worldwide in volume. In
             2005, we estimate we held more than 65% of the racquetball ball
             market in the United States, which we believe accounted for 90% of
             the worldwide market.

         o   Diving. Mares is one of the largest producers and marketers of
             diving equipment in the world. We also own Dacor Corporation, a
             U.S.-based seller of a selected range of diving equipment. We
             believe that in 2005 Mares, Dacor and Sporasub together held 13% of
             the worldwide market in diving equipment.

         We have a strong brand identity. Our principal brands -- Head, Penn,
Tyrolia and Mares -- are among the most widely recognized names in their
markets. We reinforce the strength of our brands through a program of
endorsements with high profile athletes and sponsorship of major tournaments and
other events.

         o   Winter Sports. The accomplished young ski racer Johann Grugger from
             Austria endorses Head skis, as well as the star Maria Riesch from
             Germany and Marco Buchel from Liechtenstein. In Free Style, Evelyne
             Leu from Switzerland won the gold medal at the 2006 Olympic Games
             in Turin and the World Cup 2006. In snowboarding, we have received
             endorsements from the U.S. athlete Steve Fisher, who won the
             X-games 2004, and his Finnish teammate, Jukka Eratuli, who won the
             2002, 2003 and 2005 overall world championship title in the Big Air
             discipline.

         o   Racquet Sports. Andre Agassi endorses our Head tennis racquets and
             has used our Head Flexpoint racquet in all major events since
             mid-year 2005. Anastasia Myskina, Svetlana Kuznetsova and Marat
             Safin won the French Open 2004, the US Open 2004 and the Australian
             Open 2005 respectively using Liquidmetal racquets. Penn is the
             official tennis ball of many major tennis tournaments worldwide,
             including Association of Tennis Professionals (ATP) Tour and
             Women's Tennis Association (WTA) Tour events and the Tennis Masters
             Series and Tennis Masters Cup.

         o   Diving. We believe most free diving world records, including those
             set by Francisco "Pipin" Ferreras at 170 meters in 2003 and
             Gianluca Genoni, have been set using Mares equipment.

         This strong brand identity allows our products to command higher prices
and fosters brand loyalty. We believe the strong identity and visibility of our
brands have been instrumental in increasing licensing opportunities for apparel
and other products, as well as enabling us to introduce new product lines and
enter new markets more effectively.

         We are at the forefront of product development and innovation. We have
been and continue to be at the forefront of the development of innovative and
technologically advanced sporting equipment.

         o   During 2005, we successfully launched Flexpoint as a new
             breakthrough in sophisticated tennis racquet technology. In
             addition, racquets such as the FXP Radical are among the best sold
             racquets among quality retailers around the globe. In 2003, we
             introduced Head Liquidmetal racquets, which "Fortune" magazine and
             "Business Week" declared to be one of the 25 best products of the
             year 2003.

         o   In our Head Intelligence skis and snowboards, we have utilized the
             technology originally developed for our Head Intelligence line of
             tennis racquets. Head Intelligence skis and snowboards transfer the
             energy created by contact with surface of the snow through
             Intellifibers to absorb vibration and adjust the stiffness of the
             skis and snowboards based upon speed and snow conditions. Major ski
             magazines and trade journals have rated the skis highly and we
             gained added visibility when the skis were used at the 2002 Winter
             Olympics in Salt Lake City, Utah, at the World Championships in St.
             Moritz 2003 and in World Cup ski races 2004/2005. We have also been
             a leader in the development of carving skis, and we introduced the
             first bindings specifically designed for carving skis, which
             include carving plates and other features designed to improve
             performance. With our recent introduction of Liquidmetal skis we
             have another technological highlight that should help to maintain
             or increase our market share in the high end segment of the ski
             market. Our approach in the rental market to develop and market
             innovative rental systems has earned us an important position in
             this market.



                                       10
<PAGE>

         o   Mares is a leader in technological innovation in the diving market
             and holds several key patents on regulators, diving computers and
             other related products. Both the U.S. Navy and the European Union
             have certified many of these products.

         We employ an integrated marketing program. We consider our marketing
approach to be key to promoting and reinforcing the strength of our brands
worldwide. Each of our products is supported by an integrated marketing program
which is designed to be responsive to the demands of our targeted trade
customers.

         o   Our marketing techniques include the hosting of training programs
             and clinics for in-store personnel, participation in trade fairs,
             preparation of in-store promotional materials and a strong
             advertising program, including print advertising and point-of-sale
             merchandising such as displays and samples. As a result, we believe
             that we have built a strong presence in specialized ski, tennis and
             diving retail outlets in a number of our key geographic markets.

         o   In addition, we operate a strong grassroots program, introducing
             our products to instructors, coaches and other professionals who
             are in a position to generate interest in a product and influence
             the decision of the ultimate consumer.

         o   We believe the breadth of products we offer in our chosen markets
             makes us more attractive to our direct customers because it allows
             them to reduce their number of suppliers, as well as to end users
             because it simplifies their purchase decision.

         We have discontinued manufacturing our high-end tennis racquets
in-house. During 2005, we made the strategic decision to outsource the remaining
tennis racquet manufacturing volumes to a contract manufacturer in China. With
the strongly declining dollar we lacked cost competitiveness with our Euro cost
structure. While we continue to design and engineer our products in-house our
technically sophisticated products will now be made at a Head exclusive factory
in Shenzhen, China. We are now in a position to transfer key manufacturing
processes from Austria to China and still benefit from lower labor costs in
China. With this structure, we protect the quality and proprietary concepts of
our products while enabling competitive pricing of our products in the market
place.

Our Strategy

         Our overriding strategy continues to be the development of innovative
products across all of the markets within which we operate. Our business
strategy is to capitalize on our competitive strengths in order to increase
revenues while improving cash flow and profitability through market share
expansion, new product introductions and cost reductions.

         Expand Market Share. We continue to focus on expanding our market
share, particularly in the United States and Japan, by developing innovative
products such as our Head Flexpoint racquets and strong-selling products such as
Penn tennis balls.

         o   We continue to build and increase market share in most European
             markets through continued product innovation, new product ranges
             and brand marketing.

         o   We intend to increase our penetration of the U.S. market for tennis
             racquets and other Head products through continued innovations in
             racquets and an exclusive endorsement agreement with the US
             Professional Tennis Association (racquets and balls) and a
             non-exclusive endorsement agreement with the Professional Tennis
             Registry (racquets only), the two largest teaching organizations
             globally. Our goal is to become the leading supplier of tennis
             products and add significantly to the presence of Head racquets in
             the United States. We believe the product launch of our Head
             Flexpoint racquets has supported this objective. In skis, we intend
             to increase our market share through the endorsement of worldclass
             freeskiers including J. Olsson and Tim Durtschi as well as through
             the recently launched Head Liquidmetal ski.

         o   We intend to expand sales of our snowboard equipment by leveraging
             our sales, marketing and distribution networks.

         o   We intend to increase our penetration of the U.S. market for diving
             equipment by introducing new products into the Mares line.

         o   We intend to increase business in emerging markets such as Asia,
             Latin America and Eastern Europe by establishing local
             representative offices in these key regions. To this end Asian
             markets will be covered from our new office in Hong Kong.

         o   We intend to introduce new product categories under our well known
             Head brand.

         Rapidly Develop and Launch New Products. We intend to continue our
tradition of product innovation and development by identifying new product
opportunities and moving quickly to launch these products successfully. After we
identify a new product opportunity, we rely on our in-house research and
development department and the manufacturing facilities available to us to
produce the desired product concept. Thereafter, through a combination of our
integrated marketing program, high brand awareness and global distribution
organization efficiency we are able to introduce the new products to the market
rapidly. Recent examples of this approach



                                       11
<PAGE>

are our Head Intelligence and Head Liquidmetal skis and snowboards and Head
Flexpoint and Liquidmetal tennis racquets. In 2005, 2004 and 2003, we incurred
$13.8 million, $15.5 million and $13.6 million, respectively, on engineering,
research and development.

         Reduce Costs. We have implemented the following cost reduction program,
which we believe will result in cost savings and increased operating income:

         o   We have transferred all of our manufacturing operations of ski
             boots and fins in Tallinn, Estonia to our plant in Litovel, Czech
             Republic.

         o   We have closed our tennis ball production facility in Mullingar,
             Ireland and transferred these operations to our existing,
             under-utilized plant in Phoenix, Arizona. In July 2005, we signed
             an agreement for the establishment of a company in the British
             Virgin Islands. The business venture was established to found a
             Chinese company which will manufacture tennis balls for exclusive
             sale to us.

         o   We have outsourced 90% of our tennis racquet production from our
             European sites in Kennelbach, Austria, and Budweis, Czech Republic,
             to China.

         o   We have restructured our ski bindings production and closed down
             our plant in Neusiedl/Zaya, Austria.

         o   We have initiated a restructuring program to reduce production
             capacity for diving products in Italy, as a consequence of sales
             reductions and the transfer of production to Eastern Europe and the
             Far East.

         We are investigating additional cost savings. Where we are confident
that quality and proprietary technology will not be compromised, we intend to
look for and secure further arrangements to manufacture our products in low-cost
regions, including expanding our manufacturing in China. We aim to decrease our
overhead costs as we identify and implement new measures such as additional
relocation of production plants and outsourcing arrangements.

Our Products

         The tables below show net revenues by geographical area (in thousands):

                                         For the Years Ended December 31,
                                      -------------------------------------
                                        2003           2004         2005
                                      ---------      ----------    --------
Austria ............................$    25,771      $   44,352   $  41,178
Italy ..............................     34,879          39,921      33,161
Germany ............................     51,160          55,251      51,818
France .............................     40,137          42,082      40,789
United Kingdom / Ireland ...........     18,463          20,817      17,292
Other (Europe) .....................     84,502          91,585      89,374
Japan ..............................     29,932          28,556      29,059
North America .....................     121,295         124,005     121,461
Other .............................      25,070          31,192      32,390
                                     ----------       ---------    --------
    Total Revenues ................     431,208         477,759     456,522
Other revenues ....................       1,394           1,326       1,446
Sales deductions ..................     (10,272)        (12,071)    (11,086)
                                     ----------       ---------    --------
    Total Net Revenues ............$    422,331     $   467,014   $ 446,882
                                     ==========       =========    ========

Winter Sports

         Winter Sports products accounted for 47.4% of our total net revenues in
2005.

Head Ski

         Our Head ski brand is one of the leading ski brands in the world. We
estimate that we had a 14% market share worldwide in 2005. We sell a broad range
of carving skis designed for all levels of skiers, from the novice to the
professional racer. Our ski products represented 36.0% of our total Winter
Sports revenues in 2005.



                                       12
<PAGE>

    The following table sets forth our principal Head ski models:

<TABLE>
<CAPTION>
                                                                Number of
                  Line                   Target Market           Models             Features
           ------------------    ---------------------------   ----------  --------------------------
<S>        <C>                   <C>                                 <C>   <C>
           Racing Carver         Expert skiers and racers            4     Extreme stability and precision for
                                                                           racing and high performance skiing
           Freeride              Advanced to expert skiers           5     Maximum lift in powder snow and
                                                                           maneuverability for off piste and extreme
                                                                           skiing
           Skicross              Advanced to expert skiers           6     Maximum versatility on and offpiste
           Allmountain/          Intermediate to advanced            5     Easy-turning and maneuverability for all
           Allround Carve        skiers                                    types of terrain
           Park & Powder         Advanced to expert skiers           4     Shock-absorbing reinforced construction
                                                                           for mogul, freestyle skiing and jumps
           Women                 Female skiers                       5     Reduced weight, softer flex
           Junior                Young skiers                        9     Radical side cuts designed for easy
                                                                           handling for younger skiers of all
                                                                           abilities
           Rental                All skiers                          9     Added durability
           Accessories           All skiers                         24     Includes ski poles, carrying bags and
                                                                           other items
</TABLE>

         Technology. We believe that we are an industry leader in the
development of innovative and technologically advanced carving skis. Our carving
skis are not only different in appearance from conventional skis, but are also
differentiated from various other carving skis by patented technical features
and directional stability. In February 2002, we introduced a patented "ski
management" system -- Head Intelligence skis. This product line utilizes the
technology we introduced in 2000 with our Head Intelligence line of tennis
racquets and incorporates the piezoelectric Intellifiber and Head Chipsystem.
Head Intelligence skis transfer the energy created by contact with surface of
the snow through the Intellifibers to absorb vibration and adjust the stiffness
of the skis based upon speed and snow conditions. This gives the skier more
control with less effort. Major ski magazines and trade journals have rated the
skis highly and we gained added visibility through the skis being used at the
2002 Winter Olympics in Salt Lake City, Utah and in World Cup ski races. During
the Winter Olympics in Turin in 2006, we presented our Liquidmetal skis.

         Market Share. We estimate that the global ski market was approximately
$530 million at the wholesale level in 2005. We believe, based on our market
knowledge and experience, that in 2005 Head skis were the number two selling
skis in Europe and that we held the number three position worldwide based on
units sold. We estimate our market share for skis worldwide was 14% in 2005, an
increase of approximately 75% from an estimated 8% in 1996.

         Our strategy is to increase our market share through geographic
expansion and focused product offerings. We plan to pursue market share growth
in the United States and are seeking further opportunities in developing ski
markets such as Eastern Europe and to a lesser extent, South America and China.

         Positioning. We were the first ski manufacturer to introduce a fully
integrated line of carving skis, boots and bindings. We believe that this
integrated product offering is key to maintaining preferred relationships with
trade customers and increasing our global market share. In addition, through
this integrated offering, we achieve synergies in distribution and engage in
joint product development among our internal product groups in the development
of new carving products and other products.

         Manufacturing. We manufacture Head skis at our manufacturing plants in
Kennelbach, Austria and Budejovice, Czech Republic, where we use a computerized
manufacturing system. As part of our efforts to reduce costs, we have
transferred some of our ski manufacturing from our plant in Kennelbach, Austria,
to our plant in Budejovice, Czech Republic. Through factory automation, we have
been able to greatly improve our labor productivity. We use some excess capacity
to manufacture high performance and carving skis for other branded ski
companies.

Bindings

         We believe that Tyrolia was the top selling brand in the worldwide ski
bindings market in 2005, based on units sold. Our bindings business represented
30.7% of our total Winter Sports revenues in 2005.



                                       13
<PAGE>

    The following table sets forth the principal Tyrolia binding products:
<TABLE>
<CAPTION>

                                                                   Number of
                  Line                    Target Market             Models                     Features
           -----------------    --------------------------------  ----------   ------------------------
<S>        <C>                  <C>                                    <C>     <C>
           Racing               Expert and professional skiers         3       Innovative Free Flex PLUS
                                                                               Technology (patented)
           Freeride             Young skiers, new target groups        4       Diagonal toe, wider brake, light weight
           Park & Pipe
           Rail Flex            Beginners and advanced skiers          6       Integration system with double
                                                                               free-flex, boot center adjustment and
                                                                               tool free mounting
           Light Diagonal       Carving skiers                         3       Different systems featuring Cyber
                                                                               Free Flex Technology (patented) or
                                                                               Carve Flex Technology and different
                                                                               integrated stand heights
           Super Light          All skiers                             4       SL Super light and LD Light diagonal
                                                                               technology with different integrated
                                                                               stand height
           Junior               Young skiers                           4       Provides safety features for juniors
                                                                               and children
           Rental               Rental market                          8       Adjustable toe and heel parts with
                                                                               unique Single Code System. Chip
                                                                               technology for Sym Pro
           Carving Plates       Carving skiers                         3       Two-piece plates, pre-drilled for
                                                                               Tyrolia models, different stand
                                                                               heights and damping systems
</TABLE>

         Technology. We believe that the Tyrolia brand has consistently offered
outstanding performance in safety and reliability while introducing
technological innovations. In 1996, we were the first to introduce a carving
binding line to complement the performance characteristics of the Cyber ski.
Free Flex technology allows the heel of the skier to glide freely as the ski
bends, optimizing edge grip and ski contour, which facilitates a higher degree
of angulations throughout a turn. In 2000, we introduced a new racing
technology, Free Flex PLUS, which provides improved traction performance at high
speed by eliminating the counterflex motion of the ski.

         In 2004, Tyrolia introduced also the second generation of Rail Flex, an
integrated tool free binding system. Integrated binding systems are the fastest
growing market segment worldwide. The Rail flex system accounts already for more
than 20% of worldwide binding sales.

         In 2005, we offered our Rail flex system also for the junior segment.
We offer a fully integrated version exclusively with Head skis and a second
version with a specific Rail flex base for all other skis. We are also offering
adapted bindings for the new segments Freeride and Park & Pipe.

         In our Rental line, we introduced the innovative chip system in 2001,
targeted at the Rental business. It provides simplified and complete data
integration together with special software, and precise and quick adjustment of
the bindings, thus saving time and increasing the safety of our products. These
bindings are now offered together with pre-mounted Head Rental skis and Head
Rental boots, which also include the chip.

         Market Share. We estimate that the market for bindings worldwide was
approximately $200 million at the wholesale level in 2005. We estimate our
market share worldwide in production for bindings in units was approximately 37%
in 2005 (including for other Original Equipment Manufacturers - OEMs) and
believe that Tyrolia was the top selling brand in 2005, in terms of numbers of
units sold.

         We expect growing demand for integrated bindings systems, specific
features for shaped skis as well as new plate technology. We intend to continue
marketing our carving bindings as part of our unique, integrated Cyber line of
carving skis, boots and bindings, as well as carving plates, to increase their
brand appeal and market share. We also intend to respond to the growing demands
for so-called "systems", by developing complete new and innovative solutions of
integrated binding-ski systems to enhance the coordination of movement and
forces of all products, as well as to offer convenient mounting technology for
our dealers.

         Manufacturing. All of our Tyrolia bindings are manufactured at our
technologically advanced plant in Schwechat (production) and assembly is done
under our supervision in the Czech Republic. Tyrolia bindings consist of over
100 separate components, many of which are made in-house. Most of the assembling
is performed by robotics and a smaller part by hand in the plant in the Czech
Republic. We also produce bindings for other OEMs.

Ski Boots

         We market our ski boots principally under the Head brand name, and we
also use the brand name Munari. We also supply private



                                       14
<PAGE>

label boots marketed to lower price points. Our ski boot business represented
24.2% of our total Winter Sports revenues in 2005.

         The following table sets forth our principal categories of ski boots:

<TABLE>
<CAPTION>

                                                                   Number of
                Line                      Target Market             Models                      Features
         -------------------- --------------------------------- ------------- -----------------------------------------------------
<S>                            <C>                                      <C>    <C>
         Head
         Racing/Freeride       Racers, experts and freeriders           8      New Project introduced in 2004 with full
                               professional skiers                             bi- injection technology, Full Custom

                                                                               System and several adjustments that provide
                                                                               maximum precision and performance for high end
                                                                               skiers.

         All Mountain          Experts to intermediate skiers          10      Edge Line introduced in 2002, with a
         Performance                                                           wide range of models targeted to the
                                                                               expert and advanced skier. Intended
                                                                               to provide an outstanding level of
                                                                               performance and comfort
         New Concept           Extra comfort                            4      E-fit introduced 2003 is targeted at the
                                                                               skier looking for maximum comfort and
                                                                               ease of use featuring a completely new
                                                                               technology
                                                                               technology
         Sport/Comfort         Intermediate and beginners               4      EZ-on 2 is introduced in 2005 featuring an easy
                                                                               entry shell construction, Double Power Buckle and
                                                                               Autoski Walk intended to create maximum ease of
                                                                               use and comfort

         Junior                Young skiers (all segments)              6      Junior boots for racers to beginners
         Rental                Rental                                   9      High comfort and reliability for
                                                                               intermediates and beginners

         Munari
         Sport Comfort         Intermediate and beginners               2      Easy walk adjustment, light and user-friendly
                                                                               boots

         Junior                Young skiers (all segments)              6      Junior boot line for good, intermediate and
                                                                               beginner skiers
</TABLE>

         Technology. In 2005, we introduced a new range, the Ez-on 2 line, which
we believe allowed us to increase the market share in the comfort segment.

         The Edge boots line has become our best-selling ski boots in terms of
number of units sold. The Edge boot allowed us to increase the market share in
the middle and higher price segment and this line was successfully sold at
retail level. In 2005, we have invested in new skiboot buckles to offer more
value in the middle price point and restyled the product to increase the
competitiveness of the line.

         Market Share. We estimate that the market for boots worldwide was
approximately $360 million in 2005. We believe, based on our market knowledge
and experience that the Head ski boots held the number three position worldwide
in 2005 based on units sold. We estimate that our volume market share (Head and
Munari together) in 2005 was approximately 16%, an increase of approximately 77%
from an estimated 9% market share in 1998.

         We aim to increase unit sales of our boots worldwide by leveraging our
brand names and consolidating the results of the top end product line as
described above. Our expectation for 2006 is a stable global market and a
concentration of brands at dealer level, from which we should benefit due to our
already strong commercial relationships and name recognition.

         Manufacturing. In 2004, we transferred the production of our ski boots
from Estonia to our new factory in Litovel, Czech Republic, which allowed us to
improve our efficiency and service. In 2006, we plan to produce all of our ski
boots in the Czech Republic. The production transfer from Italy to Czech
Republic is now also completed with the closure of the injection department in
Italy.

Snowboards



                                       15
<PAGE>

         We market our snowboard products under the Head brand. These products
accounted for 9.1% of our total Winter Sports revenues in 2005.

         The following table sets forth our principal categories of snowboarding
products:
<TABLE>
<CAPTION>

                                    Number of
                 Line             Target Market      Models                            Features
           ---------------    -------------------  ----------  --------------------------------
<S>        <C>                <C>                       <C>    <C>
           Boards             Freestyle/Freeride        15     Intelligence Chip Technology and Intellifiber
                                                               Technology, Dimensional concept: perfect
                                                               boot-binding-board match
                                                               Free Flex rail system: innovative
                                                               binding fixation
           Softboots          Freestyle/Freeride         9     ThermoFit liners: individually customizable fit
                                                               Double Lasted Sole: integrated EVA midsole
           Softbindings       Freestyle/Freeride         9     New PX line featuring : first toolfree adjustable, full
                                                               Contact heelcups.
                                                               Auto-Open straps: reentry improvement
                                                               Auto-Lock highback: automatic fixation of highback
                                                               to heelcup
           Rental             Freeride/Freestyle         8     Head "Rent'n Ride in 58 Seconds Program"
                                                               Dimensional concept: perfect boot-binding match
                                                               Chip system: faster registration of rental
                                                               Equipment
                                                               Powerbase toolfree: first toolfree stance & angle
                                                               adjustable rental softbinding
                                                               Step-X4 toolfree: first toolfree stance & angle
                                                               adjustable step in rental binding
</TABLE>

         Technology. In 2003, we introduced Head Intelligence with Head Chip
System in our snowboards and took advantage of the momentum already created in
skis at dealers and media. In 2005, we launched the new binding concept - PX-
next generation of our powerframe concept bindings. These bindings feature a
unique toolfree forward lean adjustment of the highback. Our bindings of course
feature auto-open straps for reentry confort and autolock highbacks for
automatic fixation of the highbacks to the heelcup on top.

         We believe that the Head "Rent'n Ride in 58 Seconds Program",
introduced in 2003, is still the fastest and most versatile rental system
offered to the market.

         Market Share. We estimate that the global market of snowboards was
approximately 1.3 million units in 2005 and that our market share was
approximately 5.8% worldwide.

         Manufacturing. We rely on contract manufacturers in Austria
(snowboards), and China (snowboard bindings, boots, helmets and body
protection).

Racquet Sports

         Racquet Sports products accounted for 36.5% of our total net revenues
in 2005. Under the Head brand name, we design, engineer and manufacture a broad
offering of tennis, squash and racquetball racquets. We also sell tennis
accessories under the Head brand and tennis balls and racquetball balls under
the Penn brand name.

Head Racquets

         We estimate that in 2005 our Head racquets were the number two brand
worldwide, comprising 18% and 23% of the world wholesale market in units and
revenue respectively. Revenues from racquets amounted to 65.1% of our total
Racquet Sports revenues in 2005.



                                       16
<PAGE>


    The following table sets forth the principal Head racquet product lines:

<TABLE>
<CAPTION>
                                                                         Number of
            Category                  Line              Target Market     Models                Features
         --------------    ---------------------  --------------------  ----------  --------------------
<S>                        <C>                      <C>                       <C>   <C>
         Tennis Racquets   Flexpoint racquets       Tennis                    9     Performance racquets
                                                    enthusiasts at                  featuring FXP technology
                                                    all level of play               for enhanced ball control
                           Head Liquidmetal Series  All levels of play        6     Performance racquets
                                                                                    featuring Head Liquidmetal
                                                                                    for perfect energy transfer
                           Protector Series                                   2     Tailored racquets designed
                                                                                    to cure acute Tennis elbow
                                                                                    through a proprietary
                                                                                    racquet design featuring a
                                                                                    Chip system with
                                                                                    piezoelectric materials
                           Nano-Titanium and        Entry level              11     Lightweight value products
                           Performance racquets     players                         for short and medium swings
                           Junior Series            Young players            11     Lightweight racquets for
                                                                                    juniors from ages 6 to 14
         Squash                                     All players              14     Racquets for all skill
                                                                                    levels and price points
         Racquetball                                All players              11     Racquets for all skill
                                                                                    levels and price points
         Accessories                                All players               *     Tennis bags, racquet
                                                                                    strings and grips
                                                                                    racquetball gloves and
                                                                                    other tennis accessories
</TABLE>

----------

* Not meaningful.

         Technology. We have gained technological leadership in the tennis
market with both the Head Titanium and the Head Intelligence Technology, which
were launched in 1997 and 2000 respectively. In August 2003, we once more
introduced innovative racquet technology with Head Liquidmetal. Leading global
tennis publications such as "U.S. Tennis Magazine" and the German "Tennis
Magazine have thoroughly playtested our Head Liquidmetal racquets against
relevant competitor products and rated the Head Liquidmetal racquets the
highest. The LM 4 and the LM Instinct were the U.S. Tennis Magazine's "editor's
choice" racquets. In 2005, we launched yet another sophisticated new tennis
racquet technology, Head Flexpoint.

         Market Share. We estimate that the market for tennis racquets worldwide
was approximately 10 million units and $380 million at wholesale level in 2005.
We believe, based on our market knowledge and experience, that Head branded
tennis racquets were number one in Europe and number two on a worldwide level in
2005. We estimate that market share of overall revenues generated for 2005 was
approximately 23% worldwide and that our European market share was 29%.

         We believe that since the early 1990s, our worldwide unit market share
of racquet products has grown substantially, despite a significant decline in
the size of the market. Unit sales of Head tennis racquets increased from 0.8
million in 1993 to 1.9 million in 2005. We believe these market share gains
occurred in all major markets around the world and were largely due to the
introduction of proprietary premium technologies such as Titanium, Intelligence,
Liquidmetal and Flexpoint and their subsequent and successful use by some of the
most popular athletes in tennis. On a long-term basis, due to our continued
investment in research and development, global sales, marketing and distribution
network and high level of market penetration, we seek to continue to grow our
global market share for our tennis racquet products, with an increased presence
in the U.S. and Japan and opportunities in developing markets such as Asia,
South America and Eastern Europe, where a growing middle class is showing an
increasing interest in tennis.

         We believe that our significant global market share is partly a result
of our strong presence on the professional tennis circuit. Based upon the
February 2006 ATP Tour Entry-List Rankings, Head racquets were used by more than
25 of the top-rated 100 professional male players, including career grand slam
champion and 2003 Australian Open winner Andre Agassi and 2005 Australian Open
Champion Marat Safin, making Head the most used racquet brand used on the ATP
Tour. Anastasia Myskina won the 2004 French Open and Svetlana Kuznetsova the US
Open 2004 using Head racquets. A number of ATP Senior Tour players such as Bjorn
Borg and highly reputed coaches including Bob Brett, Emilio Sanchez and Dennis
van der Meer also use Head tennis products. In addition, we operate a strong
grassroots program, introducing our products to leading instructors, coaches and
other professionals who are in a



                                       17
<PAGE>

position to generate interest in a product and influence ultimate customer
decisions. As part of this program we sponsor the world's largest tennis
teaching organizations (based on size of membership), the United States
Professional Tennis Association and the Professional Tennis Registry
respectively.

         The Head Titanium, Head Intelligence, Head Liquidmetal and Head
Flexpoint tennis racquets have, we believe, significantly increased our overall
U.S. market share (in terms of revenues) from 9.0% in 1997 to 21% in 2005.

         We cross-leveraged these technologies to create line extensions in Head
Squash and Racquetball and the Titanium, Intelligence and Liquidmetal models
which we believe improved our position in other racquet sports markets as well.
In 2005, we increased our Racquetball racquet market share to 32% in the U.S.
racquetball market. We estimate that we were the number one brand in the
racquetball racquet market in 2005.

         Manufacturing. As part of our cost-cutting program, we outsourced 90%
of our remaining tennis racquet production from our European sites in
Kennelbach, Austria and Budweis, Czech Republic to several contract
manufacturers in China.

Penn

         We believe that Penn is one of the world's leading manufacturers and
marketers of tennis and racquetball balls. Revenues from our Penn division
amounted to 34.8% of our total Racquet Sports revenues in 2005.

    The following table sets forth the principal Penn product lines:

<TABLE>
<CAPTION>
                                                               Number of
                 Line                    Target Market          Models                      Features
          -------------------  ----------------------------    ---------  -----------------------------------------
<S>                            <C>                                <C>     <C>
          Tennis Balls
          Championship         Frequent players                    3      Models designed for specific courts
                                                                          Surfaces
          Pro Penn USPTA       Teaching professionals              2      Highest quality felt/premium rubber
                                                                          balls made for specific court surfaces
          Tennis ATP Pro       Top professionals and               4      Balls for tournament play made of
          Penn and Pro Penn    serious tournament players                 long- wearing felt and rubber-coated
                                                                          for moisture/stain resistance;
                                                                          Including: Prestige specifically for
                                                                          Germany and Pro Penn ATP for
                                                                          International Markets
          Stars                Beginners (sold to clubs and        3      Manufactured with less pressure
                               teaching pros)
          Titanium             Premium3                            2      New in 1998; titanium enhanced core
          Court One            Casual/Recreational                 1      ITF approved
          Private Label        Casual/Recreational                 1      Special orders

          Racquetball Balls
          Pro                  Tournament players                  1      Premium price/performance
          Ultra-Blue           All players                         1      Flagship brand
          Titanium             All players                         1      New in 1998; titanium enhanced core
</TABLE>

         Technology. Penn has introduced many innovations, including:

         o   "play related" tennis balls for different court surfaces and high
             altitude play;

         o   optical yellow tennis balls, which have become industry standard;

         o   the pull ring can with plastic lid;

         o   recyclable plastic tennis ball containers; and

         o   Smart Optic felt with 19% more visibility.

         o   "Encore" technology for enhanced ball durability;



                                       18
<PAGE>

         Market Share. We estimate that the market for tennis balls is
approximately $230 million worldwide, with approximately 20.8 million dozen
tennis balls sold in 2005. We believe Penn was the market leader in 2005, with
an estimated volume market share of 31% worldwide and of 50% in the United
States, the world's largest market in 2005.

         We believe that Penn's strong market position is a result of the
superior quality of our products, economies of scale through our plant in
Phoenix/Arizona, which is the world's largest plant , and close affiliation with
the professional tennis circuit. Penn is the official ball used in many major
tennis tournaments globally, including the Tennis Masters Cup and Tennis Masters
Series events, ATP Tour and the WTA tour events, and has links to the Davis Cup
and the Federation Cup. We are the exclusive tennis ball sponsor of the Masters
Series tournaments, the highest profile tournaments in tennis outside the Grand
Slam events. This exclusive sponsorship provides live broadcast brand exposure
globally during the season as well as merchandising opportunities. We are also
the exclusive tennis ball sponsor of the world's largest tennis teaching
organization, the USPTA.

         The market for racquetball balls is concentrated mainly in the United
States, which we estimate accounts for over 90% of the world market. In the
United States, we estimate our market share was approximately 65% in 2005. Since
the early 1990s, annual racquetball balls sales, including Penn racquetball
balls sales, have been declining, and we expect this trend to continue.

         Manufacturing. We currently manufacture our tennis balls and
racquetball balls (with the exception of less than 5% of the low end products)
at our facility in Phoenix, Arizona. We have transferred our European tennis
ball production facility from Mullingar, Ireland, to our existing,
under-utilized plant in Phoenix, Arizona, where production costs are lower
through economies of scale. By importing goods from the U.S into Europe we also
benefit from the strength of the euro. In July 2005, the Company entered into a
venture agreement as majority partner to manufacture tennis balls in China to
supply the Asian markets.

         Several years ago, we entered into an agreement with a South American
company, which in addition to tennis balls sold from our U.S. facility
manufactures and distributes Penn tennis balls in Argentina exclusively for the
South American markets.

Diving

         We believe, based on our market knowledge and experience, that our
diving products had an estimated global market share of approximately 13% in
2005. The Mares and Dacor products cover the upper and middle market segments
and include several models of air regulators, buoyancy compensator jackets,
diving fins, diving masks, snorkels, exposure suits and diving computers.

         Each of these brands has different product features and is aimed to
cover the various international market needs. In addition, we offer a variety of
air tanks and valves, diving boots and gloves, underwater flashlights, equipment
bags, knives and various other accessories and diving instruments. Our diving
business represented 13.5% of our total net revenues in 2005.

    The following table sets forth the principal Mares and Dacor products:

<TABLE>
<CAPTION>
                                                 Number of
                           Line                    Models              Features
            ---------------------------------    ----------  ---------------------------------
<S>                                                   <C>    <C>
            Regulators........................        20     Lightweight, durable; high performing
            Air tanks.........................         3     High resistance to impact and aging
            Valve sets........................         2     Designed to guarantee optimal air flows at any
                                                             pressure
            Buoyancy compensator jackets......        19     Devices for airflow control and better buoyancy
            Wetsuits..........................        20     Designed to ensure warmth and comfort
            Wetsuit accessories...............         9     Gloves, boots and socks
            Fins..............................        23     Designed to provide maximum power using minimum
                                                             effort
            Masks and goggles.................        35     Includes single, two and four lens models, with
                                                             maximum visibility
            Snorkels..........................        24     Designed to provide easy and dry breathing
            Computers.........................         9     Designed to provide enhanced performance and
                                                             safety
            Other accessories.................        54     Knives, spearguns, flashlights, bags, etc.
</TABLE>

         Technology. Mares historically has been the industry's technological
leader and has introduced many ground-breaking diving products ahead of the
competition, including plastic fins, underwater guns and high-performance
regulators. A large part of Mares' sales is dependent on patented technology,
including air regulators, diving fins and diving masks and a new generation of
buoyancy control vests (HUB) to provide maximum freedom during diving and, a new
algorithm for decompression.

         Market Share. We estimate that the market for diving equipment was
approximately $580 million in 2005 based on exchange rates



                                       19
<PAGE>

at that time. We believe, based on our market knowledge and experience, that our
Mares brand of diving equipment had one of the best market positions in Europe
and worldwide in 2005 at wholesale. Our market share worldwide for the Mares,
Dacor and Sporasub brands for 2005 is estimated at 13%.

         We are working to expand our presence in key markets such as the United
States, where, we believe, Mares and Dacor combined held a 8% market share, and
in Asia Pacific, where both brands combined had an estimated 11% market share in
2005. We also expect to grow our global market share through new product
introductions and the addition of advanced technological features in our
existing products. Many new patents have been introduced in 2005, thus
strengthening our products offering. In addition, we expect the fragmented
nature of the diving industry to provide increased opportunity for growth.

         Manufacturing. We currently manufacture the majority of our diving
products, including Dacor products, in Italy. We have transfered all of our
diving production in Tallinn, Estonia, to our plant in Litovel, Czech Republic.
We are focused on in-house production of our high-technology products, such as
regulators and computers, and outsource the remainder of our products to
manufacturers in countries such as Italy and Thailand. We have made a number of
improvements to our manufacturing processes in the last three years to reduce
cost and improve efficiency. In addition, we outsource the assembly of a number
of products. In November 2005 we initiated a restructuring program to reduce
production capacity in Italy as a consequence of sales reductions and the
transfer of production to Eastern Europe and the Far East begun in January 2006.

Licensing

         In 1996, we formed a licensing division to capitalize on opportunities
resulting from the worldwide brand recognition of the Head name, which has
existed for over 56 years. We believe the Head brand name is associated with
innovative, high quality, well-designed, high performance products. Licensing
enables us to expand the Head name to additional product categories and we
believe that some of our other brands such as Penn and Mares have licensing
potential. Revenues from licensing amounted to 2.7% of our total net revenues in
2005.

         Head apparel contributes approximately two thirds of the total royalty
income and is licensed in all important markets worldwide (e.g. Europe, UK.,
U.S., Canada, Japan and China). We also grant rights to the Head brand for other
product categories such as footwear, luggage, eyewear, watches, equipment, bikes
and accessories. Licensing generated $12.2 million in revenues in 2005 for the
Head, Mares and Penn brands. We intend to explore other licensing opportunities
for products suitable to the image of our brands. We believe that China may
offer considerable potential for further increase in licensing revenues.

         We believe that substantial licensing growth opportunity exists by
capitalizing on the success of our strong-selling products as well as through
improved leveraging of our brand portfolio. We also intend to protect and
maintain the premium image of our brands by licensing only high quality goods
within compatible product lines.

Sales and Distribution

         Our products are sold in over 85 countries to approximately 30,000
accounts. Our worldwide sales force comprised approximately 360 people as of
December 31, 2005. In addition, we utilize sales representatives and independent
distributors to serve specialized markets and related distribution channels.

Europe

         Sales to customers within Europe accounted for 59.9% of our 2005 net
sales. We have centralized our European distribution organizations for Winter
Sports and Racquet Sports products so that Head International GmbH operates as a
single distribution company for several key markets. Head International invoices
and ships products from one European distribution center in Klaus, Austria to
our customers in Switzerland, Germany, Italy and Austria since January 1, 2004.
As a result, all of our invoicing to customers in these markets, and to
third-party distributors worldwide, occurs from Head International. The related
former European distribution companies function as sales agencies.

North America

         Sales to customers in North America accounted for 26.6% of our 2005 net
sales. We distribute Head, Tyrolia, Penn and Mares/Dacor through the
company-owned Head USA and Head Tyrolia Canada subsidiary. Under Head USA's
leadership, Winter Sports, Racquet Sports and Diving have separate
sales/marketing organizations and sales forces but share all administrative and
logistical functions. Our goal is to improve distribution to increase
penetration in North America and reestablish Head and Tyrolia brand names in the
U.S. winter sports market.

         The success of our Head Flexpoint, Titanium and Intelligence and Head
Liquidmetal racquets has helped to significantly raise



                                       20
<PAGE>

Head's profile as a tennis brand in North America. We hope to further heighten
this profile through the endorsement by the US Professional Tennis Association,
the world's largest association of tennis-teaching professionals, and other
sales and marketing efforts.

Asia

         Sales to customers in Asia accounted for 9.6% of our 2005 net sales. In
Japan, our largest market in Asia, our Winter Sports products are distributed by
our own subsidiary distribution unit, while our Racquet Sports and Diving
products are distributed by third parties. The cooperation with Euro Sports, our
new distributor for Japan for the distribution of our Racquet Sports products,
as well as the successful launch of the Head Flexpoint, Titanium, Intelligence
and Liquidmetal racquets, have increased our share of the tennis racquet market
in Japan from 3.6% in 1999 to 10% in 2005. Our products are sold in the rest of
Asia only to independent importers or distributors on a wholesale basis. Because
we believe that we have significant growth potential in Asia, we are developing
closer working relationships with all Asian Head distributors through a newly
established representative office in Hongkong.

Other Markets

         Sales to customers in other markets accounted for 3.8% of our 2005 net
sales. These markets mainly consist of Latin America, Africa and Australia. We
believe the number of countries in these markets in which sales were made
exceeded 50 in 2005. Sales of our products to these regions are made by
independent importers/distributors.

Marketing

         We consider the marketing function to be key to promoting our brand
names worldwide. Our marketing strategy is centered around the Head, Tyrolia,
Penn and Mares brands. We believe that there are significant opportunities to
continue to build these brands and that increased coordination between our
marketing and product development teams has greatly improved our ability to
efficiently develop products consistent with consumer preferences. As a result,
we have been able to increase the frequency and efficiency of our product
innovations as well as the depth of our product lines in each of our key
categories. Consumer research has become an integral part of product development
and advertising campaigns. Each of our products is fully supported by a
consistent, integrated marketing program, which is designed to be responsive to
the demands of our target customers.

         We attribute our consistently successful product launches to our strong
emphasis on marketing in all of our divisions. We use marketing strategies
directed at retailers, as well as the final end-user of our products, to
increase demand. Our marketing strategy for retailers is aimed at educating them
on the technical features of our products. We hold clinics for retailers and
sales people to inform them about the various product lines. We provide
retailers with videotapes, DVDs and product brochures to further educate and
assist the retail sales team.

         We currently operate several websites including www.head.com,
www.ridehead.com, www.tyrolia.com, www.pennracquet.com, www.mares.com and
www.divedacor.com, which advertise our products and list our distributors. In
recognition of the penetration of the internet and growth in e-commerce, we have
set up a project to expand our usage and reliance on the internet, including:

         o   an "Online Management System", allowing retailers to place and
             track orders and review credit status; and

         o   expanded website content to cover sports and related information.
             We believe that this project can improve brand recognition and
             generate incremental sales.

         In addition, to create consumer interest, we use product promotions and
point of sale advertising with sporting goods chains and through our dealers in
each of our product categories. Our website (www.head.com) communication
continues to take a more dominant role in our overall advertising.

         o   We devote significant marketing resources to our ski business,
             including training by an in-house winter sports specialist to
             educate retail salespersons so they can sell Head skis more
             effectively. We also coordinate with retailers to improve display
             of Head products and place in-store promotional materials such as
             consumer catalog, banners and posters. Head participates in a
             number of trade fairs annually in order to launch its new products
             and advertises its skis in leading specialty ski publications.

         o   In order to promote use of the carving ski, we host promotional
             activities such as Head promotional days, Head "demo" days and Head
             test sessions. With respect to the marketing of Tyrolia bindings,
             we utilize international advertising and promotional activities
             with a strong focus on brand awareness, new product presentations,
             dealer promotion tools (catalogs, racing folders, consumer
             leaflets), point of sale materials, product visibility and media
             advertising.

         o   Our snowboarding products are promoted through our sponsorship of
             top caliber riders, international snowboard camps, special interest
             media events, snowboarding videos and internet sites. We also have
             promotions in ski resorts in Europe in which



                                       21
<PAGE>

             potential customers can try our snowboarding equipment. Sales to
             end-users are supported by in-store training and point of sale
             materials.

         o   Our Racquet Sports division conducts a variety of marketing
             programs targeted to a broad range of players, including
             demonstration programs for consumers and, in coordination with
             retailers, in-store promotions and dealer incentive programs. We
             advertise our racquets in specialty tennis magazines and
             participate in advertising programs with specific sporting goods
             chains.

         o   We operate a strong grassroots program, introducing our tennis
             products to instructors, coaches and other opinion leaders who are
             in a position to generate interest and influence the decision of
             the ultimate customer. For example, through Head and Penn, we
             participate in the U.S. "Tennis Welcome Center" program, sponsored
             by the Tennis Industry Association (TIA) and the United States
             Tennis Association (USTA), which is designed to introduce consumers
             to tennis through free coaching sessions, equipment and access to
             courts.

         o   Our Diving division advertises in a number of specialized
             publications worldwide and conducts promotions and media campaigns
             in stores, diving centers and tourist resorts. Mares, Dacor and
             Sporasub are getting high visibility on all major specialized
             magazines but also larger mass media thanks to focused partnership
             with diving resorts, aquariums and athletes. Special attention is
             dedicated to Mares website (www.mares.com) which we believe is
             considered one of the best in the industry and hosts over half a
             million visitors per year. On internet the mymares.com web site has
             about 22,000 members.

         To complement our marketing strategies, we cultivate the endorsement
and promotion of our products among athletes. These endorsements emphasize
technical performance and increase brand awareness.

         o   In Winter Sports, we maintain a strong program of endorsements by
             high profile athletes, such as Johann Grugger, Maria Riesch, Marco
             Buchel, Evelyne Leu, who won the gold metal in free style skiing at
             the Winter Olympics 2006 in Turin and former champions such as
             "legend" Franz Klammer, the 1976 Olympic Champion and Patrick
             Ortlieb another Olympic Champion. We also have an endorsement
             arrangement with the Austrian national ski team. In snowboarding,
             we have received endorsements from the German athlete, Jan
             Michaelis, who won the overall 2002 world championship title in
             Halfpipe and his Finnish teammate, Jukka Eratuli, who won the 2002,
             2003 and 2005 overall world championship title in the Big Air
             discipline as well as from the U.S. athlete Steve Fisher who won
             the X-games 2004.

         o   Our tennis racquet endorsement program is focused and highly
             selective. It includes current top level ATP players popular among
             the youth market such as Andre Agassi, Marat Safin and Gustavo
             Kuerten, WTA players such as Patty Schnyder, Anastasia Myskina and
             Swetlana Kusnezowa, who recently won the WTA tour in Miami, as well
             as players from the ATP Senior Tour popular among mature players,
             including "legends" Thomas Muster, Bjorn Borg, Emilio Sanchez and
             Ilie Nastase. In addition, since January 2003, we are the official
             tennis racquet of the US Professional Tennis Association with over
             10,000 members. We are also the key racquet sponsor of the
             Professional Tennis Registry, the leading global teaching
             organization. It was with the Head Flexpoint Radical that Andre
             Agassi reached the final of the US Open in 2005. Marat Safin won
             the Australian Open in 2005 with a Head racquet.

         o   Penn is the official tennis ball for many major tennis tournaments
             worldwide, including ATP tour and WTA Tour events, the Tennis
             Masters Series and Tennis Masters Cup. Penn is the exclusive
             sponsor/supplier of the US Professional Tennis Association and is
             the official ball of the USTA League Tennis Program as well.

         o   Most free diving world records have been set using Mares equipment.
             The last record set by Gianluca Genoni in Liguria, October 2004,
             was of 133 meters, variable ballast, which received worldwide
             recognition. Marina Kazankova a new athlete who is Blue Jump world
             champion, sponsored by Mares joined Mares Free Diving Team. In
             2004, Mares was - for the fourth time - chosen the best
             manufacturer of Buoyancy Control vests (BC). "Tauchen" magazine
             awarded Mares the first prize for the best Buoyancy Compensator
             line of the year, and Australia's biggest online scuba resource
             awarded Mares the "Golden Star Award" for the X-Vision mask.

Research and Development

         We believe that we are an industry leader in the development of
innovative and technologically advanced sports equipment. Our research and
development groups identify consumer needs and shifts in consumer preferences in
order to develop new product ideas and concepts to satisfy such needs or
preferences. To ensure quality and precision, the majority of our products are
designed on our own computer-aided design and manufacturing (CAD/CAM) systems.

         We believe that our high level of expertise is evident in all our
product lines. Since Howard Head developed the first metal ski in 1950, we have
consistently introduced new materials and processes into the manufacture of
skis, including fiberglass, graphite,



                                       22
<PAGE>

aluminum and titanium and led the industry with the introduction of a complete
line of carving skis. We utilize sophisticated manufacturing processes to
integrate torsion rib systems in all Head skis in order to produce a torsionally
stiff ski without losing softer flexing properties. We have also developed an
exponential dampening system for skis and traction plates to promote top
performance for all types of skiers. In 2002, we successfully adapted the
piezoelectric Head Intellifiber and Head Chip System to skis and launched Head
Intelligence skis and Head Intelligence Snowboards in 2003. In 2003, we
introduced the first fully integrated Ski-Binding system in the lower and mid
price volume segment. In 2005, we introduced the new "Supershape" ski,
appropriately named because of the pronounced side-cut in the design. We believe
that the incorporation of Intelligence Technology, to enable the ski to adapt
rapidly to different conditions, and Liquidmetal qualities create a highly
competitive product. We have also focused on our range of skis for women with
the Head Thang series, which is designed to provide improved edge grip and easy
turn initiation for the mid-speed range.

         Head ski boots has well established research and development resources
and is one of the leading innovators, with a long history in ski boot
manufacturing. In 2004, we introduced the "full custom system" which allows the
width of the boot to be adapted with an internal wedge.

         In the area of bindings, we continually introduce new technical
features for improved performance, safety and comfort such as new Free Flex
systems, the unique safety "ABS" anti-friction toeplates, new and lighter
designs of our unique Diagonal safety feature, new integrative solutions with
new mounting processes (Railflex System), innovative light-weight constructions,
as well as changes in styling and appearance in each two- to three-year product
cycle. In 2004 we introduced a new demo version of the integrated Rail Flex
System.

         Our expertise in tennis racquet design resulted in the 1997 launching
of the Head Titanium Tennis series and in 2000 the Head Intelligence racquet
technology. Some of these racquets feature a Microchip design, which converts
mechanical energy into electrical energy and the result is the first
chip-powered, electronically dampened tennis racquet. In 2002 we launched Head
Intelligence X, further advancing the performance benefits of the proprietary
Head Intelligence technology. In 2003 we introduced the Head Liquidmetal
technology in our racquets, which "Fortune" magazine and "Business Week"
declared to be one of the best 25 products of the year 2003. Tennis magazines in
the United States and Germany also have recognized the state-of-the-art design
of this proprietary technology. In 2004 we brought the Protector series of
racquets to the market. These are specially designed to address the needs of
players with tennis elbow and contain the first-ever Electronic Dampening
System. Our EDS is different from other dampening systems because it reacts
immediately upon ball impact, not after, giving a revolutionary vibration
dampening. Combined with a special cushioned grip and string the system reduces
stress on the arm and can alleviate pain symptoms for some players with acute
tennis elbow. In 2005, we launched Head Flexpoint, a unique racquet design that
allows the user to obtain better control over the ball without sacrificing
power.

         Penn has long been a major source of innovation in the tennis ball
market, improving tennis balls through such innovations as the introduction of
"play related" tennis balls for different court surfaces and altitudes; optical
yellow tennis balls, which have become industry standard; and recyclable plastic
tennis ball containers with pull ring and plastic lid.

         Mares has a 54 year history of product innovation and we believe is one
of the most advanced research and development centers in the industry. In 2002,
Mares invented the new airtrim system for BCs which eliminates the old style
inflators. By doing so, Mares has renewed some key elements in the area of
diving. In addition, the new state-of-the-art watch computer Nemo is achieving
considerable interest. It was released on the market in 2004. In 2005, we
launched a range specifically tailored to women divers, with a focus on
performance, fashion and comfort. Our latest product launch was the Quattro
Excel fin. Following numerous tests on new materials, together with lengthy
computer simulations, the "Super Channel Thrust" design makes it possible to
channel the water and optimize thrust in comparison to other fins of similar
size.

Customers

         We sell our products to approximately 30,000 specialty sporting goods
stores, chain stores and department stores in over 85 countries. Our customers
vary depending on where our products are sold. Our largest customers include
Price Costco, The Sports Authority and Wal Mart in the United States; Victoria,
Alpen and Xebio in Japan; Intersport International, a voluntary buying group
which distributes our products predominantly in Europe; and Decathlon in France
and other European countries.

         The payment terms that we offer to customers in our three business
areas (Winter Sports, Racquet Sports and Diving) are consistent with the terms
offered by other participants in the market.

         Winter Sports: This business area is very seasonal. We start our winter
sport sales in July and August, but our customers' sales to retail customers
occur primarily in November and December. Payment by our customers is not
contingent upon resale of our product by our customers. However, the standard
practice in this business area is for customers to pay their vendors only after
they begin to sell the vendor's products. Therefore, as a result of this
practice, payment terms for this business area typically exceed 90 days since we


                                       23
<PAGE>

receive cash payments between November and February for sales starting in July.
In the rental business we agree to payment terms over one year.

         Racquet Sports: Generally payment terms are between 60 and 90 days.
However, in limited cases, such as when we deliver products early or in
connection with certain sales campaigns, we may grant terms over 90 days.

         Diving: As a result of competition in this business area, and in line
with the standard practice of our competitors, we grant payment terms of 120
days to our key customers for shipments to Italy (our major market). In
addition, the diving business in Europe is very seasonal with most sales
occurring in the spring and summer months. Despite this, we produce and deliver
diving equipment and products throughout the entire year so as to improve our
production and logistical capabilities.

Competition

         The sporting goods industry is highly competitive. We compete primarily
on the basis of product features, brand recognition, quality and price. We
compete with numerous international and national companies that manufacture and
distribute sporting goods and related equipment. We believe that we are
generally in a favorable position to face the consolidation of the sports
equipment market across all of our product lines.

         We compete in individual market segments against various competitors.

         o   The main competitors to our Head ski brand, are Rossignol, which is
             owned by Rossignol S.A (taken over by Quiksilver in 2005); Salomon,
             which is owned by Salomon AG (taken over by Amer in 2005); Atomic,
             which is owned by Amer Group Plc; Fischer, which is owned by
             Fischer GmbH and K2, which is owned by K2 Inc. Our Tyrolia bindings
             division competes primarily with Salomon, Marker and Atomic. With
             respect to Head ski boots, our main competitors are Salomon;
             Nordica, Technica and Dolomite - all of which are owned by the
             Technica-Lowa-Dolomite Group; and Lange and Rossignol, part of
             Rossignol S.A now owned by Quicksilver

         o   The principal competitors of the Head tennis racquet division are
             Wilson Sporting Goods Co., which is owned by Amer Group Plc, and
             Prince Sports Group Inc., which is owned by a partnership of the
             Prince Senior Management and the Lincolnshire Equity Fund II, L.P.

         o   The principal competitors of Penn tennis balls are Wilson Sporting
             Goods Co., and Dunlop Slazenger International. In racquetball
             balls, our principal competitor is Ektelon which is owned by Prince
             Sports Group, Inc.

         o   Competitors of the Mares and Dacor diving division include
             Scubapro, Uwatec (computers only), the Aqualung Group which
             includes the U.S. Divers and Sea Quest brands, and Cressi.

         Some of our competitors, notably Salomon and Atomic, which are part of
the Amer Group Plc, are larger and have greater financial and other resources
than we do. We generally compete on a product-by-product basis, and believe that
we are preserving market share as against our larger competitors and acquiring
market share from smaller companies as the sporting goods industry consolidates.

Seasonality

         As many of our goods, especially winter sports goods, are shipped
during a specific part of the year, we experience highly seasonal revenue
streams. Following industry practice, we begin to receive orders from our
customers in the Winter Sports division from March until June, during which time
we book approximately three quarters of our orders for the year. We typically
begin shipment of skis, boots, bindings and snowboard equipment in July and
August, with the peak shipping period occurring in October and November. At this
time, we will begin to receive re-orders from customers, which constitute the
remaining quarter of our yearly orders. Re-orders are typically shipped in
December and January. Racquet Sports and Diving product revenues also experience
seasonality, but to a lesser extent than Winter Sports revenues.

Materials

         As a result of the price increases for oil and steel in the world
market, we faced significant cost increases in plastic components (bindings,
boots, fins), carbon-fibres and metal parts (binding components and ski edges)
during 2005. We expect that this trend will continue in 2006 partly driven by
the power energy crisis.

Patents and Trademarks



                                       24
<PAGE>


         Our major trademarks are registered in the United States, throughout
the European Union and in several other countries, and we consider trademark
protection to be very important to our business. Significant trademarks include
Head, Tyrolia, Penn, Mares and Dacor. We believe that these trademarks are
important in identifying our products and the trademarks are often incorporated
prominently in product designs. Other trademarks include Sporasub, Munari, Cyber
and San Marco. We do not own the trademark "Liquidmetal" but rather license the
name pursuant to an agreement we have with Liquidmetal Technologies, Inc. This
agreement had an initial term of four years commencing January 1, 2003, and the
parties agreed to extend the agreement under similar terms to December 31, 2008.

         We utilize some proprietary or patented technologies in the formulation
or manufacturing of a number of our products, including Free Flex technology in
the manufacture of our precision bindings, "Dimple" and "Shock Stop" technology
in the manufacture of our tennis racquets, "Autowalk" and "Double Power" buckles
in the manufacture of Head ski boots and various other proprietary technologies
used in the manufacture of our diving products. We also use patents in
connection with our Head Titanium tennis racquets and with Head Intelligence
technology, particularly the Chip System technology. We believe our proprietary
information to be among our most important and valuable assets, and generally
seek patent protection for our products in countries where significant existing
or potential markets for our products exist. We believe we have taken adequate
measures to protect our proprietary information in all of our major markets. We
consider our proprietary technology and patent protection to be important to our
business.

         However, we are not dependent on any one patent or set of patents. Some
of our recently introduced products like Titanium, Intelligence and Liquidmetal
tennis racquets, the Mares and Dacor HUB system and Tyrolia "Super Light"
bindings have patents that have many years to run.

4.C.Organizational Structure

         We were formed as a public company with limited liability in 1998 and
hold 100% of the issued and outstanding share capital of Head Holding
Unternehmensbeteiligung GmbH, our intermediate holding company incorporated in
Austria. Our primary operating subsidiary is HTM Sport-und Freizeitgerate AG,
which in turn owns all of our worldwide operating and distribution subsidiaries
and is the issuer of our senior notes. For further discussion of how our Group
is managed and controlled, see "Item 3.D Risk Factors".

    The following is a list of Head N.V.'s significant (direct and indirect)
subsidiaries and their country of incorporation:

<TABLE>
<CAPTION>

                                                                                            Proportion of
                       Significant Subsidiary                              Domicile      Issued Capital Held
  ----------------------------------------------------------------    -----------------  -------------------
<S>                                                                   <C>                         <C>
  Head Holding Unternehmensbeteiligung GmbH.......................    Austria                     100%
  HTM Sport- und Freizeitgerate AG................................    Austria                     100%
  Head Sport AG...................................................    Austria                     100%
  Head International GmbH.........................................    Austria                     100%
  Head Austria GmbH...............................................    Austria                     100%
  Head Technology GmbH............................................    Austria                     100%
  Tyrolia Technology GmbH.........................................    Austria                     100%
  Head/Tyrolia Sports Canada Inc..................................    Canada                      100%
  Head Sport s.r.o................................................    Czech Republic              100%
  HTM Sport s.r.o.................................................    Czech Republic              100%
  Head Tyrolia Sports S.A.........................................    France                      100%
  Head Germany GmbH...............................................    Germany                     100%
  Head UK Ltd.....................................................    Great Britain               100%
  Mares S.p.A. (former HTM Sport S.p.A.)..........................    Italy                       100%
  HTM Sports Japan KK.............................................    Japan                       100%
  HTM Head Tyrolia Mares Iberica S.L..............................    Spain                       100%
  Head Switzerland AG.............................................    Switzerland                 100%
  HTM USA Holdings Inc............................................    USA                         100%
  Head USA Inc....................................................    USA                         100%
  Penn Racquet Sports Inc.........................................    USA                         100%
</TABLE>

4.D.Property, Plant and Equipment

    The following table sets forth information as of December 31, 2005 with
respect to the manufacturing, production, warehousing and office facilities used
by us in our business:

                                       25
<PAGE>

<TABLE>
<CAPTION>

                                                                                                 Area (in
            Location                              Description                 Owned/ Leased   square meters)
-------------------------------    ----------------------------------------  -------------------------------
<S>                                <C>                                       <C>                   <C>
Kennelbach, Austria............    Ski and tennis manufacturing              Leased                12,665
                                   Administration, marketing, research       Leased                 4,670
                                   and development
Klaus, Austria.................    Warehousing                               Leased                 8,710
Schwechat, Austria.............    Binding manufacturing                     Leased                12,709
                                   Warehousing                               Leased                 5,510
                                   Administration, marketing, research       Leased                 1,472
                                   and development
Neusiedl, Austria..............    Warehousing                               Leased                 2,974
Maser, Italy...................    Ski boot research and Development         Leased                 1,800
Litovel, Czech Republic........    Ski boot and diving products
                                   Manufacturing                             Owned                  8,122
                                   Warehousing                                                      7,182
Budweis, Czech Republic........    Ski manufacturing                         Owned                  5,790
                                   Warehousing                                                      4,199
Rapallo, Italy.................    Manufacturing                             Owned                  1,500
                                   Warehousing, administration, research     Owned                  4,500
                                   and development
Casarza, Italy.................    Manufacturing and warehousing             Owned                  7,708
Phoenix, Arizona...............    Tennis and racquetball ball               Owned                 13,009
                                   administration, manufacturing,
                                   research and development
</TABLE>


         In 2005, we outsourced 90% of the remaining tennis racquet from our
sites in Kennelbach, Austria, and Budweis, Czech Republic, to a contract
manufacturer in China. We closed down our production site for ski bindings in
Neusiedl, Austria which we will use for warehousing. Binding assembly is
partially outsourced to a partner located in the Czech Republic. We also
extended our warehouse facilities in Budweis, Czech Republic.

         Additionally, we rely on third-party manufacturers in Austria
(snowboards), Estonia, Italy and Bulgaria (diving products), and in Asia, such
as in China (accessories and snowboards, bindings, boots, helmets, body
protection) and Thailand (diving products).

         In addition, to the facilities described above, we own and lease
additional facilities in various areas throughout the world. Our leased
facilities have remaining terms generally ranging from one to four years.

         Substantially all leases contain renewal options pursuant to which we
may extend the lease terms in increments of one to four years. We do not
anticipate any difficulty in renewing our leases as they expire.

         Management considers our facilities to be well maintained and
satisfactory for our operations, and believes that our facilities, together with
our contract manufacturing relationships, provide sufficient capacity for our
current and expected production requirements.

Environmental Matters

         Our operations are subject to European Union, federal, state and local
laws, regulations and ordinances relating to the operation and removal of
underground storage tanks and the storage, handling, generation, treatment,
emission, release, discharge and disposal of various materials, substances and
wastes. The nature of our operations exposes us to the risk of claims with
respect to environmental matters and we cannot assure you that material costs or
liabilities will not be incurred in connection with such claims.

         Based on our experience to date, we believe that future cost of
compliance with environmental laws, regulations and ordinances, or exposure to
liability for environmental claims, will not have a material adverse effect on
our business, operations, financial position or liquidity. However, future
events, such as changes in existing laws and regulations, or unknown
contamination of sites owned or operated by us (including contamination caused
by prior owners and operators of such sites), may give rise to additional
compliance costs which could have an adverse effect on our financial condition.

ITEM 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         Effective January 1, 2006, we have changed our basis of accounting to
International Financial Reporting Standards as adopted by the European Union
(IFRS). We have also changed our reporting currency from the U.S. dollar to the
euro. We do not expect there to be a material difference between IFRS as adopted
by the European Union and IFRS as published by the International Accounting
Standards Board. Additionally, the Company will reconcile net income,
stockholders' equity and significant balance sheet line items reported under
IFRS to accounting principles generally accepted in the United States of
America beginning with the Company's first quarter 2006 financial results.


5.A.     Operating Results



                                       26
<PAGE>

Overview

         We generate revenues in our principal markets by selling goods directly
to retail stores and to a lesser extent, by selling to distributors. We also
receive licensing and royalty income. As many of our goods, especially Winter
Sports goods, are shipped during a specific part of the year, we experience
highly seasonal revenue streams. Following industry practice, we begin to
receive orders from our customers in the Winter Sports division from March until
June, during which time we book approximately three quarters of our orders for
the year. We will typically begin shipment of skis, boots and bindings in July
and August, with the peak shipping period occurring in October and November. At
this time, we will begin to receive re-orders from customers, which constitute
the remaining quarter of our yearly orders. Re-orders are typically shipped in
December and January. Racquet Sports and Diving product revenues also experience
seasonality, but to a lesser extent than Winter Sports revenues.

         Winter Sports. Snowfalls at the end of November and the beginning of
December 2005 in all our major Winter Sports markets, including Japan, generated
early interest in winter sports products and retailers reported improved sales
at the beginning of the winter sports season 2005/06 compared to the previous
year. Ski boots, in particular, reported comparatively high sales. The Eastern
Europe market for Winter Sports equipment also developed well. Although the
Eastern Europe market volume for 2005 remained relatively stable compared with
previous years, we may see an improvement in market share for 2006 based on
sales volume. The snowboard market for 2005 was adversely affected by the late
start of the 2004/05 winter sports season, but has been positively affected by
the early snow of the 2005/06 season. However, we still expect the market for
snowboard products to decline by approximately 15% in the 2005/06 season
compared to the 2004/05 season.

         Racquet Sports. Due to an unprecedented number of new racquet launches
in the U.S. market for tennis racquets, the premium segment of the worldwide
market, tennis racquet sales in 2005 improved substantially over 2004. The
European tennis markets also showed slight growth for 2005. Only the Japanese
tennis market declined in 2005 compared to 2004, albeit marginally.

         Diving. During the first half of 2005, we experienced a decline in
overall sales for diving equipment of approximately 8% compared to the first
half of 2004, due to less travel worldwide to dive centers and resorts and
correspondingly fewer purchases of equipment. For the year 2005, sales in
Eastern Europe and the Middle East showed a slight improvement, and the market
in Southeast Asia experienced moderate growth despite the decline in sales
reported after the tsunami at year-end 2004. As in the past few years, we
continue to focus on the Asian markets and have established dedicated area
managers and implemented marketing initiatives. Our strategy is to focus on
improving gross margins rather than revenues.

         The Company operates in a multi-currency environment and is subject to
currency translation risk and, to a lesser extent, currency transaction risk,
principally between the euro and U.S. dollar. See "Item 3.D -- Risk Factors",
the discussion below regarding the impact of exchange rate fluctuations and
"Item 11 -- Quantitative and Qualitative Disclosure about Market Risk".

Business Rationalization

         As part of our strategy to reduce costs, we have undertaken a series of
measures to rationalize our manufacturing structure in each of our product
lines.

         In 2003, we transferred all of our ski boot and certain diving product
manufacturing in Tallinn, Estonia, to our plant in Litovel, Czech Republic. In
connection with this transfer, we recognized restructuring expenses of $0.6
million and $0.7 million, respectively, for the years ended December 31, 2003
and 2004, and additional capital expenditures of $2.6 million in 2003 to set up
the plant in the Czech Republic. In 2003, we also started to close down our
tennis ball production facility in Mullingar, Ireland, and transfer these
operations to our existing, under-utilized plant in Phoenix, Arizona. In
connection with this transfer, we recognized restructuring expenses of $7.0
million and $1.6 million, respectively, for the years ended December 31, 2003
and 2004. To increase the utilization of our warehouse facilities and to
centralize headquarter functions, we shutdown warehouse facilities and closed
selected offices, recognizing expenses of 0.8 million for the year ended
December 31, 2003. The total restructuring expenses of $8.4 million in 2003
included employee terminations of $5.2 million, impairment of fixed assets of
$2.6 million, excess rent of $0.4 million and other related restructuring
program costs of $0.2 million. Total restructuring charges for 2004 amounted to
$2.3 million.

         In 2005, we outsourced 90% of the remaining tennis racquet production
from our European sites in Kennelbach, Austria, and Budweis, Czech Republic, to
China, and expensed $3.9 million in which $1.0 million related to severance
payments for employee terminations, $1.1 million related to production
inefficiency and $1.8 million related to impairment of fixed assets. We also
restructured our ski binding production, closing the site in Neusiedl, Austria,
transferring some activities to our plant in Litovel, Czech Republic, and
outsourcing a portion of binding assembly. The related restructuring charges
amounted to $0.7 million. We also began to reduce production capacity for some
diving products in Italy, which will lead to a reduction in work force and we
recognized additional termination expenses of $1.6 million in 2005. Total
restructuring charges for 2005 amounted to $6.2 million.

Venture Agreement

         In July 2005, we signed an agreement for the establishment of a company
in the British Virgin Islands. The business



                                       27
<PAGE>

venture was established to found a Chinese company which will manufacture tennis
balls for sale exclusively to us. Our venture partner and we have a 30% and 70%
interest in the newly formed venture, respectively. In accordance with the
provisions of FIN 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51," this venture qualifies as a variable interest
entity due to the pricing of the purchase option that we have with our 30%
partner, which essentially caps the rights of the venture partner to the full
appreciation of its interest. The entity did not have any operations as of
December 31, 2005 other than the commencement of the construction of a building.

         Our partner in this venture also has the right to receive a guaranteed
yearly dividend of 12% on its investment balance. For the year ended December
31, 2005, a dividend in the amount of $0.01 million has been accrued. We expect
that the total amount to be invested by our partner and us will be approximately
$12.0 million, of which we had invested $0.8 million as of December 31, 2005.

         As a result of our having to consolidate this entity, we recorded
minority interest for the contribution of its partner of $0.4 million. The
shares issued to this partner are not mandatorily redeemable and therefore they
lack the essential characteristic of a liability.

Factors Affecting Revenues

         As a manufacturer and distributor of branded sporting goods, our
revenues are affected by the overall economic trends of our principal geographic
markets, mainly Europe, but also the United States and Japan, and related
changes in consumer confidence spending on leisure goods. Weather can also
affect our revenues. For example, a lack of snow in a particular area in a
particular season will result in fewer purchases of skiing and snow boarding
equipment and poor weather at a diving location may reduce interest in the sport
and related equipment purchases. We believe our global geographic penetration
and diversification of sports products help to mitigate any localized adverse
impacts from weather. Other factors that can affect our revenues are consumer
preferences based on technical innovations, and the general level of interest in
the sports for which we produce equipment. In addition, the rate of leisure
travel can affect our revenues as purchases of our equipment are often related
to customers traveling to ski and diving destinations. For further discussion of
the factors affecting demand for our products, see "Item 3.D Risk Factors".

         Most of our revenues are denominated in euro, the functional currency
of our European operations. However, our historical consolidated financial
statements are reported in U.S. dollars. Our revenues are thus affected by
movements in the exchange rate of the U.S. dollar against the euro. Our revenues
are also affected by fluctuations in the value of the currency in which the
products are sold relative to the value of the currencies of the countries from
which the products were shipped. For example, appreciation of the euro against
the U.S. dollar may adversely affect the revenues or margins from our products
manufactured on an euro-cost basis and sold in the United States if they become
less price competitive on a U.S. dollar basis or sell for lower prices on a euro
basis, which reduces our margins.

Factors Affecting Expenses

         We separate our principal expenses into:

         o   cost of sales;

         o   selling and marketing expenses;

         o   general and administrative expenses; and

         o   interest expense.

         The major components of cost of sales are raw materials and payroll and
energy expenses related to the manufacturing of our products. Depreciation of
our manufacturing equipment and production sites, as well as research and
development expenses associated with the development of our products, are also
included in this category.

         Selling and marketing expenses are comprised primarily of advertising
expenses (including the sponsorship of professional athletes) and payroll
expenses related to the selling department. Also included in this category are
commission payments to sales teams. General and administration expenses include
warehousing expenses and various administrative costs.

         Approximately 90% of our annual capital expenditures are for
maintenance of our facilities and equipment, including molds and tools. Some
product lines change annually as new products are introduced, while others are
in use for several years. In 2003, 2004 and 2005, we spent approximately $16.9
million, $23.2 million and $18.6 million, respectively, which are financed
through our operating cash flow. We expect our annual capital expenditures to
decrease during the next three years due to our increased reliance on outsourced
production.



                                       28
<PAGE>

         In connection with ordinary share options granted to officers we have
incurred a non-cash compensation expense of approximately $0.6 million and $0.9
million in 2004 and 2005, respectively. As of December 31, 2005, deferred
non-cash compensation relating to previously granted stock options amounted to
approximately $5.6 million. This amount will be recognized as a non-cash
compensation expense over the remaining vesting terms of the options. Any
further stock option grants will result in additional non-cash compensation
expense being recognized.

         Our expenses, as reported in U.S. dollars, are also affected by
movements in the exchange rate of the U.S. dollars against the currencies of the
countries in which we operate and sell our goods. Of our cost of goods sold and
other operating expenses 35% is generated in U.S. dollars whereas 63% is
generated in euros. Because a portion of our U.S. dollar revenues are generated
from products manufactured on an euro-cost basis, the appreciation of the euro
against the U.S. dollar has increased our expenses when translated into U.S.
dollar and adversely affected our margins.


Critical Accounting Policies and Estimates


         The preparation of our consolidated financial statements required us to
make estimates and assumptions that affected reported amounts of assets and
liabilities and the results during the reporting period. On an on-going basis,
we evaluate our estimates and judgements, including those related to product
returns, bad debts, inventories, tangible and intangible long-lived assets,
income taxes and warranty obligations. The estimates and judgements are based on
historical experiences and on various other factors that are believed to be
reasonable under the circumstances.


Pension and Postretirement benefits

         The Company accounts for the costs of pension plans and postretirement
benefits in accordance with SFAS 87, "Employers' Accounting for Pensions" ("SFAS
87") and SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"), respectively.

         The Company sponsors defined benefit pension and postretirement benefit
plans. The postretirement plans provide leaving indemnities paid to employees at
some Austrian and other European locations. The indemnities are based upon years
of service and compensation levels and are generally payable upon retirement or
dismissal in some circumstances, after predetermined number of years of
services.

         The calculation of the Company's pension expense and pension liability
associated with its defined benefit pension plans requires the use of a number
of assumptions that the Company deems to be "critical accounting estimates."
Changes in these assumptions can result in different pension expense and
liability amounts, and actual experience can differ from the assumptions. The
Company believes that the most critical assumptions are the discount rate and
the expected rate of compensation increase. Changes in actuarial assumptions are
charged or credited to income statement over the remaining service lives of the
employees and therefore affect recognized expense and obligation in future
periods. Significant differences in actual results and initial estimates or
changes in assumptions may materially affect pension obligation and future
expense. Additionally, it is possible that the value of the plan assets could
decline as a result of negative investment returns, which combined with
increasing amounts of accumulated benefit obligations, could result in our Group
being required to make significant cash contributions to our plans in future
periods.

         At the end of each year, the Company determines the discount rate to be
used for pension liabilities. In estimating this rate, the Company looks to
rates of return on high quality, long term corporate bonds that receive one of
the two highest ratings given by a recognized ratings agency. The Company
discounted its future pension liabilities using rates of 4.5% and 4.2% at
December 31, 2004 and 2005, respectively. The discount rate used to determine
the value of liabilities has a significant effect on expense.

         The actuarial assumptions on the expected rate of compensation are
determined by management based on the present rate of compensation increase and
upon information available to the Company. The expected rate of compensation
increase in the pension plans is 2.4% at December 31, 2004 and 2005,
respectively.

         The Company expects to make insignificant amounts of employer
contributions during 2006. The estimate of contributions is based on significant
assumptions, such as pension plan benefit levels. Actual contributions could
differ.

Allowance For Doubtful Accounts

         We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments,



                                       29
<PAGE>

additional allowances may be required. We specifically analyze accounts
receivables and evaluate historical bad debt, customer concentrations, customer
creditworthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. These
estimations are continually reviewed. Recoveries related to changes in reserves
did not occur in 2005.

Impairment Of Long Lived Assets

         Property, plant and equipment are initially stated at cost.
Depreciation on property, plant and equipment is computed using the
straight-line method over their estimated useful lives. We have determined
useful lives of property, plant and equipment after consideration of historical
results and anticipated results based on our current plans. Our estimated useful
lives represent the period the asset remains in service assuming normal routine
maintenance. We review the estimated useful lives assigned to property, plant
and equipment when our business experience suggests that they do not properly
reflect the consumption of the economic benefits embodied in the property, plant
or equipment nor result in the appropriate matching of cost against revenue.
Factors that lead to such a conclusion may include physical observation of asset
usage, examination of realized gains and losses on asset disposals and
consideration of market trends such as technological obsolescence or change in
market demand.

         When events or changes in circumstances indicate that the carrying
amount may not be recoverable, property, plant and equipment are reviewed for
impairment. When such assets' carrying value is greater than the undiscounted
cash flows estimated to be generated by those assets, an impairment loss is
recognized equal to the difference between the fair value of the assets and
their carrying value. Factors we consider important, which could trigger an
impairment review, include the following:

o     significant underperformance relative to historical or projected future
      results;
o     significant changes in the manner of our use of the acquired assets or the
      strategy for the related business; and
o     significant negative industry or economic trends.

         The assessment of tangible and intangible long-lived assets for
possible impairment requires certain judgements and estimates to be made by us,
primarily related to our projected cash flows. Our projected cash flows reflect
a number of assumptions including sales volume, prices, and terminal values of
tangible long-lived assets, which are based on the expected life of products and
forecasted life cycle. While we believe that our assumptions are appropriate,
such estimates could differ materially from what will actually occur in the
future.

         In accordance with SFAS 142, we also perform impairment reviews of our
goodwill and trademarks at least annually. We test goodwill for impairment using
the two-step process prescribed in SFAS 142. The first step is a screen for
potential impairment, while the second step measures the amount of impairment,
if any. Our trademark impairment test involves comparing the fair value of the
trademark to its carrying value.

         This review is based upon our projections of anticipated future cash
flows. The most significant variables in determining cash flows are discount
rates, as well as the assumptions and estimates used to determine the cash
inflows and outflows. Management determines discount rates to be used based on
the risk inherent in the related activity's current business model and industry
comparisons. While we believe that our assumptions are appropriate, such amounts
estimated could differ materially from what will actually occur in the future.


Liabilities For Product Warranties


         We provide for the estimated cost of product warranties and product
returns at the time revenue is recognized. Our warranty provision is established
based on our best estimates of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. Our product
return provisions are based on our historical experiences. While we believe that
our warranty and product return provisions are adequate and that the judgment
applied is appropriate, such amounts estimated to be due and payable could
differ materially from what will actually transpire in the future. We update
these estimated charges periodically. The actual product performance and/or
field expense profiles may differ, and in those cases we adjust our warranty
reserves accordingly. Future warranty expenses may exceed our estimates, which
could lead to an increase in our cost of sales. Significant differences from our
estimates did not occur in the past.

Inventory Obsolescence

         Our chosen markets are competitive and subject to fluctuations in
demand and technological obsolescence. We periodically review our inventory for
obsolescence and declines in market value below cost. Estimated obsolescence or
unmarketable inventory led to write-downs of our inventory to the estimated
market value based upon assumptions about future demand and market conditions.
If actual future demand or market conditions are less favourable than those
projected by us, additional inventory write-downs may be required. No
significant write downs were recognized in 2005.



                                       30
<PAGE>

Realizability Of Tax Loss Carryforwards

         We record a valuation allowance to reduce our deferred tax assets to
the amount that we believe is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination was made. Changes in
local income tax rates may also affect deferred tax assets.

         As of December 31, 2005, we had approximately $371.2 million (net of
restricted portion due to the EC decision) of net operating tax loss carry
forwards, primarily in Austria. Austria allows an unlimited carryover of net
operating losses. Accordingly, we believe it is more likely than not that we
will utilize $310.8 million of net operating loss carryforwards to lower cash
taxes on future taxable income (see Note 21 to the consolidated financial
statements). The realization of operating loss carry forwards is ultimately
dependent upon our ability to generate future earnings in the respective
jurisdictions. There can be no guarantee that we will generate future earnings.

Recent Accounting Pronouncements

         In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155, "Accounting for Certain Hybrid Financial Instruments"("SFAS
155"). SFAS No. 155 amends SFAS No 133, "Accounting for Derivative Instruments
and Hedging Activities", and SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 155,
permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS No. 133, establishes a requirement to evaluate
interest in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on the qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is applicable to new or modified financial instruments in
fiscal years beginning after September 15, 2006. We are currently evaluating the
potential impact, if any, that the adoption of SFAS 155 will have on our
consolidated financial statements.

         In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, "Accounting Changes and Error Corrections-a replacement of
APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"), which changes the
requirement for the accounting and reporting of a change in accounting
principle. SFAS 154 eliminates the requirement in APB Opinion No. 20,
"Accounting Changes," to include the cumulative effect of changes in accounting
principle in the income statement in the period of change. Instead, to enhance
the comparability of prior period financial statements, SFAS 154 requires that
changes in accounting principles are retrospectively applied, unless directed
otherwise by a new pronouncement. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect the initial adoption of SFAS 154 to have a
material impact on the Company's financial statements.

     In March 2005, the FASB Staff issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies the term
conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations" as well as other issues related to
asset retirement obligations. FIN 47 is effective for fiscal years ending after
December 15, 2005. The adoption of FIN 47 did not have a material impact on the
Company's financial statements.

         In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R
addresses the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for equity instruments of the
enterprise. It also addresses transactions in which an entity incurs liabilities
in exchange for goods and services that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. The revised statement generally requires that an entity
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires an entity
to recognize the grant-date fair-value of stock options and other equity-based
compensation issued to employees in the income statement. SFAS 123R also
requires entities to disclose information about the nature of the share-based
payment transactions, the method used to estimate fair value of goods and
services received or the value of the equity instruments granted, and the
effects of those transactions on the financial statements. On April 14, 2005,
the U. S. Securities and Exchange Commission (the "SEC") announced that SFAS
123R is to be effective for fiscal years beginning after June 15, 2005 for
entities other than small business issuers, and applies to all awards granted
after the required effective date and to awards modified, repurchased, or
cancelled after that date. The revised statement also applies to the portion of
outstanding awards for which the requisite service has not yet been rendered
based on the grant-date value of these awards. Retrospective application is
permitted. The SEC issued Staff Accounting Bulletin 107 "Share-Based Payment"
("SAB 107") in March 2005 that interprets the



                                       31
<PAGE>

interaction of SFAS 123R and certain SEC rules that must be applied on the
adoption of SFAS 123R. The Company will adopt SFAS 123R and SAB 107, using
modified prospective application, for fiscal year 2006. The adoption of SFAS
123R and SAB 107 is not expected to materially impact the Company's financial
statements.

         In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non
monetary Assets - An Amendment of APB Opinion No. 29" ("SFAS 153") which
eliminates the exception for non monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non monetary assets
that do not have commercial substance. The Company is required to adopt SFAS 153
for non monetary asset exchanges occurring in the first quarter of 2006. The
Company is currently in the process of evaluating the impact of SFAS 153 and
does not expect it, to have a material impact on its financial statements.

         In November 2004, FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4" ("SFAS 151"). This Statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement requires that those items
be recognized as current-period charges regardless of whether they meet the
criterion of abnormal. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this Statement shall be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently in the process of evaluating the impact of
SFAS 151 and does not expect it to have a material impact on its financial
statements.

Results of Operations

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

     The following table sets forth each line item of our consolidated statement
of operations as a percentage of total revenues for the periods shown:

<TABLE>
<CAPTION>
                                                                           For the Years Ended December 31,
                                                                      2004                      2005            Change
                                                            ------------------------  ----------------------  -----------
                                                                $             %           $            %           $
                                                            ---------     --------    ---------    ---------   ----------
                                                                            (in thousands, except percentages)
<S>                                                          <C>           <C>         <C>           <C>         <C>
Total net revenues .......................................   467,014       100.0%      446,882       100.0%      (20,132)
Cost of sales ............................................   294,360        63.0%      272,532        61.0%      (21,828)
                                                            ---------     --------    ---------    ---------   ----------
Gross profit .............................................   172,654        37.0%      174,351        39.0%        1,697
                                                            =========     ========    =========    =========   ==========
Selling and marketing expense.............................   118,511        28.1%      116,529        26.1%       (1,982)
General and administrative expense (excluding
non-cash compensation expense) ...........................    41,883         9.0%      38,602          8.6%       (3,281)
Non-cash compensation expense ............................       555         0.1%          863         0.2%          308
Gain on sale of property .................................    (5,650)       (1.2%)      (7,246)       (1.6%)      (1,596)
Restructuring costs ......................................     2,347         0.5%        6,173         1.4%        3,826
                                                            ---------     --------    ---------    ---------   ----------
Operating Income .........................................    15,008         3.2%       19,431         4.3%        4,423
                                                            =========     ========    =========    =========   ==========
Interest expense .........................................   (25,699)      (5.5%)      (16,081)       (3.6%)       9,618
Interest income ..........................................     2,121        0.5%        2,685          0.6%          564
Foreign exchange gain (loss) .............................     (606)       (0.1%)        2,763         0.6%        3,369
Other income (expense), net ..............................      (97)       (0.0%)          125         0.0%          222
                                                            ---------     --------    ---------    ---------   ----------
Income (loss) from operations before income taxes.........   (9,274)       (2.0%)        8,923         2.0%       18,197
                                                            =========     ========    =========    =========   ==========
Income tax expense .......................................  (27,661)       (5.9%)         (929)       (0.2%)      26,732
                                                            ---------     --------    ---------    ---------   ----------
Net Income (Loss) ........................................  (36,935)       (7.9%)        7,994         1.8%       44,929
                                                            =========     ========    =========    =========   ==========
</TABLE>


         Total Net Revenues. For the year ended December 31, 2005, total
revenues decreased by $20.1 million, or 4.3%, to $446.9 million from $467.0
million in 2004. This decrease was due to the weakening of the euro against the
U.S. dollar in the fourth quarter of the year which negatively affected our
Winter Sports revenues, lower sales value of tennis racquets, bags and tennis
balls which were partially offset by higher sales volumes in tennis racquets and
decreased diving sales. These negative effects on revenues were partially offset
by increased licensing revenues and lower sales deductions.


         The following table sets forth revenues for each of our product
categories for each of the years ended December 31, 2004 and 2005:

                                       32

<PAGE>


                                        For the Years Ended December 31,
                                    ---------------------------------------
                                       2004          2005     % Changes
                                    ----------   ----------  --------------
                                      (in thousands, except percentages)
Product category:
Winter Sports ....................$   223,211   $   216,262      (3.1%)
Racquet Sports ...................    168,037       166,636      (0.8%)
Diving ...........................     75,453        61,405     (18.6%)
Licensing ........................     11,059        12,219      10.5%
                                   -----------    ----------    -------
Total Revenues ...................    477,759       456,522      (4.4%)
Other Revenues ...................      1,326         1,446       9.0%
Sales Deductions .................    (12,071)      (11,086)     (8.2%)
                                   -----------    ----------    -------
    Total Net Revenues ...........$   467,014       446,882       4.3
                                   ===========    ==========    =======

         Winter Sports revenues decreased by $6.9 million, or 3.1%, to $216.3
million from $223.2 million in 2004. This decrease was due to lower sales
volumes for skis and bindings and the weakening of the euro against the U.S.
dollar in the last quarter of the year partly offset by higher sales volumes for
ski boots and the introduction of snowboard protection wear.

         Racquet Sports revenues decreased by $1.4 million, or 0.8%, to $166.6
million from $168.0 million in 2004. This decrease resulted mainly from lower
sales due to less favorable product and country mix for the Company's tennis
racquets and lower sales volumes of its bags and tennis balls. This decrease was
partly offset by significantly higher sales volumes in tennis racquets, better
product mix in tennis balls and the strengthening of the euro against the U.S.
dollar during the main delivery period during the first half of the year.

         Diving product revenues decreased by $14.0 million, or 18.6%, to $61.4
million from $75.5 million in 2004, reflecting the unfavorable market conditions
and our strategy of improving product mix and generating higher margins rather
than increasing revenues. The strengthening of the euro against the U.S. dollar
partly offset the decline in revenues.

         Licensing revenues increased by $1.2 million, or 10.5%, to $12.2
million from $11.1 million in 2004 mainly due to increased revenues from
existing contracts and from new licensing agreements.

         Other revenues include amounts billed to customers for shipping and
handling. These amounts are recognized also as selling and marketing expense.

         Sales deductions consist of sales incentives, which are earned by our
customers subsequent to delivery of our product, including cash discounts for
volume rebates and other than cash consideration. Sales deductions decreased by
$1.0 million, or 8.2%, to $11.1 million from $12.1 million in 2004 mainly due to
declining revenues.

         Cost of Sales. Cost of Sales decreased by $21.8 million or 7.4% due to
declining revenues and our restructuring programs which positively affected
manufacturing costs for ski boots, tennis racquets, tennis balls and fins. The
positive impact of these restructuring programs was partially offset by the
increase in oil and steel prices on the world market, which led to cost
increases in plastic components (bindings, boots, fins), carbon-fibers and metal
parts (e.g., binding components and ski edges).

         Gross Profit. Gross profit increased by $1.7 million to $174.4 million
from $172.7 million in 2004 due to improved operating performance as a result of
our restructuring programs which positively affected manufacturing cost, as well
as more favorable product mix. Gross margin increased to 39.0% for the twelve
months ended December 31, 2005 from 37.0% in the comparable 2004 period.

         Selling and Marketing Expense. Selling and marketing expense decreased
by $2.0 million, or 1.7%, to $116.5 million from $118.5 million in 2004. The
decrease was due mainly to lower variable distribution costs as a consequence of
declining sales partly offset by higher expenditures for advertising and selling
departments.

         General and Administrative Expense. General and administrative expense
decreased by $3.3 million, or 7.8%, to $38.6 million from $41.9 million in 2004.
This decrease was due to lower expenses for warehouse and administration due to
tight expense controls and our restructuring programs.

         Non-Cash Compensation Expense. We recorded $0.9 million in 2005
compared to $0.6 million in 2004 as non-cash compensation expense due to the
grant of stock options under our stock option plans of 1998, 2001 and 2005, and
the resulting amortization expense.



                                       33
<PAGE>

         Gain on Sale of Property. In June 2005, we sold the property in
Tallinn, Estonia which was previously leased and realized a gain of $7.2
million. In September 2004, we realized a gain of $5.7 million from the sale of
our property in Mullingar, Ireland.


         Restructuring. We outsourced 90% of the remaining tennis racquet
production from our European sites in Kennelbach, Austria, and Budweis, Czech
Republic, to China, and expensed $3.9 million, in which $1.0 million related to
severance payments for employee terminations, $1.1 million related to preduction
inefficiency and $1.8 million related to impairment of fixed assets for
buildings, machinery and equipment no longer in use. We also restructured our
ski binding production, closing the site in Neusiedl, Austria, transferring some
activities to our plant in Litovel, Czech Republic, and outsourcing a portion of
binding assembly. The related restructuring charges amounted to $0.7 million. We
also began to reduce production capacity for some diving products in Italy,
which will lead to a reduction in work force and we recognized additional
termination expenses of $1.6 million in 2005. Total restructuring charges for
2005 amounted to $6.2 million. We recorded restructuring costs of $2.3 million,
in the year ended December 31, 2004, consisting of dismissal and transfer costs
in connection with the closing of our production facility in Mullingar, Ireland,
and our plant in Tallinn, Estonia.

         Operating Income. As a result of the foregoing factors, operating
income for the twelve months ended December 31, 2004 increased by $4.4 million
to $19.4 million from $15.0 million in 2004.

         Interest Expense. For the year ended December 31, 2005, interest
expense decreased by $9.6 million or 37.4% to $16.1 million from $25.7 million
in 2004. This decrease was mainly due to the write-off of the capitalized debt
issuance costs of $3.2 million relating to our former 10.75% senior notes, which
were repaid with proceeds from our newly issued 8.5% senior notes in January
2004. The premium of $4.4 million for the early redemption of the 10.75% senior
notes was reported in 2004. In addition, interest expenses for the 8.5% senior
notes decreased as a result of our note repurchase program.

         Interest Income. Interest income increased by $0.6 million to $2.7
million from $2.1 million in 2004. This increase was due mainly to higher cash
on hand.

         Foreign Exchange Gain (Loss). In 2005, we recorded a foreign currency
exchange gain of $2.8 million, compared to a loss of $0.6 million in 2004 as a
result of the revaluation of foreign currency assets and liabilities at the
exchange rate as of December 31, 2005.

         Other Expense, net. Other expense, net increased by $0.2 million to
$0.1 million from other expense, net of $0.1 million in 2004.

         Income Tax Expense. In 2005, income tax expense decreased by $26.7
million to $1.0 million from $27.7 million in 2004. This decrease in income tax
expense is mainly due to a reduction in the Austrian tax rate which, in 2004,
led to a decrease in deferred tax assets resulting from tax losses carried
forward of $24.9 million as well as the non-taxable gain on sale of property in
Estonia of $7.2 million.

         Net Income (Loss). As a result of the foregoing factors, we recorded
net income of $8.0 million for 2005, compared to net loss of $36.9 million in
2004.


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

         The following table sets forth each line item of our consolidated
statement of operations as a percentage of total revenues for the periods shown:



                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                          For the Years Ended
                                                                             December 31,
                                                                    2003                       2004               Change
                                                         -----------------------    ------------------------    ---------
                                                             $               %           $               %          $
                                                         ---------        ------    ----------        ------    ---------
                                                                        (in thousands, except percentages)
<S>                                                        <C>             <C>         <C>             <C>         <C>
Total net revenues ....................................    422,330         100.0%      467,014         100.0%      44,684
Cost of sales .........................................    266,023          63.0%      294,360          63.0%      28,337
                                                         ---------        ------    ----------        ------    ---------
Gross profit ..........................................    156,307          37.0%      172,654          37.0%      16,347
                                                         =========        ======    ==========        ======    =========
Selling and marketing expense .........................    108,193          25.6%      118,511          25.4%      10,318
General and administrative expense (excluding
non-cash compensation expense) ........................     38,847           9.2%       41,883           9.0%       3,036
Non-cash compensation expense .........................        654           0.2%          555           0.1%         (99)
Gain on sale of property ..............................         --          --          (5,650)         (1.2%)     (5,650)
Restructuring costs ...................................      8,368           2.0%        2,347           0.5%      (6,021)
                                                         ---------        ------    ----------        ------    ---------
Operating Income ......................................        245           0.1%       15,008           3.2%      14,763
                                                         =========        ======    ==========        ======    =========
Interest expense ......................................    (13,999)         (3.3%)     (25,699)         (5.5%)    (11,700)
Interest income .......................................      1,050           0.2%        2,121           0.5%       1,071
Foreign exchange loss .................................     (1,103)         (0.3%)        (606)         (0.1%)        497
Other expense, net ....................................        (18)         (0.0%)         (97)         (0.0%)        (79)
                                                         ---------        ------    ----------        ------    ---------
Loss from operations before income taxes ..............    (13,825)         (3.3%)      (9,274)         (2.0%)      4,551
                                                         =========        ======    ==========        ======    =========
Income tax expense ....................................       (832)         (0.2%)     (27,661)         (5.9%)    (26,829)
                                                         ---------        ------    ----------        ------    ---------
Net Loss ..............................................    (14,657)         (3.5%)     (36,935)         (7.9%)    (22,278)
                                                         ---------        ------    ----------        ------    ---------
</TABLE>


         Total Net Revenues. For the twelve months ended December 31, 2004,
total net revenues increased by $44.7 million, or 10.6%, to $467.0 million from
$422.3 million in 2003. This increase was mainly due to the strengthening of the
euro against the U.S. dollar as well as a positive development of the sales in
our winter sports and diving divisions.

         The following table sets forth revenues for each of our product
categories for each of the years ended December 31, 2003 and 2004:

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                   -------------------------------------------
                                                      2003               2004          % Changes
                                                   ---------          ---------        ---------
                                                         (in thousands, except percentages)
Product category:
<S>                                                <C>                <C>                 <C>
Winter Sports ................................     $ 188,768          $ 223,211           18.2%
Racquet Sports ...............................       166,417            168,037            1.0%
Diving .......................................        66,322             75,453           13.8%
Licensing ....................................         9,701             11,059           14.0%
                                                   ---------          ---------        -------
Total Revenues ...............................       431,208            477,759           10.8%
Other Revenues ...............................         1,394              1,326           (4.9%)
Sales Deductions .............................       (10,272)           (12,071)          17.5%
                                                   ---------          ---------        -------
   Total Net Revenues ........................     $ 422,330          $ 467,014           10.6%
                                                   ---------          ---------        -------
</TABLE>

         Winter Sports revenues increased by $34.4 million, or 18.2%, to $223.2
million from $188.8 million in 2003. This increase was due to the strengthening
of the euro against the U.S. dollar, higher sales volumes for bindings, skis and
snowboard equipment and higher sales volumes and prices for our ski boots.

         Racquet Sports revenues increased by $1.6 million, or 1.0%. This
increase resulted mainly from the strengthening of the euro against the U.S.
dollar. Although sales volumes and prices for our tennis racquets remained
stable we faced a decrease in sales volumes and prices for our tennis balls.

         Diving product revenues increased by $9.1 million, or 13.8%. This
results mainly from increased sales volumes due to better product availability
and the strengthening of the euro against the U.S. dollar.

         Licensing revenues increased by $1.4 million, or 14.0% mainly due to
increased revenues from existing contracts and from new

                                       35
<PAGE>


licensing agreements.

         Other revenues include amounts billed to customers for shipping and
handling.

         Sales deductions consist of sales incentives, which are earned by our
customers subsequent to delivery of our product, including cash discounts for
volume rebates and other than cash consideration. We acknowledge that our policy
was at variance with EITF 01-09. As a result of the adoption of EITF 01-09, in
the financial statements for 2003 we reclassified sales incentives of $10.3
million from selling and marketing to sales deductions. Sales deductions
increased by $1.8 million, or 17.5%, to $12.1 million from $10.3 million in 2003
mainly due to increased revenues and the strengthening of the euro against the
U.S. dollar.

         Cost of Sales. Cost of Sales increased by $28.3 million or 10.7%.
Driven by the oil and steel price development on the world market we were facing
significant cost increases in plastic components (bindings, boots, fins),
carbon-fibres and metal parts (e.g. binding components and ski edges).

         Gross Profit. Gross Profit increased by $16.3 million to $172.7 million
from $156.3 million in 2003 due to increased revenues. Gross margin remained
stable at 37.0% in 2004 compared to the comparable 2003 period.

         Selling and Marketing Expense. Selling and marketing expense increased
by $10.3 million, or 9.5%, to $118.5 million from $108.2 million in 2003. The
increase was due mainly to the strengthening of the euro against the U.S.
dollar, which adversely impacted our predominantly euro denominated costs. In
addition, our variable distribution costs increased due to higher sales.

         General and Administrative Expense. General and administrative expense
increased by $3.0 million, or 7.8%, due mainly to the strengthening of the euro
against the U.S. dollar, which adversely impacted our predominantly euro
denominated costs.

         Non-Cash Compensation Expense. We recorded $0.6 million in 2004
compared to $0.7 million in 2003 as non-cash compensation expense due to the
grant of stock options under our stock option plans of 1998 and 2001, and the
resulting amortization expense.

         Gain on sale of property. We recorded a gain from the sale of our
premises in Ireland of $5.7 million in 2004.

         Restructuring .In 2004, the transfer of the skiboot production from
Estonia to Czechia, the transfer of the jacket production from Estonia to
Bulgaria, the transfer of the tennis-ball production from Ireland to Phoenix USA
and the expansion of our ski plant in Budweis were completed successfully.We
started materializing benefits of these projects in the second half of 2004
partly offset by one-off costs. We recorded restructuring costs of $2.3 million
in 2004 consisting of dismissal and transfer costs in connection with the
closing of our production facility in Mullingar, Ireland and our plant in
Tallinn, Estonia.

         Operating Income. As a result of the foregoing factors, operating
income for the twelve months ended December 31, 2004 increased by $14.8 million
to $15.0 million.

         Interest Expense. 2004 interest expense increased by $11.7 million or
83.6% to $25.7 million from $14.0 million in 2003. This increase was mainly due
to the following: write-off of the capitalized debt issuance costs of $3.2
million relating to our former 10.75% senior notes, which were repaid with
proceeds from our new 8.5% senior notes in January 2004; the premium of $4.4
million for the early redemption of the 10.75% senior notes and the higher
interest expenses due to increased debt of the group. The strength of the euro
against the U.S. dollar further impacted these predominantly euro denominated
expenses.

         Interest Income. Interest income increased by $1.1 million, or 102%,
due to higher cash on hand during this period as well as due to the
strengthening of the euro against the U.S. dollar.

         Foreign Exchange Loss. In 2004 we recorded a foreign currency exchange
loss of $0.6 million, compared to a loss of $1.1 million in 2003.

         Other (Expense), net. Other expense, net increased by $0.08
million to a net expense of $0.1 million from $0.02 million in 2003.

         Income Tax Expense. In 2004, income tax expense increased by $26.8
million to $27.7 million from $0.8 million in 2003. This increase in income tax
expense is mainly due to a reduction in the Austrian tax rate which led to a
decrease in deferred tax assets resulting from tax losses carried forward of
$24.9 million.

         Net Loss. As a result of the foregoing factors, we had a net
loss of $36.9 million in 2004, compared to a net loss of $14.7 million in 2003.

                                       36
<PAGE>


5.B.     Liquidity and Capital Resources

         Our liquidity needs arise principally from working capital
requirements, capital expenditures and asset acquisitions. Given the nature of
winter sports, and to a lesser extent racquet sports, our operating cash flow
and working capital needs are highly seasonal. See "Factors Affecting Revenues"
above. Our need for cash is greater in the third and fourth quarters when cash
generated from operating activities, together with drawdowns from our bank
lines, are invested in inventories and receivables. Historically, our primary
sources of liquidity have been cash provided from operating activities, proceeds
from the issuance of debt and equity securities and borrowings under various
credit facilities available to us and our subsidiaries.

         In 2005, cash generated from operating activities increased by $32.2
million, or over 400%, to $40.0 million from $7.8 million in 2004. This increase
was mainly the result of our higher net income and lower working capital
requirements in 2005, which reflected lower trade accounts receivable as a
result of lower annual sales and lower inventories reflecting the weakness of
the euro against the U.S. dollar in the last quarter of the year compared to
2004. We used this cash from operations, together with cash from the sale of our
premises in Estonia, to purchase property, plant and equipment for $18.6
million, mainly to replace manufacturing equipment; to repurchase $18.8 million
of the Company's 8.5% senior notes; to pay back $1.1 million of other long-term
debt; and to purchase available for sale marketable securities (principally cash
bonds) for $5.3 million. In 2004, the cash flows from operating activities, part
of the proceeds of the Company's newly issued 8.5% senior notes and cash from
sale of the Company's premises in Ireland were primarily used to purchase
property, plant and equipment of $23.2 million, mainly to replace and improve
manufacturing equipment; and to purchase available for sale marketable
securities of $13.6 million.

         Total debt as of December 31, 2005 was $190.4 million, consisting of
short-term borrowings of $32.7 million, other long-term debt of $26.6 million
and 8.5% Senior Notes of $131.1 million. As of December 31, 2004 total debt
amounted to $242.7 million, consisting of short-term borrowings of $39.9
million, other long-term debt of $31.0 million and 8.5% Senior Notes of $171.8
million.

         As of December 31, 2005, we had $53.7 million cash on hand and $1.0
million in available unused credit facilities. As of December 31, 2004, we had
$59.6 million cash on hand and aggregate undrawn credit facilities of $2.5
million.

         As described above, we operate in a multi-currency environment and are
subject to currency translation risk and, to a lesser extent, currency
transaction risk. We incur transaction risk whenever one of our subsidiaries
enters into a transaction using a currency other than its functional currency.
In order to reduce this risk, we seek to match our revenues and costs in each
currency. We also hedge part of our firm commitments for sales to Japan,
Switzerland and Canada through forward contracts and options with Austrian
banks. As of December 31, 2005, we had seven forward contracts on Japanese yen
totaling $4.5 million, nine Canadian dollar forward contracts totaling $6.7
million, five British pounds forward contracts totaling $3.8 million, three
Swiss franc forward contracts totaling $6.1 million and two option contracts on
Japanese yen totaling $2.2 million. We recorded foreign exchange losses of
$1.1 million and $0.6 million in 2003 and 2004, respectively and foreign
exchange gains of $2.8 million in 2005. See "Quantitative and Qualitative
Disclosures About Market Risk".

         Based upon current operations and our historical results, we believe
that our cash flow from operations will be adequate to meet our anticipated
requirements for working capital, capital expenditures and scheduled interest
payments. In January 2004, we sold (euro)135 million of 8.5% senior notes. With
the proceeds of this sale, we redeemed all of our outstanding 10.75% senior
notes, paid back certain other debts and retained the remaining funds for
working capital and general corporate purposes. As a result of the repayment of
certain debt, our available credit facilities will be reduced. Additional
financing may be required to fund unanticipated capital and working capital
expenditures. Although we believe that we will have enough money available to
fund our planned working capital and capital expenditures for the next several
years, we cannot assure you that we will not require additional financing for
our operations.

Loan Agreements

         Senior Notes. On July 15, 1999, one of our wholly-owned subsidiaries,
Head Holding, issued (euro)100.0 million of senior notes. The notes bore
interest of 10.75% per annum, which was payable semi-annually and was to mature
in total on July 15, 2006. Among other restrictions, the notes included certain
restrictive terms regarding investments, distributions and incurrence of
additional indebtedness by us. On January 5, 2000, a registration statement for
the exchange of the original 10.75% senior notes for new 10.75% senior notes was
made effective by the U.S. Securities Exchange Commission (SEC). On February 9,
2000, this Exchange Offer was consummated. In October 2000, we repurchased
(euro)30.9 million of its senior notes in a series of transactions using part of
the proceeds of our initial public offering. In July 2002, we repurchased
another (euro)3.6 million of its senior notes. At December 31, 2003, we had
(euro)65.5 million ($82.9 million) of senior notes outstanding. In January 2004,
one of our subsidiaries issued (euro)135.0 million of 8.5% unsecured senior
notes due 2014, guaranteed by Head N.V. and certain of its subsidiaries. The
notes are listed on the Luxembourg Stock Exchange. With the proceeds from the
sale, all of our outstanding 10.75% senior notes due 2006 were redeemed. The
total redemption payment was (euro)70.1 million of which (euro)3.5 million
represents the redemption premium. In addition, we used a portion of the
remaining proceeds to repay (euro)25.8 million of other outstanding debt. In
June 2004, we repurchased the equivalent of (euro)5.5 million of our 8.5% senior
notes for (euro)5.0 million ($5.9 million) and realized a gain of $0.4 million.
As a result of this transaction, we wrote-off $0.07 million of debt issue costs.
In 2005, we repurchased the equivalent of (euro)15.7 million of our 8.5% senior
notes for (euro)14.3 million ($18.8

                                       37
<PAGE>


million) and realized a gain of $0.9 million. As a result of this transaction,
we wrote-off $0.2 million of debt issue costs. At December 31, 2004 and 2005, we
had (euro)126.2 million ($171.8 million) and (euro)111.1 million ($131.1
million), respectively of senior notes outstanding.

         Sale-Leaseback. We entered into an agreement on June 28, 2002, whereby
we sold land and building to an unrelated bank and leased it back over a 15 year
term. The proceeds of this sale were (euro)10.6 million. We have the obligation
to purchase the property back after 15 years for (euro)8.2 million. We may also
repurchase the property at our option from the first until the tenth year of the
arrangement for the present value of the future lease payments and the remaining
residual value. We are also required to pay the bank a monthly deposit of
(euro)0.01 million, which will be repaid to us, plus interest of 6.7%, at the
time of repurchase. Because of our continuing involvement, this transaction has
been accounted for as a financing such we have recorded (euro)10.6 million of
cash and long-term borrowings at the inception date of this agreement. At
December 31, 2004 and 2005, the remaining obligation under the financing
agreement is $14.1 and $12.1 million, respectively.

         Mortgage Agreement. In 2002, one of our subsidiaries entered into a
mortgage agreement secured by the Penn Phoenix property with an unrelated
financial institution of $4.8 million over a 15 year term at an interest rate of
7.33%. At December 31, 2004 and 2005, the outstanding balance of the mortgage
was $4.3 million and $4.1 million, respectively.

         Other Long-Term Debt. Other long-term debt comprises secured loans in
Italy and the Czech Republic outstanding with several banks. At December 31,
2004 and 2005, the remaining outstanding long-term debt was $12.5 million and
$10.4 million, respectively. The weighted average interest rate on outstanding
borrowings was 2.6% and 2.4% as of December 31, 2004 and 2005, respectively.
Borrowings mature at various dates through 2011. As of December 31, 2004, we had
an aggregate amount of approximately $0.1 million long-term debt respectively
owed to several Austrian government agencies. This debt is denominated in euro
and had a weighted average interest rate on outstanding borrowings of
approximately 4.3%. This long-term debt was payable over several years, with the
final payments paid in 2005.

         Oesterreichische Kontrollbank Aktiengesellschaft (OeKB). As of December
31, 2004 and 2005, we had outstanding borrowings under this line of credit of
$20.4 million and $17.7 million, respectively, with Austrian banks in the
context of Austrian export promotion programs administered by Oesterreichische
Kontrollbank Aktiengesellschaft. The weighted average interest rate on this
indebtedness was 2.65% at both December 31, 2004 and 2005. These loans had been
made in the form of credits for specific exports. The amounts owed are secured
by bills of exchange and by all Austrian trade receivables. No more credit
facilities are available under these terms of commitment.

         Japanese Bank Loans. As of December 31, 2004 and 2005, HTM Sports Japan
KK, one of our Japanese subsidiaries, had short-term credit lines with Sumitomo
Bank of approximately $17.4 million and $13.4 million, respectively that are
renewed annually. We guarantee the payments to Sumitomo Bank in the amount of
the outstanding debt. The weighted average interest rate on these loans was 3.0%
at December 31, 2004 and 2005.

         Other Lines of Credit. As of December 31, 2004 and 2005 we had $1.9
million and $1.6 million under other operating lines of credit in Canada with a
weighted average interest rate of 4.75%, respectively. The unused credit
facility as of December 31, 2004 and 2005 amounted to $2.5 million and $1.0
million, respectively.

         Operating Credit Lines. As of December 31, 2004, we had outstanding
debt of $0.2 million with various Austrian banks. The weighted average interest
rate on outstanding loans was 4.5% at December 31, 2004.

Capital Expenditures; Research and Development

         We expect to spend approximately $60 million on investment in property,
plant and equipment and $45 million on research and development in the 2006 to
2008 period financed through our operating cash flow. These expenses will be
primarily for the design and manufacturing of products that are scheduled to be
introduced and existing products which we expect to continue selling during the
period.

5.C.     Research and Development, Patents and Licenses

         We believe that we are an industry leader in the development of
innovative and technologically advanced sports equipment. Our research and
development groups identify consumer needs and shifts in consumer preferences in
order to develop new product ideas and concepts. In addition, we encourage
cross-fertilization of ideas among divisions, which has led to further product
innovations. In 2003, 2004 and 2005, we spent approximately $13.6 million $15.5
million and $13.8 million, respectively, on engineering, research and
development and $0.7 million, $1.0 million and $0.6 million, respectively, for
patents and licenses. To ensure quality and precision, the majority of our
products are designed on our own computer-aided design and manufacturing
(CAD/CAM) systems.

5.D.     Trend Information

                                       38
<PAGE>


         We operate in mature markets that in 2005 experienced flat to slightly
declining conditions on a worldwide basis. The industry trend continues to be
towards a consolidation of participants who are able to provide retailers with
offerings across all product segments within the sporting categories. This trend
has been most pronounced in the Winter Sports market, where almost all companies
now offer the full range of products consisting of skis, ski boots, bindings and
snowboards.

         Continuing weakness in the Japanese market has particularly affected
the Winter Sports market and we expect this trend to continue in 2006. We have
seen some recovery in the U.S. market, especially in Racquet Sports, although on
a worldwide basis this growth was offset by poor weather conditions suppressing
Racquet Sports sales in Europe.

         Our overriding strategy continues to be the development of innovative
products across all of the markets within which we operate.

         Revenues Growth and Currency Fluctuations

         While we report our results in U.S. dollars, approximately 60% of our
revenues are in euros and the majority of our manufacturing is on a euro cost
basis. As a consequence, currency fluctuations have an effect upon our reported
results. Within a given period, the appreciation of the euro against the dollar
will be reflected in higher revenues and costs on a translation basis, and
conversely, when it depreciates, we would expect to show lower revenues and
costs. Given the current order flow, we expect that our revenue in 2006 will be
in line with 2005.

         Currency fluctuations can also affect gross margins. This is especially
true in Winter Sports, where we incur a majority of our costs in the first six
months and receive a majority of our revenues in the last six months of the
year, and both costs and revenues are primarily euro-based. Accordingly, a
strong euro in the first six months, when we incur costs, or a weak euro in the
last six months, when we receive revenues, will adversely affect our reported
margins on a U.S. dollar basis.

         Product Outlook

         In Winter Sports, we see a significant trend towards integrated, better
coordinated ski-binding-boot systems. We anticipate that retailers will become
more cautious in placing pre-season orders. In 2005, re-orders were slow until
end of November but improved toward the end of the year as a result of good snow
conditions worldwide. For 2006, we will be concentrating on improving product
mix, especially on extending our high end product line, as we expect the
consumer preference for high performance sports products to continue. We will
extend our integrated line of ski products and concentrate on improving the ski
product mix. For those products for which there is high demand, such as our
best-selling SL 100 bindings, we will focus on increased profitability. We
continually introduce new technical features for improved performance, safety
and comfort such as the integrative solutions with new totally integrated tool
free systems (Railflex System), innovative light-weight constructions, the use
of liquid metal on our top range of skis as well as changes in styling and
appearance in each two- to three-year product cycle. Rental equipment is another
segment we will focus on in 2006.

         In snowboards, where we have recently introduced the Intelligence
technology, we continue to outsource product manufacturing, on an increasing
basis from companies in China, with a focus on cost efficiency and high quality
in manufacturing.

         In ski boots, where we have renewed our high end range, we plan to
maintain our cost efficiency in production and concentrate on improving our
product mix.

         In Racquet Sports, we expect the tennis racquet and ball market to be
stable during 2006. New racquet products, including an exclusive women's range,
will be launched during the summer of 2006. We also expect no major changes in
tennis balls, but believe the current industry overcapacities will maintain
pressure on prices and margins.

         In Diving, we are successfully introducing our products in new
geographical areas such as Eastern European and Southern Asia. During the 2005
season attention was given to reducing the number of offered products in order
to have a simpler and more efficient line still able to fulfill all divers'
needs.

5.E.     Off-Balance Sheet Arrangements

         We have no off-balance sheet entities or off-balance sheet arrangements
that are reasonably likely to have a material impact on our financial position
and results of consolidated operations.

5.F.     Disclosures of Contractual Obligations

         Obligations to make future payments under contracts for the periods
indicated are as follows as of December 31, 2005 (in thousands):

                                       39
<PAGE>


<TABLE>
<CAPTION>

                                        Less than 1
Contractual Obligations                     year        1 - 3 years     3 - 5 years    After 5 years       Total
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>              <C>           <C>        <C>
Long-Term Debt Obligations
     8.50% Senior Notes due 2014            $      --              --              --         131,078    $    131,078
     Mortgage                                     228             508             589           2,804           4,130
     Other Long-Term Debt                       2,112           4,213           1,984           2,088          10,397
Capital (Finance) Lease Obligations
     Sale-Leaseback                               147             325             372          11,246          12,090
Operating Lease Obligations
     Operating Leases                           4,101           6,434           4,062           1,521          16,117
Sourcing Agreements                               299             598             299              --           1,197
</TABLE>

         In connection with our benefit plans we are required to meet certain
funding requirements, which could require us to make certain cash payments in
the future. The Company does not expect to make significant contributions during
2006.

         In January 2004, one of our subsidiaries sold (euro)135.0 million of
8.5% unsecured senior notes due 2014. With the proceeds from the sale, all of
our outstanding 10.75% senior notes due 2006 were redeemed.

         The contractual interest in our mortgage agreement is 7.33%, in our
sales-leaseback agreement 6.7% and in our other long-term debt it varies between
2.0% and 6.0% (2.4% on average).

         Expected interest expense on contractual obligations for the periods
indicated are as follows as of December 31, 2005 (in thousands):

<TABLE>
<CAPTION>

                                          Less than 1
Expected Interest Expense                     year         1 - 3 years     3 - 5 years     After 5 years       Total
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>             <C>             <C>             <C>
Long-Term Debt Obligations
     8.50% Senior Notes due 2014            $   9,675          19,350          19,350          29,832          78,207
     Mortgage                                     303             550             467             836           2,156
     Other Long-Term Debt                         251             349             202              28             829
Capital (Finance) Lease Obligations
     Sale-Leaseback                               800           1,569           1,523           4,246           8,433
</TABLE>


ITEM 6:  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A.     Directors and Senior Management

         Under Head N.V.'s articles of association, a Dutch foundation called
the Stichting Head Option Plan has the power to nominate all members of the
Management Board, appoint one-third of the Supervisory Board and nominate the
remaining members of the Supervisory Board. The Board of the Stichting is
controlled by Head Sports Holdings N.V. and Johan Eliasch jointly. Head Sports
Holdings N.V. is an entity controlled by Johan Eliasch and his family members.

Supervisory Board

         The Supervisory Board is responsible for overseeing Head N.V.'s
Management Board and the general course of affairs of Head N.V.'s business. Head
N.V.'s Supervisory Board currently has three members, whose names and
biographies are set forth below.

    The following table sets forth information with respect to Head N.V.'s
Supervisory Board.

        Name                    Age                        Title
--------------------            ---         -----------------------------------
William S. Cohen                64          Member of the Supervisory Board
Jurgen Hintz                    62          Member of the Supervisory Board and
                                            Audit Committee
Viktor Klima                    57          Member of the Supervisory Board and
                                            Audit Committee

         Secretary William S. Cohen has been a Member of the Supervisory Board
of Head N.V. since May 2001, Secretary Cohen is a former U.S. Secretary of
Defense (1997-2001) and has served in both the U.S. Senate (1979-1997) and the
U.S. House of Representatives (1973-1979). He is currently the Chairman and CEO
of The Cohen Group, an international strategic business consulting firm based in
Washington, DC. Secretary Cohen also serves as a Director of CBS.

         Mr. Jurgen Hintz has been a Member of the Supervisory Board of Head
N.V. since May 2003. He retired in December 2004 as Group Chief Executive
Officer of Novar plc, an international group with core activities in Intelligent
Building Systems, Aluminum Extrusion Solutions, and Security Printing Services
with an annual turnover of (pound)1.5 billion. Prior to this he was President
and Chief Executive of Carnaud/Metalbox until October 1995, Executive
Vice-President and member of the main Board of Procter & Gamble Company and
non-Executive Director of Inchcape plc and Apple Computers Inc.

         Mr. Viktor Klima served as Chancellor of the Republic of Austria from
January 1997 until his resignation February 2000. In this capacity Mr. Klima
held the Presidency of the European Union in the second half of 1998. Prior to
serving as Chancellor, he served as Minister of Finance 1996-97 and Minister of
Public Economy and Transport 1992-96. Prior to his political career, he was a
member of

                                       40
<PAGE>


the management board of the OMV oil company, responsible for finance, capital
markets and acquisitions. Prior to this position he held various management
positions within OMV. Mr. Klima took up a senior management position with
Volkswagen in October 2000.

Management Board and Key Executive Officers

         Our amended articles of association provide for a Management Board that
is responsible for our management under the general supervision of the
Supervisory Board. Our Management Board currently has four members, whose names
and biographies are set forth below along with those of our executive officers.
See "Summary of Material Provisions of our Articles of Association and Other
Matters - Management Board".

         The following table sets forth information with respect to our
Management Board and other key executive officers of our consolidated group.

           Name             Age                    Title
 -----------------------    ---  ----------------------------------------------
 Johan Eliasch..........    44   Chairman of the Management Board, and Chief
                                 Executive Officer
 Ralf Bernhart..........    54   Member of the Management Board and Chief
                                 Financial Officer (Managing Director of HTM
                                 Sport-und Freizeitgerate AG)
 George F. Nicolai......    53   Member of the Management Board
 Robert van de Voort....    50   Member of the Management Board
 Klaus Hotter...........    50   Executive Vice President, Winter Sports
                                 Division (Managing Director of Head Sport AG)
 Georg Kroll............    57   Executive Vice President, Licensing Division
                                 (Managing Director of Head Sport AG)
 Robert Marte...........    52   Executive Vice President, Racquet Sports
                                 Division (Managing Director of Head Sport AG)
 Edgar Pollmann.........    61   Executive Vice President, Operations (Managing
                                 Director of HTM Sport- und Freizeitgerate AG)
 Gerald Skrobanek.......    40   Managing Director, Diving Division (Managing
                                 Director of Head Sport AG and Mares S.p.A.)
 Gunter Hagspiel........    42   Vice President Finance and Controlling
                                 (Managing Director of Head Sport AG)
 Jacques Altimani.......    59   Vice President, European Distribution
                                 (Managing Director of Head International GmbH)
 David Haggerty.........    48   President, Head/Penn Racquet Sports Inc.
 Kevin Kempin...........    47   Vice President, Sales/Marketing Racquet Sports
                                 U.S. and Penn Worldwide

         Mr. Johan Eliasch has served as Chairman of the Management Board of
Head N.V. and Group Chief Executive Officer since September 1995. He has been
Managing Director of Head Holding Unternehmensbeteiligung GmbH since September
10, 1998 and a member of the Supervisory Board of HTM since 2000. Since 1991, he
has been Chairman of Equity Partners Limited. Mr. Eliasch also serves in the
U.K. as the Deputy Party Treasurer of the Conservative Party.

         Mr. Ralf Bernhart has served as the Chief Financial Officer of the Head
group of companies since March 1996. He was a member of the HTM Supervisory
Board in 1995 prior to becoming a member of the HTM Management Board in 1996. He
has been a Managing Director of Head Holding Unternehmensbeteiligung GmbH since
July 19, 1999, and in October 2000, he became a member of the Management Board
of Head N.V. Prior to joining Head N.V., from 1990 to 1995, Mr. Bernhart was a
member of the Executive Board of Hafslund Nycomed Pharma AG, Austria, a leading
pharmaceutical company.

         Mr. George F. Nicolai, born in 1953, was a member of the management
team of MeesPierson Intertrust BV from 1989 until 2003, and continues to act as
a non-executive director. After finishing his law degree at the University of
Utrecht, he joined Pierson Heldring & Pierson (now Fortis Bank) serving in a
variety of executive positions, both in the Netherlands and abroad. He currently
also serves as a member of the board of directors of several Dutch subsidiaries
of international companies such as Rothschilds, Volvo, National Grid and Pirelli
and as chairman of several foundations.

         Mr. Robert van de Voort In May 2002 he was named to the Management
Board. Mr. van de Voort is a lawyer and is the co-founder and managing director
of the TMF Group of companies. This group is active in a wide range of financial
services including corporate and structured finance. Mr. van de Voort has a
number of other board directorships as well as Supervisory Board memberships.

         Mr. Klaus Hotter has served as Vice President of Head Sport AG since
1986 and managed our Winter Sports Division. In

                                       41
<PAGE>


November 2002, he was appointed Managing Director of Head Sport AG and assumed
full responsibility for the Winter Sports Division. He managed European
distribution at Blizzard from 1981 to 1986.

         Mr. Georg Kroll has served as Vice President of Head Sport AG since
1990 and was appointed Managing Director of Head Sport AG in November 2002. In
1996, he became the Division Manager for Licensing. From 1990 to 1995, he was
the Division Manager for the Footwear Division of HTM. Prior to joining Head in
1981 where he managed distribution for Head in Germany, Austria and
International Trade, he served as General Manager for Kneissl of America.

         Mr. Robert Marte has served as Vice President of Head Sport AG since
1987. He manages our Racquet Sports Division and was appointed Managing Director
of Head Sport AG in November 2002. He began with HTM in 1980 as a product
manager.

         Mr. Edgar Pollmann has served as General Manager of the Tyrolia
bindings division of HTM since 1996. In November 2002, he was appointed Managing
Director of Global Operations. From 1995 to 1996, he was an industrial
consultant for HTM responsible for the restructuring and turn-around program of
the Tyrolia binding division of HTM. Prior to joining HTM, he served as Managing
Director of Steyr Auto GesmbH (the national importer and distributor of Fiat,
Lancia and Alfa Romeo automobiles) from 1981 to 1993 and as industrial
consultant for various companies from 1994 to 1995.

         Mr. Gerald Skrobanek joined the Head group in September 2000. After
having managed IT and Global Supply Chain Management for more than two years,
Mr. Skrobanek took over the responsibility for Head Sport AG's global
operations. He has served as Managing Director of the Diving Division of Mares
S.p.A since September 2005. Prior to joining Head, Mr. Skrobanek served as Chief
Information Officer for Vianova Resins, an international chemical company and
Wienerberger, a leading building material producer.

         Mr. Gunter Hagspiel joined Head Sport AG in May 1996. After working in
Controlling for 2 years in Austria, he went on an international assignment to
the U.S. to become the Controller of Head USA. In 2001 Mr. Hagspiel was promoted
to CFO and COO of the U.S. company. Since August 2005, he has served as Vice
President Finance & Controlling in Austria and was appointed Managing Director
of Head Sport AG. Prior to joining Head, Mr. Hagspiel was working as a
Management Consultant at the Management Zentrum St. Gallen (MZSG) and as Manager
at IBM in Vienna.

         Mr. Jacques Altimani joined our group in 1975 and was responsible for
building up our French subsidiary, now Head Tyrolia Sports S.A. In addition to
acting as Managing Director of our French subsidiary, he took over the
responsibility for our European Distribution and was appointed Managing Director
of Head International GmbH in 2002. Prior to joining us, Mr. Altimani worked as
area manager for the North American market for Hart skis and Ramy skis, bindings
and ski poles.

         Mr. David Haggerty was named President of Head/Penn Racquet Sports in
January 2001. In November 2002, he was appointed as Chief Executive Officer of
Head N.V.'s business in the U.S. From January 1999 until taking this position,
he was chief operating officer of Head USA, and Vice President/ General Manager
of Head USA Racquet Sports from August 1998 until January 1999. Mr. Haggerty was
President of Dunlop Sports from August 1996 to August 1998 and President of
Dunlop Slazenger Racquet Sports from October 1994 to August 1996. From 1980 to
1993, he held various management positions with Prince Sports Group.

         Mr. Kevin Kempin joined the Head Group in 1993 as Vice President of Key
Accounts in our U.S. Racquet Sport business. Before joining Head, Mr. Kempin was
Director of Tennis at the University of Utah in 1983-84, and thereafter served
for eight years as a key sales manager and then vice president at Prince Sports.
Mr. Kempin is currently Vice President of Sales and Marketing for our U.S.
Racquet Sports business and for Penn Worldwide.

         In November 2002, an Executive Committee was established. This
Committee includes Johan Eliasch, Ralf Bernhart, Klaus Hotter, Robert Marte,
Edgar Pollmann, Georg Kroll, Gerald Skrobanek and Gunter Hagspiel. It is the
highest consultative body and it was formed to ensure that business issues and
practices are shared across Head N.V. and to define and implement common
policies.


6.B.     Compensation

         The table below shows the compensation of the Management and
Supervisory Board for the year ended December 31, 2005 (in thousands):

                                       42
<PAGE>


                                                             Accrued for
                                        Paid               future payments
                                    -----------            ---------------
Management Board
     Johan Eliasch................  $       762              $       --
     Ralf Bernhart................          738                      42
     George Nicolai...............           13                      --
     Robert van de Voort..........           13                      --
                                     ----------               ---------
                                     $    1,525               $      42
                                     ==========               =========
Supervisory Board
     Karel Vuursteen..............          $10               $      --
     Viktor Klima.................           10                      --
     William S. Cohen.............           10                      --
                                     ----------               ---------
                                     $       30               $      --
                                     ==========               =========

         For the year ended December 31, 2005, the aggregate compensation paid
by us to our key executive officers, excluding the members of the Management
Board, was $3.3 million. The expense for accrued compensation for these key
executive officers was $0.7 million. The total amount accrued by us and our
subsidiaries to provide pension, retirement or similar benefits was $2.1 million
for the year ended December 31, 2005.

         Under the Head Tyrolia Mares Group Executive Stock Option Plan 1998
described below under "Stock Option Plans," we have issued options to purchase
an aggregate of 1,699,392 depositary receipts representing ordinary shares to
some of our Management Board members, key executive officers and Supervisory
Board members. Options vest over a period of four years and are subject to the
Company meeting specified earnings performance targets during this period. These
options were exercisable beginning on January 1, 2002, but the shares were
subject to a lock-up until October 3, 2002. Each option may be exercised for a
nominal price.

         Under the Head N.V. Executive Stock Option Plan 2001 described below
under "Stock Option Plans", we have issued options to purchase an aggregate of
2,990,488 depositary receipts representing ordinary shares to some of our
Management Board members, key executive officers and Supervisory Board members.
For the year ended December 31, 2005, stock-based compensation amounted to $0.2
million. The exercise price for all stock options granted under the 2001 Plan
was fixed at inception of the Plan.

         Under the Head N.V. Executive Stock Option Plan 2005 described below
under "Stock Option Plans", we have issued options to purchase an aggregate of
2,902,346 depositary receipts representing ordinary shares to some of our key
executive officers and Supervisory Board members. For the year ended December
31, 2005, stock-based compensation amounted to $0.3 million. The exercise price
for all stock options granted under the 2005 Plan was fixed at inception of the
Plan. The vesting period is four years.

         The table below shows the details of all three Executive Option Plans
for current and former Management and Supervisory Board members:

<TABLE>
<CAPTION>
                                              Number of non-
                                                 exercised                                                       Number of non-
                                                 shares at                     Number of                            exercised
                               Exercise price  beginning of     Number of      exercised    Number of  Exercise   shares at the
                               at the issuance   the year     written shares    shares        shares     price   end of the year
                               ---------------   --------     --------------    ------        ------     -----   ---------------
<S>                               <C>            <C>             <C>           <C>           <C>       <C>         <C>
Option Plan 1998
     Ralf Bernhart ..........        --          175,714             --           --            --          --         175,714
     Christoph Henkel .......        --            3,636             --           --            --          --           3,636
     Rene Jaggi .............        --            3,636             --           --            --          --           3,636

Option Plan 2001
     Johan Eliasch ..........     $4.31        1,426,470             --           --            --          --       1,426,470
     Karel Vuursteen ........     $4.31           55,002             --           --            --          --          55,002
     Christoph Henkel .......     $4.31           55,002             --           --            --          --          55,002
     Viktor Klima ...........     $4.31           70,002         15,000           --            --          --          85,002
     William S. Cohen .......     $4.31           70,002         15,000           --            --          --          85,002
     Rene Jaggi .............     $4.31           40,002                          --            --          --          40,002
     Jurgen Hintz ...........     $4.31           40,002         15,000           --            --          --          55,002

</TABLE>

                                       43
<PAGE>

6.C.     Board Practices

         Prior to the adoption of the U.S. Sarbanes-Oxley Act of 2002, we
maintained formal and informal procedures that were designed to ensure that we
complied with our various disclosure obligations. In response to the
Sarbanes-Oxley Act, we continued to use such procedures but also evaluated and,
where necessary, formalized them in order to ensure that we are in compliance
with the current and proposed U.S. Securities and Exchange Commission (SEC) and
New York Stock Exchange (NYSE) regulations, Dutch Law and the rules set out by
the Vienna Stock Exchange and to facilitate improvement of the internal control
framework. Such procedures were and are intended to assist the Management Board
by ensuring that the disclosure in all filed reports is accurate, complete,
timely, understandable and that it fairly presents the condition of the group.

         As a Dutch company listed on both the Vienna Stock Exchange and the
NYSE, we must consider different corporate governance systems. On December 9,
2003 a corporate governance code ("Dutch CGC") was presented which became
effective to Dutch listed companies as per the financial year beginning on or
after January 1, 2004. The Dutch CGC specifically states that a company may
choose to not comply with certain of its provisions if the deviation is
explained to and approved by the general meeting of shareholders. In Austria a
voluntary self-regulatory Code of Corporate Governance was drafted in October
2002, which provides corporations with a framework for the management and
control of enterprises. This Code of Corporate Governance recommends Austrian
stock listed companies to voluntarily adhere to such Code or parts of it. We are
listed on the Vienna Stock Exchange, but as a Dutch company we are not subject
to such Code's recommendations. Since we are not listed in the Netherlands, it
seemed appropriate to focus on specifically the NYSE and SEC rules on corporate
governance. Therefore, at our annual general meeting in 2004 we asked our
shareholders to approve that we will apply the NYSE and SEC rules of corporate
governance and not specifically the rules of the Dutch CGC. Our shareholders
approved such proposal and we therefore comply with the NYSE corporate
governance rules applicable to controlled companies. We believe that by
complying with the NYSE and SEC rules, and our current internal Code of Conduct
setting out general standards for ethical behavior, we should also meet many of
the recommendations of the Austrian Code of Corporate Governance. Our Corporate
Governance Guidelines are posted on our website www.head.com, section "Investor
Relations".

         As notified to the NYSE in October 2005, we currently do not comply
with Section 303A.07 of the Corporate Governance Rules. Secretary William Cohen
resigned from our audit committee, although he continues to serve as a member of
the Supervisory Board. We therefore have currently only two audit committee
members. We and our current audit committee members are currently seeking a
suitable replacement.

         In our last Annual General Meeting in May 2005, our shareholders
authorized the Management Board to apply for a de-listing from the New York
Stock Exchange and terminate the "Common Share Agreement" between us and The
Bank of New York as U.S. transfer agent and registrar. The present costs of
compliance with the requirements of the Sarbanes-Oxley Act ("SOX") have had, and
will continue to have, an impact on our operating results. This led the
Management Board to analyse and discuss the benefits and issues associated with
our current listings, particularly the listing on the NYSE. As a result of this
analysis, the Management Board had made a proposal to the Supervisory Board to
discuss the de-listing of our ordinary shares from the NYSE and to terminate the
"Common Share Agreement" between us and the Bank of New York. These discussions
may possibly lead to a de-listing of our ordinary shares from the NYSE and
termination of the Common Share Agreement.

         When reviewing any resolution to de-list from the NYSE and terminate
the Common Share Agreement, the Management Board and the Supervisory Board will
among other things carefully consider the interests of all of our shareholders,
the advantages and disadvantages of the de-listing, the financial savings
achieved by the de-listing, the particular impact of the de-listing on the
holders of our ordinary shares listed on the NYSE and any feasible alternatives
to the de-listing.

         None of our directors have service contracts that provide for benefits
upon termination of employment.

6.D.     Employees

         The table below shows the number of employees by geographic location at
December 31, 2003, 2004 and 2005:

                                       44
<PAGE>

                                               For the Years ended December 31,
                                               --------------------------------
                                                2003          2004         2005
                                               -----         -----        -----
Austria .................................        861           885          717
Italy ...................................        357           331          315
Czech Republic ..........................        291           662          417
Other (Europe) ..........................        390           169          156
USA .....................................        357           378          370
Other ...................................         45            47           48
                                               -----         -----        -----
Total ...................................      2,301         2,472        2,023
                                               =====         =====        =====

         The table below shows the number of employees by main category at
December 31, 2003, 2004 and 2005:

                                               For the Years ended December 31,
                                               --------------------------------
                                                2003          2004         2005
                                               -----         -----        -----
Manufacturing ...........................      1,559         1,736        1,296
Engineering and Patent ..................        107           108          103
Selling and Advertising .................        375           385          381
Warehouse ...............................        101            92          100
Business Unit Administration ............        159           151          143
                                               -----         -----        -----
Total ...................................      2,301         2,472        2,023
                                               =====         =====        =====

         We believe that our employee relations are generally good. In Austria,
most of our employees are subject to collective labor agreements covering the
metal and wood processing industries. Collective labor agreements have also been
entered for some employees in other countries.

6.E.     Share Ownership

         Head Sports Holdings N.V., a Netherlands Antilles corporation, is
controlled by Johan Eliasch and his family members. Head Sports Holdings N.V.
held 18,987,344, or 47.7%, of Head N.V.'s issued shares as of March 31, 2006.
Mr. Eliasch is eligible to receive all options issued under the 1998 Plan that
do not vest to current participants in the 1998 Plan. None of the remaining
officers and directors own or hold options under wich the underlying shares
amount to one percent or more of the Company's share capital.

         The key executive officers (other than Johan Eliasch) and members of
the Supervisory Board hold collectively less than 1% of the issued shares.

         The exercise price for all stock options granted under the 1998 Plan
was fixed at inception of the Plan and increases at the rate of 10% per annum
until the options are exercised. As of December 31, 2005, the exercise price was
$0.38. Options generally are vested over a period of 4 years and are subject to
the Company meeting certain earnings performance targets during this period.
Options have a maximum term of 10 years. The weighted average remaining
contractual life of the outstanding stock option is 3.6 years, and options
representing 861,760 shares have been exercised. As of December 31, 2005,
options representing 770,528 shares are vested and exercisable.

         The exercise price for all stock options granted under the 2001 Plan
was fixed at inception of the Plan at $4.31. The vesting period varies from 0 to
6 years. Johan Eliasch, our Chairman and Chief Executive Officer, received
1,426,470 options under this grant, which vested immediately. Options have a
maximum term of 10 years. The weighted average remaining contractual life of the
outstanding stock option is 5.6 years, and 1,756,482 options are exercisable
under the 2001 Plan. As of December 31, 2005, no other shares were available for
grant under the 2001 Plan.

         The exercise price for all stock options granted under the 2005 Plan
was fixed at inception of the Plan at (euro)2.168 Options have a maximum term of
10 years. The weighted average remaining contractual life of the outstanding
stock option is 9.9 years. As of December 31, 2005, options representing 203,345
shares are available for grant.

                                       45
<PAGE>


Stock Option Plans

The Stichting Head Option Plans

         We have established a Dutch foundation, the Stichting Head Option Plan
(the "Stichting"), the Board of which is controlled by Head Sports Holdings N.V.
and Johan Eliasch jointly. Head Sports Holdings N.V. is an entity that is
controlled by Johan Eliasch and his family members. The Stichting holds certain
of our ordinary shares and issues depositary receipts to our employees and other
third parties. The Stichting is the shareholder and therefore votes, collects
dividends on behalf of the holders of depositary receipts and may also buy and
sell shares in its own name and for its own account. Holders of the depositary
receipts issued by the Stichting have no voting rights. The Stichting's sole
corporate body is its Board; it does not have any members or shareholders. The
named Administrator, Head Sports Holdings N.V., decides on the composition of
the board and has the sole power to appoint any successor administrator.

         Options are granted by means of an agreement between the participant,
the Stichting and us. Upon the exercise of an option, the option price is paid
to us, and we issue the shares or transfer to the Stichting listed shares that
we have purchased, which issues the same number of depositary receipts to the
participant. Holders of depositary receipts are entitled to proceeds of the
sales of their shares upon request to the Stichting. However, a lockup on such
shares was in effect for two years following the initial public offering on
October 3, 2000.

         As of December 31, 2005, the Stichting had rights to acquire 7,880,508
ordinary shares at the exercise price, to enable the Stichting to issue
depositary receipts representing ordinary shares upon the exercise of options.
In, 2005, no options were exercised so that the Stichting held 1,179,540 shares,
the same amount as of December 31, 2004.

1998 Stock Option Plan

         In November 1998, our Management Board approved the Head Tyrolia Mares
Group Executive Stock Option Plan. The 1998 Plan calls for the grant of options
to officers and key employees to purchase for a nominal fee depositary receipts
representing ordinary shares of Head N.V. The 1998 Plan provides for the
issuance of a maximum aggregate number of options equal to 10% of the then
outstanding shares of Head N.V., on a fully-diluted basis, subject to
adjustments upon the occurrence of a stock split or dividend or in the event of
a merger, reorganization or other similar event.

         Upon exercise of the options, option holders receive depositary
receipts rather than shares in the Company. Depositary receipts issued under the
1998 Plan will be administered by the Stichting. Holders of depositary receipts
may, upon request, receive from the Stichting the proceeds from the sale of
their shares.

         Options granted under the Plan vest over a four-year period, each year
being a "performance period", and may each be exercised at a nominal price
within a period of 10 years from the date of grant. With respect to each
"performance period", the options vest depending on the participant's
performance, expressed as the "overall performance percentage" (as defined in
the 1998 Plan). For purposes of determining such overall performance percentage,
the administrator of the 1998 Plan has determined, for each participant and for
each performance period, performance targets which comprise a minimum target, a
maximum target and a relative target weight. The exercise period for options
which vest prior to January 1, 2002, began on January 1, 2002. The exercise
period for options which vest after January 1, 2002, began at the date of
vesting.

         Under the 1998 Plan, options to purchase 2,278,394 depositary receipts
have been granted. No further options will be granted by the Company to the
Stichting, under the 1998 Plan.

2000 Stock Option Plan

         In August 2000, our Management Board adopted the Head N.V. Executive
Stock Option Plan 2000, but that plan has not been implemented.

2001 Stock Option Plan

         In September 2001, we adopted the Head N.V. Executive Stock Option Plan
2001 (the "2001 Plan"). The 2001 Plan provides for grants of stock options to
officers and employees of Head N.V. and its subsidiaries to purchase for $4.31
depositary receipts representing ordinary shares of Head N.V. On September 28,
2001, a total of 3,982,068 options were granted under the terms of the 2001
Plan. Upon exercise of the options, option holders receive depositary receipts
rather than our shares. Depositary receipts issued under the 2001 Plan will be
administered by the Stichting. Holders of depositary receipts may, upon request,
receive from the Stichting the proceeds from the sale of their shares.

         The exercise price for all stock options granted under the Plan was
fixed at inception of the 2001 Plan. The vesting period varies from 0 to 6
years. All options that have been vested shall become immediately exercisable.
Johan Eliasch, our Chairman and Chief Executive Officer, received 1,426,470
options under this grant, which vested immediately. We assume that all options
granted will become fully vested. Options have a maximum term of 10 years. As of
December 31, 2005, no other shares were available for grant under the 2001 Plan.

                                       46
<PAGE>


2005 Stock Option Plan

         In May 2005, at the annual general meeting the shareholders approved
the Head N.V. Executive Stock Option Plan 2005 (the "2005 Plan"). The 2005 Plan
provides for grants of stock options to officers and key employees of Head N.V.
and its subsidiaries to purchase for (euro)2.168 depositary receipts
representing ordinary shares of Head N.V. As of December 31, 2005, a total of
3,661,346 options were granted under the terms of the 2005 Plan. Upon exercise
of the options, option holders receive depositary receipts rather than our
shares. Depositary receipts issued under the 2005 Plan will be administered by
the Stichting. Holders of depositary receipts may, upon request, receive from
the Stichting the proceeds from the sale of their shares.

         The exercise price for all stock options granted under the 2005 Plan
was fixed at inception of the 2005 Plan. Options generally vest over a period of
4 years. We assume that all options granted will become fully vested. Options
have a maximum term of 10 years. As of December 31, 2005 203,345 shares were
available for grant under the 2005 Plan.

ITEM 7:  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A.     Major Shareholders

         Head Sports Holdings N.V., a Netherlands Antilles corporation
controlled by Johan Eliasch and his family members, held 18,987,344, or
approximately 47.7%, of Head N.V.'s issued shares as of December 31, 2005. See
"Item 3.D -- Risk Factors".

         Donald Smith & Co., Inc. held 3,737,900, or 9.4%, and Aegis Financial
Corporation held 2,216,750, or 5.6%, of Head N.V.'s issued shares as of December
31, 2005. As of December 31, 2005 no other person is known to us to hold 5% or
more of our issued shares.

     As of December 31, 2005, 11,611,096 shares were listed on the Vienna Stock
Exchange and 9,222,237 shares were listed on the New York Stock Exchange.

7.B.     Related Party Transactions

     We received administrative services from corporations which are ultimately
owned by the principal shareholder of the Company. Administrative expenses
amounted to approximately $3.5 million ((euro)3.1 million), $5.6 million
((euro)4.5 million) and $5.3 million ((euro)4.2 million) for the years ended
December 31, 2003, 2004 and 2005, respectively. These administrative expenses
concerned investor relations, corporate finance, legal and consulting services
and since 2004 internal audit and other services in relation to compliance with
the rules under the Sarbanes-Oxley Act of 2002.

One of our subsidiaries leased its office building from its general manager.
Rental expenses amounted to approximately $0.04 million, $0.05 million and $0.04
million for the years ended December 31, 2003, 2004 and 2005, respectively.


7.C.     Interest of Experts and Counsel

         Not applicable.

ITEM 8:  FINANCIAL INFORMATION

8.A.     Consolidated Statements and Other Financial Information

         8.A.1      See Item 18.

         8.A.2      See Item 18.

         8.A.3      See Report of Independent Registered Public Accounting Firm,
                    page F-1.

         8.A.4      Not applicable.

         8.A.5      Not applicable.

         8.A.6      See Note 24 to the Financial Statements.

         8.A.7      Legal or Arbitration Proceedings

         From time to time, we are party to lawsuits and proceedings in the
normal course of our business. We cannot predict the outcome of these lawsuits.
Nevertheless, we do not believe that we are currently party to any lawsuits or
proceedings that will have a material effect on our financial condition or
results of operations.

                                       47
<PAGE>


         8.A.8.     Dividend Policy

         Under Netherlands law, we may only pay dividends on our shares if we
maintain minimum paid-up share capital and the reserves required by Dutch law or
by our amended articles of association. If dividends on our ordinary shares are
paid in cash, we expect to pay these dividends in euros.

         While we currently intend to retain future earnings to finance
operations, we will evaluate our dividend policy annually in light of results.
Pursuant to our articles of association, the Management Board may decide which
part of the free distributable profits shall be reserved. It should be noted
that if preference shares are issued (which is presently not the case) this
authority shall be applicable to the remainder of the profit after the preferred
dividend to the holders of preference shares have been paid. Because our
articles of association require that the part of the profit which is not
reserved by the Management Board must be distributed to the holders of ordinary
shares, the Management Board effectively decides which part of the profit (after
possible satisfaction of the preferred dividend of holders of preference shares)
shall be distributed to the holders of ordinary shares.

         Cash dividends, if any, payable to holders of ordinary shares listed on
the New York Stock Exchange will be paid to The Bank of New York which will
convert the dividends into U.S. dollars at the rate of exchange applicable on
the date such dividends are paid, for disbursement to such holders. Cash
dividends payable to holders of ordinary shares listed on the Vienna Stock
Exchange will be paid to Bank Austria Creditanstalt AG in euros for disbursement
to holders. Any dividend payments would be subject to Netherlands statutory
withholding taxes.

8.B.     Significant Changes

         No significant change has occurred since the date of the annual
financial statements included in this document.

ITEM 9:  THE OFFER AND LISTING

9.A.     Offer and Listing Details

         The total nominal value of our issued share capital is
(euro)7,964,135.40 and consists of 39,820,677 ordinary shares of (euro)0.20
each.

         Our shares were listed on the New York Stock Exchange and the Vienna
Stock Exchange on September 28, 2000 in connection with our initial public
offering.

         The chart below shows the high and low market prices of our ordinary
shares on each exchange for the financial periods indicated:

                                       NYSE                Vienna Stock Exchange
                                       ----                ---------------------
                               (amounts in dollars)         (amounts in euros)
                                High            Low          High          Low
                                ----            ---          ----          ---
Years Ended
December, 2001                  5.99           3.11          5.32          3.15
December, 2002                  3.54           1.85          3.88          1.80
December, 2003                  2.90           1.45          2.52          1.36
December, 2004                  3.93           2.40          3.20          1.82
December, 2005                  4.40           2.45          3.50          2.02

Quarters Ended
March, 2004                     3.54           2.45          3.10          1.82
June, 2004                      3.37           2.90          2.70          2.15
September, 2004                 3.15           2.40          2.58          2.15
December, 2004                  3.93           2.81          3.20          2.30
March, 2005                     4.40           3.40          3.50          2.65
June, 2005                      3.40           2.45          2.80          2.02
September, 2005                 3.40           2.50          2.69          2.10
December, 2005                  3.30           2.56          2.89          2.12
March, 2006

Months Ended
October, 2005                   3.05           2.56          2.54          2.12
November, 2005                  3.19           2.75          2.70          2.30
December, 2005                  3.30           2.80          2.89          2.51
January, 2006                   3.90           3.16          3.29          2.73
February, 2006                  4.33           3.75          3.55          3.10
March, 2006                     4.00           3.70          3.37          3.16

                                       48
<PAGE>


9.B.     Plan of Distribution

         Not applicable.

9.C.     Markets

         The ordinary shares were listed on the New York Stock Exchange on
September 29, 2000 and are available in registered form only. Our shareholders
register is maintained in New York, by The Bank of New York, our U.S. transfer
agent and registrar. All of the New York Stock Exchange shares are represented
by a single global share certificate held through the Depository Trust Company
and registered with our transfer agent and registrar in the name of Cede & Co.,
the nominee of DTC.

         In our last Annual General Meeting in May 2005, our shareholders
authorized the Board of Management to apply for a de-listing from the New York
Stock Exchange and terminate the "Common Share Agreement" between us and The
Bank of New York. The present costs of compliance with the requirements of the
Sarbanes-Oxley Act ("SOX") has had, and will continue to have, an impact on our
operating results. This led the Board of Management to analyse and discuss the
benefits and issues associated with our current listings, particularly the
listing on the NYSE. As a result of this analysis, the Board of Management made
a proposal to the Supervisory Board to discuss the de-listing of our ordinary
shares from the NYSE and to terminate the "Common Share Agreement" between us
and the Bank of New York as U.S. transfer agent and registrar. These discussions
may possibly lead to a de-listing of our ordinary shares from the NYSE and
termination of the Common Share Agreement.

         When reviewing any resolution to de-list from the NYSE and terminate
the Common Share Agreement, the Board of Management and the Supervisory Board
will among other things carefully consider the interests of all of our
shareholders, the advantages and disadvantages of the de-listing, the financial
savings achieved by the de-listing, the particular impact of the de-listing on
the holders our ordinary shares listed on the NYSE and any feasible alternatives
to the de-listing.

         If the Board of Management with the approval of the Supervisory Board
resolves to pursue the de-listing from the NYSE, we will submit to the NYSE an
application to de-list.

         Ordinary shares are available on the Vienna Stock Exchange in bearer
form only and represented by a single global share certificate, which we have
deposited with Oesterreichische Kontrollbank Aktiengesellschaft ("OeKB"), as
custodian. The ordinary shares in bearer form can only be transferred in
book-entry form. All ordinary shares are listed on the Vienna Stock Exchange;
however, only the Vienna Stock Exchange shares may be traded on that market.

         The Vienna Stock Exchange is operated by a stock corporation, the
Wiener Borse AG, based on a license issued by the Federal Ministry of Finance.
Members of the Exchange include banks and investment firms. The supervising
authorities are the Federal Securities Authority (Finanzmarktaufsicht) and the
Federal Ministry of Finance. The latter supervises the legality of the Vienna
Stock Exchange's resolutions and of its organization primarily by way of an
authorized exchange commissioner appointed by the Ministry. The Federal
Securities Authority monitors the prevention of insider trading, fairness in
trading and market-related aspects.

9.D.     Selling Shareholders

         Not applicable.

9.E.     Dilution

         Not applicable.

9.F.     Expenses of the Issue

         Not applicable.

ITEM 10: ADDITIONAL INFORMATION

10.A.    Share Capital

         On May 25, 2005, the Board of Management was granted the authority to
repurchase shares representing up to 30% of our issued share capital during a
period of 18 months (until November 25, 2006), although we will not hold more
than 10% of our issued shares at any time.

                                       49
<PAGE>


     Pursuant to resolutions which were approved on May 25, 2005 the Board of
Management is authorized to cancel ordinary shares which have been repurchased
by us for a maximum of 30% of our issued share capital as at December 31, 2004,
over a period of 18 months (until November 25, 2006).

10.B.    Articles of Association

Corporate Purpose

         Article 3 of our amended articles of association provides that we may
perform all acts and do all things (as long as these are not prohibited by law),
such as operate all kinds of businesses, hold, participate in, manage and
finance other enterprises and companies, borrow money and provide security there
for and provide security for the debts of others and do all that is connected
with the foregoing or may be conducive thereto including owning, leasing or
obtaining licenses for real and intellectual properties, all which is to be
interpreted in the widest sense. The Company's file number is 24286737 in
Rotterdam at Kamer van Koophandel, Rotterdam.

Ordinary Shares

         Form All our ordinary shares may be either in registered or bearer
form. All our ordinary shares are listed both on the New York Stock Exchange and
the Vienna Stock Exchange. However, ordinary shares are available on the Vienna
Stock Exchange only in bearer form and on the New York Stock Exchange only in
registered form.

         Our ordinary shares in bearer form are represented by a single global
bearer share certificate, which we will deposit with Oesterreichische
Kontrollbank Aktiengesellschaft (OeKB) as custodian. Ordinary shares in bearer
form can only be transferred in book entry form. Other than the single global
share certificate, no separate share certificates representing our ordinary
shares in bearer form will be issued. Our ordinary shares listed on the New York
Stock Exchange are held through The Depository Trust Company ("DTC") and be
registered in the name of Cede & Co, the nominee for DTC.

         Holders of registered ordinary shares are entered in our shareholders
register. At the request of a shareholder a share certificate (consisting of a
"mantel" main part only) may be issued for registered ordinary shares. At such
request, we will, without a fee, issue a non-negotiable extract from the
shareholders' register in the name of the holder unless a certificate has been
issued for such holder's registered ordinary share. A deed of transfer together
with our acknowledgement in writing (or service on us of this deed) is required
to transfer registered ordinary shares.

         Voting Rights. Each ordinary share represents the right to participate
and to cast one vote at a general meeting.

         Dividends. Each ordinary share is entitled to the same amount of
dividend if one is declared.

         Liquidation Rights. Upon liquidation, each holder of ordinary shares
shall be entitled to the balance remaining after satisfaction of all our debts
and, to the extent that preference shares have been issued, after an amount
equal to any previously declared but unpaid dividend and the paid-up amount of
such preference shares has been distributed to the holders of preference shares,
in proportion to the total number of ordinary shares held by each of them. Any
dissolution or liquidation is subject to applicable provisions of Dutch law.

         Preemptive Rights. Unless restricted or limited and except for issues
of ordinary shares in return for non-cash consideration and ordinary shares
issued to our employees or employees of any of our group companies, holders of
ordinary shares generally will have preemptive rights to subscribe for their
pro-rata amount of all new ordinary share issuances. However, pursuant to the
amended articles of association, all authorized but unissued ordinary shares may
be issued by the Management Board and the preemptive rights associated with all
currently authorized capital may be limited or excluded by the Management Board.
This authority has been extended by resolution of the shareholders and will end
on May 26, 2009, unless further extended by an amendment of the articles of
association or by a resolution of the shareholders for a period of not more than
five years in each instance. When extending the authority of our Management
Board to issue shares and to limit or exclude preemptive rights, the general
meeting of shareholders shall determine the number of shares which may be issued
or affected as well as the date when this authorization shall expire.

                                       50
<PAGE>


Preference Shares

         Preference shares may be issued as a preventive measure against
unfriendly takeover bids. The minimum amount required to be paid on the
preference shares upon issuance is 25% of the nominal amount issued. In the
event of a hostile takeover bid, preference shares may be issued to a legal
entity charged with caring for our interests and preventing influences that may
threaten our continuity, independence or identity. Holders of preference shares
do not share in our reserves and such shares are not listed. The preference
shares will be registered shares and share certificates will not be issued.
Preference shares can be issued in the same way as ordinary shares, but carry no
preemptive rights. Preference shares and ordinary shares have equal voting
rights at a general meeting of shareholders. Holders of preference shares will
be paid a cumulative annual dividend calculated on the basis of the deposit
interest rate of the European Central Bank to the paid up part of their nominal
value. To the extent there are distributable profits, the preferential dividend
shall be paid first. An allocation of profits to the reserves or the payment of
a dividend to holders of ordinary shares may only be effected from the remaining
distributable profits.

         Authorized but unissued preference shares may be issued by the
Management Board, which is also authorized to grant rights to subscribe for such
shares. Unless extended by the amendment of our articles of association or by
resolution of the shareholders for a period of five years in each instance,
these authorizations will end on May 26, 2009, five years after the date of the
last Annual General Meeting of the Company when the authority of the Management
Board was extended by resolution of the shareholders.

         Voting and other rights. Persons who are not DTC participants may
beneficially own ordinary shares held by DTC only through direct or indirect
participants in DTC. So long as Cede & Co., as the nominee of DTC, is the
registered owner of ordinary shares, DTC for all purposes will be considered the
holder of such shares. Accordingly, any person owning a beneficial interest in
New York Stock Exchange shares held through DTC must rely on the procedures of
DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a shareholder. We understand that, under existing industry practice, in the
event that an owner of a beneficial interest in New York Stock Exchange shares
held through DTC desires to take any action that DTC, as the registered
shareholder, is entitled to take, DTC would authorize the participants to take
such action, and the participants would authorize beneficial owners holding
interests through such participants to take such action or would otherwise act
upon the instructions of beneficial owners holding interests through them.

Acquisition of Our Own Shares

         We may acquire our own shares subject to the provisions of Dutch law.
Provided they are fully paid up, we may acquire our own shares for consideration
if:

         o     our shareholders' equity less the payment required to acquire the
               shares does not fall below the sum of the paid-up and called
               portion of our share capital and any statutory reserves; and

         o     we and our subsidiaries would thereafter not hold, or hold in
               pledge, shares with an aggregate nominal value exceeding 10% of
               our issued share capital.

         Shares held by us in our own capital as treasury stock may not be voted
or counted for quorum purposes at shareholders' meetings.

Obligations to Disclose Holdings

         Pursuant to the Dutch Act on Disclosure of Holdings in Listed Companies
1996 (Wet melding zeggenschap in ter beurze genoteerde vennootschappen 1996)
which applies during the period we are listed on the Vienna Stock Exchange, the
members of the Management Board and Supervisory Board that hold our ordinary
shares must disclose the number of shares and options and the number of voting
rights to the Netherlands Authority for the Financial markets (Autoriteit
Financiele marken). Furthermore, they are required to immediately report to the
Netherlands Authority for the Financial markets any changes in the number of
shares and options. Also, during the period we are listed on the Vienna Stock
Exchange, anyone acquiring or transferring our ordinary shares, that causes the
holder's percentage of our issued capital or voting control to fall into one of
the following ranges or changes from one range to another must notify us and the
Netherlands Authority for the Financial markets.

The ranges are:

         o     0 to 5%,

         o     5 to 10%,

         o     10 to 25%,

         o     25 to 50%,

         o     50 to 66 2/3%, and

                                       51
<PAGE>


         o     66 2/3% or more.

         The Netherlands Authority for the Financial markets discloses
information to the public by publication in a newspaper distributed throughout
The Netherlands. If disclosure is required, failure to disclose one's
shareholding is an offense that may result in civil sanctions, including
suspension of voting rights and criminal and administrative sanctions, including
the imposition of fines.

         The Dutch 1995 Act on the Supervision of the Securities Trade (Wet
toezicht effectenverkeer 1995) provides for an additional notification duty for
shareholders holding a direct or indirect interest in more than 25% of the
capital in a listed company. These shareholders are obliged to notify the
Netherlands Authority for the Financial markets of any and all transactions they
enter into with respect to our securities. If a shareholder with a greater than
a 25% interest is a legal entity and not an individual, the obligation is
extended to the managing directors and supervisory directors of the legal
entity.

The Stichting Head Option Plan

         The Stichting has the power to nominate all members of the Management
Board, appoint one-third of the Supervisory Board and nominate the remaining
members of the Supervisory Board. The existence of the Stichting is perpetual,
and control of the Stichting's Board of Directors may be passed to Mr. Eliasch's
affiliates or family members but may not otherwise be transferred. The
aforementioned rights of the Stichting shall cease and shall revert to the
Supervisory Board in the case of a change of control of the Stichting, which is
defined in our articles of association as an event following which Mr. Eliasch
or his affiliates or family members fail to possess the power to direct
management and policies of the Stichting, whether through the ownership of
voting securities or by contract or otherwise, or in the event Mr. Eliasch or
his affiliates or family members fail to beneficially own any shares in the
company. Upon a change of control of the Stichting and when Mr. Eliasch fails to
beneficially own any shares in the company, all members of the Supervisory Board
are appointed by our shareholders.

Management Board

         As a public company with limited liability organized under the laws of
The Netherlands, our business is carried out primarily by a Management Board and
by executive officers appointed by our Management Board. Members of the
Management Board are appointed by our shareholders at a general shareholders'
meeting from a list of nominees drawn up by the Stichting. Our shareholders may
however decide at a general shareholders' meeting, by a resolution adopted by a
two-thirds majority vote, that a given list of nominees drawn up by the
Stichting will not be binding. In the event the Stichting makes a non-binding
nomination, our shareholders may at a general shareholders' meeting elect
persons to the Management Board not nominated by the Stichting by a resolution
adopted by the affirmative vote of two-thirds of the votes cast. Any member of
the Management Board may be suspended or removed from the Management Board at
any time by a majority vote of our shareholders at a general meeting of
shareholders. However, any suspension or removal not proposed by the Stichting
may only be decided at a general shareholders' meeting by a resolution adopted
by a two-thirds majority vote. The Management Board is authorized to represent
us, as is the Chairman of the Management Board acting alone. Our articles of
association state that our Management Board shall consist of one or more
members. The aforementioned rights of the Stichting shall cease as described
above. Decisions of the Management Board are adopted by a simple majority of
votes caste.

Supervisory Board

         Our Management Board is overseen by a Supervisory Board consisting of
at least three members, which also oversees the more general course of our
business. Up to one-third of the members of the Supervisory Board are appointed
by the Stichting. The other members of the Supervisory Board are appointed by
our shareholders at a general shareholders' meeting from a list of nominees
drawn up by the Stichting. Our shareholders may however decide at a general
shareholders' meeting, by a resolution adopted by a two-thirds majority vote,
that a given list of nominees drawn up by the Stichting will not be binding. In
the event the Stichting makes a non-binding nomination, our shareholders may at
a general shareholders' meeting elect persons to the Supervisory Board not
nominated by the Stichting by a resolution adopted by the affirmative vote of
two-thirds of the votes cast. Any member of the Supervisory Board appointed by
the Stichting may be suspended or removed from the Supervisory Board by the
Stichting at any time. Members of the Supervisory Board appointed by the general
shareholders' meeting may be suspended or removed from the Supervisory Board at
any time by a majority vote of our shareholders at a general meeting of
shareholders. However, any suspension or removal not proposed by the Stichting
may only be decided at a general shareholders' meeting by a resolution adopted
by a two-thirds majority vote. The aforementioned rights of the Stichting shall
cease as described above. Our Supervisory Board may agree, with the approval of
the Management Board, that specific Management Board resolutions be subject to
the Supervisory Board's approval. No resolutions are specified in our articles
of association that require Supervisory Board approval.

Indemnification of Management Board and Supervisory Board Members

         Our articles of association require that we indemnify any person who is
or was a member of our Management Board or Supervisory Board and who was, is or
is threatened to be made a party to, any action, suit or similar proceeding, by
reason of the fact that he or she is or was a Management Board or Supervisory
Board member. This indemnification generally covers all expenses, attorneys
fees, judgements, fines and amounts paid in settlement actually and reasonably
incurred by the indemnified person in connection with the relevant action, suit
or proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed

                                       52
<PAGE>


to our best interests. Whether the indemnified person acted in such a manner may
be determined by us.

Shareholders' Meetings

         We are required to hold a general shareholders' meeting annually.
Shareholders' meetings will also be called if convened by our Supervisory Board
or Management Board. Unless otherwise required by law or our amended articles of
association, decisions of our general meeting of shareholders may be adopted by
a majority of the votes cast. However, except that resolutions regarding
extraordinary transactions, including amendment of our articles of association,
legal merger or split-up of our company can only be adopted upon a proposal of
the Management Board, after approval of the Supervisory Board, and requires a
special majority as described herein. A resolution to dissolve our company can
only be adopted upon a proposal of the Management Board, after approval of the
Supervisory Board, and requires an affirmative vote of three quarters of the
votes cast.

         Shareholders meetings will be held in The Hague, Amsterdam, Rotterdam
or Haarlemmermeer (Schiphol Airport) and chaired by the Chairman of our
Supervisory Board. A holder of registered shares or his attorney wishing to
attend a general meeting of shareholders should notify the Management Board in
writing of his intention. Such notice must be received by the Management Board
not later than on the date mentioned in the notice of the meeting. The 2005
Shareholders meeting will be held on May 24, 2006.

         For holders of bearer shares, attendance and exercise of voting rights
are subject to certain conditions. In particular, only those shareholders who
register in time and deposit their bearer shares until the end of the general
meeting with the depositary bank nominated by us or any other credit institution
specified in the notice of the general meeting are entitled to attend and cast
votes in a general meeting. Bearer shares are equally deemed to have been
properly deposited if with the consent of the depositary bank, they are
deposited in safe custody until the end of the general meeting. Our articles of
association provide that shareholders must be allowed to file such
acknowledgement of deposit at least fifteen days after convening the general
meeting, not counting the day of publication. The acknowledgement of deposit
must be deposited at the earliest five days before the day of the general
meeting.

Adoption of Annual Accounts

         Within five months following the end of each fiscal year, our
Management Board must prepare annual accounts accompanied by an annual report.
This period may be extended by our general meeting of shareholders on account of
special circumstances for up to six months. Within this period, the annual
accounts and annual report must then be submitted to the Supervisory Board,
which will present a report on it to the general meeting of shareholders. Our
annual accounts and the annual report will be available to our shareholders
within the period referred to in this paragraph. Our annual accounts must be
adopted by our general meeting of shareholders.

Dividends

         We may not pay dividends if the dividend payment would reduce our
shareholders' equity below the sum of our paid-up capital and any reserves
required by Dutch law or by our amended articles of association. Pursuant to our
amended articles of association, the preference shares have preferential
dividend rights. Our Management Board shall determine how much of any remaining
profit shall be allocated to our reserves before dividends are paid on the
ordinary shares. Our general meeting of shareholders may resolve, upon a
proposal of our Management Board, that some or all of any dividends declared on
ordinary shares will be paid in ordinary shares in our share capital or
securities in any other entity's share capital rather than in cash. Our
Management Board may, subject to various statutory provisions, distribute one or
more interim dividends. A claim for the payment of a dividend (including an
interim dividend) lapses five years after the first calendar day following the
day on which shareholders were first permitted to make a claim for payment of
the dividend.

Capital Reduction

         Upon the proposal of our Management Board, our general meeting of
shareholders may resolve to reduce our issued share capital by canceling shares
or reducing the nominal value of our shares, subject to statutory provisions and
the provisions of our amended articles of association.

Amendment of the Amended Articles of Association; Dissolution; Legal Merger;
Split-up

         A resolution of our general meeting of shareholders to amend our
articles of association, or enter into a legal merger or split-up of our company
can only be adopted upon a proposal of our Management Board, after approval of
the Supervisory Board, and requires the affirmative vote of two-thirds of the
votes cast, except that a change of the authorized capital requires an absolute
majority. A resolution to dissolve our company can only be adopted upon a
proposal of our Management Board, after approval of the Supervisory Board, and
requires the affirmative vote of three quarters of the votes cast.

10.C.    Material Contracts

         We have no material contracts outside our ordinary course of business,
with the exception of the indenture entered into by one of our subsidiaries with
respect to its 8.5% Senior Notes. See "Item 5: Operating and Finance Review and
Prospects--Liquidity and Capital Resources--Loan Agreements."

                                       53
<PAGE>


10.D.    Exchange Controls

         Not applicable.

10.E.    Taxation

         This taxation summary solely addresses the material Netherlands, U.S.
and Austrian tax consequences to shareholders in connection with the ownership
and disposition of the ordinary shares. This summary does not discuss every
aspect of taxation that may be relevant to a particular taxpayer under special
circumstances or who is subject to special treatment under applicable law and is
not intended to be applicable in all respects to all categories of investors.
This summary also assumes that our business will be conducted in the manner
outlined in this annual report. Changes in our organizational structure or the
manner in which we conduct our business may invalidate this summary. The laws
upon which this summary is based are subject to change, perhaps with retroactive
effect. A change to these laws may invalidate the contents of this summary,
which will not be updated to reflect changes in laws. Shareholders should
consult their tax advisors regarding their particular personal tax consequences
of owning and disposing of ordinary shares.

           Netherlands Tax Consequences for Holders of Ordinary Shares

         This summary does not purport to be a comprehensive description of all
Netherlands tax consequences of an investment in our shares. Each investor
should consult a professional tax advisor with respect to the tax consequences
of an investment in our shares. The discussion of certain Netherlands taxes set
forth below is included for general information only and does not address every
potential tax consequence of an investment in our shares under the laws of the
Netherlands. The following summary of Netherlands tax considerations is limited
to the tax implications for an individual or corporate owner of our shares who,
directly or indirectly, owns less than 10% of the voting power of the Company (a
"holder of shares").

         This summary is based on the tax legislation, published case law,
treaties, regulations and published policy, in effect as of the date hereof.

Withholding Tax

         Dividends distributed by the Company are generally subject to a
Netherlands withholding tax imposed at a rate of 25%. The expression "dividends
distributed by the Company" as used herein includes, but is not limited to,
distributions in cash or in kind, deemed and constructive distributions and
repayments of paid-in capital not recognised as capital for Netherlands dividend
withholding tax purposes.

         If a holder of shares is resident in a country other than the
Netherlands and if a double taxation treaty is in effect between the Netherlands
and such country, such holder of shares may, depending on the terms of such
double taxation treaty, be eligible for a full or partial exemption from, or
refund of, Netherlands dividend withholding tax.

         Residents of the United States that qualify for, and comply with the
procedures for claiming, benefits under the income tax treaty between the
Netherlands and the United States (the "U.S.-NL Treaty"), generally are eligible
for a reduction of the Netherlands withholding tax on dividend income to 15%. A
holder of shares will qualify for benefits under the U.S.-NL Treaty (subject to
compliance with the procedures for claiming benefits described below) if the
holder is a resident of the United States and (i) is the beneficial owner of the
dividends paid thereon; (ii) is an individual, an exempt pension trust or exempt
organisation (as defined for purposes of the US-NL Treaty), or a corporation
that is entitled to benefits under the limitation on benefits provision of the
U.S.-NL Treaty; (iii) is not also resident in another jurisdiction; and (iv)
does not hold the shares in connection with the conduct of business through a
permanent establishment or the performance of services from a fixed base, in the
Netherlands.

         In the case of an item of income, profit or gain derived through an
estate, trust or a company that is fiscally transparent under the laws of either
the Netherlands or the United States, such item shall be considered to be
derived by a resident of the United States to the extent such item is treated as
the income, profit or gain of a resident for the purposes of the taxation law of
the United States.

         The U.S.-NL Treaty provides for a complete exemption from withholding
tax on dividends paid to exempt pension trusts and exempt organisations, as
defined therein. Except in the case of exempt pension trusts and exempt
organisations, the reduced dividend withholding tax rate can be applied at
source upon payment of the dividends, provided that the proper forms have been
filed in advance of the payment.

         A holder of shares (other than an exempt organisation) generally may
claim the benefits of a reduced withholding tax rate or an exemption from
withholding tax pursuant to the U.S.-NL Treaty by submitting a duly signed Form
IB 92 USA, which form includes a banker's affidavit stating that the shares are
in the bank's custody in the name of the applicant, or that the shares have been
exhibited to

                                       54
<PAGE>


the bank as being the property of the applicant. If the Form IB 92 USA is
submitted prior to the dividend payment date, the Company can apply the reduced
withholding tax rate to the dividend payment. A holder of shares who is unable
to claim withholding tax relief in this manner can obtain a refund of excess tax
withheld by filing a Form IB 92 USA and describing the circumstances that
prevented claiming withholding tax relief at source.

         Qualifying U.S.-exempt organizations must seek a full refund of the tax
withheld by using the Form IB 95 USA, which form also includes a banker's
affidavit.

Taxes on Income and Capital Gains

         A holder of shares will not be subject to any Netherlands taxes on
income or capital gains in respect of dividends distributed by the Company or in
respect of any gain realised on the disposal of shares (other than the
withholding tax described above), provided that:

                  (i) such holder is neither resident nor deemed to be resident
         of the Netherlands for Netherlands tax purposes (nor has opted to be
         taxed as a resident of the Netherlands);

                  (ii) such holder does not have an enterprise or an interest in
         an enterprise that is, in whole or in part, carried on through a
         permanent establishment or a permanent representative in the
         Netherlands and to which Netherlands permanent establishment or
         permanent representative the shares are attributable;

                  (iii) such holder does not have a substantial interest or a
         deemed substantial interest in the Company or, in the event that such
         holder does have or is deemed to have such interest, it forms part of
         the assets of an enterprise;

                  (iv) such holder is not entitled to a share in the profits of
         an enterprise that is effectively managed in the Netherlands other than
         by way of securities or through an employment contract, the shares
         being attributable to such enterprise; and

                  (v) such holder is an individual and such income or gains
         qualify as income from miscellaneous activities in the Netherlands,
         which include the performance of activities in the Netherlands in
         respect of the shares that exceed "regular, active portfolio
         management".

         Generally speaking, a holder of shares holds a substantial interest in
the Company, if such holder of shares, alone or, where such holder is an
individual, together with his or her partner (statutory defined term) or certain
other related persons, directly or indirectly, holds (i) an interest of 5
percent or more of the total issued capital of the Company or of 5 percent or
more of the issued capital of a certain class of shares of the Company, (ii)
rights to acquire, directly or indirectly, such interest or (iii) certain profit
sharing rights in the Company Shares.

Anti-Dividend Stripping Legislation

         In the Netherlands, legislation exists that affects the eligibility for
an exemption, reduction, refund or credit of Netherlands dividend withholding
tax. A recipient of a distribution on the Shares will not be entitled to any
exemption, reduction, refund or credit of Netherlands dividend withholding tax
if such recipient is not considered to be the beneficial owner of such
distribution. This is the case if the following cumulative conditions are met:


                  (i) the recipient has paid, directly or indirectly, a
         consideration in relation to the receipt of the dividend payment and
         this consideration forms part of a series of related transactions;

                  (ii) the consideration mentioned under (i) above has been paid
         to an individual or legal entity that is entitled to a less favourable
         tax treatment (including but not limited to the non-applicability of an
         exemption or a lower reduction, refund, or credit of Netherlands
         dividend withholding tax) than the recipient of the dividend payment;
         and

                  (iii) the person or the entity, that has received the
         consideration, mentioned under (ii) above, retains, directly or
         indirectly a position in the company that is comparable to its position
         therein before the series of related transactions were entered into.

                                       55
<PAGE>


Gift, Estate and Inheritance Taxes

         No gift, estate or inheritance taxes will arise in the Netherlands with
respect to an acquisition of shares by way of a gift by, or on the death of, a
holder of shares who is neither resident nor deemed to be resident in the
Netherlands, unless:

                  (i) such holder at the time of the gift has or at the time of
         his death had a Netherlands enterprise or an interest in a Netherlands
         enterprise that is or was, in whole or in part, carried on through a
         permanent establishment or a permanent representative in the
         Netherlands and to which Netherlands enterprise the shares are or were
         attributable; or

                  (ii) in the case of a gift of shares by an individual who at
         the time of the gift was neither resident nor deemed to be resident in
         the Netherlands, such individual dies within 180 days after the date of
         the gift, while being resident or deemed to be resident in the
         Netherlands; or

                  (iii) the shares are or were attributable to the assets of an
         enterprise that is effectively managed in the Netherlands and the donor
         is or the deceased was entitled, other than by way of securities or
         through an employment contract, to a share in the profits of that
         enterprise, at the time of the gift or, as applicable, at the time of
         his or her death.

         For purposes of Netherlands gift, estate and inheritance tax, an
individual who holds the Netherlands nationality is deemed to be resident in the
Netherlands if he or she has been resident in the Netherlands at any time during
the ten years preceding the date of the gift or death.

         For purposes of Netherlands gift tax, an individual not holding the
Netherlands nationality is deemed to be resident in the Netherlands if he or she
has been resident in the Netherlands at any time during the twelve months
preceding the date of the gift. The same twelve-month rule may apply to entities
that have transferred their seat of residence out of the Netherlands. Applicable
tax treaties may override this deemed residence.

Other Taxes and Duties

         No Netherlands VAT, registration tax, transfer tax, stamp duty or any
other similar documentary tax or duty other than court fees will be payable in
the Netherlands in respect of or in connection with the subscription, issue,
placement, allotment or delivery of the shares.

  United States Federal Income Tax Consequences for Holders of Ordinary Shares

         The following is a general summary of the material U.S. federal income
tax consequences of the ownership and disposition of our ordinary shares. This
summary is based on the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), existing temporary and proposed Treasury Regulations, revenue rulings,
administrative pronouncements, judicial decisions and the U.S.-NL Treaty, all as
currently in effect and all of which are subject to change or changes in
interpretation, possibly with retroactive effect. This summary deals only with
ordinary shares held as capital assets within the meaning of Section 1221 of the
Code. This summary does not discuss all of the tax consequences that may apply
to holders that are subject to special tax rules, including:

         o     persons subject to the imposition of the U.S. federal alternative
               minimum tax;

         o     persons who hold the ordinary shares through partnerships or
               other pass through entities;

         o     U.S. expatriates;

         o     insurance companies;

         o     tax-exempt entities;

         o     banks; financial institutions; regulated investment companies;
               securities broker-dealers;

         o     persons who hold ordinary shares as part of a hedging, straddle,
               constructive sale or conversion transaction;

         o     traders in securities who elect to apply a mark-to-market method
               of accounting;

         o     persons who acquired the ordinary shares pursuant to the exercise
               of employee stock options or otherwise as compensation;

                                       56
<PAGE>


         o     persons whose functional currency is not the U.S. dollar; and

         o     U.S. persons owning (directly, indirectly or by attribution) 10%
               or more of the voting power or share capital of the Company.

         For purposes of this discussion a "U.S. shareholder" is a beneficial
owner of ordinary shares that is:

         o     an individual who is a citizen or resident of the United States
               for U.S. federal income tax purposes;

         o     a corporation (or other entity taxable as a corporation for U.S.
               federal income tax purposes) created or organized in or under the
               laws of the United States or of any state thereof (including the
               District of Columbia);

         o     an estate the income of which is subject to U.S. federal income
               taxation regardless of source; or

         o     a trust if both a U.S. court is able to exercise primary
               supervision over the administration of the trust, and one or more
               U.S. persons have the authority to control all substantial
               decisions of the trust.

         If a partnership (including for this purpose any entity treated as a
partnership for U.S. federal income tax purposes) holds ordinary shares, the tax
treatment of a partner generally will depend upon the status of the partner and
the activities of the partnership. If a U.S. shareholder is a partner in a
partnership that holds our ordinary shares, the shareholder is urged to consider
its own tax advisor regarding the ownership and disposition of ordinary shares.

Taxes on Distributions

         The gross amount of any distribution, including Netherlands withholding
tax thereon, actually or constructively received by a U.S. shareholder with
respect to ordinary shares generally will be taxable as dividend income to the
U.S. shareholder, computed in the manner described in the following paragraph.
Dividends paid on ordinary shares generally will constitute income from sources
outside the United States and will not be eligible for the dividends received
deduction otherwise allowed to corporate U.S. shareholders in respect of
dividends received from U.S. corporations.

         The amount of any distribution paid in euros will be includible in the
gross income of a U.S. shareholder in an amount equal to the U.S. dollar value
of the euros based on the spot rate in effect on the date of actual or
constructive receipt by the U.S. shareholder or the Bank of New York, on behalf
of such shareholders, as the case may be, regardless of whether the euros are
converted into U.S. dollars. If euros received in a distribution are converted
into U.S. dollars on the date received by U.S. shareholders or the Bank of New
York on behalf of such U.S. shareholders, as the case may be, U.S. shareholders
generally should not be required to recognize any exchange gain or loss on such
conversion. If the euros received in the distribution are not converted into
U.S. dollars on the date of receipt, a U.S. shareholder will have a basis in the
euros equal to its U.S. dollar value on the date of receipt. Gain or loss, if
any, recognized by a U.S. shareholder on the subsequent sale, conversion or
other disposition of euros will generally be U.S. source ordinary income or
loss. Special rules govern the manner in which accrual method taxpayers are
required (or may elect) to determine the U.S. dollar amount includible in income
in the case of taxes withheld in a foreign currency. Certain of these rules have
changed effective January 1, 2005. Accrual basis taxpayers therefore are urged
to consult their own tax advisors regarding the requirements and elections
applicable in this regard.

         Subject to various conditions and limitations, and subject to the
discussion in the next paragraph, tax withheld in the Netherlands in accordance
with the U.S.-NL Treaty will be treated as a foreign tax that U.S. shareholders
may elect either to deduct in computing their U.S. federal taxable income or
credit against their U.S. federal income tax liability. Dividends on ordinary
shares generally will be treated as "passive income" or, in the case of certain
holders, "financial services income" for purposes of calculating the amount of
the foreign tax credit available to a U.S. shareholder. For taxable years
beginning January 1, 2007, dividend income generally will constitute "passive
category income" or, in the case of certain U.S. Holders, "general category
income." Additional withholding tax, if any, in excess of the rate applicable
under the U.S.-NL Treaty generally will not be eligible for credit against the
U.S. shareholder's U.S. federal income tax liability.

However, a U.S. shareholder should be able to obtain a refund of such excess
amount by filing the appropriate forms with the Netherlands Tax Administration
requesting such refund and providing the required information. Under various
circumstances, we will be allowed to reduce the amount of dividend withholding
tax imposed on U.S. shareholders that is paid over to the Netherlands Tax
Administration by crediting withholding tax imposed on various dividends paid to
us.

In such event, the Netherlands withholding tax imposed on dividends paid to a
U.S. shareholder may not be fully creditable against the U.S. shareholder's U.S.
federal income tax liability. The rules governing the foreign tax credit are
complex. U.S. shareholders are urged

                                       57
<PAGE>


to consult their own tax advisors regarding the availability of the foreign tax
credit in their particular circumstances.

         We did not pay dividends in 2005. If we were to pay dividends in the
future, we will endeavor to provide to U.S. shareholders the information they
will need to calculate their foreign tax credit.

         Certain U.S. shareholders (including individuals) are eligible for
reduced rates of U.S. federal income tax (currently a maximum of 15%) in respect
of "qualified dividend income" received in taxable years beginning before
January 1, 2009. For this purpose, qualified dividend income generally includes
dividends paid by a non-U.S. corporation if, among other things, the U.S.
shareholders meet certain minimum holding periods and other requirements and the
non-U.S. corporation satisfies certain criteria, including that either (i) the
ordinary shares with respect to which the dividend has been paid are readily
tradable on an established securities market in the United States, or (ii) the
non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income
tax treaty (such as the U.S.-NL Treaty) which provides for the exchange of
information. We currently believe that dividends paid with respect to our
ordinary shares should constitute qualified dividend income for U.S. federal
income tax purposes, however, this is a factual matter and therefore is subject
to change. We anticipate that any dividends that we may pay would be reported as
qualified dividend income on Forms 1099-DIV delivered to U.S. shareholders. Each
individual U.S. shareholder of our ordinary shares is urged to consult his own
tax advisor regarding the availability to him of the reduced dividend tax rate
in light of his own particular situation and regarding the computations of his
foreign tax credit limitation with respect to any qualified dividend income paid
by the Company to him, as applicable.

Sale or Other Disposition of the Ordinary Shares

         Upon the sale or other disposition of ordinary shares, a U.S.
shareholder generally will recognize capital gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between the U.S. dollar
value of the amount realized from such sale or other disposition and the U.S.
shareholder's tax basis (determined in U.S. dollars) in the ordinary shares.
Such gain or loss will be U.S. source gain or loss and will be treated as
long-term capital gain or loss if the ordinary shares were held for more than
one year. The deductibility of capital losses is subject to limitations. In the
case of a U.S. shareholder who is an individual, long-term capital gain
generally will be subject to preferential rates if specified minimum holding
periods are met. If a U.S. shareholder receives euros upon a sale or other
disposition of ordinary shares, gain or loss, if any, recognized on the
subsequent sale, conversion or disposition of the euros generally will be U.S.
source ordinary income or loss. However, if such euros are converted into U.S.
dollars on the date received by the U.S. shareholder, the U.S. shareholder
generally should not be required to recognize any gain or loss on the
conversion.

Passive Foreign Investment Company Status

         If during any taxable year 75% or more of our gross income consists of
various types of passive income such as dividends, interest, rents or royalties
(other than rents or royalties derived in the active conduct of a trade or
business and received from a unrelated person), or gains from disposition of
certain minority interests), or if at least 50% of the average value of all of
our assets consists of assets that produce or are held for the production of,
passive income, we will be treated as a "passive foreign investment company," or
"PFIC" for such year and in succeeding years. If we were treated as a PFIC in
any taxable year (which conclusion is a factual determination that must be made
as of the close of the taxable year), upon receipt of a distribution on, or a
sale of, ordinary shares, a U.S. shareholder generally will be required to
allocate to each day in its holding period with respect to the ordinary shares a
pro rata portion of any distributions received on the ordinary shares which are
treated as an "excess distribution." Any amount of an excess distribution, which
term includes gain on the sale of stock, treated as allocable to a prior taxable
year is subject to federal income tax at the highest applicable rate of the year
in question, plus an interest charge on the amount of tax deemed to be deferred.
Furthermore, dividends paid by us would not be "qualified dividend income" and
would be taxed at the higher rates applicable to other items of ordinary income.
We currently believe that we did not qualify as a PFIC for the 2005 taxable
year, and it is our intention to conduct our investment activities in a manner
to avoid PFIC status in the future. However, because PFIC status is a factual
matter that must be determined annually, there are no assurances in this regard.

         In the event that we were a PFIC in a subsequent taxable year, the
foregoing rules with respect to distributions and dispositions may be
ameliorated if a U.S. shareholder were eligible for and timely made either:

         o     a valid "QEF" or Qualified Electing Fund election, in which case
               the U.S. shareholder generally would be required to include in
               income on a current basis its pro rata share of our ordinary
               income and net capital gains; or

         o     a valid "mark-to-market" election, in which case, subject to
               various limitations, the U.S. shareholder would essentially be
               required to take into account the difference, if any, between the
               fair market value and the adjusted tax basis of its ordinary
               shares, at the end of a taxable year, in calculating its income
               for such year.

         A U.S. shareholder who decided not to make any of the above elections
at any time during the period in which the shareholder held our ordinary shares
while we were a PFIC nevertheless may elect to make a "deemed sale election"
pursuant to which the shareholder

                                       58
<PAGE>


would be treated as having sold its ordinary shares on the last day of the last
taxable year in which we qualified as a PFIC.

         For U.S. shareholders to qualify for treatment under a QEF election, we
would be required to provide various information to the U.S. shareholders.
Although we have not definitively decided whether we would provide such
information, we currently do not intend to do so. U.S. shareholders are urged to
consult their own tax advisors regarding the application of the PFIC rules to
their ownership of our ordinary shares.

U.S. Information Reporting and Backup Withholding

         Dividend payments with respect to ordinary shares and proceeds from the
sale, exchange or other disposition of ordinary shares may be subject to
information reporting to the Internal Revenue Service (the "IRS") and possible
U.S. backup withholding at a current rate of 28%. Backup withholding will not
apply to a shareholder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. U.S. persons who are required to
establish their exempt status generally must provide such certification on a
properly completed IRS Form W-9 (Request for Taxpayer Identification Number and
Certification). Non-U.S. shareholders generally will not be subject to U.S.
information reporting or backup withholding. However, such shareholders may be
required to provide certification of non-U.S. status (generally on IRS Form
W-8BEN) in connection with payments received in the United States or through
certain U.S.-related financial intermediaries.

         Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a shareholder's U.S. federal income tax
liability, and a shareholder may obtain a refund of any excess amounts withheld
under the backup withholding rules by timely filing the appropriate claim for
refund with the IRS and furnishing any required information.

            Austrian Tax Consequences for Holders of Ordinary Shares

General

         The following is a summary of the principal Austrian tax consequences
of purchase, possession, ownership and disposal of the ordinary shares. This
summary is based on current law, including but not limited to the double
taxation convention between Austria and the Netherlands and practice as to
matters of Austrian taxation. It does not purport to be a complete analysis of
all potential tax effects relevant to a decision to invest in the ordinary
shares. Prospective investors who are in any doubt as to their tax position
should seek independent advice.

         An Austrian shareholder of ordinary shares is an individual who is
resident in Austria or who ordinarily resides in Austria, or corporations with
Austrian place of management or registered office in Austria.

Dividend withholding tax

         Pursuant to the Dutch dividend withholding tax act, dividends paid by
Dutch companies are, in principle, subject to Dutch dividend withholding tax
amounting to 25%.

         In general, according to the double tax treaty between Austria and the
Netherlands, the right to impose tax on dividends paid by Dutch companies to
Austrian individual shareholders is limited to 15% of the gross amount of the
dividends. Austrian shareholders may apply for relief at source for the 10%
dividend withholding tax. In order to obtain relief at source, a two-stage
procedure must be followed: applications are filed by using the printed form
entitled "IB 92 Universeel" which can be obtained from the appropriate Austrian
tax authority, which is then to be submitted in duplicate to either the tax
office responsible for individuals (Wohnsitzfinanzamt) or corporations
(Sitzfinanzamt). The respective tax office will then confirm on one copy of the
application form that the shareholder resides in Austria. As soon as the
dividends are distributed, the Austrian shareholder must submit this certified
copy to the bank dealing with the distribution of the dividends and this bank
should subsequently be entitled to withhold at source not more than 15% of gross
dividends.

         In case an Austrian shareholder does not obtain such relief at source,
he may apply to the competent Dutch tax authorities for reimbursement within 3
years after the end of the calendar year in which the Dutch dividend withholding
tax is levied.

         Gross dividend distributions to Austrian individual shareholders are
considered income as defined by the Income Tax Act. Such income is generally
subject to a special tax rate of 25%. According to the double taxation
convention, Austrian individual shareholders may have the 15% withholding tax on
the gross dividends credited against their Austrian income tax. The maximum
amount to be credited may not exceed the tax amount calculated prior to the
credit allotted to income gained in the Netherlands.

         With respect to dividends paid by a Dutch company to companies resident
in Austria, relief concerning the amount exceeding the 15% dividend withholding
tax levied in the Netherlands should be possible, as outlined above for Austrian
private investors. For


                                       59
<PAGE>


qualifying shareholdings of at least 25% held by Austrian companies a reduction
to 5% should be available on the basis of the double tax treaty between Austria
and the Netherlands. For qualifying shareholdings of at least 10% held by
Austrian companies, no Dutch dividend withholding tax should be levied if
certain requirements are met on the basis of the Dutch dividend withholding tax
act. The gross dividends to Austrian corporations not qualifying for the
benefits under the participation exemption according to Section 10 Corporate
Income Tax Act are subject to Austrian corporate income tax at a rate of 25%.
Corporations may, as Austrian private investors, claim a credit of the actual
paid Dutch withholding tax against the Austrian corporate income tax.

Capital Gains

         Capital gains from the alienation of ordinary shares shall be taxable
in Austria only if the alienator is resident in Austria. This does not apply if
the alienator within five years before the alienation of the ordinary shares has
been resident in the Netherlands. In such case, capital gains from the
alienation of ordinary shares should also be taxable in the Netherlands on the
basis of the double tax treaty between Austria and the Netherlands.

         In Austria, capital gains realised from the sale of ordinary shares by
individuals are subject to tax at marginal tax rates (up to 50%) if the
one-year-holding period is not met. After expiry of the holding period sales of
substantial shares (i.e., if the shareholder has owned a share of at least 1% at
any time within the five years period prior to the sale), and sales of shares
representing part of a domestic business property (Betriebsvermogen) are subject
to income tax only. The capital gain is subject to half the average tax rate if
the substantial share does not represent part of a domestic business property
and the one-year-holding period is met.

         In general, corporations subject to unlimited tax liability in Austria
are subject to corporate income tax on any capital gains realised from any sale
of ordinary shares (with exceptions for certain foreign shareholdings). For
corporations, which have been established after December 31, 2000, no tax is
generally levied on capital gains resulting from the sale of an interest of at
least 10% in a non-resident company provided the one-year holding period is met.
On the other hand, for these corporations capital losses realised from the sale
of such interest are not tax deductible. However, these corporations have the
option to treat both, capital gains and capital losses taxable.

         For Corporations, which have been established before January 1, 2001
the above rules will become applicable from 2006 (assessment period) onwards.

Departure Tax

         Measures of shareholders which lead to a loss of taxation power of
Austria in relation to other countries are generally treated as a sale at fair
market value (with certain exemptions).

         However, in relation to EU member states (and, in certain cases, member
states of the European Economic Area), taxation may upon application be deferred
until the respective shareholding is actually disposed of.

Tax Upon Liquidation

         In case of liquidation of the company, a shareholder is subject to tax
on the difference between the proceeds from the liquidation and the acquisition
cost of the shares in the case of an individual shareholder or the book value in
the case of a corporate shareholder, irrespective of the extent of the
shareholding. However, an exemption generally exists for gains derived by an
Austrian corporate shareholder from the liquidation of a non-resident company if
its share is at least 10% and the one-year holding period is met. In principle,
liquidation distributions of a Dutch company should also be subject to Dutch
dividend withholding tax if the distributions exceed the average paid-up share
capital (including share premium and so-called informal capital).

Share Transfer Tax

         The share transfer tax was abolished with effect as of October 1, 2000.

Inheritance and Gift Tax

         Share transfers due to death or donation by residents of Austria or by
Austrian citizens who have not resided outside of Austria for more than two
years are subject to Austrian Inheritance and Gift Tax (exemptions exist for
transfers of shares of less than 1% due to death). This also applies to
transfers by non-resident shareholders or non-Austrian citizens to beneficiaries
who are Austrian residents or citizens as defined above.

         Shares held by non-resident shareholders are not subject to Austrian
inheritance and gift tax on a transfer to another non-resident of Austria by
reason of death or donation. Non-resident shareholders are Austrian non-citizens
not resident in Austria or Austrian citizens

                                       60
<PAGE>


not having been resident in Austria for more than two years.

         For reasons of double taxation, special reference is made to double
taxation conventions entered into by the Republic of Austria. If no double
taxation convention has been concluded, foreign inheritance and gift taxes can
be allowed as credit against the Austrian inheritance and gift tax by the
Austrian Federal Ministry of Finance in case of reciprocity. Reciprocity is
assumed if the foreign country does not levy inheritance and gift tax on assets
situated in Austria or if the foreign country allows Austrian inheritance and
gift tax as credit against its own inheritance and gift tax. Application for
credit must be filed with the Austrian Federal Ministry of Finance.

10.F.    Dividends and Paying Agents

         Not applicable.

10.G.    Statement by Experts

         Not applicable.

10.H.    Documents on Display

         The documents referred to in this report can be read at the U.S.
Securities and Exchange Commission's public reference facilities at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549.

         The public may obtain information on the operation of the Commission's
public reference facilities by calling the Commission in the United States at
1-800-SEC-0330. Copies of reports, proxy statements and other information
concerning us are also available for inspection at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.

10.I.    Subsidiary Information

         Not applicable.

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

         In the ordinary course of business, our primary market risk exposures
are changes in interest rates and fluctuations in foreign currency exchange
rates. To meet our objective of minimizing our exposure to fluctuations in
foreign currency exchange rates, we use forward currency contracts. Such
instruments are entered into purely to meet our objective and not for
speculative purposes.

         Our foreign currency risks have not changed materially over the last
years. However, with respect to interest rates, we have less exposure to
interest rate changes because we refinanced some of our floating rate debt with
the proceeds from our fixed rate senior notes issued in July 1999 and repaid
another portion of the floating rate debt with the proceeds from our initial
public offering in October 2000 and in 2004 with the proceeds of our newly
issued bond due in 2014.

Interest Rate Exposure

         The table below provides information about our financial instruments
that are sensitive to interest rates, primarily our debt obligations. For such
obligations the table presents the repayment schedule of amounts outstanding on
December 31, 2005, based on the contractual maturity dates of our bank and other
debt facilities and the related weighted average interest rates by expected
maturity date. Variable rates are based on rates as of December 31, 2005.

         The carrying value of our senior notes and other long-term debt
approximate fair value based on current rates being offered and quoted market
prices of debt with similar terms.

                                       61
<PAGE>

                          Interest-Rate Risk Management
                 Principal (Nominal) Amount by Expected Maturity
                                  Interest Rate


<TABLE>
<CAPTION>
                                                                                                                      Year Ended
                                                              Year Ended December 31, 2005                      December 31, 2004
                                         ---------------------------------------------------------------------  -----------------
                                         2006      2007    2008     2009    2010  Thereafter Total  Fiar Value  Total  Fair Value
                                         ----      ----    ----     ----    ----  ---------- -----  ----------  -----  ----------
                                                                             (in thousands)
<S>                                     <C>        <C>     <C>      <C>     <C>  <C>      <C>      <C>      <C>       <C>
Debt, including current portion

Fixed rate (EUR) ....................... $  147      157     168      180     192  142,324  143,168  143,168  185,962   185,962
Weighted avg. Interest rate (fixed) ....  6.70%    6.70%   6.70%    6.70%   6.70%    8.36%    8.35%             8.36%

Fixed rate (USD) ....................... $  228      245     263      284     305    2,804    4,130    4,130    4,341     4,341
Weighted avg. Interest rate (fixed) ....  7.33%    7.33%   7.33%    7.33%   7.33%    7.33%    7.33%             7.33%

Variable rate (EUR) .................... $1,859    1,893   1,814    1,418     376    2,088    9,449    9,449   11,082    11,082
Weighted avg. Interest rate (variable)..  2.35%    2.35%   2.35%    2.35%   2.35%    2.35%    2.35%             2.53%

Other currencies (CSK) ................. $  253      253     253      190                       948      948    1,440     1,440
Weighted avg. Interest rate ............  3.04%    3.04%   3.04%    3.04%                     3.04%             3.11%
</TABLE>

Foreign Currency Exchange Rate Exposure

         The table below provides information about our forward foreign exchange
contracts and foreign exchange options contracts which we use to manage
fluctuations in foreign currency exchange rates:

<TABLE>
<CAPTION>
                                                       Contract Amount
                                                            Sell
                                                        U.S. Dollar          Average Option                   Fair Value
                                                         Equivalent           Strike Price                 December 31, 2005

                                                                 (in thousands, except for the option strike price)
<S>                                                  <C>                      <C>                          <C>
Currency Pairs:
Foreign Currency Forward Contracts
Euro                                                                              1 $ =
Japanese Yen                                         $         4,501          137.7557 JPY                 $              (21)
Canadian Dollar                                      $         6,747             1.4397 CAD                $             (238)
British Pounds                                       $         3,787             0.6859 GBP                $               33
Swiss Franc                                          $         6,069             1.5297 CHF                $               37

Foreign Currency Option Contracts
Euro
Japanese Yen                                         $         2,208          142.0000 JPY                 $               15
</TABLE>

         The fair values of the foreign currency contracts represent the amount
the Company would receive or pay to terminate the contracts, considering first,
quoted market prices of comparable agreements, or in the absence of quoted
market prices, such factors as interest rates, currency exchange rates and
remaining maturity. The foreign currency forward contracts and foreign currency
options have a term of less than one year.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         Not applicable.

ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

                                       62
<PAGE>


         Not applicable.

PART III

ITEM 15: CONTROLS AND PROCEDURES

         Our chief executive officer and chief financial officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by
this Form 20-F, have concluded that, as of such date, our disclosure controls
and procedures were effective. There were no changes in our internal controls
over financial reporting during the year ended December 31, 2005 identified in
connection with the evaluation thereof by our management, including the Chief
Executive Officer and Chief Financial Officer, that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of such controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Acknowledging this, we have
designed our disclosure controls and procedures to provide such reasonable
assurance.

ITEM 16: [RESERVED]

16.A.    Audit Committee Financial Expert

         The Supervisory Board has determined that there currently is no "audit
committee financial expert" as defined under Sarbanes-Oxley Act of 2002 serving
on the Supervisory Board. No single member of the Supervisory Board meets all of
the five attributes required to meet the definition of audit committee financial
expert. Nonetheless, the Board considers that the Supervisory Board members as a
group possess adequate skills and expertise to fulfill the tasks entrusted to
the Supervisory Board.

16.B.    Code of Ethics

         We adopted a code of ethics that applies to all of our employees,
including our Chief Executive officer and principal financial officer. Our Code
of Conduct is posted on our website at www.head.com section "Investor
Relations".

16.C.    Principal Accountant Fees and Services

         PricewaterhouseCoopers (PwC) has served as our independent public
auditors for each of the years ended in the three-year period ended December 31,
2005. The following table presents the aggregate fees for professional audit
services and other services rendered by PricewaterhouseCoopers in 2004 and 2005
(in thousands):

                                                    Year ended December 31,
                                            ------------------------------------
                                                 2004                  2005
                                            ----------------    ----------------
Audit Fees ..............................      $     939            $  1,100
Audit-Related Fees.......................            605                 193
Tax Fees ................................            309                 164
All Other Fees ..........................             51                  24
                                                --------            --------
Total ...................................       $  1,904            $  1,481
                                                ========            ========

         Audit Fees primarily relate to the audit of Head N.V.'s annual
financial statements set forth in our Annual Report on Form 20-F and other
services normally provided in connection with statutory and regulatory filings,
which mainly include the statutory audits of financial statements of our
subsidiaries and the assistance with review of documents filed with the SEC. In
addition audit fees contain also the reviews of Head N.V.'s quarter financial
statements.

         Audit-Related Fees consist of fees incurred for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements or that are traditionally performed by the
external auditor, and include consultations concerning financial accounting and
reporting standards. In 2005, audited related fees primarily pertain to costs
incurred in connection with the Sarbanes-Oxley Act, section 404 compliance and
the change in basis of accounting to IFRS. In 2004, audit related fees included
fees for the comfort letter in connection with the issuance of our 5.8% senior
notes issued.

                                       63
<PAGE>


         Tax Fees were comprised solely of tax services permitted under the
Sarbanes-Oxley Act of 2002. Tax services rendered in connection with the audit
of financial statements have been included in the caption Audit Fees.

         All Other Fees represent professional services provided for services
not directly supporting financial statement audits, such as local law advices.

         For 2005 the Supervisory Board pre-approved tax services to be rendered
by member firms of PwC up to an aggregate amount of EUR 250.000, such services
to be provided to Head NV and any of its subsidiaries or affiliated companies.
Tax services included solely tax services permitted under the Sarbanes-Oxley Act
of 2002 and any rules and regulations issued in respect to the Sarbanes-Oxley
Act.

Pre-Approval Policies and Procedures

         Our Audit Committee is responsible for the oversight of our independent
auditor's work. Our Audit Committee pre-approves all audit and non-audit
services provided by PwC. These services may include audit services,
audit-related services, tax services and other services, as described above.

16.D.    Exemption from the Listing Standards for Audit Committee

         Not applicable

16.E.    Purchase of Equity Securities by the Issuer and Affiliated Purchasers

         There were no purchases by or on behalf of Head N.V. or any affiliated
purchasers of its equity securities during 2005.

ITEM 17: FINANCIAL STATEMENTS

         Not applicable.

ITEM 18: FINANCIAL STATEMENTS

         The following financial statements are filed as part of this Annual
Report on Form 20-F.

ITEM 19: EXHIBITS

1.1           Memorandum and Articles of Association of the Company
              (incorporated by reference from the Registration Statement on Form
              F-1 filed with the Securities and Exchange Commission ("SEC") on
              September 27, 2000).
2.1           Indenture between HTM Sport- und Freitzeigerate AG, Head N.V.,
              Head Holding Unternehmensbeteiligung GmbH, Head Sport AG, Head
              International GmbH, HTM Sport S.p.A., Head USA Inc., Penn Racquet
              Sports Inc., Head/Tyrolia Sports Canada Inc., The Bank of New
              York, As Trustee, Registrar, Transfer Agent And Principal Paying
              Agent and The Bank of New York (Luxembourg) S.A., As Paying Agent
              And Transfer Agent dated January 29, 2004, (incorporated by
              reference from the Registration Statement on Form F-1 filed with
              the SEC on September 27, 2000).
4.1           Loan Agreement between Head USA, Inc., Mares America Corp., Penn
              Racquet Sport, Inc and Fleet Capital Corporation as Agent dated
              April 5, 2000 (incorporated by reference from the Registration
              Statement on Form F-1 filed with the SEC on September 27, 2000).
6.            A statement explaining in reasonable detail how earnings per share
              information were calculated (included in Note 2 to the Financial
              Statements).
8.            See "Item 4.C Organizational Structure"
12.1          Certification of the CEO pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.
12.2          Certification of the CFO pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.
13            Certification of the CEO and CFO pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.

                                       64
<PAGE>


                                   SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.

Date:     April 12, 2006

                                     Head N.V.
                                     Registrant


                                     By: /s/Johan Eliasch
                                         ---------------------------------------
                                         Name:  Johan Eliasch
                                         Title: Chief Executive Officer,
                                                Chairman of the Management Board



<PAGE>


                                    HEAD N.V:

                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>

                                        Balance at                                                              Balance at
                                        beginning                           Deductions        Translation         end of
                                        of period         Additions            (1)              effects           period
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>              <C>               <C>                <C>
Description:
Year ended
December 31, 2005:
Provision for doubtful
receivables                             $   16.6           $   5.1          $   (4.4)         $   (1.7)          $   15.5

Provision for inventories                   18.0               3.8              (4.6)             (1.6)              15.5
Allowances for deferred
taxes                                       19.2               1.9                --              (1.2)              19.9
Year ended
December 31, 2004:
Provision for doubtful
receivables                             $   15.8           $   5.1          $    3.3          $   (1.0)          $   16.6

Provision for inventories                   16.2               5.7               6.4               2.5               18.0
Allowances for deferred
taxes                                       23.4               2.2               6.8               0.5               19.2

Year ended
December 31, 2003:
Provision for doubtful
receivables                             $   11.8           $   6.4         $     3.8           $   1.4           $   15.8

Provision for inventories                   15.1               4.5               5.4               2.0               16.2
Allowances for deferred
taxes                                       11.6               9.5                --               2.2               23.4
</TABLE>

(1) Represents amounts used for the purposes for which the accounts were created
    and reversal of amounts no longer required

<PAGE>


                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Description                                                                                     Sequentially
                                                                                                    numbered
                                                                                                        page

<S>     <C>
1.1     Memorandum and Articles of Association of the Company (incorporated by
        reference to the Registration Statement on Form F-1 filed with the SEC on
        September 27, 2000)...........................................................
2.1     Indenture between HTM Sport- und Freitzeigerate AG, Head N.V., Head Holding
        Unternehmensbeteiligung GmbH, Head Sport AG, Head International GmbH, HTM Sport
        S.p.A., Head USA Inc., Penn Racquet Sports Inc., Head/Tyrolia Sports Canada
        Inc., The Bank of New York, As Trustee, Registrar, Transfer Agent And Principal
        Paying Agent and The Bank of New York (Luxembourg) S.A., As Paying Agent And
        Transfer Agent dated January 29, 2004 (incorporated by reference to the
        Registration Statement on Form F-1 filed with the SEC on September 27, 2000)..
4.1     Loan Agreement between Head USA, Inc., Mares America Corporation, Penn Racquet
        Sport, Inc. and Fleet Capital Corporation as Agent dated April 5, 2000
        (incorporated by reference to the Registration Statement on Form F-1 filed with
        the SEC on September 27, 2000)................................................
6.      A statement explaining in reasonable detail how earnings per share
        information were calculated (included in Note 2 to the Financial
        Statements)..............
8.      A list of the Company's significant subsidiaries, indicating their
        country of incorporation and the names under which they do
        business......................
12.1    Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
        2002..........................................................................
12.2    Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
        2002..........................................................................
13.     Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002...................................................................
</TABLE>