Altek - Capital/Financing Update 2015

OFFERING CIRCULAR

ALTEK CORPORATION

(incorporated as a company limited by shares in Taiwan, Republic of China)

U.S.$60,000,000

Zero Coupon Convertible Bonds due 2008

Issue Price: 100%

The Bonds will be direct, unconditional, unsecured and unsubordinated general obligations of Altek Corporation (‘‘Altek’’ or the ‘‘Company’’) and will be ranked at least equally with all other outstanding and future unsecured and unsubordinated general obligations of the Company. The Bonds will not bear interest except in limited circumstances. Bondholders may convert the Bonds into the Company’s common shares, par value NT$10 per share (the ‘‘Shares’’) on or after March 18, 2003 and prior to the close of business on January 28, 2008. The Conversion Price will initially be NT$111.0 per Share, which is equivalent to U.S.$3.188 per Share, based on a fixed rate of exchange of NT$34.816 = U.S.$l.00, subject to adjustment in certain events. In addition, the Conversion Price will be adjusted from time to time in certain circumstances relating to the then prevailing closing price of the Shares relative to the Conversion Price. The Shares are listed on the Taiwan Stock Exchange (the ‘‘TSE’’) and application will be made to list the Shares issued upon conversion of the Bonds on the TSE. On February 13, 2003, the closing price of the Shares on the TSE was NT$99.5 per Share.

Bondholders have the option to require the Company (i) to redeem all or part of the Bonds held by that Bondholder on March 1, 2005 and February 27, 2006 at the principal amount plus 3.71% and 7.12%, respectively, (ii) to redeem all but not part of the Bonds held by that Bondholder at their Early Redemption Amount (as defined herein), in the event that the Company’s Shares cease being traded or listed on the TSE. The Company has the option to redeem all, or part only, of the Bonds on or at any time after March 1, 2005 at their principal amount in the event that the closing price of the Shares on the TSE in U.S. Dollars, calculated at the prevailing exchange rate, for each of the 20 consecutive Trading Days (as defined herein), the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130% of the Conversion Price in effect on each such Trading Day translated into U.S. Dollars at the fixed exchange rate of NT$34.816 = U.S.$1.00. The Company may, at any time, redeem all but not part of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at their Early Redemption Amount if at least 90% in principal amount of the Bonds have already been redeemed, converted, or purchased and cancelled. The Bonds may also be redeemed in whole, but not in part, at any time at the Company’s option at their Early Redemption Amount in the event that certain changes relating to Republic of China taxation have been made which will result in additional costs to the Company. The Company will redeem the Bonds at their principal amount at maturity on February 26, 2008, unless the Bonds have been previously redeemed, repurchased and cancelled or converted.

For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see ‘‘Risk Factors’’ on page 8 herein.

Application has been made to list the Bonds on the Luxembourg Stock Exchange. It is expected that delivery of the Bonds will be made in book entry form through the facilities of Euroclear and Clearstream, Luxembourg (each as defined herein) on February 26, 2003 (the ‘‘Closing Date’’).

The Bonds, and the Shares deliverable upon conversion of the Bonds, have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds will be offered and sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The Bonds may not be offered in the Republic of China.

Sole Bookrunner and Lead Manager

Yuanta Core Pacific Securities (Hong Kong) Company Limited

Managers

Yuanta Core Pacific Securities Limited

SinoPac Securities (Asia) Limited

This Offering Circular is dated February 14, 2003

The Company, having made all reasonable inquiries, confirms that this Offering Circular contains all information with respect to the Company, the Company and its subsidiaries as a whole, the Bonds, and the Shares which is material in the context of the issue and offering of the Bonds (including all information required by applicable laws of the ROC), that the information contained herein (save as set out below) is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed herein are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions, that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this Offering Circular as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects, that all reasonable inquiries have been made by the Company to verify the accuracy of such information, and that this Offering Circular does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading. The Company accepts responsibility accordingly. Information provided herein with respect to the ROC, its political status and economy, has been derived from government and other public sources, and the Company accepts responsibility only for accurately extracting information from such sources.

The distribution of this Offering Circular and the offering and sale of the Bonds in certain jurisdictions may be restricted by laws. Persons into whose possession this Offering Circular comes are required by the Company and the Managers (as defined in ‘‘Underwriting’’) to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Bonds and distribution of this Offering Circular, see ‘‘Underwriting’’. This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Company or the Managers to subscribe for or purchase, any of the Bonds in any jurisdiction in which such offer or invitation would be unlawful.

No person is authorized in connection with the issue, offering or sale of the Bonds to give any information or to make any representation not contained in this Offering Circular and any information or representation not contained herein must not be relied upon as having been authorized by the Company or the Managers. Neither the delivery of this Offering Circular nor any sale or allotment made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The Bonds will be represented by beneficial interests in a permanent global certificate (the ‘‘Global Certificate’’) in registered form, which will be registered in the name of a nominee of, and shall be deposited on or about February 26, 2003 with a common depositary for, Euroclear Bank S.A./N.V. as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’).

The Company has prepared the audited consolidated and non-consolidated financial statements as at and for the years ended December 31, 1999, 2000 and 2001, and unaudited non-consolidated financial statements as at and for the nine-month periods ended September 30, 2001 and 2002, contained herein in accordance with accounting principles generally accepted in the ROC.

NOTICE TO INVESTORS

The Bonds may not be offered or sold directly or indirectly in the ROC. The Bonds and the Shares issuable upon conversion of the Bonds have not been and will not be registered under the Securities Act. The Bonds and the Shares issuable upon conversion of the Bonds may not be offered or sold to any person in the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In addition, no transfer of any interest in the Global Certificate may be made to any U.S. person outside the United States or any person in the United States for a period of 40 days after the later of the commencement of this offering and the latest closing date of this offering. Terms that are defined in Regulation S under the Securities Act and used in this section have the meanings assigned in Regulation S.

Each purchaser of Bonds will be deemed to have represented and agreed as follows:

(1) it is purchasing the Bonds for its own account or for an account with respect to which it exercises sole investment discretion, and it and any such account is outside the United States and is not a U.S. person;
(2) it acknowledges that neither the Bonds nor the Shares issued upon conversion of the Bonds have been or will be registered under the Securities Act or with any securities regulatory authority of any jurisdiction and may not be offered or sold within the United States except as set forth below;
(3) it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any Bond or beneficial interest therein, or any Shares issued upon conversion of the Bonds, it may do so only (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S, (ii) pursuant to an exemption from registration under the Securities Act, if available, or (iii) pursuant to an effective registration statement under the Securities Act, and in each of cases (ii) and (iii), in accordance with applicable securities laws of the states of the United States;
(4) if it is purchasing Bonds prior to the expiration of 40 days after the later of the commencement of the offering and the latest closing date (the ‘‘distribution compliance period’’), it is purchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S and the Bonds will not be sold, pledged or otherwise transferred to, or for the account or benefit of, any U.S. person outside the United States or any person in the United States during the distribution compliance period;
(5) it agrees to, and each subsequent holder is required to, notify any purchaser from it of a Bond or beneficial interest therein of the resale restrictions referred to in sections (3) and (4) above, if then applicable;
(6) it understands that, except in the circumstances referred to under the heading ‘‘The Form of the Bonds’’, the Bonds, and beneficial interests therein, will be represented by the Global Certificate (as defined herein);
(7) it understands that the Global Certificate will bear a legend to the following effects (unless otherwise agreed by the Company):

‘‘THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY JURISDICTION AND, ACCORDINGLY, MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED TO A U.S. PERSON OR WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT.

THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF 40 DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2008 OF ALTEK CORPORATION’’; and

(8) it acknowledges that the Company and the Managers and others will rely upon the truthfulness and accuracy of the foregoing acknowledgements, representations and agreements; and if it is acquiring the Bonds as a fiduciary or agent for one or more accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account.

For further information about the requirements under the Indenture to effect exchanges or transfers of interests in the Global Certificate and of Bonds in certificated form, see ‘‘The Form of the Bonds’’.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

The Company is a company limited by shares incorporated under the ROC Company Law. All of the Company’s directors, executive officers, and supervisors, are residents of the ROC and a substantial portion of the assets of the Company and such persons are located in the ROC. As a result, it may not be possible for investors to effect service of process upon the Company or such persons outside the ROC, or to enforce against any of the judgments obtained in courts outside the ROC.

Any final judgment obtained against the Company or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that:

(i) the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC;
(ii) the judgment is not contrary to the public order or good morals of the ROC;
(iii) if the judgment was rendered by default by the court rendering the judgment, the Company or such persons were served within the jurisdiction of such court, or process was served on the Company or such persons with judicial assistance of the ROC; and
(iv) judgments of the courts of the ROC are recognized and enforceable in the court rendering the judgment on a reciprocal basis.

A party seeking to enforce a foreign judgment in the ROC would be required to obtain foreign exchange approval from the Central Bank of China (‘‘CBC’’) for the payment out of the ROC of any amounts recovered in connection with the judgment denominated in a currency other than NT Dollars.

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			Page		Page
Summary . . . . . . . . . .	. . . . . . .	. . . . . . . . . . . .	1	Terms and Conditions of the Bonds . . . . . . . .	60
Risk Factors . . . . . . . .	. . . . . . .	. . . . . . . . . . . .	8	The Form of the Bonds . . . . . . . . . . . . . . . . .	85
Use of Proceeds . . . . .	. . . . . . .	. . . . . . . . . . . .	17	Description of the Shares . . . . . . . . . . . . . . . .	88
Market Price Information . . . . .		. . . . . . . . . . . .	18	Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	94
Dividends and Dividend	Policy	. . . . . . . . . . . .	19	Underwriting . . . . . . . . . . . . . . . . . . . . . . . . .	96
Exchange Rates . . . . .	. . . . . . .	. . . . . . . . . . . .	20	Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . .	98
Capitalization . . . . . . .	. . . . . . .	. . . . . . . . . . . .	21	Independent Auditors . . . . . . . . . . . . . . . . . . .	98
Selected Financial Data	. . . . . .	. . . . . . . . . . . .	22	General Information . . . . . . . . . . . . . . . . . . . .	99
Management’s Discussion and Analysis				Summary of Significant Differences
of Financial Condition and Results				between ROC GAAP and U.S. GAAP . . . .	101
of Operation . . . . . .	. . . . . . .	. . . . . . . . . . . .	24	Index to Financial Statements . . . . . . . . . . . .	F-1
Business . . . . . . . . . . .	. . . . . . .	. . . . . . . . . . . .	34	Appendix A — Foreign Investment
Management and Employees . .		. . . . . . . . . . . .	52	and Exchange Controls in the ROC . . . . . .	A-1
Principal Shareholders	. . . . . . .	. . . . . . . . . . . .	58	Appendix B — The Securities Market of
Changes in Issued Share Capital		. . . . . . . . . . .	59	The ROC . . . . . . . . . . . . . . . . . . . . . . . . . .	B-1

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Except where the context otherwise requires, all references herein to ‘‘Altek’’ are to Altek Corporation and all references to the ‘‘Company’’ are to Altek or Altek and its subsidiaries, as the context requires. All references herein to ‘‘affiliate’’ are to a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified, as these terms are defined in Rule 405 under the Securities Act. All references herein to ‘‘Taiwan’’ or the ‘‘ROC’’ are to the island of Taiwan and other areas under the effective control of the Republic of China. All references herein to the ‘‘ROC Government’’ or the ‘‘ROC Company Law’’ are references to the government of the Republic of China and the Company Law of the Republic of China, respectively. All references herein to ‘‘ROC GAAP’’ are to the ‘‘Rules Governing Preparation of the Financial Statements of Securities Issuers’’ and accounting principles generally accepted in the ROC and all references herein to ‘‘U.S. GAAP’’ are to accounting principles generally accepted in the United States. All references herein to the ‘‘PRC’’ or ‘‘mainland China’’ are to the People’s Republic of China and do not include Hong Kong, Macau or Taiwan. All references herein to the ‘‘TSE’’ are references to the Taiwan Stock Exchange. All references herein to the ‘‘GTSM’’ are references to The GreTai Securities Market (previously known as the ROC Over-the-Counter Securities Market).

The Company’s financial statements are prepared using ROC GAAP, and are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than those in the ROC including the United States. The material differences between ROC GAAP and U.S. GAAP, as applicable to the Company are discussed under ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’. Certain financial amounts presented herein may not correspond directly to the Company’s financial statements included elsewhere herein or may not add up due to rounding.

Except as otherwise indicated, all financial information set forth herein with respect to various members of the Company has been presented in New Taiwan Dollars.

The Company publishes its financial statements in New Taiwan Dollars, the lawful currency of the ROC. All references herein to ‘‘New Taiwan Dollars’’, ‘‘NT Dollars’’ and ‘‘NT$’’ are to New Taiwan Dollars, all references herein to ‘‘United States Dollars’’, ‘‘U.S. Dollars’’ and ‘‘U.S.$’’ are to United States Dollars, and all references herein to ‘‘JPY=’’ is to Japanese Yen. All translations from New Taiwan Dollars to United States Dollars were made on the basis of the average of noon buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollar as certified by the Bank of Taiwan of NT$34.95 = U.S.$1.00 as of December 31, 2001, and of NT$34.92 = U.S.$1.00 as of September 30, 2002, with respect to information for the nine months ended September 30, 2002. All amounts translated into United States Dollars as described above are unaudited and are provided solely for the convenience of the reader, and no

representation is made that the NT Dollar or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or NT Dollars, as the case may be, at any particular rate, the above rates or at all. See ‘‘Exchange Rates’’. The closing rate between the NT Dollar and the U.S. Dollar on February 12, 2003 was NT$34.81 = U.S.$1.00.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Offering Circular contains forward-looking statements that involve risks and uncertainties. Forward-looking terminology include ‘‘may’’, ‘‘will’’, ‘‘expect’’, ‘‘anticipate’’, ‘‘estimate’’, ‘‘continue’’, ‘‘believe’’, ‘‘forecast’’, ‘‘project’’ and other similar words. Statements that include such terminology are forward-looking statements. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties faced by the Company described elsewhere in this Offering Circular. The Company undertakes no obligation after the date of this Offering Circular to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future which may affect information contained herein.

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SUMMARY

The following summary is qualified in its entirety by the more detailed information and financial statements contained elsewhere herein.

The Company

The Company designs, develops, manufactures and sells digital still cameras on an ODM basis to some of the world’s first-tier digital still camera makers and digital imaging developers. ‘‘ODM’’ refers to an original design manufacturer, by which the Company not only manufactures but also designs the products for its customers. The Company believes that it is one of the world’s largest digital still camera manufacturers providing approximately 400,000 to 450,000 units capacity per month with a wide range of function specifications and accounted for approximately 8.8% of worldwide market share in 2002.

While equipped with technologies in developing and manufacturing digital still cameras with the resolution up to 6.0 million picture elements (‘‘pixels’’) per frame, the Company currently focuses on the products having 2.0 million to 3.0 million pixels per frame, also known as mainstream products. Additional features incorporated into all models include liquid crystal display (‘‘LCD’’) viewfinders, software imaging control, mass storage devices and the capability to connect to a computer and continuously transmit images to the computer. Some models manufactured by the Company are also equipped with zoom lens features.

The Company is capable of developing and manufacturing certain key components of a digital still camera in-house or through its strategic alliances. For example, the application specific integrated circuits (‘‘ASIC’’) chip installed in the Company’s products is developed and designed by the Company’s 88.29% owned subsidiary, Altek Lab Inc., This chip is a multi-functional system control chip that features image processing, algorithm, and system control, including shutter, flash, power management and in- and out-flow of signals. The Company believes that its ability to integrate technologies in such areas as optics, systems and image processing, together with technical know-how applied to large-scale production and cost efficiency gives it a competitive advantage in an industry that is capital-, labor- and technology-intensive.

The Company believes that its continuing research and development efforts facilitate its ability to introduce innovative, technologically advanced new products. The Company invests significant resources in research and development through in-house research and development activities, joint development with major customers and strong incentives to employees. The Company employs a broad range of technologies in manufacturing the Company’s products and developing new products. All of the Company’s digital still cameras incorporate the following three core technologies: (i) hardware and software system integration between optics, mechanics and electronics to achieve the goal of efficient power management, portability and possibility of mass production; (ii) optical system design to ensure the quality of image captured by digital processing devices; and (iii) digital image processing technology, such as algorithm and digital image compression.

Substantially all the Company’s products are manufactured at its manufacturing facilities in Kunshan, Jiangsu Province, the PRC, and the facilities operated by its strategic partners in mainland China. The Company also maintains facilities in the ROC primarily for research and development (‘‘R&D’’) purposes and pilot production runs for new models. The Company is in the process of constructing new production facilities in Kunshan, which are anticipated to commence operations in the fourth quarter of 2003. The new facilities will provide the Company with additional capacity for growth.

The consolidated net operating revenues of the Company have grown at a compound annual growth rate of 266.3%, from NT$286.0 million in 1999 to NT$3,837.9 million (U.S.$109.8 million) in 2001. For fiscal year 2001, the Company had net operating revenues of NT$3,837.9 million (U.S.$109.8 million) and net income of NT$404.2 million (U.S.$11.6 million), compared to net operating revenues of NT$2,347.4 million and net income of NT$83.1 million for fiscal year 2000.

Competitive Strengths

The Company believes that the following strengths contribute to its competitive position in the relevant markets:

" The Company is equipped with strong optics, systems and image processing engineering expertise.
" The Company has strong research and development programs.
" The Company is a cost-effective manufacturer of high quality products in large volume.
" Close relationships with key industry leaders ensure the Company’s success in business and technology development.
" Strict quality control processes and standards guarantee the quality of products made by the Company.

Business Strategy

The Company’s principal business objective is to continue to increase its sales, cash flow, profitability and market share by pursuing the following key strategic initiatives:

" Focus on core technology and continue investing in research and development.
" Expand production capacity and invest in new technology.
" Continue research and development of system integration technology and digital imaging technology to create more sophisticated digital still cameras.
" Maintain ODM manufacturing business models.
" Diversify the customer base to reduce reliance on limited number of customers.

Corporate and Other Information

The Company was incorporated on December 24, 1996 under the ROC Company Law and its Shares have been listed on the TSE since December 24, 2002. Its principal executive office is located at 3F, No.10, Li-Hsin Road, Science-Based Industrial Park, Hsinchu, Taiwan, ROC, and its telephone number is (8863)578-4567. Its web-site is http://www.altek.com.tw. The information on its web-site is not part of this Offering Circular. The trustee for the Bonds is The Bank of New York, whose office is located at 101 Barclay Street, 21st Floor West, New York, New York 10286, U.S.A.

	The Offering
Issuer . . . . . . . . . . . . . .	Altek Corporation
Bonds . . . . . . . . . . . . . .	U.S.$60,000,000 Zero Coupon Convertible Bonds due 2008 convertible into
	fully-paid common shares with a par value of NT$10 each of the Company.
Issue Price . . . . . . . . . . .	100%
The Offering . . . . . . . . .	The Bonds will not be offered or sold in the United States. The Bonds will
	be offered only in offshore transactions in reliance on Regulation S under the
	Securities Act. The Bonds may not be offered in the ROC.
Closing Date . . . . . . . . .	February 26, 2003
Maturity Date . . . . . . . . .	February 26, 2008
Status . . . . . . . . . . . . . .	The Bonds will constitute direct, unconditional, unsecured and
	unsubordinated general obligations of the Company and will be ranked at
	least equally with all other outstanding unsecured and unsubordinated
	general obligations of the Company.
Interest . . . . . . . . . . . . .	No interest will be payable on the Bonds prior to maturity, except in certain
	circumstances where an event of default has occurred. See ‘‘Terms and
	Conditions of the Bonds — Events of Default’’.
Withholding Tax . . . . . . .	Premium and interest (if any) payable on the Bonds to non-residents of the
	ROC are subject to a withholding tax in the ROC equal to 20% of the gross
	amount of such premium and interest (if any). The Company will gross up
	such amounts as will result in the receipt by the Bondholders of the net
	amounts after such withholding or deduction equal to the amounts which
	would otherwise have been receivable by them had no such withholding or
	deduction been required.
Tax Redemption . . . . . . .	The Company may redeem all, but not part, of the Bonds at their Early
	Redemption Amount (as defined in Condition 8(C)(ii)) in the event of
	changes in ROC taxation which will result in additional costs to the
	Company to gross up for payment of principal, premium or interest (if any).
	See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and
	Cancellation’’.
Negative Pledge . . . . . . .	The Company will not create or permit to subsist security for the benefit of
	holders of any International Investment Securities (as defined herein) or for
	any guarantee thereof without granting equivalent security in respect of the
	Bonds. See ‘‘Terms and Conditions of the Bonds — Negative Pledge’’.
Conversion . . . . . . . . . . .	Subject to prior redemption and as otherwise provided herein, the Bonds are
	convertible at any time on or after March 18, 2003 and prior to the close of
	business (at the place at which the Bond is deposited for conversion) on
	January 28, 2008, except during any Closed Period (as defined herein), into
	Shares or depositary receipts (‘‘DRs’’) (if available) at a conversion price
	(subject to adjustment in certain circumstances) (the ‘‘Conversion Price’’)
	of NT$111.0 per Share, which is equivalent to U.S.$3.188 per Share,
	determined on the basis of a fixed exchange rate of NT$34.816 = U.S.$1.00.
	The Conversion Price will be subject to adjustment for, among other things,
	subdivision or consolidation of Shares, bonus issues of Shares, rights issues,
	distributions of stock dividends and other dilution events. Fractional Shares
	will not be issued or paid in cash, or by any other means. For a fuller
	description, see ‘‘Terms and Conditions of the Bonds — Conversion’’.

The Company shall as soon as practicable, and in any event within five Trading Days (as defined herein) (subject to changes of the ROC laws and regulations) from the date the notification of the Conversion Notice (as defined herein) is received by the Company or its domestic stock transfer agent from the Principal Agent (as defined herein), deliver to the local agent appointed by the converting Bondholder, and/or to the relevant custodian, as agent for the relevant DR Depositary (as defined herein) (if the converting Bondholder has the option under the Terms and Conditions of the Bonds to elect, and elects, to receive DRs), a certificate or certificates for the relevant Shares, by electronic credit to the account established by the relevant local agent for the conversion of the Bonds, through the facilities of the Taiwan Securities Central Depositary Co., Ltd.

Conversion Price Reset . . The Conversion Price shall be adjusted downward on September 30 each year (the ‘‘Reset Dates’’ and each a ‘‘Reset Date’’) in the event that the average closing price of the Shares on the TSE translated into U.S. Dollars at the then prevailing exchange rate for 20 consecutive Trading Days immediately prior to the relevant Reset Date is lower than the Conversion Price, converted into U.S. Dollars at the fixed exchange rate of NT$34.816 = U.S.$1.00; provided that the Reset Price (as defined herein) (on a cumulative basis, if applicable) shall not be less than 80% of the initial Conversion Price after anti-dilution adjustments, if any. See ‘‘Terms and Conditions of the Bonds — Conversion’’.

Alternative Conversion The Company may (but is not obliged to) grant the Bondholders the option, Price Reset . . . . . . . . . within a seven Trading-Day period starting from the date to be determined by the Company after January 31, 2005, January 30, 2006, and January 28, 2008 and before the applicable Put Date or Maturity Date to convert the Bonds into Shares based on an Alternative Conversion Price equal to 88%, 85% and 91% of the then Market Price (defined in Condition 6(E)), respectively. See ‘‘Terms and Conditions of the Bonds — Conversion — Alternative Conversion Price Reset’’.

Final Redemption . . . . . . Unless previously redeemed, converted or repurchased and cancelled in the circumstances referred to in ‘‘Terms and Conditions of the Bonds’’, the Bonds will be redeemed at their principal amount in U.S. Dollars on February 26, 2008. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

Redemption at the Option of The Company may, having given not less than 40 nor more than 60 days’ the Company . . . . . . . . notice to the Bondholders, call all, or part only, of the Bonds on or at any time after March 1, 2005 at their principal amount in the event that the Closing Price (as defined herein) of the Shares on the TSE in U.S. Dollars, calculated at the prevailing exchange rate, for each of the 20 consecutive Trading Days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130% of the Conversion Price in effect on each such Trading Day translated into U.S. Dollars at the fixed exchange rate of NT$34.816 = U.S.$1.00. The Company may, at any time, redeem all but not part of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at their Early Redemption Amount if at least 90% in principal amount of the Bonds have already been redeemed, converted, or purchased and cancelled. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation — Redemption at the Option of the Company’’.

Redemption at the Option of Until and unless previously redeemed, converted or repurchased and Bondholders . . . . . . . . cancelled, the Company will, at the Bondholder’s option, redeem all or part of the Bondholder’s Bonds at the principal amount plus 3.71% and 7.12% on March 1, 2005 and February 27, 2006, respectively. In addition, the Company will, at the option of the holder of any Bond, redeem all but not part of the Bonds held by that Bondholder at their Early Redemption Amount in the event that the Shares cease being traded or listed on the TSE. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation — Redemption at the Option of Bondholders’’.

Form and Registration of The Bonds will be issued in registered form, without coupons, in the Bonds . . . . . . . . . . denominations of U.S.$1,000 and integral multiples thereof. The Bonds will initially be represented by a permanent global certificate (the ‘‘Global Certificate’’) deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear Bank S.A./N.V as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’). Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg and their participants. Except as described herein, certificates for Bonds will not be issued in exchange for beneficial interests in the Global Certificate. See ‘‘The Form of the Bonds — Registration of Title’’. Governing Law . . . . . . . . The laws of the State of New York. Trustee . . . . . . . . . . . . . The Bank of New York. Listing. . . . . . . . . . . . . . Application has been made to list the Bonds on the Luxembourg Stock Exchange. The Shares are listed on the TSE and application will be made for the Shares issuable upon conversion of the Bonds to be listed on the TSE. Use of Proceeds . . . . . . . The Company will use the net proceeds for overseas raw material procurement. See ‘‘Use of Proceeds’’.

Summary Financial Information

The following table presents summary financial information for the Company. The summary consolidated financial information for the years ended December 31, 1999, 2000 and 2001 presented in this table are derived from the Company’s audited consolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The summary non-consolidated financial information for the nine months ended September 30, 2001 and 2002 have been derived from the Company’s unaudited nonconsolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The Company’s financial statements were prepared using ROC GAAP and are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in other countries and jurisdictions, including the U.S. and U.K. ROC GAAP differs in many material respects from U.S. GAAP. For a discussion of these differences, see ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’ included elsewhere in this Offering Circular. The summary financial information set forth below should be read in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the Company’s financial statements and the notes to those statements included elsewhere in this Offering Circular.

Consolidated Year ended December 31, Non-consolidated Nine months ended September 30, 1999 2000 2001 2001 2001 2002 2002 NT$ NT$ NT$ U.S.$(1) NT$ NT$ U.S.$(1) (audited) (unaudited) (in millions, except per Share data) 286.0 2,347.4 3,837.9 109.8 2,304.2 3,303.6 94.6 336.2 2,179.8 3,217.6 92.1 1,940.8 2,683.8 76.9 (50.2) 167.6 620.3 17.7 363.4 619.8 17.7 67.2 112.6 296.3 8.4 149.9 204.2 5.8 (117.4) 55.0 324.0 9.3 213.5 415.6 11.9 6.9 42.5 127.1 3.6 106.2 37.0 1.0 5.5 16.8 36.9 1.1 40.0 63.8 1.8 (116.0) 80.7 414.2 11.8 279.7 388.8 11.1 — — 10.0 0.2 — 5.0 0.1 — 2.4 — — — — — (116.0) 83.1 404.2 11.6 279.7 383.8 11.0 (3.28)(2) 1.42(2) 5.48(2) 0.16(2) 2.73(2) 3.58(2) 0.10 Consolidated As of December 31, Non-consolidated As of September 30, 1999 2000 2001 2001 2001 2002 2002 NT$ NT$ NT$ U.S.$(1) NT$ NT$ U.S.$(1) (audited) (unaudited) (in millions) 23.4 391.3 825.8 23.6 848.9 1,229.0 35.2 346.5 1,784.1 1,931.8 55.3 1,783.2 3,715.6 106.4 171.5 874.0 1,331.4 38.1 1,148.7 2,077.0 59.5 — — — — 101.3 156.3 4.5 32.3 36.9 37.0 1.1 50.0 120.8 3.5 419.7 1,954.2 2,054.8 58.8 1,958.2 3,995.8 114.4 175.0 910.1 600.4 17.2 634.5 1,638.6 46.9 175.0 910.2 600.7 17.2 634.5 1,640.1 47.0 244.7 1,044.0 1,454.1 41.6 1,323.7 2,355.7 67.4	Non-consolidated Nine months ended September 30,	Non-consolidated Nine months ended September 30,
		2002
1999 NT$ 23.4 346.5 171.5 — 32.3 419.7 175.0 175.0 244.7	2001 2002 NT$ NT$ (unaudited) 848.9 1,229.0 1,783.2 3,715.6 1,148.7 2,077.0 101.3 156.3 50.0 120.8 1,958.2 3,995.8 634.5 1,638.6 634.5 1,640.1 1,323.7 2,355.7	2002
		U.S.$(1) 35.2 106.4 59.5 4.5 3.5 114.4 46.9 47.0 67.4

Notes:

(1) Translated into United States Dollars using the average of noon buying and selling rates published by the Bank of Taiwan on December 31, 2001 of NT$34.95 = U.S.$1.00, and on September 30, 2002 of NT$34.92 = U.S.$1.00. Such translation amounts are unaudited and should not be construed as representations that the NT Dollar amounts were, or have been, or could be, converted into U.S. Dollars at that or any other rate.
(2) Earnings (loss) per Share are calculated by dividing net income by the weighted average number of Shares outstanding during each year after adjusting retroactively for the effect of stock dividends and employees’ bonuses.

RISK FACTORS

Prior to making an investment decision, prospective investors should carefully consider the following risk factors along with the other matters set out in this Offering Circular. The following risk factors could affect the Company’s actual results and could cause them to differ materially from estimates in any forward-looking statements given by or on behalf of the Company. ROC laws and regulations may differ from the laws and regulations in other countries.

Risks Relating to the Company’s Financial Condition and Business

The Company’s business depends on a small number of customers.

The Company’s strategy is to focus on customers which are top-tier in the industry. As such, the Company tends to establish relationships only with customers which purchase large quantity of products from the Company. As a result, large percentages of the Company’s operating revenues come from a limited number of customers. For 2000 and 2001, the Company’s largest customer accounted for 78.6% and 97.5%, respectively, of its consolidated net operating revenues, and for the first nine months of 2002, the Company’s largest customer accounted for 69.1% of its non-consolidated net operating revenues. Most of the Company’s key customers operate in the cyclical opto-electronic businesses and have in the past, and may in the future, vary order levels significantly from period to period. In addition, as there are no longterm purchase commitment made between the Company and its customers, there can be no assurance that such customers or any other customers will continue to place orders with the Company in the future at the same levels as in prior periods. The loss of one or more of the Company’s customers, or reduced orders by its key customers, could adversely affect the Company’s results of operations. See ‘‘— The Company does not usually enter into long-term supply contracts with its customers and therefore its customers may cancel, reduce or postpone their orders’’.

A substantial portion of the Company’s revenue derives from sales to its two major customers. The Company currently provides three different types of digital still cameras for each of such customers. Sales to the major two customers accounted for 97.5% of the Company’s consolidated net operating revenues and 98.5% of the Company’s non-consolidated net operating revenues in 2001 and the first nine months of 2002, respectively. All sales made by the Company to such customers are on purchase order basis. There is no assurance that such customers will continuously place orders with the Company at the same levels as in prior periods, or at all.

The Company may experience shortages of key components and parts.

The Company currently purchases certain of its key components and parts from a limited number of suppliers. These suppliers’ capacity may be insufficient should the Company’s requirements increase or demand from other purchasers of such components and parts increases. For example, the Company encountered significant shortage of CCD, which severely impacted its operation and time of delivery in the first half of 2002. In addition, the Company is, in certain circumstances, required to source certain key components from suppliers who have been qualified by its customers and the Company may not be able to obtain alternative satisfactory sources of supply should such qualified suppliers be unable to supply it in the future. Accordingly, there can be no assurance that shortages of supply will not occur in the future and that, if such shortages occur, the Company will be able to obtain an adequate alternative supply of components and parts to meet production demand. If the Company is unable to obtain sufficient components and parts on a timely basis, the Company could experience manufacturing and shipping delays, which could adversely affect the Company’s customer relationships and reduce sales. In addition, there can be no assurance that the Company would be able to pass on increased costs of components and parts to its customers. See ‘‘Business — Key Components and Parts’’.

The Company’s business is highly dependent on the digital image processing product sectors.

All of the Company’s sales are to customers in the digital image processing product sectors on an ODM basis. Therefore, the Company’s financial performance depends on its customers’ continued growth, viability and financial stability. These customers in turn depend on the growth and viability of the consumer opto-electronics industries, which can be subject to pronounced cyclicality. These industries are characterized by rapidly changing technologies and short product life cycles. The factors affecting the opto-electronics industries in general, or any of the Company’s major customers or competitors in

particular, could have a material adverse effect on the Company’s results of operations. The Company’s success depends to a significant extent on the success achieved by its customers in developing and marketing their products, some of which may be new and untested. If customers’ products become obsolete or fail to gain widespread commercial acceptance, the Company’s business could be materially adversely affected.

In September 2001, the terrorists’ attack in the U.S. caused significant loss of life and property damages and disruption of U.S. and global market. The potential continuous terrorist attacks worldwide and the uncertainty of the impact of a potential war against Iraq have all had significant negative effects on the timing of global economic recovery. The economic downturn may reduce the demands of the Company’s products and could negatively impact the Company’s results of operation.

The Company does not usually enter into long-term supply contracts with its customers and therefore its customers may cancel, reduce or postpone their orders.

The Company does not generally enter into firm, long-term supply contract with its customers and it continues to experience reduced lead-times in customer orders. Customers may cancel their orders or change the size or timing of their orders for a number of reasons. Cancellations, reductions or postponements of purchase orders by a significant customer or by a group of customers could seriously adversely affect the Company’s results of operations.

In addition, the Company makes significant decisions, including determining the levels of business that it will seek and accept, production schedules, components and raw material procurement commitments, personnel needs and other resource requirements, based on its estimates of customer requirements. The short-term nature of the Company’s customers’ commitments and the possibility of rapid changes in demand for their products reduce the Company’s ability to estimate accurately future customer requirements. On occasion, customers may require rapid increases in production, which can stress the Company’s resources. Although the Company has increased its manufacturing capacity and plans further capacity increases, it may not have sufficient capacity at any given time to meet its customers’ demands. In addition, because many of the Company’s costs and operating expenses are relatively fixed, a reduction in customer demand could impact its gross margins and operating income.

The Company’s historical sales growth and historical margins may not be sustainable.

The Company’s sales have been growing significantly in the past three years, which may not be sustained in future periods. As the Company continues to develop and expand its operations and production capacity, its operating costs and expenses will continue to increase, putting pressure on gross margins and operating margins. In addition, competition could result in price pressure, lower sales, reduced margins and lower market share, any of which could materially and adversely affect the Company’s results of operations.

The Company may not be able to develop new products or keep pace with technological change.

The Company’s future success will depend in part on its ability to develop and market products and manufacturing processes which meet changing customer needs and to successfully anticipate or respond to technological changes in manufacturing processes in a cost-effective and timely manner. Many of the Company’s products have short product life cycles due to frequent product introductions, rapidly changing technology and evolving industry standards. There can be no assurance that the Company will be successful in developing new products as a result of its research and development efforts or that it will keep pace with technological changes taking place in the market. Failure to do so or delay in reacting to the technological changes could have a material adverse effect on the Company’s business or on the results of operations.

The Company faces intense competition from other digital still camera developers and manufacturers.

The digital image processing industry in which the Company operates is highly competitive and includes numerous companies with widely varying levels of engineering expertise and sophistication, some of which have achieved a substantial market share. General competition in the Company’s industry is characterized by price erosion and rapid technological change. The Company competes with different companies depending upon the type of product or geographic area. The Company also faces competition from the manufacturing operations of its current and prospective customers, which continually evaluate the merits of manufacturing products internally. A number of the Company’s competitors are much larger and

have greater manufacturing, financial, research and development and marketing resources than the Company. Some of these competitors also carry product lines that the Company does not carry and provide services that the Company does not provide. No assurance can be given that the Company will be able to continue to compete successfully in its relevant markets.

If needed capital resources are unavailable to the Company, the Company will be unable to implement successfully its capital expenditure plans.

The Company will need significant amounts of capital to build, expand, maintain and upgrade its facilities including the construction and outfitting of a new facility in Kunshan, Jiangsu Province, the PRC. The Company currently expects to fund its further capital expenditures from external sources, including debt and equity financing and internally generated funds. The Company’s ability to do so will depend on market conditions, its financial performance and other factors, many of which are beyond the Company’s control. Necessary funding to implement the Company’s planned capital expenditure program may not be available to it on satisfactory terms or at all.

If needed cash resources are unavailable to the Company, the Company will be unable to implement successfully its research and development plans.

To keep up with the rapid pace of technological change and to develop attractive, cost-effective products, the Company must continue to invest significantly on research and development. In the nine months ended September 30, 2002, the Company spent approximately 4.0% of its non-consolidated net operating revenues on research and development. The Company expects that its research and development expenses will remain to be high as due to rapidly changing technology and evolving industry standards for its products. The Company may not be able to generate cash flow from operations in sufficient amounts to allow it to maintain a high level of spending on research and development. Any failure to maintain adequate research and development spending could jeopardize the Company’s long-term prospects.

The Company’s operating results vary significantly

The Company experiences significant fluctuations in its results of operations. The factors that contribute to fluctuations include:

" ability and result of research and development;
" the timing of customer orders;
" the volume of these orders relative to the Company’s capacity;
" market acceptance of new products;
" changes in demand for the products and product obsolescence;
" the timing of the Company’s expenditures in anticipation of future orders;
" the Company’s effectiveness in managing manufacturing processes;
" changes in the cost and availability of labor and components;
" changes in economic conditions; and
" local factors and events that may affect the Company’s production volume, such as local holidays.

The markets for the Company’s customers’ products are subject to a certain degree of seasonality. These markets exhibit particular strength toward the end of each year in connection with holiday season sales. The Company’s first- and second-quarter revenues are ordinarily lower, and its third- and fourthquarter revenues are ordinarily higher, than average.

If the Company is unable to manage its manufacturing process successfully, the Company will not be able to achieve satisfactory production yields and its results of operations will suffer.

The Company’s manufacturing process for its products is complex and involves a number of precise steps. Defective production can result from a number of factors including:

" the cleanliness of the manufacturing environment;
" human error;
" equipment malfunction;
" use of defective components and parts; and
" inadequate testing.

From time to time, the Company has experienced lower than anticipated production yields as a result of these factors, particularly in connection with the expansion of its capacity or changes in its processing methods. The Company’s yield on new products is often lower as time is required for it to develop expertise and experience in producing these products. If the Company fails to maintain high quality production standards and yields, its reputation and profitability may suffer and the Company’s customers may cancel their orders or return products for reworking.

The Company is subject to operational risks and its insurance may not be adequate.

The operation of manufacturing facilities involves many risks and hazards, including the breakdown, failure or substandard performance of equipment, delay in delivery of equipment or improper installation or operation of equipment, difficulties in upgrading or expanding existing facilities in changing manufacturing line technologies, capacity constraints, labor disturbances, fire, natural disasters such as earthquakes or typhoons, environmental hazards and industrial accidents. The occurrence of material operational problems, including but not limited to the above events, could adversely affect the Company’s manufacturing plants. These problems could cause delivery delays and reduced output.

The Company currently maintains insurance for facilities and inventories based on the net book values. Such insurance, however, may not provide adequate coverage in certain circumstances. In addition, in accordance with industry practice, the Company does not currently carry any third party liability insurance to cover claims in respect of bodily injury or property or environmental damage resulting from accidents on the Company’s property or relating to Company operations. The Company does not carry business interruption insurance. No assurance can be given that uninsured losses and liabilities incurred by the Company will not have a material adverse effect on the Company’s results of operations.

The Company may be unable to manage its growth effectively.

The Company has grown rapidly. The Company’s ability to manage growth effectively will require it to continue to implement and improve its operational, financial and management systems, continue to develop the management skills of its managers, and continue to train, motivate and manage its employees. If the Company fails to manage growth effectively, the Company’s results of operations could be adversely affected.

The Company’s business depends in part on its ability to obtain and preserve intellectual property rights.

The Company’s ability to compete successfully and achieve future growth will depend, in part, on the Company’s ability to protect its proprietary technology. The Company relies on patents, copyrights and trade secret protection rights to protect some of its proprietary technologies and products. These measures may not provide meaningful protection of the Company’s intellectual property or commercial advantage. For example, the Company’s competitors may be able to use technologies developed by the Company and published in connection with a patent application to develop similar or superior products. The Company intends to continue to file patent applications when appropriate to protect its proprietary technologies, but the process of seeking patent protection can be lengthy and expensive. Patents may not be issued for

pending or future applications. If patents are issued, they may be challenged, invalidated or circumvented. In addition, protection of intellectual property rights in different countries may vary. See ‘‘Business — Research and Development; Core Technologies’’ and ‘‘Business — Intellectual Property’’.

The Company may be involved in intellectual property disputes.

The Company may from time to time receive communications from third parties asserting patent rights against the Company’s products and, in such circumstances, it will enter into discussions with such parties as to their respective positions and the terms of any possible licenses in respect of such patent rights. Although the Company actively seeks to protect the intellectual property rights for its products and its internal know-how, there can be no assurance that claims will not be brought by third parties against the Company from time to time. Irrespective of the validity or successful assertion of these claims, the Company could incur significant costs with respect to the defense thereof.

The Company is dependent on its ability to attract and retain qualified employees.

The Company’s success depends to a significant extent on the skills and efforts of key managerial and technical and other employees and upon its ability to continue to attract, retain and motivate qualified personnel. The Company competes with other manufacturing companies for technical and other employees and the competition for such employees is intense. There can be no assurance that the Company will be able to continue to attract and retain the services of qualified employees essential for the Company’s growth. The loss of the services of certain of these employees or an inability to attract or retain qualified employees could have a material adverse effect on the Company.

Certain existing shareholders may have a significant influence on the Company, and the interests of these shareholders may be inconsistent with the interests of the other shareholders.

As of December 31, 2002, the Company’s directors and supervisors owned approximately 22.8% of the Company’s outstanding Shares. While no person, so far as is known to the Company, directly or indirectly, jointly or severally, exercises or could exercise control over the Company, the Company’s directors and supervisors have and will continue to have the ability to exercise a significant influence over the Company’s business and policy, including the matters relating to the management and policies, the timing and distribution of dividends and the election of the directors and supervisors of the Company. This influence may be exercised in a way that may not be consistent with the interests of other shareholders.

The Company’s operations may be adversely affected by natural disasters.

The Company’s existing research and development and manufacturing facilities are located in Taiwan and mainland China, all of which are vulnerable to natural disasters. Disruption of operations at the research and development center or manufacturing facilities for any reason, including work stoppages, power outages, fires, typhoons, earthquakes or other natural disasters, would cause delays in shipments of certain products, which could lead customers to obtain products from other sources. The Company has in the past experienced a number of major power outages, each of which resulted in a brief suspension of operation. In September 1999, a major earthquake occurred with its epicenter in central Taiwan. The earthquake caused interruptions to power supply and significant damage to buildings across Taiwan. After the 1999 earthquake, there were a number of earthquakes in Taiwan in 2000, 2001 and 2002 including one in northern Taiwan on March 31, 2002. The area of Kunshan, Jiangsu Province, the PRC, where the Company’s PRC operation is located, has a history of flooding. Similar incidents may occur in the future, which could have a material adverse effect on the Company’s results of operations in Taiwan and the PRC.

The Company may be subject to changes in tax benefits and increased taxes.

The Company has structured its operations among various jurisdictions in the most tax efficient manner. If the tax rates and policies applicable to the Company are rescinded or changed or if tax authorities were to challenge successfully the manner in which profits are recognized among the members of the Company, the Company’s taxes could increase and its results of operations and cash flow could be adversely affected. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation — Income Tax’’.

The Bondholders should not rely on the Company’s financial forecasts reported from time to time pursuant to the requirements of the ROC Securities and Futures Commission, Ministry of Finance (the ‘‘ROC SFC’’).

The Bondholders should not rely on the forecasts published by the Company from time to time pursuant to the requirements of the ROC SFC as such forecasts are based upon a number of estimates and assumptions regarding the Company’s industries, investments and general market, political and economic conditions, many of which are beyond the Company’s control, and are inherently subject to significant uncertainties and contingencies. None of the information included in this Offering Circular has formed or will form the basis of the Company’s future forecasts. There is no assurance that the Company will update these forecasts, except as required by applicable laws and regulations.

Internally prepared annual financial information published by the Company from time to time pursuant to recent requirements of the ROC SFC may be inaccurate and incomplete.

Effective as of January 1, 2002, the ROC SFC requires companies listed on the TSE to publish financial forecasts to report to the TSE and to publish by the end of January each year certain internally prepared unaudited information regarding the statement of operations of such companies during the prior fiscal year. The Company has complied with this requirement after the Shares have been listed on the TSE and the Company intends to continue to comply with this requirement. The information published in response to this requirement will not be subject to the same review and scrutiny, including internal auditing procedures and review by independent auditors, to the Company’s financial information published from time to time pursuant to the requirements of the ROC SFC. Further, because this information is neither audited nor reviewed, it may vary from the Company’s audited ROC GAAP financial statements for the same period. Any such variance may be material and adverse.

Risks Relating to the Offering

Holders of the Bonds will be required to appoint several local agents in Taiwan if they convert the Bonds into Shares, which may make ownership burdensome.

Non-ROC persons wishing to convert the Bonds into Shares are required under current ROC laws and regulations to appoint an agent, called a tax guarantor, in Taiwan for filing tax returns and making tax payments on their behalf. A tax guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment, becomes a guarantor of the holder’s ROC tax obligations. Holders wishing to repatriate profits derived from the sale of Shares received upon conversion or cash dividends or interest derived from any such Shares, will be generally required to submit evidence of appointment of a tax guarantor and the approval of the appointment by the ROC tax authorities. There is no assurance that holders of the Bond will be able to appoint and obtain approval for a tax guarantor in a timely manner.

In addition, under current ROC law, non-ROC holders of the Bonds who exercise their conversion rights to receive Shares will be required to appoint a local agent in Taiwan to, among other things, open a securities trading account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. They must also appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without this local agent, the custodian and the opening of the trading account, they will not be able to hold, sell or otherwise transfer Shares.

The Bondholders’ ability to exercise their conversion rights may be limited.

The Bonds are convertible into Shares at the option of the converting Bondholders pursuant to the terms of the Bonds. Purchasers of the Bonds will not be able to exercise their conversion right during the Closed Periods, as defined in the terms and conditions of the Bonds. Under current ROC law, regulations and policy, PRC persons are not permitted to hold or convert the Bonds or to register as shareholders of the Company.

The Company has not, at the date of this Offering Circular, established or authorized the establishment of any depositary receipt facility (‘‘DRs’’). Accordingly, conversion into DRs is not currently available. If in the future a depositary receipt facility is established or authorized, the Company will, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for the Shares

issued on conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such depositary receipt facility, subject always to the terms of such depositary facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of the Shares issued on conversion of Bonds. There can be no assurance that the Company will in the future establish or authorize any DRs or that any arrangements for the deposit of Shares into such DRs would be available to all Bondholders.

Transfers of the Bonds and Shares are restricted.

Neither the Bonds nor the Shares have been, nor will they be, registered under the securities laws of the United States or elsewhere and neither the Bonds nor the Shares may be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where such registration may be required. See ‘‘Underwriting’’. The Bonds may not be publicly offered or sold, directly or indirectly, in the ROC.

An active trading market for the Bonds may not develop.

The Bonds are a new issue of securities for which there is currently no trading market. The Company cannot predict whether an active trading market for the Bonds will develop or be sustained. If an active trading market is to develop, the Bonds may be trading at prices that are lower than the initial offering price. Whether or not the Bonds will trade at lower prices depends on many factors, including:

" prevailing interest rates and the markets for similar securities;
" general economic conditions; and
" the Company’s financial condition, historic financial performance and future prospects.

If an active market for the Bonds fails to develop or be sustained, the trading price of such Bonds could be materially adversely affected. Application has been made to have the Bonds listed on the Luxembourg Stock Exchange. However, there can be no assurance that the Company will be able to obtain or be able to maintain such a listing or that, if listed, a trading market will develop on the Luxembourg Stock Exchange. The Company does not intend to apply for listing of the Bonds on any securities exchange other than the Luxembourg Stock Exchange. The Bonds may not be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where registration may be required.

Shares eligible for future sale by the current shareholders may adversely affect the market price of the Shares.

While the Company is not aware of any plans by any major shareholders to dispose of a significant amount of Shares, it cannot assure that one or more of the shareholders will not dispose of the Shares in the future. The Company also cannot predict the effect, if any, that future sales of the Shares, or the availability of the Shares for future sale, will have on the market price of the Shares prevailing from time to time. Sales of substantial amounts of Shares in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the Shares.

A Bondholder or its designee requesting the conversion of its Bonds into Shares may be required to provide certain information to the Company, and failure to provide such information may prevent conversion or cause the conversion to be delayed

A Bondholder or its designee requesting the conversion of its Bonds into Shares may be required to provide certain information to the Company or the conversion agent, including the name and nationality of the person to be registered as the shareholder and the number of Shares such person is acquiring and has acquired in the past through conversion of Bonds held by it, and supporting documents, before such conversion will be effected. Under applicable ROC laws, the Company is required to report to the ROC SFC if the person to be registered as a shareholder: (i) is a ‘‘related party’’ of the Company as defined in Statement of Financial Accounting Standard No. 6 of the ROC or (ii) will hold, immediately following such conversion, more than 10% of the total number of Shares deliverable upon the conversion of the aggregate principal amount of all Bonds at the time of issue. The conversion of the Bonds may be delayed if such information is not provided.

Risks Relating to the ROC

Disruptions in the ROC’s political environment could seriously harm the Company’s business.

The Company’s principal executive office and a substantial portion of its assets are located in Taiwan and most of its net operating revenues are derived from the operations in the ROC. Accordingly, the financial condition and results of operations of the Company and the market price of the Shares may be affected by changes in ROC governmental policies, taxation, inflation, interest rates, social instability and other political, economic, diplomatic or social developments in or affecting ROC which are outside of the Company’s control.

The ROC has a unique international political status. The PRC asserts sovereignty over mainland China and Taiwan and does not recognize the legitimacy of the ROC government. The ROC government resists sovereignty of the PRC and holds the ROC as a state with full sovereignty power equal to the PRC’s. President Chen of the ROC recently announced ‘‘one side, one state’’ policy, which was unwelcomed by the PRC government. Although significant economic and cultural relations have been established in recent years between the ROC and the PRC, the government in the PRC has refused to renounce the possibility that it may at some point use force to gain control over the ROC. Relations between the ROC and the PRC and aspects of the ROC’s political environment could negatively affect the Company’s business and the market price of the Shares. The adverse economic conditions in Taiwan may affect the Company and the prices of its Shares and the Bonds.

The economy in the ROC has experienced significant downturns and related difficulties in recent years. The value of NT Dollars has fluctuated significantly since 1998. See ‘‘Exchange Rates’’. In addition, the capital markets in the ROC have experienced substantial downfalls in recent years. The adverse economic conditions in Taiwan could materially and adversely affect the Company’s business, results of operations and financial condition. The adverse economic conditions may also adversely affect the prices of the Company’s Shares and the Bonds.

Foreign exchange approvals may be required.

Under existing ROC law, foreign exchange approvals must be obtained from the Central Bank of China (the ‘‘CBC’’) on a payment-by-payment basis for the conversion into foreign currencies of the net proceeds realized from sale of the Shares issued on conversion of Bonds or any dividends relating to such Shares, or of any cash dividends or other cash distributions in respect of such Shares, as well as for inward remittances of subscription payments in connection with a rights issue. In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each remittance. There can be no assurance that any such approval will be obtained in a timely manner or at all. See ‘‘Foreign Investment and Exchange Controls in the ROC — Overseas Corporate Bonds’’.

Financial reporting and accounting standards in the ROC differ from other countries.

The Company is subject to financial reporting requirements in the ROC that differ in significant respects from those applicable to companies in certain other countries, including the United States. In addition, the Company’s financial statements are prepared in accordance with the ROC GAAP, which differ in certain material respects from U.S. GAAP. See ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’. Potential investors should consult their own professional advisers for an understanding of such differences and how they might affect the financial information contained herein.

In particular, on a non-consolidated basis, the Company paid employee bonuses of 10.0% of the distributable after-tax profits, after having set aside 10% as a legal reserve, in the year 2002, in the form of Shares and cash and expects that, subject to shareholders’ approval, it will pay all or some of employees’ bonuses for future periods in the form of Shares or cash or combination of the two. The Company distributed an aggregate of 2,853,969 Shares in the years 2002 to its employees. In such case, the number of Shares distributed is obtained by dividing the total nominal NT Dollar amount of the bonus by the par value of the Shares rather than their market value, which has generally been substantially higher than par value. Under ROC GAAP, the distribution of employees bonus shares is treated as an allocation from retained earnings when the distribution of employees bonus shares is approved by the shareholders and the relevant regulatory authorities, and the Company is not required to, and does not, charge the value of the employees

bonus shares as expense. Under U.S. GAAP, however, the Company would be required to initially accrue the bonus as compensation costs when services are rendered. When bonuses are approved by shareholders in the subsequent year, an additional compensation cost would be recorded for the difference between the par value and the fair market value/intrinsic value of the shares granted to employees. Correspondingly, the Company’s net income and income per share calculated in accordance with U.S. GAAP would be reduced. This difference in treatment between ROC GAAP and U.S. GAAP may be material.

In addition, because the Shares issued under the employees share bonus scheme are issued at par value, which usually may be less than market value, such issuances may have a dilutive effect on existing shareholders. However, the Conversion Price of the Bonds will be adjusted for such issuances.

Risks relating to the PRC

The Company is subject to the political and economic situation and legal developments in the PRC.

Currently a substantial part of the Company’s operations and assets are located in the PRC and the Company expects to make further investments in the PRC in the future. Accordingly, financial condition, results of operations and future prospects of the Company are subject, to a significant degree, to the political and economic situation and legal developments in the PRC. Prior to 1978, the PRC had adopted a central economic planning system. All production and economic activities in the country were governed by the economic goals set out in the five-year plans and annual plans adopted by central authorities. Since 1978, the PRC government has permitted foreign investment and implemented economic reforms, gradually changing from a planned economy towards a market-oriented economy. However, many of the reforms and economic policies adopted or to be adopted by the PRC government are unprecedented or experimental in nature and may have unforeseen results, which may have an adverse effect on enterprises with substantial business in the PRC, including the Company.

The Company is subject to risks associated with the PRC legal system.

Since 1979, many laws and regulations dealing with general economic matters or particular economic activities have been promulgated in the PRC. However, enforcement of existing laws and regulations may be uncertain and sporadic and implementation and interpretation thereof may be inconsistent. The PRC judiciary is relatively inexperienced in enforcing the laws and regulations that currently exist, leading to a degree of uncertainty as to the outcome of any litigation. Further, it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The PRC’s legal system is based on written statutes and, therefore, decided legal cases do not have binding legal effect, although they are often followed by judges as guidance. The introduction of new PRC laws and regulations and the interpretation of existing laws and regulations may be subject to policy changes reflecting domestic political or social changes. As the PRC legal system develops, there can be no assurance that changes in such legislation or interpretation thereof will not have a material adverse effect on the business, financial condition, results of operations and future prospects of the Company.

USE OF PROCEEDS

The net proceeds from the offering are approximately U.S.$59,280,000. The Company will use the net proceeds for overseas raw material procurement.

MARKET PRICE INFORMATION

The Shares have been quoted and traded on the TSE since December 24, 2002. The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the TSE for the Shares (adjusted for the effects of rights issues, employees’ bonus issues and stock dividends) and the high and low of the daily closing values of the TSE Index.

2002 December (Listed). . . . . . . . . . . 2003 January . . . . . . . . . . . . . . . . . . February (through February 13). .	Closing Price per Share High Low (NT$) 110.0 81.0 118.0 93.0 102.5 99.5	Average Daily Trading Volume (in thousands of Shares) 2,474.5 1,647.6 549.5	TSE index	TSE index
			High 4,823.67 5,078.80 4,833.58	Low
				4,452.45 4,524.87 4,507.96

Sources: TSE, Taiwan Economic Journal

On February 13, 2003, the reported closing price of the Shares was NT$99.5 per Share and the TSE Index closed at 4,507.96.

DIVIDENDS AND DIVIDEND POLICY

The Company paid stock and cash dividends on the Shares for the first time in 2002. A cash dividend of NT$0.5 per share and a stock dividend of NT$3.5 with respect to fiscal year 2001 were approved at the Company’s annual meeting of shareholders held on May 27, 2002. The cash dividend was paid in July 2002.

The following table sets forth the aggregate number of outstanding Shares entitled to dividends, as well as the stock dividends distributed in June 2002. The stock dividends per Share represent dividends paid in the fiscal year for the Shares outstanding on the record date applicable to the payment of these dividends.

Year 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes:	Stock dividends per Share(1) (NT$) 3.5	Total Shares issued as stock dividends 25,834,156	Outstanding Shares on record date(2)
			73,811,875

(1) Holders of Shares received as a stock dividend the number of Shares equal to the NT Dollar value per Share of the dividend declared multiplied by the number of Shares owned and divided by the par value of NT$10 per Share. Fractional Shares are not issued but are paid in cash.
(2) Aggregate number of Shares outstanding on the record date applicable to the dividend payment.

The Company pays dividends on the Shares with respect to the preceding year after approval by the shareholders at the annual general meeting of shareholders. The form, frequency and amount of future cash or stock dividends on the Shares will depend upon the Company’s profits, capital structure and future operation need.

Under the ROC Company Law, except under certain limited circumstances, an ROC company is not permitted to distribute dividends or make any other distributions to shareholders in any year in which the company has no earnings.

The ROC Company Law also requires that 10% of the Company’s annual earnings, less prior years’ losses, if any, and outstanding tax, should be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company may set aside a special reserve in accordance with applicable laws and regulations. The Company’s Articles of Incorporation provide that the Company may distribute earnings to shareholders after having set aside the following items in the order they are listed in accordance with the resolution adopted by the board of directors and approved by the shareholders’ meeting:

" payment of all taxes;
" making up all past losses;
" allocation of 10% as a legal reserve and a special reserve according to the ROC Securities and Exchange Law;
" allocation of 10% as employee bonuses; and
" allocation of 2% to the directors and supervisors as remuneration.

The Company’s Articles of Incorporation also provide that the employee bonuses may be distributed to the employees of the Company’s subsidiaries of which the Company holds more than 50% of outstanding shares.

In addition, the Company’s Articles of Incorporation provide that 50% to 90% of the Company’s distributable earnings shall be distributed in the form of stock dividends, and 10% to 50% of the Company’s distributable earnings shall be distributed in the form of cash.

EXCHANGE RATES

Fluctuations in the exchange rate between NT Dollars and U.S. Dollars will affect the U.S. Dollar equivalent of the NT Dollar price of the Shares on the TSE and, as a result, may affect the market price of the Bonds.

The following table shows the exchange rates for New Taiwan Dollars expressed in New Taiwan Dollars per U.S.$1.00.

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September . . . . . . . . . . . . . . . . . . . . . . . . . . . . October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November . . . . . . . . . . . . . . . . . . . . . . . . . . . . December. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February (through February 12). . . . . . . . . . . . . .	Average 33.47 32.27 31.23 33.80 35.02 35.06 35.01 34.90 34.44 33.96 33.39 33.96 34.56 34.95 34.70 34.85 34.60 34.78	High 35.02 33.24 33.20 35.16 35.10 35.13 35.09 35.00 34.63 34.16 33.87 34.24 34.99 35.17 34.86 34.95 34.81 34.85	Low 31.97 31.46 30.28 32.27 34.89 34.96 34.92 34.72 34.02 33.53 32.94 33.66 34.11 34.76 34.41 34.75 34.44 34.74	At period-end
				32.21 31.46 33.08 34.95 34.96 35.11 35.00 34.72 34.13 33.53 33.75 34.24 34.92 34.76 34.81 34.75 34.69 34.81

Source: Bank of Taiwan

On February 12, 2003, the closing rate between the NT Dollar and the U.S. Dollar was NT$34.81 = U.S.$1.00.

CAPITALIZATION

The following table sets forth the short-term debt and the capitalization of the Company as of December 31, 2001 on a consolidated basis, as adjusted to reflect the issuance of the Bonds. This table should be read in conjunction with the Company’s consolidated financial statements for the year ended and as of December 31, 2001 included elsewhere in this Offering Circular, which were prepared in accordance with ROC GAAP and which may differ in material respects from U.S. GAAP or the generally accepted accounting principles of certain other countries. See ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’.

As of December 31, 2001	As of December 31, 2001	As of December 31, 2001
Actual As adjusted NT$ U.S.$(1) NT$ U.S.$(1) (in millions) — — — — — — — — — — 2,097.0 60.0 738.1 21.1 738.1 21.1 384.0 11.0 384.0 11.0 317.9 9.1 317.9 9.1 — — — — 14.1 0.4 14.1 0.4 1,454.1 41.6 1,454.1 41.6 1,454.1 41.6 3,551.1 101.6	As adjusted
NT$ — — — 738.1 384.0 317.9 — 14.1 1,454.1 1,454.1		U.S.$(1) — —
		60.0 21.1 11.0 9.1 — 0.4
		41.6
		101.6

(1) New Taiwan Dollar amounts have been translated into U.S. Dollars (and the principal amount of the Bonds, being U.S.$60,000,000, has been translated into New Taiwan Dollars) using the average of noon buying and selling exchange rates published by the Bank of Taiwan on December 31, 2001 of NT$34.95 = U.S.$1.00 solely for the convenience of the reader.

The following table sets forth the non-consolidated short-term debt, and the capitalization of Altek as of September 30, 2002 and as adjusted to reflect the issuance of the Bonds.

As of September 30, 2002	As of September 30, 2002	As of September 30, 2002
Actual As adjusted NT$ U.S.$(1) NT$ U.S.$(1) (in millions) — — — — — — — — — — 2,095.2 60.0 1,155.0 33.1 1,155.0 33.1 740.9 21.2 740.9 21.2 414.1 11.8 414.1 11.8 31.8 0.9 31.8 0.9 13.9 0.4 13.9 0.4 2,355.7 67.4 2,355.7 67.4 2,355.7 67.4 4,450.9 127.4	As adjusted
NT$ — — — 1,155.0 740.9 414.1 31.8 13.9 2,355.7 2,355.7		U.S.$(1) — —
		60.0 33.1 21.2 11.8 0.9 0.4
		67.4
		127.4

(1) New Taiwan Dollar amounts have been translated into U.S. Dollars (and the principal amount of the Bonds, being U.S.$60,000,000, has been translated into New Taiwan Dollars) using the average of noon buying and selling exchange rates published by the Bank of Taiwan on September 30, 2002 of NT$34.92 = U.S.$1.00 solely for the convenience of the reader.

The Company does not have any outstanding convertible or exchangeable bonds. Except as set forth above, there has been no material change in non-consolidated long-term debt and common stock of the Company since September 30, 2002.

SELECTED FINANCIAL DATA

The following table presents selected financial data for the Company. The selected consolidated financial data for the years ended December 31, 1999, 2000 and 2001 presented in this table are derived from the Company’s audited consolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The selected non-consolidated financial data for the nine months ended September 30, 2001 and 2002 have been derived from the Company’s unaudited non-consolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The Company’s financial statements were prepared using ROC GAAP and are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in other countries and jurisdictions, including the U.S. and U.K. ROC GAAP differs in many material respects from U.S. GAAP. For a discussion of these differences, see ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’ included elsewhere in this Offering Circular. The summary financial data set forth below should be read in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the Company’s financial statements and the notes to those statements included elsewhere in this Offering Circular.

Statement of Income Data: Net operating revenues. . . . . . . Cost of sales. . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . Total operating expenses . . . . . Operating income (loss) . . . . . . Non-operating income . . . . . . . Non-operating expenses . . . . . . Income (loss) before income tax Income tax expenses . . . . . . . . Preacquisition loss. . . . . . . . . . Net income (loss) . . . . . . . . . . Per Share Data: Earnings (loss) per Share — net income (in dollars) . . . . . . .	Consolidated Year ended December 31, Non-consolidated Nine months ended September 30, 1999 2000 2001 2001 2001 2002 2002 NT$ NT$ NT$ U.S.$(1) NT$ NT$ U.S.$(1) (audited) (unaudited) (in millions, except per Share data) 286.0 2,347.4 3,837.9 109.8 2,304.2 3,303.6 94.6 336.2 2,179.8 3,217.6 92.1 1,940.8 2,683.8 76.9 (50.2) 167.6 620.3 17.7 363.4 619.8 17.7 67.2 112.6 296.3 8.4 149.9 204.2 5.8 (117.4) 55.0 324.0 9.3 213.5 415.6 11.9 6.9 42.5 127.1 3.6 106.2 37.0 1.0 5.5 16.8 36.9 1.1 40.0 63.8 1.8 (116.0) 80.7 414.2 11.8 279.7 388.8 11.1 — — 10.0 0.2 — 5.0 0.1 — 2.4 — — — — — (116.0) 83.1 404.2 11.6 279.7 383.8 11.0 (3.28)(2) 1.42(2) 5.48(2) 0.16(2) 2.73(2) 3.58(2) 0.10	Non-consolidated Nine months ended September 30,	Non-consolidated Nine months ended September 30,
			2002

Balance Sheet Data: Cash . . . . . . . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . Working capital . . . . . . . . . . . Long-term investments. . . . . . . Plant and equipment . . . . . . . . Total assets . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . Total liabilities . . . . . . . . . . . . Stockholders’ equity . . . . . . . .		Consolidated As of December 31,	Non-consolidated As of September 30, 2001 2001 2002 2002 U.S.$(1) NT$ NT$ U.S.$(1) (unaudited) except per Share data) 23.6 848.9 1,229.0 35.2 55.3 1,783.2 3,715.6 106.4 38.1 1,148.7 2,077.0 59.5 — 101.3 156.3 4.5 1.1 50.0 120.8 3.5 58.8 1,958.2 3,995.8 114.4 17.2 634.5 1,638.6 46.9 17.2 634.5 1,640.1 47.0 41.6 1,323.7 2,355.7 67.4	Non-consolidated As of September 30,	Non-consolidated As of September 30,
	1999 NT$ 23.4 346.5 171.5 — 32.3 419.7 175.0 175.0 244.7	2000 2001 NT$ NT$ (audited) (in millions, 391.3 825.8 1,784.1 1,931.8 874.0 1,331.4 — — 36.9 37.0 1,954.2 2,054.8 910.1 600.4 910.2 600.7 1,044.0 1,454.1			2002
					U.S.$(1) 35.2 106.4 59.5 4.5 3.5 114.4 46.9 47.0 67.4

Notes:

(1) Translated into United States Dollars using the average of noon buying and selling rates published by the Bank of Taiwan on December 31, 2001 of NT$34.95 = U.S.$1.00, and on September 30, 2002 of NT$34.92 = U.S.$1.00. Such translation amounts are unaudited and should not be construed as representations that the NT Dollar amounts were, or have been, or could be, converted into U.S. Dollars at that or any other rate.
(2) Earnings (loss) per Share are calculated by dividing net income by the weighted average number of Shares outstanding during each year after adjusting retroactively for the effect of stock dividends and employees’ bonuses.

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

This discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and its consolidated subsidiaries and the Non-Consolidated Financial Statements of the Company included elsewhere in this Offering Circular. Such financial statements are English translations of the auditors’ report and financial statements in Chinese prepared for and used in the ROC. The financial statements are not intended to present the financial position and results of operations and cash flows of the Company and its consolidated subsidiaries and the Company, as the case may be, in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than those in the ROC. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the ROC. See ‘‘Summary of Significant Differences between ROC GAAP and U.S. GAAP’’. The Company has not quantified the effect of the differences that would arise in the event that its financial condition and results of operations were restated or reconciled to U.S. GAAP; however, some of these differences could be material. See ‘‘Risk Factors — Risks Relating to the ROC — Financial reporting and accounting standards in the ROC differ from other countries’’. This Offering Circular contains both consolidated financial statements of the Company and its consolidated subsidiaries and non-consolidated financial statements of the Company as of and for the years ended December 31, 1999, 2000 and 2001. It also contains non-consolidated financial statements of the Company as of and for the nine months ended September 30, 2001 and 2002. It is not possible to make direct comparisons between information contained in the Consolidated Financial Statements and Non-Consolidated Financial Statements. The Company is not required to, and does not, prepare interim financial statements on a consolidated basis.

This discussion and analysis contains forward-looking statements. These statements are subject to certain risks and uncertainties, including those discussed below and in Risk Factors, that could cause actual results to differ materially from the expectations expressed in such forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statement.

Overview

The Company is capable of developing and manufacturing certain key components of a digital still camera in-house or through its strategic alliances. For example, the application specific integrated circuits (‘‘ASIC’’) chip installed in the Company’s products is developed and designed by the Company’s 88.29% owned subsidiary, Altek Lab Inc. This chip is a multi-functional system control chip that features image processing, algorithm, and system control, including shutter, flash, power management and in- and out-flow of signals. The Company believes that its ability to integrate technologies in such areas as optics, systems and image processing, together with technical know-how applied to large-scale production and cost efficiency gives it a competitive advantage in an industry that is capital-, labor- and technology-intensive.

between optics, mechanics and electronics to achieve the goal of efficient power management, portability and possibility of mass production; (ii) optical system design to ensure the quality of image captured by digital processing devices; and (iii) digital image processing technology, such as algorithm and digital image compression.

Basis of Presentation

This Offering Circular contains both consolidated financial statements of Altek and its consolidated subsidiaries and non-consolidated financial statements of Altek as of and for the years ended December 31, 1999, 2000, and 2001. This Offering Circular also contains non-consolidated financial statement of Altek as of and for the nine-months ended September 30, 2001 and 2002.

The consolidated financial statements present the financial statements of Altek and its consolidated subsidiaries on a consolidated basis, after eliminating all significant inter-company accounts and transactions.

Under ROC GAAP, a company is required to consolidate financial results of any subsidiary whose total assets or net operating revenues exceed 10% of the company’s non-consolidated total assets or net operating revenues, as the case may be. A subsidiary is defined as any corporation or other business entity more than 50% of the outstanding voting stock of which is owned directly or indirectly by the Company. In addition, the ROC Securities and Futures Commission requires Altek to consolidate the financial statements of each subsidiary whose total assets or net operating revenues exceed 3% of the Company’s nonconsolidated total assets or net operating revenues, if the total assets or net operating revenues of all nonconsolidated subsidiaries of the Company exceed 30% of the Company’s non-consolidated total assets or net operating revenues, as the case may be. However, a company may elect to consolidate the financial statements of all its more than 50%-owned subsidiaries regardless the amounts of such subsidiaries’ assets or net operating revenues. Based on this principle, the Company consolidated the financial statements of Altek International Investment Co. Ltd. and Altek Lab Inc. for its consolidated financial statements for the years ended and as of December 31, 1999, 2000 and 2001.

Revenues

The Company derives its revenue primarily from the manufacturing and sale of digital still cameras. The Company has experienced rapid growth in net operating revenues in recent years. On a consolidated basis, the Company’s net operating revenues increased by 720.7% from 1999 to 2000 and 63.5% from 2000 to 2001. The increases in net operating revenues in 2000 and 2001 were primarily due to increases in sales volume resulted from sales to the Company’s major customer. On a non-consolidated basis, the Company’s net operating revenues increased by 43.4% from the nine months ended September 30, 2001 to the nine months ended September 30, 2002, primarily due to increases in sales volume results from increased sales to the Company’s major customer, as well as increased sales to a new customer.

The following table sets out the Company’s consolidated net operating revenues for the three years ended December 31, 1999, 2000 and 2001, and Altek’s non-consolidated net operating revenues for the nine-month periods ended September 30, 2001 and 2002 by customers:

	Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,	Nine months ended September 30,	Nine months ended September 30,
1999	% — — 21.5 78.4 0.1 100.0	2000	% 78.5 — 12.2 6.0 3.3 100.0	2001	2002
NT$ (in millions) — — 61.3 224.4 0.3 286.0		NT$ (in millions) 1,843.8 — 285.9 139.8 77.9 2,347.4		NT$ (in millions) 3,743.9 — — — 94.0 3,837.9	NT$ (in millions) 2,280.9 972.4 — — 50.3 3,303.6	% 69.1 29.4 — — 1.5
						100.0

All of the net operating revenues derive from sales made by Altek. As a result, the Company’s net operating revenues would be identical on a consolidated basis and non-consolidated basis for the years ended December 31, 1999, 2000 and 2001 and for the nine months ended September 30, 2001 and 2002.

Cost of Sales

The Company’s cost of sales consists principally of:

" costs of raw materials, including chipsets, CCDs, lens, LCD, printed circuit boards and other electronic components;
" direct labor costs; and
" overhead, including depreciation of property, plant and equipment, amortization of intangible assets, and costs of outsourcing production to third parties.

Gross Margin

On a consolidated basis, the Company’s gross margin for 2001 was 16.2%, compared with 7.1% for 2000 and (17.6)% for 1999. The Company commenced principal commercial operations in April 1999. In 1999, due to substantial ramp up expenses, the Company recorded negative gross margin. The substantial increases of gross margins in 2000 and in 2001 were mainly due to (i) improved product design and (ii) decreases in unit costs resulted from increases in sales. On a non-consolidated basis, gross margin increased to 18.8% in the first nine months in 2002 due to (i) further decreases in unit costs as a result of increased sales and (ii) declining prices for certain key components such as DRAMs and LCD panels.

Operating Income and Margin

On a consolidated basis, the Company’s operating income has increased significantly over 1999 and 2000 from NT$(117.4) million in 1999 to NT$55.0 million in 2000 and further to NT$324.0 million (U.S.$9.3 million) in 2001. Operating margin was (41.1)% in 1999, 2.3% in 2000 and 8.4% in 2001. On a non-consolidated basis, the Company’s operating income in the first nine months in 2002 was NT$415.6 million (U.S.$11.9 million), while operating margin was 12.6%.

Product Pricing Trends

The following table sets forth the average selling prices of the Company’s digital still cameras for the periods indicated:

Year ended December 31, 1999 2000 2001 (Consolidated) (NT$ per unit) 6,263 4,028 4,410	Year ended December 31, 1999 2000 2001 (Consolidated) (NT$ per unit) 6,263 4,028 4,410	Nine months ended September 30,	Nine months ended September 30,
1999 6,263	2000 (Consolidated) 4,028	2001 2002 (Non-Consolidated) 4,270 3,787	2002

The Company’s sales are normally priced pursuant to purchase orders negotiated with customers which generally cover one month or less of deliveries. As a result of the short periods covered by purchase orders, the Company is frequently in ongoing discussions with its customers over product prices. Particularly in the case of the Company’s major customers, the customers can ask for price reductions when placing large orders, often emphasizing the importance of their orders to the Company and their past volume purchases to support their bargaining position.

Cost Reduction Initiatives

The Company seeks to reduce its variable manufacturing costs and its unit fixed costs by (i) maximizing sales volumes, (ii) maintaining high production yields, (iii) moving a substantial portion of its production to the PRC and (iv) taking the advantages of its economics of scale to negotiate vigorously with its suppliers to reduce costs of raw materials. Under this approach, declines in the average selling prices of the Company’s products were partially offset by declines in its unit costs.

Results of Operations

The following table summarizes certain items from the Company’s results of operations for the years ended December 31, 1999, 2000 and 2001 and nine months ended September 30, 2001 and 2002, in each case as a percentage of net operating revenues:

Net operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preacquisition loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Years ended December 31, 1999 2000 2001 (consolidated) % % % 100.0 100.0 100.0 117.6 92.9 83.8 (17.6) 7.1 16.2 23.5 4.8 7.8 (41.1) 2.3 8.4 2.4 1.8 3.3 1.9 0.7 0.9 (40.6) 3.4 10.8 — — 0.3 — 0.1 — (40.6) 3.5 10.5	Nine months ended September 30,	Nine months ended September 30,
		2001 2002 (non-consolidated) % % 100.0 100.0 84.2 81.2 15.8 18.8 6.5 6.2 9.3 12.6 4.6 1.1 1.7 1.9 12.2 11.8 — 0.2 — — 12.2 11.6	2002
			18.8 6.2
			12.6 1.1 1.9
			11.8 0.2 —
			11.6

The markets for the Company’s products are subject to a certain degree of seasonality. These markets usually exhibit strength toward the end of each year in connection with holiday season sales. Accordingly, as illustrated by the following table, the Company’s third- and fourth-quarter revenues are ordinarily higher, and its first- and second-quarter sales are usually lower, than average. The following table derives from the Company’s unaudited non-consolidated financial statements.

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	First Quarter 1,142 126,278 791,955 971,480	Second Quarter 70,467 135,449 507,387 386,519	Third Quarter NT$’000 126,640 637,186 1,004,846 1,945,548	Fourth Quarter Total 87,768 286,017 1,448,486 2,347,399 1,533,712 3,837,900 3,889,596(1) 7,193,143(2)

Note:

(1) Based on the Company’s management accounts, not reviewed by the Company’s auditors.
(2) Because the quarterly net operating information for 2002 consists of both information reviewed but unaudited by the Company’s auditors and information derived from the Company’s management accounts, the information for the total net operating revenues for 2002 may not be meaningful.

Consolidated operating results

2001 compared to 2000

Revenues. Net operating revenues in 2001 were NT$3,837.9 million (U.S.$109.8 million), representing an increase of 63.5% from NT$2,347.4 million in 2000. The increase was attributable to increases in sales volume mainly from sales to the Company’s major customer.

Cost of sales. Cost of sales increased by 47.6% from NT$2,179.8 million in 2000 to NT$3,217.6 million (U.S.$92.1 million) in 2001. This increase reflected increases in raw materials costs, director labor costs and overhead resulted from the increase in the Company’s net operating revenues.

Gross profit and gross margin. Gross profit increased significantly by 270.1% from NT$167.6 million in 2000 to NT$620.3 million (U.S.$17.7 million) in 2001. Gross margins in 2000 and 2001 were 7.1% and 16.2%, respectively. Gross margin increased in 2001 as (i) the Company was able to reduce its unit production cost as it achieved higher economies of scale and better production yields and (ii) the average selling prices increased due to improved product mix.

Operating expenses and income from operations.

Total operating expenses in 2001 increased to NT$296.3 million (U.S.$8.4 million), from NT$112.6 million in 2000, an increase of 163.2% over 2000. The increase was attributable to increases in:

" selling expenses of NT$26.9 million, primarily due to an increase in bad debt provision, the majority of which were reversed in 2002, as well as an increase in advertising and sampling expenses and in compensation expenses for the Company’s sales and marketing personnel;
" administrative expenses of NT$34.4 million, primarily due to increased compensation expenses for the Company’s administrative personnel; and
" research and development expenses of NT$122.4 million, primary due to an increase in compensation expenses for the Company’s research and development personnel and increases in depreciation and amortization expenses and testing material expenses.

Operating expenses as a percentage of net operating revenues increased from 4.8% in 2000 to 7.8% in 2001. Selling expenses were 0.4% in 2000 and 1.0% in 2001. Administrative expenses were 1.6% in 2000 and 1.9% in 2001. Research and development expenses were 2.8% in 2000 and 4.9% in 2001.

Operating income increased by 489.1% from NT$55.0 million in 2000 to NT$324.0 million (U.S.$9.3 million) in 2001. Operating margins were 2.3% in 2000 and 8.4% in 2001.

Non-operating income. Total non-operating income increased to NT$127.1 million (U.S.$3.6 million) in 2001 compared to NT$42.5 million in 2000. The increase was mainly attributable to a 106.2% decrease in net foreign currency exchange gain resulted from a U.S. Dollar appreciation in relation to the NT Dollar and a 178.2% increase in interest income due to higher cash position.

Non-operating expenses. Total non-operating expenses increased to NT$36.9 million (U.S.$1.1 million) in 2001 compared to NT$16.8 million in 2000. The increase was mainly attributable to an increase of NT$6.1 million in loss on market value decline and obsolescence of inventories and an increase of NT$2.6 million in loss on disposal of property and equipment.

Net income. Income before income tax increased to NT$414.2 million (U.S.$11.8 million) in 2001, comparing to NT$80.7 million in 2000. Income tax expenses increased by NT$10.0 million from NT$25,000 in 2000 to NT$10.0 million (U.S.$287,000) in 2001. Net income increased to NT$404.2 million (U.S.$11.6 million) in 2001, compared to NT$83.1 million in 2000.

2000 Compared to 1999

Revenues. Net operating revenues in 2000 were NT$2,347.4 million, representing an increase of 720.8% from NT$286.0 million in 1999. The increase was attributable to increases in sales volume.

Cost of sales. Cost of sales increased by 548.4% from NT$336.2 million in 1999 to NT$2,179.8 million in 2000. This increase was generally in line with the increase in the Company’s net operating revenues.

Gross profit (loss) and gross margin. Gross profit was NT$167.6 million in 2000, compared to a loss of NT$50.2 million in 1999. Gross margins in 1999 and 2000 were (17.6)% and 7.1%, respectively. The Company commenced its commercial production in April 1999 and incurred higher production costs while it ramped up its production. In 2000, due to better production yields and lower unit production cost resulted from higher sales volume, the Company’s gross margin substantially improved.

Operating expenses and income (loss) from operations.

Total operating expenses in 2000 increased to NT$112.6 million, from NT$67.2 million in 1999, an increase of 67.5% over 2000. The increase was attributable to increases in:

" selling expenses of NT$4.8 million, primarily due to increased compensation expenses for the Company’s sales and marketing personnel;
" administrative expenses of NT$21.4 million, primarily due to increased compensation expenses for the Company’s administrative personnel; and
" research and development expenses of NT$19.2 million, primary due to an increase in compensation expenses for the Company’s research and development personnel and increases in depreciation and amortization expenses and testing material expenses.

Operating expenses as a percentage of net operating revenues was 23.5% in 1999 and 4.8% in 2000. The substantial decrease was mainly because the Company did not commence commercial operation until April 1999. Selling expenses were 1.8% in 1999 and 0.4% in 2000. Administrative expenses were 5.8% in 1999 and 1.6% in 2000. Research and development expenses were 15.9% in 1999 and 2.8% in 2000.

Operating income was NT$55.0 million in 2000, compared to a loss of NT$117.4 in 1999. Operating margins were (41.1)% in 1999 and 2.3% in 2000.

Non-operating income. Total non-operating income increased to NT$42.5 million in 2000 compared to NT$6.9 million in 1999. The increase was attributable to a net foreign exchange gain of NT$28.2 million and an increase of NT$6.2 million in interest income.

Non-operating expenses. Total non-operating expenses increased to NT$16.8 million in 2000 compared to NT$5.5 million in 1999. The increase was attributable to an increase of NT$11.1 million in loss on market value decline and obsolescence of inventories and an increase of NT$1.7 million in interest expenses. These increases were partially offset by a net loss in foreign currency exchange of NT$2.6 million in 1999.

Net income (loss). Income before income tax was NT$80.7 million in 2000, compared to a loss of NT$116.0 million in 1999. Income tax expenses increased by NT$21,000 to NT$25,000 in 2000 from NT$4,000 in 1999. Net income was NT$83.1 million in 2000, compared to a loss of NT$116.0 million in 1999.

Non-consolidated operating results

Net operating revenues for the fourth quarter of 2002

Altek’s net operating revenues for the fourth quarter of 2002 were NT$3,889.6 million, representing an increase of 153.6% from the comparable period of 2001.

Nine months ended September 30, 2002 compared to nine months ended September 30, 2001

Revenues. Total net operating revenues of Altek in the first nine months of 2002 were NT$3,303.6 million (U.S.$94.6 million), representing an increase of 43.4% over the comparable period of 2001. The increase was attributable to increased sales volume both from sales to the Company’s existing customer and to a new customer.

Cost of sales. Cost of sales in the first nine months of 2002 rose to NT$2,683.8 million (U.S.$76.9 million), an increase of 38.3% compared to the comparable period in 2001. This increase was generally in line with the growth in total revenues.

Gross profit and gross margin. Gross profit increased by 70.6% to NT$619.8 million (U.S.$17.7 million) in the first nine months of 2002. Gross margins were 18.8% in the first nine months of 2002, compared to 15.8% in the comparable period of 2001. The gross margins increased primarily due to improved production yields and decreased unit production cost resulted from increased sales volume.

Operating expenses and operating income. Total operating expenses increased to NT$204.2 million (U.S.$5.8 million) in the first nine months of 2002, an increase of 36.2% over the comparable period of 2001. The increase in operating expenses was mainly attributable to increases in:

" administrative expenses of NT$30.4 million, primarily due to (i) an increase in rental expenses as the Company started to lease additional space for its headquarter and (ii) increased compensation expenses for the Company’s administrative personnel; and
" research and development expenses of NT$44.8 million, primary due to increased compensation expenses for the Company’s research and development personnel and increases in depreciation and amortization expenses and testing material expenses.

The increases in administrative expenses and research and development expenses were partially offset by a decrease of NT$20.9 million in selling expenses, primarily due to decreases in bad debt provision and sampling expenses.

Altek’s non-consolidated operating income of the first nine months of 2002 increased by 94.7% to NT$415.6 million (U.S.$11.9 million), compared to the first nine months of 2001.

Non-operating income and expenses. Altek’s non-consolidated non-operating income of the first nine months of 2002 decreased by 65.2% to NT$37.0 million (U.S.$1.0 million), compared to the first nine months of 2001. The decrease in the non-consolidated non-operating income was mainly because (i) the Company had a net foreign exchange gain of NT$46.5 million in the first nine months of 2001, but had a net foreign exchange loss in the first nine months in 2002 and (ii) the Company recorded a decrease of NT$10.2 million in interest income mainly due to the decrease of interest rate in 2002 and because the Company allocated more cash from interest-bearing accounts to short-term investments in bond funds. The non-

consolidated non-operating expenses for the first nine months of 2002 increased by 59.5% to NT$63.8 million (U.S.$1.8 million) primarily due to the net foreign exchange loss of NT$32.3 million and an increase in loss from investment of NT$8.9 million mainly resulted from a loss from the Company’s investment in the PRC based on equity accounting method and amortization of premium paid for the acquisition of Altek Lab.

Net Income. Income before income tax increased to NT$388.8 million (U.S.$11.1 million) for the first nine months of 2002, an increase of 39.0% over the comparable period of 2001. Income tax expense for the first nine months of 2002 increased to NT$5.0 million (U.S.$0.1 million), compared to NT$0 in the comparable period of 2001. Accordingly, net income increased to NT$383.8 million (U.S.$11.0 million), representing an increase of 37.2% over the first nine months of 2001.

Inventories and Receivables

Inventories and receivables are the principal components of the Company’s current assets and require a significant amount of working capital support, particularly as the Company’s revenues continue to increase. Accordingly, control of inventories and receivables is a key aspect of the Company’s business operations.

As of December 31, 2001, on a non-consolidated basis, the Company’s receivables, including account receivables, notes receivable and other receivables, totaled NT$650.3 million. Average receivables turnover in 1999, 2000, 2001 and the first nine months in 2002, on a non-consolidated basis, were 67 days, 71 days, 71 days and 41 days, respectively.

The Company invoices customers when goods are shipped. Credit terms are generally from 30 days to 45 days.

As of December 31, 2001, the Company’s inventories, on a non-consolidated basis, were NT$140.3 million, after deduction of NT$36.0 million as allowance for loss on decline in market value and obsolescence. Of the total inventories of NT$176.3 million, NT$5.5 million were finished goods inventories, NT$50.6 million were inventories in transit, NT$93.1 million were work in process and NT$27.1 million were raw material inventories. Average inventories turnover in 1999, 2000, 2001 and the first nine months in 2002, on a non-consolidated basis, were 123 days, 60 days, 39 days and 36 days, respectively.

Liquidity and Capital Resources

The Company finances its business with cash from operations and proceeds from fund raising activities.

As of December 31, 2001, on a consolidated basis, the Company had NT$825.8 million (U.S.$23.6 million) in cash and cash equivalents and NT$139.2 million (U.S.$4.0 million) in marketable securities, mainly in mutual funds for bonds, in aggregate a net increase of NT$573.6 million compared with December 31, 2000. The Company held cash and cash equivalent in the form of cash, primarily checking and savings accounts with banks and other financial institutions in Taiwan and overseas, and in the form of time deposits. As of September 30, 2002, on a non-consolidated basis, Altek’s cash and cash equivalents was NT$1,229.0 million (U.S.$35.2 million).

The Company’s operating activities provided net cash of NT$693.3 million (U.S.$19.8 million) in 2001 on a consolidated basis. The net cash was primarily derived from net income of NT$404.2 million (U.S.$11.6 million), as well as working capital changes during the period, mainly consisted of a decrease of NT$336.0 million (U.S.$9.6 million) in inventories and an increase of NT$124.1 million (U.S.$3.6 million) in accrued expenses, other payable and advance collections. These cash flows were offset by working capital changes, the primary elements of which included a decrease of NT$356.2 million (U.S.$10.2 million) in notes payable and account payable.

In the nine months ended September 30, 2002, on a non-consolidated basis, net cash used in Altek’s operating activities was NT$169.2 million (U.S.$4.8 million) mainly due to increased inventory in preparation for future revenue growth.

Net cash flows used in the Company’s investing activities in 2001 amounted to NT$176.8 million (U.S.$5.1 million), on a consolidated basis. This was largely due to a net increase of NT$138.7 million (U.S.$4.0 million) in marketable securities. In the nine months ended September 30, 2002, on a nonconsolidated basis, net cash flows provided by Altek’s investment activities were NT$66.6 million (U.S.$1.9 million), largely consisting of cash from a net decrease of NT$152.1 million (U.S.$4.4 million) in marketable securities and net decrease of NT$68.9 million (U.S.$2.0 million) in assets pledged, which were partially offset by cash used in long-term investment in the amount of NT$75.9 million (U.S.$2.2 million) and acquisition of fixed assets in the amount of NT$77.1 million (U.S.$2.2 million).

Net cash used in financing activities, on a consolidated basis, in 2001 was NT$83.1 million (U.S.$2.4 million), which was used to repay the Company’s short-term loans. In the nine months ended September 30, 2002, on a non-consolidated basis, Altek’s net cash provided from financing activities was NT$522.1 million (U.S.$15.0 million), primarily derived from proceeds from issuance of the Company’s common stock in 2002.

As of December 31, 2001 the Company did not have any outstanding long-term or short-term indebtedness. As of September 30, 2002, on a non-consolidated basis, Altek did not have any outstanding long-term or short-term indebtedness.

The Company operates its own production facilities directly or through its wholly-owned subsidiaries and therefore require significant amounts of capital to build, expand, modernize and maintain its facilities and equipment. The Company’s total capital expenditures, on a consolidated basis, were NT$14.7 million in 1999, NT$13.5 million in 2000 and NT$16.8 million (U.S.$479,000) in 2001.

These amounts in 1999, 2000 and 2001 included the expansion and upgrade of Taiwan facilities. In 2002, the Company’s capital expenditure consisted mainly of the expansion and upgrade of Taiwan facilities and the construction of, and facility for, the PRC facilities in Kunshan. In the nine months ended September 30, 2002, capital expenditure was NT$77.1 million.

The Company currently leases a plant in Kunshan. In addition, the Company is constructing its Kunshan facilities, which are expected to commence commercial operation in the fourth quarter of 2003. Total capital expenditures required for the new Kunshan facilities are approximately NT$698.4 million.

The Company believes that it will have sufficient resources available to meet its planned capital expenditure requirements, as well as its present working capital requirements.

Total shareholders’ equity as of December 31, 2001, on a consolidated basis, was NT$1,454.1 million (U.S.$41.6 million), an increase of NT$410.1 million from December 31, 2000. This increase was primarily due to a net increase in unappropriated earnings. As of September 30, 2002, on a non-consolidated basis, the Company’s shareholders’ equity was NT$2,355.7 million (U.S.$67.4 million), reflecting an increase in common stock share capital and capital reserve premiums resulted from an issuance of common stock in 2002.

Inflation

The Company does not believe that inflation in Taiwan has had a material impact on its results of operations. Inflation in Taiwan was approximately 0.18%, 1.26% and (0.01)% in 1999, 2000 and 2001, respectively.

Foreign Exchange Matters

A large portion of the Company’s consolidated and non-consolidated net operating revenues are denominated in currencies other than NT Dollars, principally U.S. Dollars, while a significant portion of the Company’s consolidated and non-consolidated costs are denominated in currencies other than NT Dollars including U.S. Dollars and Renminbi. Accordingly, the Company is exposed to movements in the exchange rates between the U.S. Dollar on the one hand, and NT Dollar, and Renminbi on the other hand. The Company recorded consolidated net exchange gains (losses) of NT$(2.6) million, NT$28.2 million and NT$58.2 million (U.S.$1.7 million) in 1999, 2000 and 2001, respectively, reflecting the depreciation and appreciation of the U.S. Dollar in relation to the NT Dollar.

The effect of future changes in currency exchange rates on the Company’s results of operations cannot be accurately predicted. In order to mitigate such risks, the Company attempts to balance to the extent possible the currency of its revenues with the currency of costs. In addition, from time to time, the Company enters into a number of forward contracts solely for the purpose of hedging its foreign exchange risks.

Income Tax

The Company is currently subject to a 25% statutory corporate income tax rate in Taiwan. However, as a result of the tax exemptions and tax incentives discussed below, the effective income tax rate, on a nonconsolidated basis, was 0.6% and 2.0% in 2000 and 2001, respectively.

Altek benefits from various tax incentives generally available to ROC companies, including tax credits resulting from expenditures on certain research and development, employee training expenses and investment in automation equipment and technology. In addition, the Company initiated a five-year tax exemption in 2000 pursuant to which the Company’s corporate income tax would be substantially decreased. As of December 31, 1999, 2000 and 2001, such tax credits amounted to approximately NT$16.8 million, NT$26.9 million and NT$50.5 million (U.S.$1.4 million), respectively.

Under the ROC Income Tax Law of 1997, retained earnings from operations after January 1, 1998 that are not distributed to shareholders by way of dividend for the relevant operating period are subject to a 10 % corporate income tax surcharge. If all or a portion of such retained earnings are subsequently distributed to shareholders, ROC resident shareholders may credit their ratable portion of the corporate income tax surcharge paid against their income tax liabilities in relation to such dividend income. Non-resident shareholders may offset the ratable amount of the corporate income tax surcharge against withholding tax in respect of the dividend income.

Investment

The Company makes short-term and long-term investments. The Company’s short-term investments consist of units of mutual funds that invest in bonds of domestic ROC corporate issuers. The Company’s primary goals in relation to its short-term investments are low risk profile and liquidity. Short-term investments are funded with cash, and the balance of short-term investments may vary from time to time depending on the Company’s cash requirements. For details of the Company’s short-term investments as of December 31, 1999, 2000 and 2001, see Note 4 to the ‘‘Non-consolidated Financial Statements as of and for the years ended December 31, 1999, 2000 and 2001’’, Note 4 to the ’’Consolidated Financial Statements as of and for the years ended December 31, 1999, 2000 and 2001’’ and Note 4 to the ‘‘Non-consolidated Financial Statements as of and for the nine months ended September 30, 2001 and 2002’’.

The Company makes long-term equity investments for strategic reasons. As of December 31, 2002, the Company held shares in Altek International Investment Co., Ltd., Leading Tech. Co., Ltd., Altek Lab Inc., DigiCam Technology (Kunshan) Co., Ltd. and in Altek Japan Corporation. Altek Japan Corporation was founded in the fourth quarter of 2002. The Company expects that its investment in these companies will allow it to benefit from investments in, and information regarding, promising new technologies. For details of the Company’s long-term equity investments, see Note 4 to the ‘‘Non-consolidated Financial Statements as of and for the years ended December 31, 1999, 2000 and 2001’’ and Note 4 to the ‘‘Non-consolidated Financial Statements as of and for the nine months ended September 30, 2001 and 2002’’.

BUSINESS

This Offering Circular contains certain forward-looking statements. When used in this Offering Circular, the words ‘‘believes’’, ‘‘intends’’, ‘‘anticipates’’, ‘‘plans’’, ‘‘expects’’ and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company’s competitors and business partners, and those discussed above under ‘‘Risk Factors’’, and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation’’.

Overview

The Company is capable of developing and manufacturing certain key components of a digital still camera in-house or through its strategic alliances. For example, the application specific integrated circuits (‘‘ASIC’’) chip installed in the Company’s products is developed and designed by the Company’s 88.29% owned subsidiary, Altek Lab Inc. This chip is a multi-functional system control chip that features image processing, algorithm, and system control, including shutter, flash, power management and in- and out-flow of signals. The Company believes that its ability to integrate technologies in such areas as optics, systems and image processing, together with technical know-how applied to large-scale production and cost efficiency gives it a competitive advantage in an industry that is capital-, labor- and technology-intensive.

The Company believes that its continuing research and development efforts facilitate its ability to introduce innovative, technologically advanced new products. The Company invests significant resources in research and development through in-house research and development activities, joint development with major customers and strong incentives to employees. The Company employs a broad range of technologies in manufacturing the Company’s products and developing new products. All of the Company’s digital still cameras incorporate the following three core technologies: (i) optical system design in order to capture high-resolution images; (ii) system integration for high-performance data processing; and (iii) digital image processing including algorithm and image compression technologies.

Competitive Strengths

The Company believes that the following strengths contribute to its competitive position in the relevant markets:

The Company is equipped with strong optics, systems and image processing engineering expertise.

The Company’s strong expertise and extensive know-how in integration of optics, systems and image processing engineering place the Company at the technological forefront in its product markets. The Company joins co-development programs with its domestic and foreign strategic alliances in developing optical lenses and lens units to reach the purpose of curvature design and focal point optimization and also employs image quality sensors and color filter arrays manufactured by Japanese makers specifically designed for the Company’s products. Systems engineering expertise enables the Company to integrate its optics, electronics and mechanics technologies in a single product. For example, the Company is able to design and produce ASIC chips in-house for the control of data in- and out-flow between image sensors, analog to digital converter (‘‘A-D Converter’’), LCD viewfinders, storage media and output interfaces. The Company believes that it is one of the few ODM producers of digital still cameras in Taiwan that are equipped with sophisticated digital image processing technologies, such as algorithm and digital image compression. The Company’s strength in optics, systems and image processing engineering not only assures the quality of its products, but also allows it to produce prototypes for new products according to customers’ schedules and to ramp up production rapidly to commercial volumes.

The Company has strong research and development programs.

The Company invests significant resources in research and development through in-house research and development activities, joint development with major customers and strong incentives to employees. The focus of the Company’s research and development activities is new product development, process and technology improvement and costs efficiency. Currently, Altek Lab, Inc., an 88.29% owned subsidiary of the Company, is in charge of ASIC chip design and development. Altek Lab employs more than ten fulltime professional engineers, most of them with extensive experience in system integration and integrated circuits (‘‘IC’’) design.

The Company, both on its own and through Altek Lab, actively engages in research and development so as to continuously increase the variety, scope, function and quality of its ODM products. The Company possesses considerable capabilities in the development of digital still cameras with higher resolution and more sophisticated functions, thus enabling it to compete with large international photonic manufacturers of related products.

The Company is a cost-effective manufacturer of high quality products in large volume.

The Company believes that its expertise as a cost-effective manufacturer of high-quality products in large volume is key to the success of its business. Substantially all of the Company’s products are manufactured at its facilities and the facilities operated by its strategic partners in the PRC, which enables the Company to take advantage of labor and overhead costs in the PRC that are generally lower than those in the ROC. The Company believes that it is one of the largest digital still camera manufacturers in the world. It currently manufactures six models of digital still cameras, with the monthly manufacturing capacity up to 400,000 to 450,000 units. The Company believes that its ability to manufacture in large volume and to make timely deliveries of its products is important in attracting and retaining major brand name customers. Close relationships with key industry leaders ensure the Company’s success in business and technology development.

The Company has established close supplier-customer relationships with many of the world’s leading manufacturers of digital still cameras. Such leading companies contract with the Company for the services from development and design to manufacture of digital still cameras. The Company is currently manufacturing different models of digital still cameras for such leading companies. The Company is currently seeking for more opportunities of designing and developing high-quality digital still cameras for the world’s leading brands. The Company believes that its close relationships with key industry leaders allow it to benefit from and contribute to the customers’ strategic planning and standard-setting processes in the early stages of product development. This joint development process provides the Company with up-todate market information and allows the Company to have input into new product decisions, ensuring that the

Company’s new products are tailored to and responsive to its customers’ needs. The Company believes that this process will help to increase the Company’s technological advantage in relation to its competitors and cement its relationships with important customers.

Strict quality control processes and standards guarantee the quality of products made by the Company.

The Company implements a comprehensive quality assurance program to ensure the implementation of its firmwide quality policy. To implement the quality assurance program comprehensively, the Company has established a Quality Assurance Center, which is responsible for the quality control from development of new products to delivery of goods. The Company also employs an extensive production quality control process by each manufacturing facility, which is separate from the Quality Assurance Center. The Quality Assurance Center provides quality assurance services and support for the manufacturing facility, including the production lines operated by the Company’s strategic partners for producing the Company’s products. Each manufacturing facilities of the Company implements a series of rigorous quality checks at all stages of product development and production. The Company and its subsidiary with manufacturing functions follow the quality policy implemented by the Company.

The Company believes that through rigorous implementation of the quality assurance program, it has been able to achieve a reputation for consistently high product quality. This reputation is an important competitive advantage for retaining existing customers and attracting new customers among industry leaders in digital photonic industries.

Business Strategy

The Company’s principal business objective is to continuously increase its sales, cash flow, profitability and market share by pursuing the following key strategic initiatives:

Focus on core technology and continue investing in research and development.

The Company believes that the current trend to the integration of electronics, mechanics and optics technologies will continue to be one of the primary directions of the evolution of digital still cameras. To meet current and anticipated future demand, the Company has committed significant resources to the research and development of the three most critical technologies applied in its products, namely (i) hardware and software system integration between optics, mechanics and electronics to achieve the goal of efficient power management, portability and possibility of mass production; (ii) optical system design to ensure the quality of image captured by digital processing devices; and (iii) digital image processing technology, such as algorithm and digital image compression. The Company believes that through the control of the core technologies crucial to the development of digital still cameras, it may compete with the world’s most reputable ODM digital still camera developers and attract new customers.

Expand production capacity and invest in new technology.

The Company believes that global demand for digital still cameras will continue to grow, driven by innovation of image processing and data storage technologies. The Company will continue to expand its production facilities in mainland China in order to increase its production capacity. The Company is in the process of constructing new production facilities in Kunshan, Jiangsu Province, the PRC, which are anticipated to commence operations in the fourth quarter of 2003. These manufacturing facilities are expected to comprise an area of 34,200 square meters and are anticipated to have a total manufacturing capacity of 600,000 to 700,000 units of digital still cameras per month at the first stage. The Company plans to manufacture a full line of products in the PRC. The Company believes that establishing new production facilities in the PRC will allow it to greatly expand its production capacity of digital still cameras. In addition, operating production facilities in the PRC is expected to offer the Company significant labor, land, manufacturing and other costs savings, as compared to its operations in Taiwan.

Continue research and development of system integration technology and digital imaging technology to create more sophisticated digital still cameras.

The Company believes that the current trend to create a more compact digital still camera with full functions will continue to be one of the primary directions of the evolution of digital imaging industry. To meet current and anticipated future demand, the Company has committed significant resources to the research and development of integrating optical devices, such as lens and lens units, electronic image processing devices, such as a Charge-Coupled device (‘‘CCD’’), and other features within a smaller but refined system. Among the Company’s achievements in this area is the development of the ASIC chip inhouse that is capable to process data between sub-systems efficiently and smoothly. In addition, the Company is able to fine-tune the digital image captured by the digital devices through a software control process, or algorithm and formula. Through the total solution provided by the Company’s system integration and software control technologies, the Company is able to produce sophisticated digital still cameras with high performance and fine quality that meets market’s requirement.

Maintain ODM manufacturing business models.

Currently all of the Company’s consolidated net operating revenues were derived from digital still cameras manufactured on an ODM basis. The Company believes that ODM sales generally generate higher profit margins than sales from other business models, such as original equipment manufacture (‘‘OEM’’). However, ODM manufacturing requires stronger research and development capability. The Company plans to keep focusing on ODM business models by utilizing its core technologies developed by its strong research and development teams.

Diversify the customer base to reduce reliance on limited number of customers.

The markets for the Company’s products are concentrated, with a large percentage of orders coming from a relatively small number of customers. For 2001 and the first nine months of 2002, the Company’s largest two customers accounted for 97.5% of the Company’s consolidated net operating revenues and 98.5% of the Company’s non-consolidated net operating revenues, respectively. None of these customers purchase the products manufactured by the Company under a firm commitment or long-term contract basis. The Company endeavors to increase the customer base, including the major digital still camera vendors in Japan and elsewhere, to reduce reliance on limited number of customers.

Industry Background

Technology of digital photography

Digital photography, which is also referred to as ‘‘digital imaging’’, got its start in the 60’s. The original development of the technology is traceable in part, to NASA’s requirements that exploration spacecraft, unable to return to earth, be capable of sending back pictures of their voyages.

The digital still camera, like the standard film camera, uses a lens to focus the image on a focal plane. While the film camera relies on a film to capture the image, the digital still camera relies on a sensor, either CCD or complementary metal oxide semiconductor (‘‘CMOS’’). As light strikes the pixels, which make up the sensor, it is converted to a current that is then passed to the Analog to Digital Converter (‘‘A-D converter’’).

From the A-D converter, algorithms are then applied to convert the analog data into a digitized image. The size of the data that can be generated by an image sensor can be very large. The larger the number of pixels making up the sensor’s array is, the higher the resolution of the image, and in turn, the larger the size of the data digitally representing that image. Accordingly, most digital still cameras compress the data in such a way, as to make the size of the data of the bitmap smaller. The way the data representing an image is electronically written, either in a memory or on a disk, is called an ‘‘image file format’’.

There are many different image file formats. A number of them use compression techniques to reduce the storage space required by bitmap image data. These compression methods are classified by whether or not they remove detail and color from the image. Lossless methods compress image data without removing detail, while lossy methods compress images by removing detail or color depth. A common standard of compression for digital still cameras is the Joint Photographic Experts Group (‘‘JPEG’’) format.

Data or image storage is a critical aspect of all digital still cameras. The vast majority of nonprofessional cameras on the market currently use non-volatile flash memory to store images. Many have 8 to 16 MB of hard-wired memory built-in to the camera itself and most also have a flash memory card slot, which allows users to add extra memory.

Quality of image is a critical point for the development of digital imaging. Whereas films are capable of incredible resolution after more than one-hundred-year development, Digital imaging is limited by the size of the array on the sensor. This is not only a technological limitation, but also an economic one. Very large scientific sensors, like those used in astronomy, are extraordinarily complex and expensive to produce, and generate data files that require hefty computing power to handle them.

Current digital imaging represents a compromise between cost and practicality. A good quality 35mm camera equipped with slide film can produce images of such quality and detail, that to create the equivalent on a digital camera, the sensor would have to contain an enormous amount of pixels. This in turn would make it so expensive that it would be completely unaffordable.

Limitation of technology is the biggest challenge in digital imaging development. The type of photography dictates whether or not digital technology is appropriate. General picture taking, close-ups, and other types of close range photography turn out well. Landscape or scenic photography on the other hand does not. The current sensors simply do not have sufficient resolution. However, in some cases, digital imaging offers a number of advantages over film photography. Digital images are accessible quickly. They can go from being in the camera to their intended use much faster than film photography can. Digital images also allow the photographer to easily correct defects, alter brightness and contrast, or more drastically change the actual content of the image. The same techniques with film are darkroom techniques that require experience and lots of patience. Finally, another advantage is the nature of the image itself — digital.

The digital format allows the images to be sent virtually anywhere in the world by e-mail or be placed on a page of the World Wide Web. Finally, a digital image can be reproduced infinitely without ever losing any of its color or detail. The digital image is gaining acceptance everywhere. For example, many newspapers, print shops and other businesses are now accepting digital photos. People who require photos as part of their work are becoming aware of the advantages in terms of speed and efficiency. More and more people and businesses are moving to digital imaging.

Whether the use is advertising or something else, they are seizing the technology as a time and effort saver and a way of gaining more control over the process. The ability to record, send and use images quickly is supplanting film photography in many places.

Until recently printing full-color digital images was an expensive proposition. The development of the color ink jet printer changed all that. There are now many models of color printers on the market, starting in price from a couple of hundred dollars. Some of the least expensive ink jet printers are so good, that when equipped with photographic quality paper their output comes very close to what is produced by a mini-lab. The wide availability of digital image output in ordinary photo processing shops has further enhanced the competitively of digital still cameras against the film cameras.

Industry information

Digital still cameras can be categorized as computer peripherals and consumer electronics. According to International Data Corporation (‘‘IDC’’), digital still cameras will be one of the commercial electronics with highest growing in the next few years, following the reduced prices and enhanced quality and matured users’ environment, such as printing facilities. In 2000 when the mega pixel digital still cameras were first introduced, shipment of all digital still cameras worldwide increased for approximately 70%. Since the major brand vendors of digital still cameras are promoting the models with the resolution of 2.0 million to 3.0 million pixels per frame, IDC forecasted that shipment of digital still camera in the next few years would grow approximately 22% annually. IDC expects that digital still cameras with the resolutions of 2.0 million to 4.0 million pixels per frame will be the main product lines of all digital still camera vendors.

Since early 2002, major digital still camera vendors have tended to cease emphasizing the extraordinary high resolution of digital cameras and started promoting the additional features and user friendly function in their products, such as Finepix40i series cameras manufactured by Fujifilm combine MP3 player features in one device and Kodak Easyshare series of cameras emphasize the one-touch data transfer function.

Because Japan manufacturers control most key components, the three largest Japanese vendors, Sony, Fujifilm and Olympus, shipped an aggregate of more than 55% of digital still cameras manufactured in 2001 worldwide. According to IDC, the first-tier digital still camera vendors, their market shares and strategies for entering this market are as follows:

Vendors Sony . . . . . . . . . . . Olympus . . . . . . . . Fujifilm . . . . . . . . . Canon . . . . . . . . . . Kodak . . . . . . . . . . Nikon . . . . . . . . . . HP . . . . . . . . . . . .	Market share in 2001 % 21.8 18.2 14.7 12.0 10.5 8.0 7.3	Strategy
		Leverage the leadership and technology in consumer electronics markets Leverage the technology and know-how in the manufacture of film cameras Leverage the market share in films, film development and photo papers Leverage the technology and know-how in the manufacture of film cameras and printing devices Leverage the market share in films, film development and photo papers Leverage the technology and know-how in the manufacture of film cameras Leverage the technology and know-how in the manufacture and market of printing devices

Taiwanese producers have accounted for a significant percentage of world digital still camera production. The Company is one of the largest digital still camera producers in Taiwan and the world. The Company believes that its major ODM competitors include Sanyo Corporation and Chinon Corporation. The continued development of the industry is affected by a number of factors, including the following:

Steady supply of key components

Key components and parts utilized by a digital still camera include: lenses and lens units, CCD, ASIC chip, LCD viewfinders, and storage media.

Lenses and lens units. Lenses and lens units which integrate multiple single-piece lenses and other materials, such as plastic cases, are one of the critical components for a digital still camera. The digital still cameras usually employ three different types of lens units: fixed focus lens unit, autofocus lens unit and zoom lens unit. Fixed and autofocus lenses and lens units to be installed on the digital still cameras produced by Taiwanese manufacturers are usually supplied by domestic manufacturers, such as Asia Optical Co., Inc. and Largan Precision Co., Ltd., while the zoom lens units are generally assembled in Japan by Japanese suppliers.

CCD/CMOS sensors. CCD (Charge-Coupled device) and CMOS (complementary metal oxide semiconductor), as key devices in digital cameras and camera-phones, are built for image capture. The numbers of sensors implanted on the surface of a CCD or a CMOS determine the resolution of the image captured. The other factors such as lens, sensor technology, and system control, also plays important roles for a better picture quality.

Until very recently, most digital still cameras priced above U.S.$100 have relied on a CCD sensor, which features high quality images. Though CMOS is a comparatively cost efficient alternative, the drawback is that CMOS device generates more noises while capturing images. The noise interference makes CMOS unsuitable for higher end digital still camera requiring better image quality. However, digital still cameras with resolution less than 1.0 million pixels per frame are generally equipped with CMOS sensor to enjoy its lower cost advantage.

LCD viewfinders. Almost all models of digital still cameras on the market with the resolution of more than 1.0 million pixels per frame equip with LCD viewfinders that allow previewing or reviewing of images. The screen also serves as a monitor for the interface of some camera controls. Most LCD viewfinders installed in a digital still camera applies thin film transistor (‘‘TFT’’) technology that provides brighter and superior color and contrast than a screen based on double super twisted nemantic (‘‘DSTN’’) technology. Taiwanese digital still camera manufacturers are usually supplied with the TFT-LCD displays from local manufacturers.

ASIC chipsets. ASIC chipsets are a series of logic ICs installed in a digital still camera to control the digital image processing and in- and out-flow of digital data. Some digital still camera manufacturers outsource development and manufacture of the chipsets to third-party IC design firms, while others develop in-house. Because ASIC chipsets are highly product/model oriented, supply control is therefore critical for digital still camera manufacturers who operate on an ODM basis.

Storage media. Although substantially all the digital still cameras in the market are capable of connecting to the computer by an interface, they also provide functions of removable storage device. The main rival technologies currently are CompactFlash, SmartMedia, Secure Digital, MultiMedia MMC and Memory Sticks. All these types of storage media are fast, inexpensive ways of storing the photos so that the users can transfer them to a computer or printer later on. The types of storage media to be used by the Company’s products are based on the customers’ requirement. For example, all Sony brand digital still cameras will use Memory Stick rather than other type of storage media.

All of these key components are critical to manufacturing of digital still cameras. Therefore, steady supply of these key components and parts is critical to the operational results of digital still cameras makers.

Shorter product life cycle

Due to the increasingly rapid launch of new technologies and features, the life cycle of digital still cameras has declined from nine to twelve months, to six to nine months. The shortening life cycle poses significant challenges to digital still camera manufacturers in the areas of research and development, component procurement, inventory control and manufacturing engineering.

Cost efficiency in research and development and manufacture

As technology applied on digital still cameras has become more advanced, the cost of digital still camera has decreased, which has in turn improved digital still cameras’ affordability and has resulted in increased digital still camera production worldwide. Worldwide digital still camera sales for the years 2000 and 2001 were approximately 11.3 million and 16.1 million, respectively, and the estimated worldwide digital still camera sales for 2002 are approximately 22.0 million. As (i) the cost of key components and parts accounted for 70% of the total cost of a digital still camera and (ii) supply of most key components and parts is controlled by Japanese vendors, Taiwanese digital still camera manufacturers have difficulty in achieving cost efficiency through lowering the cost in connection with key components and parts. Cost efficiency in research and development and manufacturing is therefore critical for the success of an ODM digital still camera manufacturer.

Movement of manufacturing to mainland China

Many Taiwan producers of digital still cameras have established manufacturing operations in mainland China. The PRC offers a relatively affordable labor market which enables manufacturers to reduce costs, increase capacity, and improve margins. In addition, the digital still camera market in mainland China is increasing during the past few years and will keep growing. Digital still camera manufacturers are therefore seeking to position themselves to produce their products in mainland China and to supply the mainland China market.

History and Organization of the Company

The Company was established on December 24, 1996. Since its establishment, its product line has focused on the design and manufacture of a single product, digital still camera. The Company’s headquarters, certain production facilities for pilot-run purposes and research and development facilities are located in the Science-Based Industrial Park in Hsinchu City, Taiwan. Some of the Company’s significant business milestones include:

" In February 1997, the Company entered into a product development agreement with AgfaGevaert N.V., a Belgium company, to produce digital still cameras.
" In September 1997, the Company moved into its current corporate headquarters located in 3F, No. 10 Li-Hsin Road, Science-Based Industrial Park, Hsinchu City, Taiwan.

" In 1998, the Company introduced its first 1.0 million pixels autofocus digital still camera.
" In 1999, the Company introduced ePhoto CL30 Clik!, the first digital still camera equipped with Clik Drive, a special reading and storage device.
" In March 2000, the Company incorporated its investment subsidiary, Altek International Investment Co., Ltd. to hold its overseas business investment and operation.
" In August 2000, the Company invested Altek Lab Inc. in the United States through Altek International Investment Co., Ltd. to secure the ASIC designing technology to be utilized in the Company’s products.
" In August 2000, the Company successfully introduced its first 1.3 million pixels digital still camera.
" In June 2001, the Company developed and introduced a 2.3 million pixels digital still camera.
" In April 2002, the Company was approved by the Investment Commission of the ROC Ministry of Economic Affairs to invest in the manufacturing facilities in the PRC.
" On December 24, 2002, the Company’s Shares began to be listed on the TSE.

The Company has continually improved its system integration and imaging processing technologies for digital still cameras in previous years, positioning itself as one of the leaders in ODM digital still camera developer and manufacturer along with Japanese manufacturers. Recently, the Company has concentrated on the research, development and manufacture of digital still cameras with higher resolution and more features, such as zoom lenses, high-speed computer connection interface and mass storage capabilities. The Company has attracted internationally well-known companies such as AGFA and Polaroid as its customers for the development and production of digital still cameras.

The Company’s administration department, sales and marketing department and research and development team are located in its headquarters in Taiwan. The Company currently manufactures some models of its products in the leased Kunshan Plant in Jiangsu Province, the PRC. The Company’s new Kunshan facilities are currently under construction. In addition, the Company outsources to two manufacturing facilities in Shanghai, Jiangsu Province, and Dongguan, Guangdong Province, the PRC, operated by third parties for producing some of its products. The Company also owns and operates a single production line in Hsinchu Science-Based Industrial Park for pilot-run purposes.

The following diagram shows the structure of the Company, including the Company and its subsidiaries, as of December 31, 2002, together with details of the Company’s direct and indirect equity interests in its subsidiaries. See ‘‘ — Subsidiaries’’.

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----- Start of picture text -----

ALTEK CORPORATION
100% 100%
ALTEK INTERNATIONAL
ALTEK JAPAN CORPORATION
INVESTMENT CO., LTD. [(1)]
88.29% 100%
ALTEK LAB INC. [(1)] LEADING TECH. CO., LTD.
100%
DIGICAM TECHNOLOGY
(KUNSHAN) CO., LTD.
----- End of picture text -----

(1) The financial statements of these companies have been consolidated with those of the Company in the Consolidated Financial Statements. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Basis of Presentation’’ and Note 2 to the Consolidated Financial Statements for a discussion of principles of consolidation.
(2) There have been no material changes in the Company’s direct and indirect equity interests in each of its subsidiaries since December 31, 2002.

Research and Development; Core Technologies

The Company believes that its continuing research and development efforts facilitate its ability to introduce innovative and technologically advanced new products. Over the last three years, the Company has made substantial expenditures on research and development. The Company employs an integrated approach to development that involves all parts of the Company’s operations. The speed and efficiency of its efforts are enhanced by close working relationships among its sales and marketing department, its research and development team and the manufacturing facilities. Designs for new products can be developed efficiently into prototypes that can be analyzed, tested and re-engineered. Further, the Company’s extensive sales network is responsible for understanding the Company’s customers’ evolving needs and desires and providing customer feedback regarding customer needs and requirements directly to the research and development team.

The Company invests significant resources in research and development through in-house research and development activities, joint development with major customers and strong incentives to employees. The Company finances its research and development activities primarily through the use of working capital. The focus of the Company’s research and development activities is new product development, process and technology improvement and costs efficiency. The Company’s research and development facilities are located principally in Taiwan and the United States, whereas the core technology is controlled by the research and development team in Taiwan. Currently, Altek Lab Inc., an 88.29% owned subsidiary of the Company is in charge of ASIC chip design and development. Altek Lab Inc. specializes in research, development and design of the ASIC chip for the Company on an exclusive basis. Altek Lab Inc. employs more than ten full-time professional engineers, many of which with extensive experiences in IC designs and image processing. The Company’s research and development department employs more than 150 professionals, focuses on new product research and development in the areas of system integration, image processing and advanced features introduction.

The Company employs a broad range of technologies in manufacturing the Company’s products and developing new products. All of the Company’s digital still camera products incorporate the following three core technologies: (i) hardware and software system integration between optics, mechanics and electronics to achieve the goal of efficient power management, portability and possibility of mass production; (ii) optical system design to ensure the quality of image captured by digital processing devices; and (iii) digital image processing technology, such as algorithm and digital image compression. The Company believes that system integration and algorithm technologies are significant factors to the success of the Company’s digital still camera products.

System integration

The digital still cameras, like the standard film cameras, use a lens to focus the image on a focal plane. While the film camera relies on a film to capture the image, the digital still camera relies on a sensor, either CCD or CMOS. As light strikes the array of picture elements, or pixels, which make up the sensor, it is converted to a current that is then passed to the Analog to Digital Converter (‘‘A-D Converter’’). From the A-D converter, algorithms are then applied to convert the analog data into a digitized image. The size of the data that generated by an image sensor can be very large and requires the digital still camera to compress the data before it can be saved in a storage media or output to the computer or through the build-in output interface.

System integration design is the foundation for creating reliable and efficient digital imaging devices, such as a digital still camera. A digital still camera consists of hardware and software sub-systems such as CCD, ASIC chips, A-D Converter, LCD viewfinder, storage media and output interface. The primary mission of a system integrator is to ensure that all sub-systems work efficiently. As a professional ODM digital still camera manufacturer, the Company’s research and development department has the experience and know-how of integrating the sub-systems and provide a solution for mass producing digital still cameras.

Optical system design

Optical system design is the foundation for creating reliable imaging devices such as digital still cameras. A carefully-designed optical system will not only record high-resolution images for further processing but also reduce the size and weight of the entire optical device. A well-designed optical system addresses the focal point and reflection problems that occur when light passes through the lens. Through codevelopment with its strategic partners in the area of optics, the Company’s engineers either develop new lens materials or coatings to compensate and correct the reflected light and improve the resolution of the image reaching the processing units such as CCD in digital still cameras. Examples of design adjustments include:

Curvature design. The Company’s engineers design the curvature of a lens with its strategic partners who are also lenses and lens units vendors to manipulate the direction of the light when it passes through each point on the glass. Curvature can either diversify the light, optimize the focal point or correct the light direction. Engineers adjust the number and angle of optical components in a lens unit and the curvature to provide a clear image and signal.

Focal point optimization. A zooming lens unit causes focal point concerns. Engineers have to consider the distances between each lens in a zooming lens unit while it is zooming in or out. Chromatic aberration between the actual focal point and the optimal focal point within an optical system must be minimized by good optical system design. Therefore, the quality of testing equipment and the knowledge and experience of engineers play a significant role in manufacturing a zooming lens unit. The Company’s research and development team is experienced in, and capable of, defining the standard of zooming lens units to reach focal point optimization.

Digital image processing

Images captured by the lenses of a digital still camera and converted into digital signals are further processed by software to achieve optimization of picture qualities. Digital image processing includes algorithm and digital image compression procedures. Algorithm is to adjust the picture quality such as color balance, brightness and contrast of the images while digital image compression is to compress the digital data in order to enlarge the storage capacity of a storage media.

Algorithm. The algorithm technology is a series of mathematical calculations that calculating the image data captured by the CCD and A-D Converter in a digital still camera before it can be further processed, output and/or stored. Algorithm used in digital data processing area includes autofocus, auto exposure and white balance.

" Autofocus: Autofocus is a system that achieves focus by either measuring the phase of light arriving at a sensor, such as a CCD, to establish correct focus. Autofocus digital still cameras manufactured by the Company utilize an infrared autofocus technology, which is also known as active autofocus. An infrared autofocus system generates an infrared beam to measure the distance to the subject and establish the focus.
" Auto exposure: The Company’s digital still cameras utilize auto exposure technology to control the intensity of light and the time the light is allowed to act on the sensor, such as a CCD.
" Auto white balance: The digital still cameras manufactured by the Company use a ‘‘white balance’’ to aid in overcoming color problems created by adverse lighting conditions. The color balance assumes that under normal conditions, that if a white object can be made to look white, then the remaining colors will be accurate too. If the original lighting is not close to the proper color temperature (typically daylight), the ‘‘white balance’’ may reproduce white at the expense of other hues.

Digital image compression. Storage of digital images exceeding 1.2 million pixels will take a significant amount of memory. It is therefore critical for a digital still camera developer to make the files of each image smaller. Two features of digital images compression technology are adopted by the Company to lessen the digital files per image: repetition and irrelevancy.

" Repetition: When an image is taken by a digital still camera, certain patterns develop in the colors. For example, if a blue sky takes up 30% of the photograph, you can be certain that some shades of blue are going to be repeated over and over again. When compression routines take advantage of patterns that repeat, there is no loss of information and the image can be reconstructed exactly as it was recorded in the camera.
" Irrelevancy: A digital camera records more information than that is easily detected by the human eye. The Company use irrelevancy technology to eliminate some of meaningless data. More data will be eliminated if a smaller file need to be created. The digital still cameras developed and produced by the Company offer several different levels of compression, which is understood in some cases as different level of resolution. In most cases, lower resolution means more compression; and more compression means lower resolution.

Products

The Company capitalizes on its system integration and digital image processing technologies, industrial engineering expertise, and its expertise in low cost, high quality mass production to offer quality products to its customers. The sole product manufactured by the Company is digital still camera.

Digital still cameras employ electronic sensors consisting of arrays of photo-sensitive semiconductors to capture images which are recorded and stored in digital format on semiconductor memory devices. The images can be viewed or edited by and transferred between purpose-built electronic devices or downloaded to computers equipped with the appropriate software for viewing, editing, storage or further transmission.

The Company’s digital still cameras can be categorized by reference to the resolution of the images captured by the camera (defined by the number of pixels per frame). Currently, the main categories by image resolution of digital cameras manufactured by the Company are: 2.0 million and 3.0 million pixels per frame. Additional features incorporated into all models include LCD viewfinders, optical zoom features (with 2 or 3 times magnification), digital zoom features (with 6 times magnification), automatic white balance, a slot for a memory card, the capability to connect to a computer and continuously transmit images to the computer and voice and moving picture recording functions. The major category of digital still cameras currently manufactured by the Company is 2.0 and 3.0 million-pixel models, though its technology is capable of manufacturing 6.0 million pixels per frame digital still cameras.

Quality Control

The Company has instituted a comprehensive quality assurance program to ensure the implementation of its firmwide quality assurance policy. In order to implement the quality assurance program comprehensively, the Company has established a Quality Assurance Center. The Quality Assurance Center is responsible for:

" quality goal planning and follow-up;
" establishing and auditing the operation of the quality assurance system;
" quality assurance education and training;
" customer complaint follow-up and improvement; and
" quality assurance documentation control.

The Quality Assurance Center provides support in all of the above areas to each of the manufacturing divisions. The Quality Assurance Center implements a series of rigorous quality checks at all stages of product development and production including:

" participation in each step of new product plan, design, prototyping, pilot production and new product release;
" conducting vendor quality assessments;
" process control and periodic test of reliability;
" final inspection and shipping control; and
" obtaining customer feedback through after-sales service.

Key Components and Parts

The Company relies on third party suppliers for components and parts except for ASIC chips, which are developed and designed in-house by Altek Lab Inc., for assembling of digital still cameras. The Company determines most of the key components and parts in the early development stage. In the case of certain components and parts, the Company is required to purchase from third party suppliers approved not only by it, but by its OEM/ODM customers as well.

Key components and parts utilized by the Company includes: lenses and lens units, CCD, ASIC chips, LCD viewfinders, and storage media.

Lenses and lens units

Lenses and lens units which integrate multiple single-piece lenses and other materials, such as plastic cases, are one of the critical components for a digital still camera. The digital still cameras manufactured by the Company employ three different types of lens units: fixed focus lens unit, autofocus lens unit and zoom lens unit. A fixed focus lens unit consist of a set of multiple single-piece lenses to capture light for digital imaging processing. When the focus of a fixed focus lens unit is set infinite, the distance between the rear nodal point of the lens and the focal plane (‘‘focus length’’) is fixed. On the other hand, an autofocus lens unit is a system that achieves focus by either measuring the phase of light arriving at a sensor, such as a CCD, to establish correct focus. Autofocus digital still cameras manufactured by the Company utilize an infrared autofocus technology, which is also known as active autofocus. An infrared autofocus system generates an infrared beam to measure the distance to the subject and establish the focus. A zoom lens is a

lens unit designed so that its focal length can be varied over a predetermined range. The image is optically magnified and, depending on the zoom’s setting, will show a larger, or smaller field of view. The variability of the zoom lens allows it to replace a number of fixed focus lens unit.

Charge-Coupled device

The image sensors employed by most digital cameras are CCD. Some low-end cameras use CMOS technology. While CMOS sensors will almost certainly improve and become more popular in the future, the Company believes that it won’t replace CCD sensors in higher-end digital cameras because they create high-quality, low-noise images and tend to produce more and higher quality pixels. All models of digital still cameras developed and manufactured by the Company utilize CCD rather than CMOS.

The CCD is a collection of tiny light-sensitive diodes (‘‘photosites’’), which convert photons or light into electrical charges (‘‘electrons’’). Each photosite is sensitive to light: the brighter the light that hits a single photosite, the greater the electrical charge that will accumulate at that site. The image is therefore converted to digital signals for further processing.

CCD is subject to limited supplies from three Japanese manufacturers, who are Panasonic, Sony and Sharp. CCDs produced by each manufacturers are with different and incompatible functions. The Company has therefore to define the CCDs to be utilized by its products in early stage of development and design. Shortages of a specific type of CCD can therefore have a significant adverse impact on the Company’s operation and financial results.

ASIC chip

The ASIC chip installed in the Company’s digital still camera is a multi-functional system control chip that features image processing, algorithm, and system control, including shutter, flash, power management and in- and out-flow of signals. Currently, Altek Lab Inc., an 88.29% owned subsidiary of the Company is in charge of ASIC chip design and development.

LCD viewfinders

All models manufactured by the Company come with an LCD viewfinder that allows previewing or reviewing of images. The screen also serves as a monitor for the interface of some camera controls. The LCD viewfinder adopted by the Company’s products applies thin film transistor (‘‘TFT’’) technology that provides brighter and superior color and contrast than a screen based on double super twisted nemantic (‘‘DSTN’’) technology.

Storage media

Early generations of digital still cameras had fixed storage inside the camera. To get the pictures out, the digital still cameras needed to be hooked up directly to a computer by cables so that the images could be transferred. Although all the digital still cameras manufactured by the Company are capable of connecting to a USB ports, they also provide functions of removable storage device. The main rival technologies currently are CompactFlash, SmartMedia, Secure Digital, MultiMedia MMC and Memory Sticks. All these types of storage media are fast, inexpensive ways of storing the photos so that the users can transfer them to a computer or printer later on. The types of storage media to be used by the Company’s products are based on the customers’ requirement.

The Company has implemented various inventory and resource management systems to enable it to plan the allocation of resources to ensure a steady and timely supply of key components and parts. Procurement of the Company’s raw materials and components is centralized based on the requirements provided by each production division and the third-party OEM manufacturers from time to time. By centralizing procurement, the Company believes that it increases its bargaining power to achieve competitive pricing, payment, delivery, quality and other terms of supply. Incoming quality control of the parts and components is performed by the Company and each of its subsidiaries. The Company’s Engineering and Quality Assurance Center performs a series of incoming quality checks to assure compliance with the standards of all incoming parts and components.

The Company in 2002 experienced a significant delay of CCD from Sharp due to sudden increases in demand from mobile phones and other electronic devices with camera features. The Company therefore is diversifying its sources of CCD to avoid the re-occurrence of similar situation. Except for CCD, the Company has not experienced any significant delay or constraint in production due to disruption of supply of parts and components. The Company believes that there are sufficient alternative suppliers of all of the Company’s important parts and components to allow the Company to shift to such other suppliers if necessary.

Facilities

The Company operates one small-scale production plant in Taiwan for pilot-run purpose, and one manufacturing plant in mainland China. The Company also outsources part of its product lines to third-party OEM manufacturers, one of them is Asia Optical International Co., Inc., in Dongguan, Guangdong Province, the PRC.

The following table sets forth the location and primary use of the production facilities of the Company as of December 31, 2002:

Location Taiwan Hsinchu Mainland China Kunshan, Jiangsu	Principal products and processing Pilot run for newly developed digital still cameras Assembly of digital still cameras	Total floor area m2 3,728 5,738	Owned or leased
			Leased Leased

Taiwan

Headquarters. The Company’s headquarters are located within the Science-Based Industrial Park in Hsinchu City, Taiwan. The Company leased the third and fourth floors from United Epitaxy Company, Ltd. (‘‘United Ex’’) in a nine-story building owned by United Ex as its headquarters. The lease term for both floors is three years, whereas the lease for the third floor and the fourth floor will be expire on July 31, 2005. The total floor area of the Company’s headquarters is approximately 3,728 square meters. The Company’s headquarters carries administrative, sales and marketing and research and development functions.

Hsinchu Plant. The Company has one small-scale production plant in Hsinchu, Taiwan, located close to the Company’s headquarters. The Hsinchu facility is operated by the research and development department of the Company and is fully equipped to perform pilot-runs for newly developed products.

Mainland China

Kunshan Plant. The Kunshan Plant currently produces a wide range of the Company’s products. The Kunshan Plant complex is comprised of two buildings adjacent to each other that are leased by the Company’s subsidiary, Digicam Technology (Kunshan) Co., Ltd., from the Administration Bureau of Kunshan Economic and Technical Development Zone. The lease for the Kunshan Plant will expire on December 31, 2003. The total floor area of the Kunshan Plant complex is approximately 5,738 square meters.

The Company is in the process of constructing new production facilities on the leased land in Kunshan, which are anticipated to commence operations in the fourth quarter of 2003. The lease of the land will expire on October 8, 2051. The Company believes that the new plant will provide it with additional capacity for growth.

Intellectual Property

As of December 31, 2002, the Company held a total of four patents registered in Taiwan and the PRC for products and technologies developed through its own efforts as well as joint research and development efforts with other companies. Most of the Company’s current patents will expire between 2008 and 2012. In

addition, as of December 31, 2002, the Company had five patents either pending or under review in various jurisdictions including the ROC and the United States. The Company generally intends to continually seek patent protection on any new inventions in design or process technology.

The Company has registered two trademarks in the ROC and has three pending trademark applications in the PRC.

Competition

The Company operates in an international market characterized by intense competition among companies that engage in digital imaging devices, such as digital still cameras, digital video cameras and other devices that record images and store the data digitally, like a mobile phone with camera functions. In addition, the Company also competes with the manufacturers of conventional film cameras and other imaging products. The Company therefore competes with different companies depending on the type of product or geographic area. While these companies are largely fragmented throughout different sectors of the industry, a number of companies are much larger and have greater manufacturing, financial, research and development and marketing resources than the Company. Some of these competitors also carry product lines that the Company does not carry and provide services that the Company does not provide. The Company also faces competition from the manufacturing operations of its ODM customers, who are continually evaluating the merits of manufacturing products internally versus outsourcing to contract manufacturers.

The Company believes that the primary basis of competition is a combination of engineering capability, services, manufacturing quality, price, production capacity, manufacturing technology, design expertise, breadth of product line, time to production and reliability of delivery. The Company believes that it currently competes favorably with respect to these factors. However, to remain competitive, the Company must continue to provide technologically advanced manufacturing services, maintain quality levels, offer flexible and reliable delivery and provide competitive pricing.

Sales and Marketing

The Company’s sales and marketing efforts are conducted by a direct sales force. The Company sells its products pursuant to customer purchase orders. Generally, the sales and marketing process involves a customer first qualifying the Company as an approved vendor or supplier. This process typically involves exchanges of information through written surveys, presentations, site visits, formal audits, sample quotations and first piece builds. The Company also conducts a direct and active marketing strategy including advertising in trade publications and attending trade shows and exhibitions.

The Company’s customers generally are invoiced at the time of delivery of the products with 30 to 45 days of credit terms. The Company’s pricing policy takes into account a number of factors including customer relations, product specification, cost of production, mode of transportation and size of order.

Customers

The Company emphasizes customer relations as a key to its growth and profitability. A key aspect of the Company’s customer development strategy is to position itself as an exclusive supplier of the digital still cameras for a number of certain models under key customers’ brand names. The strategy requires advanced technologies, full commitment to the customers’ products and reliability.

The Company currently designs, develops and supplies digital still cameras to two major customers. For 2001, the Company’s largest customer accounted for 97.5% of consolidated net operating revenues. For the first nine months of 2002, the Company’s largest and second largest customer accounted for 69.1% and 29.4% of non-consolidated net operating revenues, respectively.

Environmental Matters

The Company’s manufacturing processes generate solid and liquid waste as well as discharge of waste water and gaseous emissions. The Company produces very limited hazardous chemicals. Liquid waste generated from the Company’s manufacturing processes mainly includes the water used for cooling lenses under the grinding process. The Company is subject to environmental regulations in Taiwan and the PRC relating to the use, storage, discharge and disposal of solid and liquid waste.

The Company has adopted comprehensive environmental compliance and abatement programs for all of its industrial processes. Under the Company’s guidelines, solid waste is either recycled, as in the case of glass scrap produced by molding and grinding processes, or it is removed under contract by waste management services that have been certified by the applicable environment authorities in the handling of the relevant materials. Waste water from industrial processes is treated before being discharged. Gaseous emissions are filtered before being discharged.

The Company believes that it and its subsidiaries are in substantial compliance with all material environmental regulations. In addition, the Company has not been subject to any material fines or legal action involving non-compliance with any relevant environmental regulations, nor is it aware of any threatened or pending action by any environmental regulatory authority in Taiwan or the PRC.

Legal Proceedings

Neither the Company, nor any of the Company’s subsidiaries, is or has been involved in legal or arbitration proceedings which may have, or have had in the past twelve months, a significant adverse effect on the consolidated financial position of the Company and the Company’s subsidiaries, taken as a whole, nor are any such proceedings pending or threatened of which the Company is aware.

Insurance

The Company maintains insurance policies with independent third parties in respect of buildings, goods in transit, equipment and certain inventories covering loss due to fire, explosion, earthquake, typhoon, flood and certain other risks. While the Company believes its insurance policies are adequate and in line with industry norms in Taiwan, significant damage to any of the Company’s production facilities, whether as a result of fire or other causes, could have a material adverse effect on the Company. Insurance coverage from an insurance policy with Newa Insurance Co., Ltd., which has been renewed on an annual basis, mainly on inventories, plant and equipment amounted to approximately NT$183.6 million, NT$225.2 million and NT$135.4 million (U.S.$3.9 million) as of December 31, 1999, 2000 and 2001, respectively. The Company does not carry business interruption insurance or key-personnel insurance or any policy of a similar nature.

Subsidiaries

The Company has five subsidiaries, namely Altek International Investment Co., Ltd. (‘‘AII’’), Altek Lab Inc. (‘‘Altek Lab’’), Leading Tech Co., Ltd. (‘‘Leading Tech’’), DigiCam Technology (Kunshan) Co., Ltd. (‘‘Altek Kunshan’’) and Altek Japan Corporation (‘‘Altek Japan’’). AII and Leading Tech, which incorporated in the British Virgin Islands and Cayman Islands respectively, are investment holding companies. Altek Lab is responsible for the development and production of ASIC chips in the United States, which the Company indirectly owns 88.29% of equity interests. Altek Kunshan is the Company’s primary self-operated manufacturing facility. Altek Japan, which is incorporated in Japan, is a wholly-owned subsidiary of Altek, and is engaged in market and technology information collection activities. See ‘‘— History and Organization of the Company’’ and ‘‘— Principal Production Facilities’’. Details of the Company’s transactions with its subsidiaries, and all account balances between the Company and its subsidiaries on a non-consolidated basis as of December 31, 1999, 2000 and 2001 are set out in Note 5 to the ‘‘Non-Consolidated Financial Statements as at and for the years ended December 31, 1999, 2000 and 2001’’.

The information set forth below reflects the Company’s direct and indirect equity interests in these subsidiaries as of December 31, 2002. For the Company’s investment policy, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation Investment’’.

Company Investment Holding Subsidiaries Altek International Investment Co., Ltd.(2) Leading Tech Co., Ltd.(2) Operating Subsidiaries Altek Lab Inc.(2) DigiCam Technology (Kunshan) Co., Ltd.(2) Altek Japan Corporation(2)	Main business Investment holding Investment holding Research, development and design of ASIC chips Manufacture of digital still camera Market and technology information collection	Registered office British Virgin Islands Cayman Islands U.S.A. PRC Japan	Total paid-in capital U.S.$5.9 million U.S.$2.1 million U.S.$1.2 million U.S.$2.1 million JPY10 million	The Company’s direct and indirect equity interest(1)
				100.0% 100.0% 88.29% 100.0% 100.0%

(1) There has been no material change in the Company’s direct and indirect equity interests in each of its subsidiaries since December 31, 2002.

(2) Financial results will be consolidated in the Company’s consolidated financial statements.

Altek International Investment Co., Ltd.

The Company established AII in 2000 as a holding company to handle the Company’s overseas investment. As of December 31, 2002, AII held 88.29% and 100%, respectively, of Altek Lab and Leading Tech, which in turns held 100% of Altek Kunshan.

As of and for the year ended December 31, 2002, AII had unaudited net assets, operating revenues and net loss of U.S.$3.4 million, U.S.$0 million and U.S.$1.6 million, respectively.

Leading Tech Co., Ltd.

Leading Tech was invested by AII in 2002 for the sole purpose of mainland China investment. As of December 31, 2002, Leading Tech owned 100% of Altek Kunshan, the Company’s only self-owned manufacturing facilities.

As of and for the year ended December 31, 2002, Leading Tech had unaudited net assets, operating revenues and net profits of U.S.$2.6 million, U.S.$0 million and U.S.$0.5 million, respectively.

Altek Lab Inc.

In 2000, the Company indirectly invested through AII to form Altek Lab. The Company indirectly owns 88.29% of the equity interest. All of the shares of Altek Lab held by AII are fully-paid. The core business of Altek Lab is research, development and design of ASIC chips for digital still cameras, which the Company believes is closely related to its current business lines as well as to its future potential business scope. The Company did not receive a dividend from Altek Lab in 2002.

DigiCam Technology (Kunshan ) Co., Ltd.

The Company, through its 100% owned subsidiaries AII and Leading Tech, acquired Altek Kunshan in 2002. The Company indirectly owns 100% of the equity interest. All of the shares of Altek Kunshan held by Leading Tech are fully-paid. Altek Kunshan manufactures digital still cameras.

As of and for the year ended December 31, 2002, Altek Kunshan had unaudited net assets, operating revenues and net profits of U.S.$2.6 million, U.S.$64.8 million and U.S.$0.5 million, respectively.

Altek Japan Corporation

Altek Japan was established in 2002 by the Company in Japan. The Company directly owns 100% of the equity interest of Altek Japan. All of the shares of Altek Japan held by the Company are fully-paid. Altek Japan engages in market and technology information collection activities.

As of and for the year ended December 31, 2002, Altek Japan had unaudited net assets, operating revenues and net loss of JPY4.2 million, JPY0 and JPY5.8 million, respectively.

Related Party Transactions

The Company and its subsidiaries in the ordinary course of business or from time to time, enter into transactions with each other. The Company believes that all such transactions were based on general commercial practice. See Note 5 to the ‘‘Non-Consolidated Financial Statements as at and for the years ended December 31, 1999, 2000 and 2001’’.

MANAGEMENT AND EMPLOYEES

Directors

The Company’s board of directors is elected by the shareholders in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The Chairman is elected by the board from among the directors. The Company’s seven-member board of directors is responsible for the management of the Company’s business.

The term of office for the Company’s directors is three years from the date of election. Directors may serve any number of consecutive terms and may be removed from office at any time for a valid reason by a resolution adopted at a general meeting of shareholders. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special meeting of shareholders will be convened to elect directors to fill the vacancies.

The following table sets forth the name of each of the Company’s current directors, his or her position in the Company, the percentage of Shares held, and other significant positions in the Company or in unrelated companies held by them.

Name Shan Ko Hsu(2) Kenneth K. T. Yen(2) Ting Ching Kuo(2) Kathy K. C. Young(3) Alex Hsia James Huang(4) Jaime Tang(4)	Position Director and Chairman Director Director Director Director and President Director Director	Percent of Shares held(1) 9.34% 9.34% 9.34% 10.25% 0.52% 0.02% —	Other significant positions held Chairman of Myson Century, Inc. Chairman of Acachip Corporation Director of Yulon Motor Co., Ltd. Director of China Motor Corp. Chief Executive Officer of Yulon GroupVice Chairman of Yulon Motor Co., Ltd. Vice Chairman of China Motor Corp. Vice Chairman of Tai Yuen Textile Co., Ltd. Director of Taiwan Mask Corporation Director of Taiwan Acceptance Corp. Director of InveStar Capital Inc Director of Trans Asia Development Corp. Director of Transasia Airways Corporation Supervisor of CDIB Equity Inc. Supervisor of Quanta Storage Inc. Director of Altek Lab Inc. Director of Leading Tech Co., Ltd. Director of Digicam Technology (Kunshan) Co., Ltd. Director of Sysage Technology Co., Ltd. Director of Ulead System Inc. Chief Auditing Officer of Walsin Lihwa Corp.	Address Age 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 49 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 37 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 48 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 42 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 48 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 47 3/F., No. 10, Li-Hsin Road, Science Based Industrial Park, Hsinchu Taiwan, R.O.C. 46

(1) As of December 31, 2002

(2) Nominated by Sun Shining Investment Corp.

(3) Nominated by China Development Industrial Bank

(4) Independent directors

Supervisors

The Company currently has three supervisors, each serving a three-year term. Supervisors are typically elected at the time when directors are elected. The supervisors’ duties and powers include investigation of the Company’s business condition, inspection of the Company’s corporate records, verification and review of financial statements presented by the Company’s board of directors at shareholders’ meetings, convening of shareholders’ meetings, representing the Company in negotiations with the Company’s directors and notification, when appropriate, to the board of directors to cease acting in contravention of any applicable law or regulation, the Company’s Articles of Incorporation or the resolution of shareholders’ meeting. Each supervisor is elected by the Company’s shareholders and cannot concurrently serve as a director, management officer or other staff member of the Company. For a public company, such as Altek, the ROC Company Law requires at least two supervisors be in office at all times and that a supervisor’s term of office be no more than three years.

The following table sets forth the name of each of the Company’s current supervisors, his position in the Company, the percentage of Shares and other significant positions held by him.

Name Henry H. Y. Wang(2) Thomas M. S. Huang(3) Jenq-Lin Liou(4)	Position Supervisor Supervisor Supervisor	Percent of Shares held(1) 2.68% 0.01% —	Other significant positions held Vice President of Headquarter of Yulon Group General Manager, Administration Department of Headquarter of Yulon Group Chairman of Eastern Asia Technology Ltd. Chairman of ATLM Taiwan, Inc. Chairman of ATL Electronics (M) Sdn. Bhd.	Age
				48 46 49

(1) As of December 31, 2002
(2) Nominated by Ulrich Holdings Corp.
(3) Nominated by Ly Pon Investment Corp.
(4) Independent supervisor

In accordance with ROC law, each of the Company’s directors and supervisors owes fiduciary duties to all shareholders. Of the current directors and supervisors, six were nominated by corporate entities; the remaining directors and supervisors serve in their capacity as individual shareholders.

Of the Company’s current seven board seats, two are occupied by independent directors. One of the Company’s three supervisors is an independent supervisor. Directors and supervisors will be deemed ‘‘independent’’ only if, for at least one year prior to their election, they:

" do not serve as independent directors or supervisors of five or more other companies;
" are not employed by the Company or its affiliates and are not directors or supervisors of its affiliates;
" do not directly or indirectly hold over 1% of the Company’s issued and outstanding shares and are not ranked among the top ten individual shareholders of the Company;
" are not married or related (father, mother, grandfather, grandmother, son, daughter, grandson or granddaughter) to employees of the Company or its affiliates, directors and supervisors, holders (directly or indirectly) of over 1% of the Company’s shares or shareholders who are ranked among the top ten individual shareholders of the Company;

" are not directors, supervisors or employees of corporate shareholders that directly hold more than 5% of the Company’s shares or ranked among the top five corporate shareholders of the Company;
" are not directors, supervisors, managers or holders of more than 5% of the shares of a company or institution with which the Company has a financial or business relationship; and
" are not a, or a spouse of a, partner, director, supervisor or manager of providers of financial, commercial or legal services to the Company or its affiliates.

In addition, to be deemed ‘‘independent’’, directors and supervisors must be elected in their individual capacities and have five years of experience in business, legal or financial matters or in the Company’s business and provide proof of attending at least three hours of legal, financial or accounting training each year.

Executive Officers

The following table sets forth information relating to the Company’s executive officers.

Name Alex Hsia Terry Chang Michael Wu Roy Wu Alex Liao Jesse Lue Steve Shyr	Position President/CEO Vice President in charge of product engineering and quality assurance Vice President in charge of manufacturing Vice President in charge of research and development Vice President in charge of operations Vice President in charge of sales and marketing Vice President /CFO	Years with the Company(1) 6 5 3 2 2 2 3 months	Age
			48 46 53 44 52 47 42

(1) As of December 31, 2002

Biographies of Directors, Supervisors and Executive Officers

Shan Ko Hsu has served as the Chairman of the Company since 1996. Mr. Hsu is the Deputy Managing Director of Yulon Group’s headquarters. Mr. Hsu holds an MBA degree from National Chengchi University in Taiwan.

Kenneth K. T. Yen has served as a Director of the Company since 1996. Mr. Yen is the Chief Executive Officer of Yulon Group. Mr. Yen holds a Bachelors degree in business administration from Rider University in the U.S.A.

Ting Ching Kuo has served as a Director of the Company since 1996. Mr. Kuo also serves as Executive Vice President at Sun Shining Investment Corp. Mr. Kuo holds an MBA degree from National Chengchi University in Taiwan.

Kathy KC Young has served as a Director of the Company since 2001. Ms. Young also serves as a Manager at China Development Industrial Bank. Ms. Young worked in the financial department at Philip Taiwan Ltd. and Sampo Corporation before her current positions. Ms. Young holds an MBA degree from Kansas State University in the U.S.A.

Alex Hsia has served as a Director of the Company since 1996 and the President of the Company since 1996. Before joining the Company, Mr. Hsia served as Vice President of Microtek International Inc. Mr. Hsia holds a Master degree in electrical engineering from the University of California in Los Angeles in the U.S.A.

James Huang has served as an Independent Director of the Company since 2002. Before his current positions, Mr. Huang served as Vice President at Microtek International Inc. and Ulead System Inc. Mr. Huang also served as CFO in Sysage Technology Co., Ltd. Mr. Huang holds a Bachelors degree in accounting from National Chung Hsing University in Taiwan.

Jaime Tang has served as an Independent Director of the Company since 2002. Ms. Tang served as Vice President at BTYF Securities Co., Ltd. and Chief Auditing Officer at Walsin Lihwa Corporation. Ms. Tang holds an MBA degree from Indiana University in the U.S.A.

Henry H. Y. Wang has served as a Supervisor of the Company since 2002. Mr. Wang was a Assistant Vice President at Bankers Trust Company and the Vice President at Taiyuen Textile Co., Ltd. He holds an MBA degree from New York University in the U.S.A.

Thomas M. S. Huang has served as a Supervisor of the Company since 2002. Mr. Huang served as Chief Designer of Styling Department at Yulon Motors before his current position at Yulon Group. Mr. Huang graduated from Tatung Institute of Technology in Taiwan. Jenq-Lin Liou has served as an Independent Supervisor of the Company since 2002. He holds a Master degree in electronics engineering and business administration from the University of Southern California in the U.S.A.

Terry Chang joined the Company since 1997. Before joining the Company, Mr. Chang was the Assistant Vice President at Microtek International Inc. Mr. Chang holds a Master degree in electronics engineering from National Cheng Kung University in Taiwan.

Michael Wu joined the Company in 1999. Before taking the position, Mr. Wu was a Vice President of Mustek Systems Inc. Mr. Wu holds a Bachelors degree in electronics engineering from Chung Yuan Christian University in Taiwan.

Roy Wu joined the Company in 2000. Before joining the Company, Mr. Wu served as a Vice President of Microtek International Inc. Mr. Wu holds a Master degree in electronics engineering from National Chiao Tung University in Taiwan.

Alex Liao joined the Company in 2000. Before joining the Company, Mr. Liao was Executive Vice President of CLEVO Computer Co., and Innvolabs Corp. Mr. Liao holds a Bachelors degree in business administration from National Chengchi University in Taiwan.

Jesse Lue joined the Company since 2000. Before joining the Company, Mr. Lue served as Marketing Director of Microtek Europe GmbH. Mr. Lue holds a Master degree in computer science from the University of Wisconsin in the U.S.A.

Steve Shyr joined the Company in 2002. Before joining the Company, Mr. Shyr was an Assistant Manager at T.N. Soong & CPAs, and had served as CFO of Coretronic Corporation and Microtek International Inc. Mr. Shyr holds a Bachelors degree in accounting from Fu-Jen University in Taiwan.

Compensation of Directors, Supervisor and Executive Officers

In 2001, the Company paid to its directors, supervisors, president and vice presidents approximately NT$21.8 million in aggregate cash remuneration.

Interests of Management in Certain Transactions

Several of the Company’s directors, supervisors and executive officers also serve as directors, supervisors or executive officers of companies with which the Company does business. These companies include Altek’s subsidiaries. The Company conducts these transactions on an arms-length basis.

Employees

Overview

Altek had the following number of employees as of the period indicated:

Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing. . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As	of December 31, 2000 2001 15 34 40 69 86 46 3 5 144 154	As of September 30,
	1999 12 34 99 3 148	2000 15 40 86 3 144	2002
			42 122 95 9 268

As of September 30, 2002, all of the Company’s employees worked on a full-time basis, of which 45.5% were engaged in research and product development, 19.1% in sales, marketing, general and administration and 35.4% in manufacturing. The average age of the employees is 35 years old. None of the Company’s employees is represented by collective bargaining organization, such as a union, or subject to any bargaining agreements.

As of September 30, 2002, approximately 95.1% of the Company’s research and development personnel held a bachelors degree or higher educational qualification and approximately 92.3% of the Company’s senior to mid-ranking management and administration personnel held a bachelors degree or higher educational qualification. The Company places considerable importance on the recruitment, training and retention of a team of qualified and experienced engineers to oversee and manage the Company’s Taiwan and PRC manufacturing operations.

The Company implemented a localization policy for its PRC production facilities and recruits and trains local management personnel to oversee and manage the operation of these PRC production facilities. During the initial start-up of operations of the Company’s overseas production facilities, the Company generally seconds its senior to mid-ranking management and administration staff to the PRC to supervise the management and operation of such production facilities.

The Company’s employees in the ROC are not unionized and neither the Company nor any of its subsidiaries has experienced any significant labor disputes in the past five years.

Salaries

The salaries of the Company’s employees in the ROC are adjusted based on industry standards, inflation and individual performance. The Company pays annual bonus to the employees equivalent to an average of two months’ salary. In addition, the Articles of Incorporation of the Company provide that the Company’s employees are entitled to employee bonuses out of the earnings (subject to compliance with the requirements of the ROC Company Law) which may be paid in cash or stock. See ‘‘Description of The Shares’’. The number of the Shares issuable was calculated by reference to the par value of NT$10 per Share, notwithstanding that the market value of the Shares as of the date of declaration and distribution of the stock bonuses were higher than NT$10 per Share. In addition, ROC law requires that the Company’s employees be given pre-emptive rights to subscribe for between 10% to 15% of any rights issues or share offerings of the Company, except issuances in connection with exercise of employee stock options, warrant exercises, conversion of bonds, mergers and spin-offs or by way of a private placement.

The Company has in place a stock option plan for its employees. Pursuant to the stock option plan, the number of Shares purchased by a single employee by exercising options may not exceed 10% of the total available Shares under the stock option plan, and that the number of Shares purchased by an employee for each fiscal year by exercising options may not exceed 1% of the outstanding Shares issued by the end of such fiscal year. As of December 31, 2002, all options available for granting under the stock option plan, representing 6,930,000 Shares, were granted at a per share exercise price of NT$20.8, subject to antidilution adjustments in accordance with the terms and conditions of the stock option plan. These options are exercisable in installments starting from the fourth quarter of 2004 to 2008.

Employee Retirement Plan

The Company has established an employee defined-benefit retirement plan (‘‘Retirement Plan’’). This Retirement Plan provides for lump-sum payments to retiring employees in Taiwan based on the length of service, age and certain other factors. Every month, the Company deposits 2% of employees’ total monthly salaries with the Central Trust of China in accordance with the Retirement Plan. Actual payment of retirement benefits was financed by the pension fund, and any insufficiency will be paid by the Company.

All TSE listed companies are required to calculate their pension obligations based on an actuarial valuation. Pursuant to ROC Financial Accounting Standard Statement No. 18, the Company recognized net periodic pension cost which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation, pension gains/losses and prior service cost based on an actuarial valuation.

Employee Insurance

The Company carries on its own account group insurance for its employees. The third-party group insurance covers the employee’s emergency medical needs, life insurance and accidental insurance. Such insurance policy also provides additional coverage for the family members of the employees free of charge.

The Company does not have any collective bargaining arrangement with its employees, and the Company has never experienced a work stoppage due to its employees. The Company believes that it has good relations with its employees.

PRINCIPAL SHAREHOLDERS

In so far as known to the Company, as of September 30, 2002, there is no person other than the Company’s directors who, directly or indirectly, is interested in 10% or more of the Company’s Shares capital.

CHANGES IN ISSUED SHARE CAPITAL

The following table shows the increases in the Company’s issued share capital since incorporation:

Date of issue Dec 1996 . . . . . . . . . . Feb 1997 . . . . . . . . . . Apr 1999 . . . . . . . . . . Mar 2000 . . . . . . . . . . Jul 2000. . . . . . . . . . . Dec 2000 . . . . . . . . . . Mar 2002 . . . . . . . . . . June 2002. . . . . . . . . .	Type of issue Incorporation Rights issue Rights issue Rights issue Rights issue Rights issue Rights issue Capitalization of stock dividends and employee bonus shares	Number of issued Shares 300,000 25,700,000 14,000,000 11,311,875 20,000,000 2,500,000 13,000,000 28,688,125	Number of Shares outstanding after issue
			300,000 26,000,000 40,000,000 51,311,875 71,311,875 73,811,875 86,811,875 115,500,000

TERMS AND CONDITIONS OF THE BONDS

The following terms and conditions (except for the sentences in italics) will be endorsed on the Definitive Certificates issued in respect of the Bonds. The Global Certificate contains provisions which apply to the Bonds when they are represented by the Global Certificate, some of which modify the effect of the terms and conditions set out below. See ‘‘The Form of the Bonds’’.

The issue of U.S.$60,000,000 Zero Coupon Convertible Bonds Due 2008 (the ‘‘Bonds’’) of Altek Corporation (the ‘‘Company’’) was authorized by resolutions of the board of directors of the Company adopted on December 30, 2002. The Bonds are constituted by an indenture (the ‘‘Indenture’’) to be dated as of February 26, 2003 and to be made between the Company and The Bank of New York (the ‘‘Trustee’’), which term includes any successor trustee under the Indenture for the holders of the Bonds (the ‘‘Bondholders’’). The Company will enter into a paying and conversion agency agreement (the ‘‘Agency Agreement’’) to be dated as of February 26, 2003 with the Trustee, The Bank of New York, as the registrar (the ‘‘Registrar’’) and the principal paying, transfer and conversion agent (the ‘‘Principal Agent’’) and The Bank of New York (Luxembourg) S.A., as paying, transfer and conversion agent, appointed thereunder (the ‘‘Paying Agent’’, the ‘‘Conversion Agent’’ and the ‘‘Transfer Agent’’ and such expression shall include the Principal Agent) in relation to the Bonds. The Registrar, the Principal Agent, the Paying Agent, the Conversion Agent and the Transfer Agent together are referred to as the ‘‘Agents’’. The statements in these Terms and Conditions (‘‘Conditions’’) include summaries of, and are subject to, the detailed provisions of the Indenture. Copies of the Indenture and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, being at the date hereof at 101 Barclay Street, 21st Floor West, New York, N.Y. 10286, U.S.A. and at the specified offices of each of the Agents. The Bondholders are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all the provisions of the Indenture and the Agency Agreement.

1. Status

The Bonds constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured general obligations of the Company and be ranked at least equally among themselves and (subject to Condition 3) with all other present and future direct, unconditional, unsubordinated and unsecured obligations of the Company, except as may be required by mandatory provisions of law.

2. Form, Denomination and Title

(A) Form and Denomination

The Bonds will be issued in registered form only, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds will be offered and sold in principal amounts of U.S.$1,000 or an integral multiple thereof and will be transferable in principal amounts of U.S.$1,000 or an integral multiple thereof. The Bonds will initially be represented by a global certificate (the ‘‘Global Certificate’’) deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear Bank S.A./N.V., as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’).

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates (the ‘‘Definitive Certificates’’) in respect of their Bonds except in the limited circumstances described in the Global Certificate. In the event that certificates do become issuable, a Definitive Certificate will be issued to each Bondholder in respect of its registered holding of Bonds. Each Bond and each Definitive Certificate will be serially numbered with an identifying number which will be recorded on the relevant Definitive Certificate and in the register of Bondholders which the Company will procure to be kept by the Registrar.

(B) Title

The Bonds will be registered instruments, title to which will pass only by transfer and registration in the register of Bondholders. The registered holder of any Bond will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the

theft or loss of, the Definitive Certificates issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, ‘‘Bondholder’’ and (in relation to a Bond) ‘‘holder’’ mean the person in whose name a Bond is registered.

3. Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Indenture) or any amount is due under or in respect of any Bond or otherwise under the Indenture, the Company shall not, and shall ensure that none of its Principal Subsidiaries (as defined below), if any, will, create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance (each an ‘‘Encumbrance’’) upon the whole or any part of its, or, as the case may be, any such Principal Subsidiary’s, if any, undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined below) (i) payment of any sum due in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities without in any such case at the same time according to the Bonds, either the same security as is granted to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or other like obligation or such other security as shall be approved by an Extraordinary Resolution (as defined in the Indenture) of the Bondholders.

As used herein, the term ‘‘International Investment Securities’’ means bonds, debentures, notes or investment securities of the Company or any other person evidencing indebtedness with a maturity of not less than one year from the date thereof which (a) either (i) are by their terms payable, or confer a right to receive payment, in any currency other than New Taiwan Dollars or (ii) are denominated or payable in New Taiwan Dollars and more than 50% of the aggregate principal amount thereof is initially distributed outside Taiwan, the Republic of China (the ‘‘ROC’’) by or with the authorization of the issuer thereof and (b) are for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded on any stock exchange, quotation system or over-the-counter or other similar securities market outside the ROC.

‘‘Principal Subsidiary’’ means any Subsidiary which engages in manufacturing, production and distribution businesses, (i) whose net operating revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary, are at least 10% of the net operating revenues of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company or (ii) whose total assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary are at least 10% of the total assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company, which may be acquired or formed by the Company from time to time during the terms of the Bonds.

‘‘Subsidiary’’ means any corporation or other business entity more than 50% of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company.

4. No Interest

No interest will be payable on the Bonds, except as provided in Condition 10.

5. Transfers of Bonds; Issue of Definitive Certificates

(A) Transfers

Subject to Condition 5(D) below, a Bond may be transferred by delivering the individual Definitive Certificates evidencing that Bond duly endorsed and accompanied by a form of transfer, duly completed and signed, at the specified office of any Transfer Agent (including the Transfer Agent in Luxembourg) (if a Definitive Certificate has been issued) or, in the case of a Bond represented by the Global Certificate, delivery at such office of a form of transfer obtainable from any of the Transfer Agents (the ‘‘Form of Transfer’’), duly completed and executed and any other evidence that such Transfer Agent may reasonably require. In the case of a transfer of only part of a holding of Bonds in respect of which a Definitive Certificate is issued, a new Definitive Certificate shall be issued to the

transferee in respect of the part transferred and a further new Definitive Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. The Form of Transfer is available at the specified office of the Transfer Agent (including the Transfer Agent in Luxembourg).

Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems.

(B) Delivery of New Definitive Certificates

Each new Definitive Certificate to be issued upon the transfer of Bonds shall be available for delivery upon receipt by the Transfer Agent (including the Transfer Agent in Luxembourg) at its specified office of the relevant Definitive Certificate and the Form of Transfer. Delivery of the new Definitive Certificates shall be made at the specified office of such Transfer Agent to whom the relevant Definitive Certificate and the Form of Transfer shall have been surrendered or delivered or, at the option of the holder making such delivery or surrender as aforesaid and as specified in the relevant Form of Transfer or otherwise in writing, be mailed within five Business Days of receipt by the Transfer Agent of the relevant Definitive Certificates and the Form of Transfer by uninsured post at the risk of the holder entitled to the new Definitive Certificates to such address as may be so specified, unless such holder requests otherwise and pays in advance to the relevant Transfer Agent the costs of such other method of delivery and/or such insurance as it may specify.

Except in the limited circumstances described in the Global Certificate, owners of interests in the Bonds represented by the Global Certificate will not be entitled to receive Definitive Certificates (if issued) in respect of their individual holdings of the Bonds.

For the purposes of this Condition 5, ‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which banks are open for business in the city in which the specified office of the relevant Transfer Agent with whom a Definitive Certificate is deposited or surrendered in connection with a transfer, conversion or redemption is located.

(C) Formalities Free of Charge

Transfers of the Bonds will be effected without charge by or on behalf of the Company or any Transfer Agent, but only upon payment (or the giving of such indemnity as such Transfer Agent may require in respect) of any tax or other governmental charges which may be imposed in relation thereto.

(D) Restricted Transfer Periods

No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15 days ending on the due date for any payment of principal and premium on the Bond; (ii) after such Bond has been called for redemption pursuant to Condition 8(B) or 8(D); (iii) after the Conversion Notice (as defined in Condition 6(B)) and the individual Definitive Certificates in respect of such Bond (if issued) have been deposited for conversion pursuant to Condition 6; or (iv) following exercise of the Bondholder’s put option pursuant to Condition 8(C).

(E) Regulations

All transfers of Bonds and entries on the register of Bondholders will be made subject to the detailed regulations concerning transfer of Bonds (the ‘‘Regulations’’) set forth in the Agency Agreement. The Regulations may be changed by the Company, with the prior written approval of the Trustee and the Registrar. A copy of the Regulations will be mailed (at the Company’s expense) by the Registrar to any Bondholder who asks for one and will also be available at the office of the paying and conversion agent in Luxembourg and elsewhere.

6. Conversion

On exercise of the Conversion Right (as defined below), the converting Bondholders pursuant to the election made by such Bondholder may: (a) elect to receive Shares in Taiwan, or (b) in the event that the Company establishes a depositary receipt facility following the closing and subject to compliance with the terms and conditions of the deposit agreement established with such depositary receipt facility and the

relevant laws and regulations, elect to receive depositary shares representing the interests in the Shares and the Bondholder may direct the Company to procure that Shares transferred and delivered upon conversion of the Bonds are deposited with the custodian for the DR Depositary (as defined below) for the issuance and delivery of the DRs (as defined below) by the DR Depositary.

In the event that the Company establishes a depositary receipt facility, it may procure additional Shares for deposit with the custodian for the DR Depositary subject to compliance with the terms and conditions of the deposit agreement and applicable laws and regulations. Such Shares could be procured by issuing new Shares, subject to compliance with applicable ROC laws and regulations and the Company’s Articles of Incorporation.

In the event that the Company does establish a depositary receipt facility, the procedure for Bondholders to convert the Bonds into DRs will be substantially similar to the conversion procedure for Bondholders to convert the Bonds into Shares. In each case, the Bondholder will deposit the individual Definitive Certificate (if issued) in respect of a Bond and the Conversion Notice (as defined herein) with the Conversion Agent. However, in the case of conversion into DRs, the Bondholder will direct that all or some only of the Shares issuable upon conversion be deposited with the relevant DR Depositary for issuance of DRs (as defined below).

The Company shall, within five Trading Days (subject to changes of the ROC laws and regulations) from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, issue and deliver the Shares converted from the Bonds to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Indenture and in these terms and conditions being satisfied.

The Indenture provides, in summary, that the term ‘‘Shares’’ means, when used to refer to the class or classes of the Company’s capital stock into which the Bonds are convertible and when used in certain other instances, only the Company’s common shares, NT$10 par value per share, but that when used elsewhere, including in Condition 6(C), such term also includes shares of any other class or classes of the share capital of the Company authorized after the date of the Indenture which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation or winding-up of the Company.

(A) Conversion Right

(i) Conversion Period: Each Bondholder has the right during the Conversion Period (as defined below) to convert any Bond into Shares, credited as fully paid, and may, if a depositary receipt facility has been established and depositary receipts representing the Shares (‘‘DRs’’) have been issued, and subject to compliance with the terms and conditions of the relevant deposit agreement, direct in the Conversion Notice (as defined in Condition 6(B)) that all or some only of the Shares issuable upon conversion be deposited with the relevant DR depositary (the ‘‘DR Depositary’’) for issuance of DRs on and subject to the terms set forth herein (the ‘‘Conversion Right’’). Subject to and upon compliance with the provisions of this Condition, the Conversion Right attaching to any Bond may be exercised, at the option of the holder thereof and as and to the extent provided herein, at any time on or after March 18, 2003 and prior to the close of business (at the place where the Conversion Notice and the individual Definitive Certificate (if issued) in respect of such Bond are deposited for conversion) on January 28, 2008 (or if such date shall not be a business day, on the immediately preceding business day at such place) (but in no event thereafter), or, if such Bond shall have been called for redemption prior to that date, then up to the close of business (at the place aforesaid) on the seventh day prior to the date fixed for redemption thereof (or if such day shall not be a business day at such place, on the immediately preceding business day at such place) (the ‘‘Conversion Period’’); provided, however, that the Conversion Right during any Closed Period shall be suspended and the Conversion Period shall not include any such Closed Period. ‘‘Closed Period’’ shall mean any period during which, under the laws of the ROC or otherwise, the Company shall close its shareholders register, which period includes (a) 60 days prior to the date of the annual general meeting of shareholders (‘‘AGM’’), (b) 30 days prior to an extraordinary shareholders’ meeting, (c) the period from the third Trading Day (as defined in Condition 8(B)) prior to the Company’s notification to the TSE in respect of a record date (and the relevant closure of the shareholders’ register) for determining the identity of shareholders entitled to receive annual dividend distribution or other rights or benefits to the date of the relevant record date, or (d) such other periods determined by ROC law applicable

from time to time that the Company is required to close its shareholders’ register. The Company shall procure that the Bondholders and the Trustee are given not less than 10 days’ nor more than 60 days’ prior notice of any Closed Period in accordance with Condition 15.

A ‘‘Taiwan business day’’ means a day (other than a Saturday or Sunday) on which commercial banks in Taipei are open for business.

Under current ROC law, regulation and policy, PRC persons are not permitted to hold or convert the Bonds or to register as a shareholder of the Company. Under current ROC law, a PRC person means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong or Macau, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership and other entity organized under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

Under current ROC law, a non-ROC converting Bondholder when exercising his Conversion Right to convert the Bonds into Shares is required (unless the Bondholder has the option under these Conditions to elect, and elects to receive DRs with respect to the Bonds to be converted. In such case, the Shares will be delivered to and deposited with a custodian appointed by the relevant DR Depositary) to appoint a local agent in the ROC with such qualifications as are set by the ROC SFC, to open a securities trading account with a local brokerage firm and a New Taiwan Dollar bank account, pay ROC withholding taxes, remit funds, exercise shareholders’ rights, handle conversion application and perform such other matters as may be designated by such converting Bondholder (or its designee), on behalf of and as agent for such converting Bondholder (or its designee). In addition, such non-ROC converting Bondholder must also appoint a custodian bank to hold the securities for safekeeping, make confirmation and settlement, and report all relevant information. Under existing ROC laws and regulations, without opening such accounts, an investor in the Bonds would not be able to receive, hold, sell or otherwise transfer the Shares into which the Bonds may have been converted on the TSE or otherwise. See ‘‘Foreign Investment and Exchange Controls in the ROC’’ and ‘‘Description of the Shares’’.

(ii) Number of Shares and/or DRs Issuable on Conversion: The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT Dollars at the fixed rate NT$34.816 = U.S.$1.00) by the Conversion Price (as defined below) in effect on the Conversion Date as defined in Condition 6(B)(ii) (translated into NT Dollars at the fixed rate of NT$34.816 = U.S.$1.00). Fractional Shares will not be issued or paid in cash, or in any other means. The number of DRs to be issued upon conversion of any Bond (if applicable) will be determined by dividing the principal amount of the Bond by the Conversion Price (as defined below) in effect on the Conversion Date, and multiplying or dividing, as the case may be, the Conversion Price by the number of Shares represented by each DR on the Conversion Date as defined in Condition 6(B)(ii).

If a Definitive Certificate or Definitive Certificates in respect of more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares (and/or DRs, if applicable) to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds in respect of which the Definitive Certificate(s) were so deposited. Fractions of Shares (and/or DRs, if applicable) will not be issued on conversion, and cash adjustments will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of a consolidation or reclassification of Shares (and DRs, if applicable) by operation of law or otherwise occurring after February 26, 2003, the Company will upon conversion of the Bonds pay in U.S. Dollars a sum equals to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share (and/or a DR, if applicable) not issued as aforesaid if such sum exceeds U.S.$10. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 6(A)(ii).

(iii) Initial Conversion Price: The price at which Shares will be issued upon conversion (the ‘‘Conversion Price’’) will initially be NT$111.0 per Share, which is equivalent to U.S.$3.188 per Share based on the fixed exchange rate of NT$34.816 = U.S.$1.00 but will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E). The price at which DRs will be issued upon

conversion, in the event that the Company establishes a depositary receipt facility, will be determined by multiplying, or dividing, as the case may be, the Conversion Price by the number of Shares represented by each DR on the Conversion Date and will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E). In the event that a depositary receipt facility is established and DRs may be issued upon conversion, the term ‘‘Conversion Price’’ shall be understood to mean the price at which DRs will be issued or the price at which Shares will be issued, as the situation dictates.

(iv) Revival on Default: Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption prior to February 26, 2008 on the date fixed for redemption thereof, the Conversion Right attaching to such Bond will continue to be exercisable up to and including the close of business (at the place where the relevant individual Definitive Certificate (if issued) in respect of such Bond and the Conversion Notice (as defined in Condition 6(B) are deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the Bondholders.

(B) Conversion Procedure

(i) Exercise Procedure: To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at its own expense between 9: 00 a.m. and 3: 00 p.m. (local time at the specified office referred to below) on any business day (as defined below) during the Conversion Period at the specified office of a Conversion Agent outside of the ROC, a notice of conversion (a ‘‘Conversion Notice’’) in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant individual Definitive Certificate (if issued) and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located and any amount to be paid by the Bondholder. A Conversion Notice, or the relevant individual Definitive Certificate (if issued), deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with the Conversion Agent between 9: 00 a.m. to 3: 00 p.m. on the next business day.

Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day (as defined in Condition 8(B)) following the last day of the Closed Period which (if all other conditions to convert have been fulfilled) will be the Conversion Date for such Bonds. Such Bondholders or the relevant DR Depositary, as applicable, will not be registered as holders of Shares until the Conversion Date.

If a DR facility has been established and DRs have been issued, the Conversion Notice shall contain an option for the Bondholder to elect to receive Shares and/or DRs upon such conversion. The Conversion Notice shall contain, inter alia, an appointment of a local agent by such converting Bondholder and an irrevocable instruction to exchange for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares are available. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company and the Conversion Agents, Principal Agent and Trustee be immediately notified in writing by such written consent of the Company accompanied by the relevant Conversion Notice. The price at which such Bonds will be converted will be the Conversion Price in effect on the Conversion Date.

In this Condition, ‘‘business day’’ means a day on which commercial banks are open for business in London, and in the place where the Conversion Agent with whom the individual Definitive Certificate (if issued) and the Conversion Notice are deposited is open for business.

(ii) Taxes and Expenses; Deposit Date and Conversion Date: As conditions precedent to conversion, together with the Conversion Notice, the Bondholder must pay to the relevant Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares (and/or DRs, if applicable) or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares (and/or DRs, if applicable) on conversion of Bonds and all charges of the Conversion Agents (and the

relevant DR Depositary, if applicable) in connection therewith as provided in the Indenture and Agency Agreement. The date on which any Definitive Certificate and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law or a relevant deposit agreement (if applicable), are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the ‘‘Deposit Date’’. The ‘‘Conversion Date’’ applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day as defined in Condition 8(B) and occurs during the Conversion Period. Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day following the last day of that Closed Period.

(iii) Holder of Record: With effect from the opening of business in the ROC on the Conversion Date, the Company will deem the converting Bondholder (or its designee) as indicated in the Conversion Notice to have become the holder of record of the number of Shares to be issued upon such conversion to such holder (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and at such time, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi)).

In the event that a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs, with effect from the opening of business in the ROC on the Conversion Date, the Company will deem the relevant DR Depositary to have become the holder of record of the number of Shares represented by such DRs to be issued upon such conversion (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and upon delivery by the relevant DR Depositary to the Bondholder of the number of DRs into which the Bonds are convertible, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi)).

(iv) Availability of Shares: The Company shall, for the benefit of Bondholders, ensure that sufficient Shares are available as soon as possible, but in any event within five Trading Days (subject to changes of the ROC laws and regulations) from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent.

(v) Delivery of Shares and/or DRs: On the Conversion Date, the Company will register the converting Bondholder (or its designee) or the relevant DR Depositary (or its designee), as applicable, in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days (subject to changes of the ROC laws and regulations) from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, deliver to the local agent appointed by the converting Bondholder, and/or to the relevant custodian, as agent for the relevant DR Depositary (if the converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs), a certificate or certificates for the relevant Shares, by electronic credit to the account established by the relevant local agent for the conversion of the Bonds, through the facilities of the Taiwan Securities Central Depositary Co., Ltd., registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof. If the converting Bondholder has not created the required account, the Company will deliver the Shares after such account has been set up.

The term ‘‘Trading Day’’ means a day on which the TSE is open for business.

In the event that a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs on exercise of its Conversion Right, the Company agrees to deliver to and deposit with the relevant custodian, as agent for the relevant DR Depositary, a sufficient number of Shares to represent the DRs such Bondholder is entitled to receive upon conversion. Such Shares will be registered in the name of the relevant DR Depositary or its nominee and deposited in accordance with the terms of the relevant deposit agreement.

(vi) Retroactive Adjustment of Conversion Price: If the Conversion Date in relation to any Bond shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in Condition 6(C) and the Indenture and the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the Conversion Price, the Company will, within 20 days after the effective date of such adjustment of the Conversion Price, issue and deliver (to the local agent appointed by the converting Bondholder and/or, if applicable, to the relevant custodian, as agent for the relevant DR Depositary) such number of Shares as is equal to the excess of the number of Shares that would have been required to be issued on conversion of such Bond if the relevant retroactive adjustment had been made as at the said Conversion Date over the number of Shares previously issued pursuant to such conversion, and in such event and in respect of such number of Shares, references in Condition 6(B)(v) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively). Fractions of Shares will not be issued and no cash adjustment will be made in respect thereof.

(vii) Dividends and Other Entitlements: To the extent permitted under the laws and regulations of the ROC, the converting Bondholders will be entitled to the annual dividend distributions or other benefits if the Conversion Date falls prior to the third Trading Day (as defined in Condition 6(B)(v)) before the Company’s notification to the TSE in respect of a record date (and the relevant closure of shareholders’ register) for determining the identity of shareholders who are entitled to such dividend distributions.

(viii) Conversion Agents: The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to appoint further or other Conversion Agents; provided that the Company will at all times maintain a Conversion Agent having specified offices in London, the United Kingdom and, so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, in Luxembourg. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents will be given promptly by the Company to the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange.

(C) Adjustments to Conversion Price

The Conversion Price will be subject to adjustment in the circumstances described below:

(i) If the Company shall (1) make a free distribution of Shares, (2) make a bonus issue of Shares, (3) subdivide its outstanding Shares, (4) consolidate its outstanding Shares into a smaller number of Shares, or (5) re-classify any of its Shares into other securities of the Company, then the Conversion Price shall be appropriately adjusted so that the holder of any Bond, in respect of the Conversion Date which occurs after the coming into effect of the adjustment described in this subsection (i), shall be entitled to receive the number of Shares and/or other securities of the Company which he would have held or have been entitled to receive after the happening of any of the events described above had such Bond been converted immediately prior to the happening of such event (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive any such free distribution or bonus issue of Shares or other securities issued upon any such division, consolidation or re-classification, immediately prior to such record date), but without prejudice to the effect of any other adjustment to the Conversion Price made with effect from the date of the happening of such event (or such record date) or any time thereafter.

An adjustment made pursuant to this subsection (i) shall become effective immediately on the relevant event referred to above becoming effective or, if a record date is fixed therefore, immediately after such record date; provided that in the case of a free distribution or bonus issue of Shares which must, under applicable law of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the board of directors of the Company before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such distribution or issue, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(ii) If the Company shall declare a dividend in Shares then the Conversion Price shall be appropriately adjusted so that the holder of any Bond, in respect of the Conversion Date which occurs after the coming into effect of the adjustment described in this subsection (ii), shall be entitled to receive the number of Shares and/or other securities of the Company which he would have held or have been entitled to receive after the date when such dividend is declared had such Bond been converted immediately prior to the happening of such event (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive such dividend, immediately prior to such record date), but without prejudice to the effect of any other adjustment to the Conversion Price made with effect from the date of the happening of such event (or such record date) or any time thereafter. No account is to be taken of, or credit given for, the par value of Shares issued in a stock dividend in calculating the appropriate Conversion Price adjustment, so that the full dilutive effect is provided for.

An adjustment made pursuant to this subsection (ii) shall become effective immediately upon the relevant event referred to above becoming effective or, if a record date is fixed therefore, immediately after such record date; provided that in the case of a dividend in Shares which must, under applicable law of the ROC, be submitted for approval to a general meeting of shareholders before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such dividend, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(iii) If the Company shall grant, issue or offer to the holders of Shares rights or warrants entitling them to subscribe for or purchase Shares, or to subscribe for or purchase any securities convertible into or exchangeable for Shares, at a consideration per Share receivable by the Company which is fixed:
(a) on or prior to the record date for the determination of shareholders entitled to subscribe for or purchase such Shares or convertible or exchangeable securities and is less than the Current Market Price per Share at such record date, or
(b) after the record date mentioned above and is less than the Current Market Price per Share on the date the Company fixed such consideration,

then the Conversion Price in effect (in the case of (a) above) on the record date for the determination of shareholders entitled to receive such rights or warrants on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

==> picture [156 x 19] intentionally omitted <==

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration.
n = the number of Shares initially to be issued upon exercise of such rights at the said consideration.
v = the number of Shares which the aggregate consideration receivable by the Company would purchase at such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Subject as provided below, such adjustment shall become effective (a) where no applications for such warrants (in the case of warrants) are required, from shareholders entitled to the same, upon their issue, and (b) where applications from shareholders entitled to the same are required as aforesaid, and in the case of convertible or exchangeable securities by shareholders entitled to the same pursuant to such rights, immediately after the latest date for the submission of such applications for such rights or warrants or (if later) immediately after the Company fixes the said consideration but applied retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Shares of rights or warrants entitling them to subscribe for or purchase Shares or convertible or exchangeable securities, any Shares or convertible or exchangeable securities or warrants which are not subscribed for or purchased by the shareholders entitled thereto are underwritten by other persons prior to the latest date for the submission of applications for such Shares or convertible or exchangeable securities or warrants, an adjustment shall be made to the Conversion Price in accordance with the above provisions which shall become effective immediately after the date the underwriters agree to underwrite the same or (if later) immediately after the Company fixes the said consideration but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Shares of rights or warrants entitling them to subscribe for or purchase Shares or convertible or exchangeable securities, any Shares or convertible or exchangeable securities or warrants which are not subscribed for or purchased by the underwriters who have agreed to underwrite as referred to above or by the shareholders entitled thereto (or persons to whom shareholders have transferred such rights or the right to purchase such warrants) who have submitted applications for such Shares or convertible or exchangeable securities or warrants as referred to above are offered to and/or subscribed by others, no further adjustment shall be made to the Conversion Price by reason of such offer and/or subscription.

(iv) If the Company shall distribute to the holders of Shares evidences of indebtedness, or shares of capital stock of the Company (other than Shares), assets (excluding regular periodic dividends in cash) or rights or warrants to subscribe for or purchase Shares or securities (excluding those mentioned in (iii) above), then the Conversion Price in effect on the record date for the determination of shareholders entitled to receive such distribution shall be adjusted in accordance with the following formula:

==> picture [181 x 20] intentionally omitted <==

where:

NCP and OCP have the meanings assigned thereto above.

CMP = the Current Market Price per Share on the record date for the determination of shareholders entitled to receive such distribution.
fmv = the fair market value (as determined by the Company and notified to the Trustee or, if pursuant to applicable law of the ROC such determination is to be made by application to a court of competent jurisdiction, as determined by such court or by an appraiser appointed by such court) of the portion of the evidences of indebtedness, shares of capital stock, assets, rights or warrants so distributed applicable to one Share less any consideration payable for the same by the relevant shareholder (unless the fair market value takes into account the amount payable by the relevant shareholder).

In making a determination of the fair market value of any such evidences of indebtedness, shares of capital stock, assets, rights or warrants, the Company shall consult a leading independent securities company or bank in Taipei City, Taiwan selected by the Company and shall take fully into account the advice received from such company or bank.

Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution, provided that (a) in the case of such a distribution which must, under applicable law of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the board of directors of the Company before such distribution may legally be made and is so approved after the record date fixed for the determination of shareholders entitled to receive such distribution, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date and (b) if the fair market value of the evidences of indebtedness, shares of capital stock, assets, rights or warrants so distributed cannot be determined until after the record date fixed for the determination of shareholders entitled to receive such distribution, such adjustment shall, immediately upon such fair market value being determined, become effective retroactively to immediately after such record date.

(v) If the Company shall issue any securities (other than the Bonds and those mentioned in (iii) above) convertible into or exchangeable for Shares at less than the then Current Market Price or of rights or warrants (other than those mentioned in (iii) above) to subscribe for or purchase Shares at less than the then Current Market Price or to subscribe for or purchase securities convertible into or exchangeable for Shares at less than the then current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such securities is subject to approval by a general meeting of shareholders, on the date on which the board of directors of the Company fixes the consideration to be recommended at such meeting) then the Conversion Price in effect immediately prior to the date of issue of such convertible or exchangeable securities shall be adjusted in accordance with the following formula:

==> picture [156 x 20] intentionally omitted <==

where:

NCP and OCP have the meanings assigned thereto above.

N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of such issue.
n = the number of Shares to be issued upon conversion or exchange of such convertible or exchangeable securities at the initial conversion or exchange price or rate.
v = the number of Shares which the aggregate consideration receivable by the Company would purchase at such Current Market Price per Share.

Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such convertible or exchangeable securities are issued.

(vi) If the Company shall issue any Shares (other than (a) Shares issued on conversion or in exchange for any convertible or exchangeable bonds, including the Bonds, or (b) in any of the circumstances described in (i) or (ii) above, but including Shares issued pursuant to any employee bonus or profit-sharing arrangements) for a consideration per Share receivable by the Company less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such Shares is subject to approval by a general meeting of shareholders, on the date on which the board of directors of the Company fixes the consideration to be recommended at such meeting) then the Conversion Price in effect immediately prior to the date of issue of such additional Shares shall be adjusted in accordance with the following formula:

==> picture [156 x 20] intentionally omitted <==

where:

NCP and OCP have the meanings assigned thereto above.

N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of issue of such additional Shares;
n = the number of additional Shares issued as aforesaid.
v = the number of Shares which the aggregate consideration receivable by the Company would purchase at such Current Market Price per Share.

It being understood, for the avoidance of doubt, that in the case of adjustments required as a result of Shares issued pursuant to employee bonus or profit-sharing arrangements, ‘‘v’’ shall be equal to 0 with the effect that no account is taken of, or credit given for, the par value of the Shares so issued in calculating the appropriate Conversion Price adjustment, so that the full dilutive effect is provided for.

Such adjustment shall become effective as of the calendar day in the ROC of the issue of such additional Shares, or, in the case of an issue to employees under any employee bonus or profit sharing arrangements which is announced at the same time as a stock dividend, such adjustment shall become effective as of the record date for that stock dividend.

No adjustment will be made to the Conversion Price as a result of the issue of Shares to the shareholders of a company that is to be merged into the Company as consideration for the merger.

(vii) If the Company shall grant, issue or offer options, warrants or rights to subscribe for or purchase Shares or securities convertible into or exchangeable for Shares and the consideration per Share receivable by the Company (other than as described above) shall be less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the offer, grant or issue of such rights, options or warrants is subject to approval by a general meeting of shareholders, on the date on which the board of directors of the Company fixes the consideration to be recommended at such meeting) then the Conversion Price in effect immediately prior to the date of the offer, grant or issue of such rights, options or warrants shall be adjusted in accordance with the following formula:

==> picture [156 x 20] intentionally omitted <==

where:

NCP and OCP have the meanings assigned thereto above.

N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of such issue.
n = the number of Shares to be issued on exercise of such rights or warrants and (if applicable) upon conversion or exchange of such convertible or exchangeable securities at the said consideration.
v = the number of Shares which the aggregate consideration receivable by the Company would purchase at such Current Market Price per Share.

Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such rights or warrants are issued.

(viii) If any other event or circumstance has occurred which would have in the determination of the Company an analogous effect to any of the events in (i) to (vii) above, then the Company shall notify the Trustee thereof and the Company shall consult with a leading independent securities company or commercial bank in Taipei selected by the Company as to what adjustment, if any, should be made to the Conversion Price to preserve the value of the Conversion Right of Bondholders and will make any such adjustment.

For the purposes of this Condition 6(C), the ‘‘Current Market Price’’ per Share on any date means the average of the daily closing prices (as defined below) of the relevant Shares for the 20 consecutive Trading Days before such date. If the Company has more than one class of share capital comprising Shares, then the relevant Current Market Price for Shares shall be the price for that class of Shares the issue of which (or of rights or warrants in respect of, or securities convertible into or exchangeable for, that class of Shares) gives rise to the adjustment in question. For purposes of this Condition 6(C), the ‘‘closing price’’ of the Shares for each Trading Day shall be the last reported transaction price of the Shares on the TSE for such day or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TSE in effect on the Trading Day immediately preceding such day or, if the Shares are not listed or admitted to trading on such exchange, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE selected from time to time by the Company. The term ‘‘Trading Day’’ means a day when the TSE is open for business, but does not include a day when (a) no such last transaction price or closing bid and offered prices are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no such closing bid and offered prices are furnished as aforesaid.

No adjustment will be made where such adjustment would be less than 1% of the Conversion Price then in effect; provided, however, that any adjustment that would otherwise be required to be made will be carried forward and taken into account in determining any subsequent adjustment. Any adjustment will be notified promptly by the Company to the Bondholders and the Luxembourg Stock Exchange in accordance with Condition 15.

The Conversion Price shall not be reduced below the par value of the Shares (currently NT$10 per share). The Trustee will not be obliged to monitor whether any event has occurred which might fall within (i) to (viii) above and until it has actual knowledge by way of express notice in writing from the Company to the contrary, shall assume that none has.

(D) Conversion Price Reset

The Conversion Price shall be adjusted (the ‘‘Adjusted Conversion Price’’) on September 30 each year (the ‘‘Reset Dates’’ and each a ‘‘Reset Date’’), in the event that the average closing price of the Share on the TSE translated into U.S. Dollars at the then Prevailing Rate (defined below) for 20 consecutive Trading Days immediately prior to a Reset Date (the ‘‘Average Closing Price’’) is less than the Conversion Prices then in effect on the relevant Reset Date, in accordance with the following formula:

==> picture [381 x 22] intentionally omitted <==

Such Adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.1, provided that:

(i) any adjustment to the Conversion Price pursuant to this Condition 6(D) shall be limited so that the Conversion Price adjusted in accordance with this Condition 6(D) shall not be less than 80% of the initial Conversion Price prevailing on February 26, 2003 (as adjusted to reflect any adjustments required under Condition 6(C) above, which may have occurred prior to the Reset Date);
(ii) the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to ensure that appropriate adjustments shall be made to any Closing Price to reflect any adjustments made to the Conversion Price in accordance with Condition 6(C) during the period of calculation of the Average Closing Price;
(iii) the Conversion Price shall not be reduced below the par value of the Shares (currently NT$10 per share); and
(iv) for the avoidance of doubt (x) any adjustments to the Conversion Price made pursuant to this Condition 6(D) shall only be downward adjustments and (y) an adjustment may be made in respect of a Reset Date notwithstanding that an adjustment may have been made in respect of a preceding Reset Date, if any.

The ‘‘Prevailing Rate’’ for the translation of the Closing Prices shall be the arithmetic average of the closing rate for the purchase of U.S. Dollars with NT Dollars quoted by Taipei Forex Inc. at the close of business on each day of the 20 consecutive Trading Days preceding the relevant Reset Date. For the purpose of the formula in this Condition, the Prevailing Rate shall be expressed as the number of NT Dollars per U.S.$1.00. The ‘‘Fixed Exchange Rate’’ is NT$34.816 = U.S.$1.00.

Any such adjustment shall become effective as of the relevant Reset Date. The Bondholders and the Luxembourg Stock Exchange shall be notified of any adjustment to the Conversion Price within five days of the relevant Reset Date in accordance with Condition 15.

(E) Alternative Conversion Price Reset

To stimulate Bondholders’ interest to exercise their conversion right, Condition 6(E) provides an alternative. This is set in accordance with the regulations for underwriters’ assistance for public companies in the issuance of securities, which was amended by the Chinese Securities Association and was then filed for recordation with the ROC SFC. The alternative Conversion Price (the ‘‘Alternative Conversion Price’’) and the period of exercise (i.e. seven Trading Days) are set based on that regulations.

The Company may (but not obliged to) grant the Bondholders options, within a seven TradingDay period (the ‘‘Alternative Conversion Period’’) starting from the date to be determined by the Company after January 31, 2005, January 30, 2006, and January 28, 2008 (each an ‘‘Alternative Reset Date’’) and before the applicable Put Date or Maturity Date to convert the Bonds into Shares based on the reset Alternative Conversion Price, which would be 88%, 85% and 91% of the then Market Price, respectively.

The Conversion Price shall not be reduced below the par value of the Shares (currently NT$10 per share) unless, under the applicable law then in effect, the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares.

The above-mentioned ‘‘Market Price’’ is the lowest among the average closing prices of the Shares on the TSE translated into U.S. Dollars at the Prevailing Rate for 10, 15 and 20 Trading Days immediately preceding the Alternative Reset Date.

The Company undertakes to notify the Bondholders the Market Price within five days after the applicable Alternative Reset Date.

The Alternative Conversion Prices will only be applicable within the relevant seven TradingDay Alternative Conversion Period described in this Condition 6(E). The Conversion Price will be applicable to any conversion before or after such Alternative Conversion Period.

(F) Mergers; Disposals

The Company will not merge, amalgamate or consolidate with or into any other corporation or entity where the Company is not being the continuing entity or sell or transfer all, or substantially all, of the assets of the Company, whether as a single transaction or a number of transactions, related or not, to any corporation, entity or person or to one or more members of any group under the common control of any corporation, entity or person unless the Company shall have notified the Bondholders of such event in accordance with Condition 15 and the Company and such corporation, entity or person shall have executed an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares (and/or DRs, if applicable) into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture. Such supplemental indenture will provide for adjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this Condition. The above provisions of this Condition 6(F) will apply in the same way to any subsequent or further consolidations, amalgamations, mergers, sales or transfers.

(G) Conversion Undertakings

(i) Depositary receipts: Subject to the ROC SFC’S separate approval, if required, the Company may, at its option, but is not required to, make arrangements satisfactory to the Trustee for the Bonds to be converted into depositary receipts or other scrip evidencing Shares. Any such arrangements shall be in addition to the provisions of these Conditions relating to conversion into Shares.

The Company has not at the date of this Offering Circular established or authorized the establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently available. If in the future a depositary receipt facility is established or authorized by the Company, the Company will, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for Shares issued on conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such depositary receipt facility, subject always to the terms of such depositary facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of Shares issued on conversion of Bonds. There can be no assurance that the Company will in future establish or authorize any depositary facility or that any arrangements for the deposit of Shares into such depositary facility would be available to all Bondholders.

The Company shall give notice to the Conversion Agents, the Principal Agent and the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange within 14 days of the establishment of the depositary receipt facility.

(ii) Closed Periods: The Company undertakes to ensure that any Closed Period is as short a period as is reasonably practicable having regard to applicable ROC laws and regulation and practices.

7. Payments

(A) Principal, Premium and Interest (if any)

Payment of principal, premium and interest (if any) will be made against surrender of the relevant certificate at the specified office of any Agent by transfer to the registered account of the Bondholder or by U.S. Dollar check drawn on a bank in The City of New York, U.S.A., mailed (provided that the Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement) to the registered address of the Bondholder if it does not have a registered account. Payments of principal and premium will only be made after surrender of the relevant individual Definitive Certificate (if issued) at the specified office of any Agent.

(B) Registered Accounts

A Bondholder’s registered account means the U.S. Dollar account maintained by or on behalf of it with a bank in The City of New York, U.S.A., details of which appear on the register of Bondholders at the close of business on the second business day (as defined below) before the due date for payment and a Bondholder’s registered address means its address appearing on the register of Bondholders at that time.

(C) Fiscal Laws

All payments are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 9. No commissions or expenses shall be charged to the Bondholders in respect of such payments.

(D) Payment Initiation

Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that date is not a business day, for value the next following business day) will be initiated and, where payment is to be made by check, the check will be mailed (provided that the Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement), on the later of the due date for payment and the business day on which the relevant Definitive Certificate is surrendered (if applicable) at the specified office of an Agent.

(E) Payment Delay

Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a business day, if the Bondholder is late in surrendering its Definitive Certificate (if applicable) or if a check mailed in accordance with this Condition arrives after the due date for payment.

(F) Business Days

In this Condition, ‘‘business day’’ means a day on which commercial banks are open for business in The City of New York, U.S.A. and London, United Kingdom and, in the case of the surrender of a Definitive Certificate, in London, United Kingdom, and in the place where the Definitive Certificate is surrendered.

(G) Partial Payments

If the amount of principal and premium which is due on the Bonds is not paid in full, the Registrar will annotate the register of Bondholders with a record of the amount of principal and/or premium, in fact paid.

Distribution of payments with respect to the Global Certificates held through Euroclear or Clearstream, Luxembourg will be made to the holders holding through participants of Euroclear or Clearstream, Luxembourg, as the case may be, to the account of The Bank of New York, as common depositary for Euroclear and Clearstream, Luxembourg and will be credited by Euroclear or Clearstream, Luxembourg, as the case may be, to the cash accounts of the participants of Euroclear or Clearstream, Luxembourg, in accordance with the relevant system’s rules and procedures, to the extent received by the common depositary.

8. Redemption, Purchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will redeem the Bonds at their principal amount in U.S. Dollars on February 26, 2008. The Bonds may be redeemed in whole or in part prior to that date only as provided in paragraphs (B), (C) and (D) below (but without prejudice to Condition 10).

(B) Redemption at the Option of the Company

On or at any time after March 1, 2005, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders and the Luxembourg Stock Exchange in accordance with Conditions 8(H) and 15 (which notice will be irrevocable), redeem all or part of the Bonds at their principal amount (as defined in Condition 8(C)(ii)) if the Closing Price of the Shares translated into U.S. Dollars at the Prevailing Exchange Rate for each of the 20 consecutive Trading Days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130% of the Conversion Price then in effect, translated into U.S. Dollars at the fixed exchange rate of NT$34.816 = U.S.$1.00, on each such Trading Day. If there shall occur an event giving rise to a change in the Conversion Price during any such 20 Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the Closing Price for such days. If the Closing Price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 20 Trading Day period.

Notwithstanding of foregoing paragraph, the Company may, at any time, redeem all but not part of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at their Early Redemption Amount if at least 90% in principal amount of the Bonds has already been redeemed, converted, or purchased and cancelled.

Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which such notice relates at the price aforesaid applicable at the date fixed for redemption.

The term ‘‘Trading Day’’ means a day on which the TSE is open for business but does not include a day when (a) no such last transaction price or closing bid and offered prices are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no such closing bid and offered prices are furnished as aforesaid. The ‘‘Closing Price’’ of the Shares for each Trading Day shall be the last reported transaction price of the Shares on the TSE for such day or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TSE in effect on the Trading Day immediately preceding such day or, if the Shares are not listed or admitted to trading on such exchange, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE selected by the Company for the purpose. The term ‘‘Prevailing Exchange Rate’’ in this Condition 8(B) means the closing rate of U.S. Dollars to NT Dollars quoted by Taipei Forex Inc. at the close of business on any relevant Trading Day.

(C) Redemption at the Option of Bondholders

(i) Put Right: Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will, at the option of the holder of any Bond, redeem all or part of the Bonds held by that Bondholder on March 1, 2005 and February 27, 2006 (each a ‘‘Put Date’’) at the principal amount plus 3.71% and 7.12%, respectively.

(ii) Delisting Put Right: Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will, at the option of the holder of any Bond, redeem all but not part of the Bonds held by that Bondholder at their Early Redemption Amount (as defined below) on the 30th business day after notice has been given to Bondholders (the ‘‘Delisting Put Date’’), in the event that the Company’s Shares cease being traded or listed on the TSE.

For each U.S.$1,000 principal amount of the Bonds, the ‘‘Early Redemption Amount’’ means an amount equals to the Principal plus a redemption premium calculated in accordance with the following formula:

Redemption Premium = Principal x Premium x Days Elapsed Relevant Period

where:

‘‘Premium’’ means

3.71% with respect to a date for redemption falling in the period from February 26, 2003 to March 1, 2005 (‘‘Period A’’)

7.12% with respect to a date for redemption falling in the period from March 2, 2005 to February 27, 2006 (‘‘Period B’’)

0 with respect to a date for redemption falling in the period from February 28, 2006 to February 26, 2008

‘‘Relevant Period’’ means

720 days with respect to Period A

1,080 days with respect to Period B

‘‘Days Elapsed’’ means the number of days from, and including, February 26, 2003 to, but excluding the date for redemption, or as the case may be, the date on which such Bond became due and payable in accordance with Condition 10, calculated on the basis of 360 days consisting of 12 months of 30 days each.

To exercise such option the holder must deposit the individual Definitive Certificate in respect of such Bond (if issued) with any Agent and a duly completed redemption notice in the form obtainable from any of the Agents (i) not more than 60 nor less than 20 days prior to the relevant Put Date or (ii) in the event that the Company’s Shares cease being traded or listed on the TSE, any day which is not less than 10 business days prior to the Delisting Put Date. No Bond so deposited may be withdrawn (except as provided in the Agency Agreement) without the prior written consent of the Company and such written consent must be notified by the Company to the Principal Agent no later than seven days prior to the relevant Put Date. The Company shall give the Bondholders not less than 30 nor more than 45 days’ notice of the commencement of the period for the deposit of individual Definitive Certificates (if issued) for redemption and the redemption notice pursuant to this paragraph (C) shall be given to the Bondholders by the Company in accordance with Condition 15.

For the purpose of this Condition 8(C), ‘‘business day’’ shall mean a day on which commercial banks are open for business in London and New York City.

(D) Redemption for Taxation Reasons

At any time, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders and the Luxembourg Stock Exchange in accordance with Conditions 8(H) and 15 (which notice shall be irrevocable), redeem all but not some of the Bonds at their Early Redemption Amount (as defined in Condition 8(C)(ii)), if (i) the Company determines immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or

referred to in Condition 9 as a result of any change in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after February 26, 2003 and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such additional amounts were a payment in respect of the Bonds then due. Prior to the giving of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate signed by two directors of the Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedents set out in (ii) above, in which event it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of redemption has been given under Condition 8(B) and Condition 8(C) shall not be affected by any notice given subsequently under this Condition 8(D).

(E) Purchase

The Company may at any time and from time to time purchase Bonds in the open market or otherwise. Bonds so purchased will be surrendered and deemed cancelled and may not be reissued or resold.

(F) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(B)(i), where individual Definitive Certificates have been issued, the Bonds to be redeemed will be selected individually by lot by the Principal Agent, in such place as the Trustee shall approve and in such manner as the Trustee shall deem to be appropriate and fair not more than 60 days and not less than 30 days prior to the date fixed for redemption.

(G) Cancellation

All Bonds which are redeemed or converted or purchased and surrendered to any Agent will forthwith be cancelled in accordance with the provisions of the Agency Agreement. Definitive Certificates in respect of all Bonds cancelled will be forwarded to or to the order of the Principal Agent and such Bonds may not be reissued or resold.

(H) Redemption Notices

All notices to Bondholders given by or on behalf of the Company pursuant to this Condition will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a partial redemption, a list of the Bonds called for redemption.

9. Taxation

(A) All payments of principal, premium and interest (if any) by the Company will be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law.
(B) Where such withholding or deduction is in respect of ROC withholding tax on premium or interest payments at the rate of up to and including 20%, the Company will increase the amount of premium or interest (if any) paid by it to the extent required so that the net amount of premium or interest (if any) received by Bondholders (without prejudice to Condition 7) would be equal to the amounts which would have been receivable in the absence of any such withholding or deduction.

(C) In the event that any such withholding or deduction in respect of principal or any additional withholding or deduction in excess of 20% in respect of interest (if any) or premium is required, the Company will pay such additional amounts by way of principal, premium and interest (if any), as will result in the receipt by the Bondholders of the amounts which would have been receivable in the absence of any such withholding or deduction, except that no such additional amounts shall be payable in respect of any Bond:
(i) to, or on behalf of, a holder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal in respect of the Bond; or
(ii) if the individual Definitive Certificate in respect of such Bond (if issued) is surrendered more than 30 days after the relevant date except to the extent that the holder would have been entitled to such additional amount on surrendering the relevant Definitive Certificate for payment on the last day of such 30 day period. For this purpose, the ‘‘relevant date’’ in relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full amount of the monies payable on such due date has not been received by the Trustee or the Principal Agent on or prior to such due date) the date on which notice is duly given to the Bondholders that such monies have been so received.
(D) References in these Conditions to principal, premium or interest shall be deemed also to refer to any increased or additional amounts which may be payable in respect thereof under this Condition or any undertaking given in addition to or substitution for it under the Indenture.

10. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of not less than 25% in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall (but subject to being indemnified or secured by the holders to its satisfaction), give notice in writing to the Company that the Bonds are immediately due and payable, if any of the following events (an ‘‘Event of Default’’) shall have occurred and be continuing:

(i) there is failure to pay the principal of or any premium on any of the Bonds within 15 business days after the same shall become due and payable in accordance with these Conditions; or
(ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay the principal, premium or interest (if any) in respect of the Bonds) set out in the Bonds or the Indenture which default is incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy, such default is not in the opinion of the Trustee remedied within 30 days after written notice of such default shall have been given to the Company by the Trustee; or
(iii) any other present or future indebtedness of the Company, or any of its Principal Subsidiaries, for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company or any of its Principal Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred and is continuing equals or exceeds U.S.$6,000,000 or its equivalent in any other currency (determined as provided below), and provided further that where two or more of the Company and/or its Principal Subsidiaries are liable for the payment of the same relevant indebtedness or guarantee (whether liable jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be counted once only; or

(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its Principal Subsidiaries and in any such case is not discharged or stayed within 60 days of having been so levied, sued out, commenced or issued, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or
(v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance upon the whole or any substantial part of the assets or revenues of the Company or any Principal Subsidiary and the same is not stayed, discharged, released or satisfied (as the case may be) within 60 days of such proceedings, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or
(vi) the Company or any of its Principal Subsidiaries becomes bankrupt or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by the Trustee or an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company or any of its Principal Subsidiaries or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company or any of its Principal Subsidiaries or the Company or any of its Principal Subsidiaries stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts; or
(vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed by the Company for the winding-up or dissolution of the Company (except for the purpose of and followed by a solvent reconstruction, merger, consolidation, amalgamation or other similar arrangement the terms of which are approved by the Trustee or an Extraordinary Resolution of the Bondholders); or
(viii) the Company shall merge, amalgamate or consolidate with any other corporation or entity (with the Company not being the continuing entity) or shall sell or dispose of substantially all its business or assets whether as a single transaction or a number of transactions, related or not, to any person, unless the Company shall have notified the Bondholders of such event in accordance with Condition 15 (with a copy of such notice sent to the Luxembourg Stock Exchange) and the Company and such corporation, entity or person shall have executed an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of Shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture; provided that such agreement by such other person shall not be required if such assumption shall be effective by operation of law as supported by a legal opinion from counsel acceptable to the Trustee; or
(ix) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company; or
(x) proceedings shall have been initiated against the Company or any of its Principal Subsidiaries under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall not have been discharged or stayed within a period of 60 days, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or

(xi) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Indenture, and (ii) ensure that those obligations are legally binding and enforceable (subject to the qualifications set out in the legal opinion issued in connection therewith), and such case is incapable of remedy or is not in the opinion of the Trustee remedied within such period (being not less than 30 days) as the Trustee may consider reasonable; or
(xii) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

For the purposes of Condition 10 (iii) above, any indebtedness which is in a currency other than U.S. Dollars shall be translated into NT Dollars at the spot rate for the sale of U.S. Dollars against the purchase of the relevant currency quoted by any leading bank in the relevant market selected by the Trustee on any day when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rate shall be calculated by reference to the cross-rates through U.S. Dollars and relevant currencies.

Upon any such notice being given to the Company, the Bonds will immediately become due and payable at 100% of their principal amount, and overdue interest on the amounts due, from the date on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of 6% per annum.

‘‘Subsidiary’’ means any corporation or other business entity more than 50% of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company, and ‘‘Principal Subsidiary’’ means any Subsidiary which engages in manufacturing, production and distribution businesses, (i) whose total revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary at the time that event of defaults occurs, are at least 10% of the total revenues of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company or (ii) whose gross assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary at the time that event of defaults occurs are at least 10% of the gross assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company.

The term ‘‘business day’’ for the purpose of this Condition 10 means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets are open for business in Taipei, Taiwan, ROC.

11. Prescription

Claims in respect of (a) principal and premium and (b) interest (if any), will become unenforceable after 10 years (in the case of (a)) and five (5) years (in the case of (b)), from the relevant date for payment in respect thereof.

12. Enforcement

At any time after the Bonds shall have become due and payable, the Trustee may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce payment of the Bonds together with premium with respect thereto and to enforce the provisions of the Indenture, but it will not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the holders of at least 25% in principal amount of the Bonds then outstanding or so directed by an Extraordinary Resolution and (b) it shall have been indemnified and/or secured to its satisfaction. No Bondholder will be entitled to proceed directly against the Company, unless the Trustee, having become bound to do so, fails to do so and such failure shall have continued for a period of 60 days and no direction inconsistent with such written request or Extraordinary Resolution has been given to the Trustee during such 60-day period by the holders of a majority in principal amount of the outstanding Bonds.

13. Meetings of Bondholders, Modification and Waiver

(A) Meetings

The Indenture contains provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Bonds or the provisions of the Indenture. The quorum at any such meeting shall be over 33.3% in principal amount of the Bonds for the time being outstanding and the quorum for passing an Extraordinary Resolution will be two or more persons holding or representing over 66.7% in principal amount of the Bonds for the time being outstanding or, at any such meeting which has been adjourned, two or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity date of the Bonds, (ii) to reduce or cancel the amount of principal, premium or interest (if any) payable in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify or cancel the right to convert the Bonds into Shares (except in accordance with Condition 6(B) and 13(B)) or to modify the circumstances in which the Bonds may be redeemed or converted at the option of the Company or to shorten the Conversion Period, (v) to modify the provisions relating to the resetting of the Conversion Price, (vi) to modify the provisions concerning the quorum required at any meeting of the Bondholders or the majority required to pass an Extraordinary Resolution or sign a resolution in writing, in which case the consent of each Bondholder is required. An Extraordinary Resolution passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are present at the meeting, and will be conclusive and binding upon all future Bondholders.

The Indenture provides that a written resolution signed by or on behalf of the holders of not less than 90% of the aggregate principal amount of Bonds outstanding shall be as valid and effective as a duly passed Extraordinary Resolution.

The Company shall prepare a supplement to this Offering Circular and notify the Bondholders (and the Luxembourg Stock Exchange) in accordance with Condition 15 in respect of any proposed Extraordinary Resolution relating to items (i) to (vi) above in this Condition 13(A).

(B) Modification of Conversion Right

Notwithstanding Condition 13(A)(iv) above, the Trustee may agree, without the consent of the Bondholders, to any modification to or variation of the Conversion Rights (including modification of and additions to the declarations and statements to be made by Bondholders in a Conversion Notice) which is in its opinion necessary or desirable to effect or facilitate conversion as contemplated in these Conditions and which is not materially prejudicial to the interests of the Bondholders. The Trustee’s agreement may be subject to any condition which the Trustee requires; including, but not limited to, obtaining, at the sole expense of the Company, an opinion of a merchant or investment bank or legal or other expert. Any such modification shall be binding on all the Bondholders. The Company shall prepare a supplement to this Offering Circular and notify the Bondholders of such modification in accordance with Condition 15 and to the Luxembourg Stock Exchange as soon as practicable.

(C) Other Modifications and Waivers

The Trustee may (but shall not be in any way be obligated to) agree, without the consent of the Bondholders, to (i) any modification (except as mentioned above) of, or the waiver or authorization of any breach or proposed breach of, the Bonds or the Indenture which is not, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or (ii) any modification of the Bonds or the Indenture which, in the Trustee’s opinion, is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. In connection with such modification, waiver or authorization, the Trustee may require (at the sole expense of the Company) a certificate from the Company certifying, and a legal opinion advising the Trustee, that the modification, waiver or authorization is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. Any such modification, waiver or authorization will be binding on the Bondholders and, unless the Trustee agrees otherwise, any such modification will be notified by the Company to the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange as soon as practicable thereafter.

(D) Exercise of Trustee’s Functions

In connection with the exercise of its functions (including but not limited to those in relation to any proposed modification, authorization or waiver) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders and the Trustee shall not be entitled to require, nor shall any Bondholder be entitled to claim, from the Company or the Trustee, any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders.

14. Replacement of Definitive Certificates

If any Definitive Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company may reasonably require (which terms will require, inter alia, that if such Definitive Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company on demand such costs at the fixed exchange rate of NT$34.816 for each U.S.$1.00 of the principal amount of such Bond). Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.

15. Notices

In addition to the provisions set forth in the Global Certificate, if applicable, all notices to Bondholders shall be validly given if in writing in English and mailed to them at their respective addresses in the register of Bondholders maintained by the Registrar. In addition, so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, the Company shall send such notices to the Bondholders to the Luxembourg Stock Exchange and publish the notices in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

Any such notice shall be deemed to have been given on the later of the date of such publication and the seventh day after being so mailed.

16. Indemnification

The Indenture contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce payment unless indemnified to its satisfaction.

17. Agents

The names of the initial Agents and Registrar and their specified offices are set out at the end of this Offering Circular. The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of further or other Agents, provided that the Company will at all times maintain Agents having specified offices in London and so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, an agent in Luxembourg, a Registrar and a Principal Agent. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly in accordance with Condition 15 by the Company to the Bondholders, the Trustee and the Luxembourg Stock Exchange.

18. Governing Law and Jurisdiction

(A) Governing Law

The Indenture and the Bonds are governed by and shall be construed in accordance with the laws of the State of New York, U.S.A.

(B) Jurisdiction

The courts of the State of New York sitting in the Borough of Manhattan, The City of New York, and the federal courts of the United States sitting in the Borough of Manhattan, The City of New York, have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Indenture or the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Indenture or the Bonds (‘‘Proceedings’’) may be brought in such courts. The Company has in the Indenture irrevocably submitted to the jurisdiction of such courts.

(C) Agent for Service of Process

The Company has irrevocably appointed CT Corporation System of 111 Eighth Avenue, New York, NY10011, U.S.A. as its authorized agent for service of process in New York in any Proceedings.

THE FORM OF THE BONDS

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds are not issuable in bearer form.

The Bonds will be represented by a global certificate (the ‘‘Global Certificate’’) which will be deposited with the Trustee as common depositary for, and registered in the name of a nominee for, Euroclear and Clearstream, Luxembourg. Upon the issuance of the Global Certificate, Euroclear and Clearstream, Luxembourg will credit, on their internal systems, the respective principal amounts of the individual beneficial interests in the Bonds represented by the Global Certificate to the accounts of persons who have accounts with Euroclear and Clearstream, Luxembourg (‘‘participants’’). These accounts will initially be designated by or on behalf of the Manager. Ownership of beneficial interests in the Global Certificate will be limited to participants and persons who hold interests through participants. Beneficial interests in the Global Certificates will be shown on, and transfers thereof will be effective only through, records maintained by Euroclear and Clearstream, Luxembourg and their participants.

The Company expects that Euroclear and Clearstream, Luxembourg, or their nominees, upon receipt of any payment of principal, premium or interest (if any) in respect of the Bonds represented by the Global Certificate will credit the accounts of the participants with payments of principal, premium or interest (if any) on the date payable in amounts proportionate to their respective interests in such Bonds as shown on the records of Euroclear and Clearstream, Luxembourg or their nominees. The Company also expects that payments by such participants to owners of beneficial interests in the Bonds held through such participants will be governed by standing instructions and customary practices. Such payments will be the responsibility of the participants.

Payments, transfers, exchanges and other matters relating to interests in the Bonds may be subject to various policies and procedures adopted by Euroclear and Clearstream, Luxembourg from time to time. Transfers between participants in Euroclear and Clearstream, Luxembourg, and conversions through participants in Euroclear and Clearstream, Luxembourg, will be effected in the ordinary way in accordance with the rules and operating procedures of Euroclear and Clearstream, Luxembourg. Neither the Company, the Trustee or any of their respective agents will have any responsibility or liability for the performance by Euroclear and Clearstream, Luxembourg or their participants of their respective obligations under the rules and procedures governing their operations, or for payments made on account of, or records relating to, interests in the Bonds held through Euroclear and Clearstream, Luxembourg and their participants.

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates in respect of their interests in the Bonds except in the limited circumstances described below under ‘‘— The Global Certificate — Registration of Title’’.

The holder of a registered Bond in definitive certificated form may transfer or exchange such Bond by surrendering it at the office or agency maintained by the Company for such purpose in London and, for so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, in Luxembourg, which offices will initially be the corporate trust offices of the Trustee maintained in The City of New York or such other offices as may be notified by the Trustee from time to time and the offices of the Paying Agent in Luxembourg, respectively.

Any such Bond in physical certificated form issued prior to the 41st day following the original issuance of the Bonds shall bear the legend set out under ‘‘Notice to Investors’’.

The Global Certificate

The Global Certificate contains provisions which apply to the Bonds that are represented by the Global Certificate, some of which modify the effect of the terms and conditions of the Bonds (the ‘‘Conditions’’) set out in this Offering Circular. Terms defined in the Conditions have the same meaning in the paragraphs below. The following is a summary of those provisions:

Meetings

The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Bonds for which the Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which the Global Certificate has been issued to attend and speak at a meeting of Bondholders on appropriate proof of his identity and interest.

Cancellation

Cancellation of any Bond following its redemption, conversion or purchase by the Company will be effected by a reduction in the principal amount of the Bonds in the register of Bondholders.

Trustee’s Powers

In considering the interests of Bondholders while the Global Certificate is registered in the name of a nominee for a clearing system, the Trustee may, without being obliged to do so, have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to Bonds and may consider such interests as if such accountholders were the holders of the Bonds.

Conversion

Subject to the requirements of Euroclear and Clearstream, Luxembourg, the Conversion Right attaching to a Bond in respect of which the Global Certificate is issued may be exercised by the presentation to or to the order of the Principal Agent of one or more Conversion Notices duly completed by or on behalf of a holder of a book-entry interest in the Bond. Deposit of the Global Certificate with the Principal Agent together with the relevant Conversion Notice shall not be required. The exercise of the Conversion Right shall be notified by the Principal Agent to the Registrar and the holder of the Global Certificate.

Payment

Payments of principal, premium and interest (if any) in respect of Bonds represented by the Global Certificate will be made without presentation or if no further payment is to be made in respect of the Bonds, against presentation and surrender of the Global Certificate to or to the order of the Principal Agent or such other Paying Agent as shall have been notified to the Bondholders for such purpose.

Notices

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg or the Alternative Clearing System (as defined below), notices to Bondholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg, for communication by it to entitled accountholders in substitution for notification as required by the Conditions except that so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

Redemption at the Option of the Company

No drawing of Bonds will be required under Condition 8(F) in the event that the Company exercises its call option pursuant to Condition 8(B) in respect of less than the aggregate principal amount of Bonds in respect of which the Global Certificate is issued. Notices will be made by the Company in accordance with the previous paragraph and the Luxembourg Stock Exchange will be informed should the Company exercise the call option.

Redemption at the Option of Bondholders

The Bondholders’ put option in Condition 8(C) may be exercised by the holders of the Global Certificate giving notice to the Principal Agent of the principal amount of Bonds in respect of which the option is exercised and presenting the Global Certificate for endorsement or exercise within the time limits specified in Condition 8(C).

Registration of Title

Definitive Certificate in definitive form for individual holdings of Bonds will not be issued in exchange for interests in Bonds in respect of which the Global Certificate is issued, except in case that (a) either Euroclear or Clearstream, Luxembourg (or any clearing system designated by the Company and approved in writing by the Trustee (the ‘‘Alternative Clearing System’’) on behalf of which the Bonds evidenced by the Global Certificate may be held) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, or (b) the Bonds become immediately due and payable in accordance with the provisions of Condition 10 or if in connection with judicial proceedings brought by the Trustee, the Trustee has been advised that it is necessary or appropriate for Definitive Certificates to be executed and delivered.

Transfers

Transfers of interests in the Bonds with respect to which the Global Certificate is issued shall be effected through the records of the relevant clearing system and its participants in accordance with the Conditions, the Agency Agreement and the rules and procedures of the relevant clearing system.

Enforcement

For the purposes of enforcement of the provisions of the Indenture against the Trustee, the persons named in a certificate of the holder of the Bonds in respect of which the Global Certificate is issued shall be recognized as the beneficiaries of the trusts set out in the Indenture, to the extent of the principal amount of their interest in the Bonds set out in the certificate of the holder, as if they were themselves the holders of Bonds in such principal amounts.

DESCRIPTION OF THE SHARES

The following is a summary of information relating to the share capital of the Company, including certain provisions of the Company’s Articles of Incorporation (the ‘‘Articles’’), the ROC Securities and Exchange Law (the ‘‘Securities and Exchange Law’’) and regulations promulgated thereunder and the ROC Company Law, all as currently in effect.

General

The Company was incorporated on December 24, 1996 pursuant to the ROC Company Law as a company limited by shares.

As of September 30, 2002, the authorized share capital of the Company was NT$2,000,000,000 divided into 200,000,000 common shares (the ‘‘Shares’’) with a par value of NT$10 per Share. As of September 30, 2002, the paid-in capital was NT$1,155,000,000, representing 115,500,000 Shares, all of which are issued and outstanding and in registered form.

Under the ROC Company Law, any change in the Company’s authorized share capital requires an amendment to the Articles, which in turn requires approval at the shareholders’ meeting. Authorized but unissued Shares may be issued subject to the ROC Company Law, upon terms that the board of directors may determine.

The Company does not have any outstanding warrants, any convertible debt securities, exchangeable securities or debt securities with warrants attached.

The Articles of Incorporation

Article Two of the Articles sets out that the Company’s scope of business is to design, develop, produce, manufacture and sell digital still cameras.

Dividends and Distribution

The ROC Company Law also requires that 10% of the Company’s annual earnings, less prior years’ losses, if any, and outstanding tax, be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company may set aside a special reserve in accordance with applicable laws and regulations. The Articles provide that the Company may distribute earnings to shareholders after having set aside the following items in the order they are listed:

" payment of all taxes;
" making up all past losses;
" allocation of 10% as a legal reserve and a special reserve in accordance with the Securities and Exchange Law;
" allocation of 10% as employee bonuses; and
" allocation of 2% to the directors and supervisors as remuneration.

At each annual ordinary shareholders’ meeting, the board of directors of the Company submits to the shareholders for their approval any proposal for the distribution of a dividend or the making of any other distribution to shareholders from the Company’s earnings (subject to compliance with the requirements mentioned above) for the preceding fiscal year. The Articles also provide that the employee bonuses may be distributed to the employees of the Company’s subsidiaries of which the Company holds more than 50% outstanding shares. All common shares outstanding and fully paid as of the relevant record date are entitled to share equally in any dividend or other distribution so approved. Dividends may be distributed in cash, in the form of shares or a combination of the two, as determined by the shareholders at the meeting. The Articles provide that 50% to 90% of the Company’s distributable earnings shall be distributed in the form of shares dividends, and 10% to 50% of the Company’s distributable earnings shall be distributed in the form of cash.

In addition, if the Company does not have losses, the Company is also permitted to make distributions to its shareholders of additional Shares by capitalizing reserves (including the legal reserve and capital surplus of premium from issuing stock and earnings from gifts received). However, amounts payable by capitalizing the legal reserve are limited to 50% of the total accumulated legal reserve and this capitalization can only be effected when the accumulated legal reserve exceeds 50% of the paid-in capital of the Company.

Preemptive Rights

Under the ROC Company Law, when the Company issues new shares for cash, existing shareholders who are listed on the shareholders’ register as of the record date have preemptive rights to subscribe for the new issue in proportion to their existing shareholdings, while the Company’s employees, whether or not they are existing shareholders, have a similar right to subscribe for 10% to 15% of the new issue. Any new shares that remain unsubscribed at the expiration of the subscription period may be offered to the public or specified persons at the discretion of the board of directors of the Company.

In addition, in accordance with the Securities and Exchange Law, a public company listed on the TSE or whose shares are traded on the GTSM that intends to offer new shares for cash must conduct a public offering of at least 10% of the shares to be sold, except under certain circumstances or when exempted by the ROC SFC. This percentage can be increased by a resolution passed at shareholders’ meeting, which would diminish the number of new shares subject to the preemptive rights of existing shareholders. According to the amended Securities and Exchange Law which became effective on February 8, 2002, the preemptive right provisions will not apply to offerings of new shares through a private placement approved in a shareholders’ meeting.

Meetings of Shareholders

The ordinary meeting of shareholders of the Company is usually held in Hsinchu City, Taiwan, as determined by the board of directors, within six months after the end of each calendar year. Extraordinary meetings of shareholders may be convened by resolution of the board of directors whenever they consider it necessary, and they must do so if requested in writing by shareholders holding not less than 3% of the paidin capital who have held these shares for more than a year. Extraordinary meetings of shareholders may also be convened by a supervisor of the Company under certain circumstances. Notice in writing of ordinary and extraordinary shareholders’ meetings stating the place, time and purpose thereof must be dispatched to each shareholder of record of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting.

Voting Rights

Under the ROC Company Law, a shareholder has one vote for each common share.

Except as otherwise provided by law, a resolution can be adopted by the holders of at least a majority of the Shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding Shares are present. The election of directors and supervisors at a shareholders’ meeting is by means of cumulative voting unless the articles of incorporation of a company provide otherwise. Ballots for the election of directors are cast separately from those for the election of supervisors. Candidates for the offices of directors and supervisors may be nominated at the shareholders’ meeting at which ballots for the

election are cast. Under the ROC Company Law, the approval by at least a majority of the Shares represented at a shareholders’ meeting in which a quorum of at least two-thirds of all issued and outstanding Shares are represented is required for major corporate actions, including:

" amendment to the Articles;
" transfer of the whole or substantial part of the Company’s business or assets;
" executing, amending or terminating any contract that leases the Company’s whole business, mandates the Company’s operation to other persons, or operates frequently the business for the joint interest of the Company and other persons;
" taking over of the whole of the business or assets of any other company which would have a significant impact on the Company’s operations;
" distribution of any stock dividend;
" dissolution or amalgamation of a company;
" merger or spin-off; and
" removing of directors or supervisors.

Alternatively, the ROC Company Law provides that in the case of a public company, such as the Company, a resolution may be adopted by the holders of at least two-thirds of the Shares represented at a meeting of shareholders at which holders of at least a majority of issued and outstanding Shares are present. However, if a controlling company holds not less than 90% of its subordinate company’s outstanding shares, the controlling company’s merger with the subordinate company can be approved by board resolution adopted by majority consent at a meeting with two-thirds of directors present.

A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy form is delivered to the Company five days before the commencement of the ordinary or extraordinary shareholders’ meeting. Voting rights attached to the Shares that are exercised by the shareholders’ proxy are subject to ROC proxy regulations. Any shareholder who has a personal interest in a matter to be discussed at the Company’s shareholders’ meeting, the outcome at which may impair the Company’s interests, is not permitted to vote or exercise voting rights on behalf of another shareholders on such matter. Except for trust enterprises or stock affair agents approved by the ROC SFC, where one person is appointed as proxy by two or more shareholders who together hold more than 3% of the total issued common shares, the votes of those shareholders in excess of 3% of the outstanding Shares shall not be counted.

Under the ROC Company Law, the Company may, by giving advance public notice, set a record date and close the register of shareholders for a specified period in order to determine the shareholders and pledgees that are entitled to rights pertaining to the Shares. The specified period required is as follows:

" ordinary shareholders’ meeting — sixty days
" extraordinary shareholders’ meeting — thirty days
" relevant record date for distribution of dividends, bonuses or other interests — five days

Other Rights of Shareholders

Under the ROC Company Law, dissenting shareholders of the Company are entitled to appraisal rights in the event of amalgamation, spin-off and various other major corporate actions within 20 days of the resolution approving the event. A dissenting shareholder may request that the Company redeem all of the shares owned by the shareholder at a fair price to be determined by mutual agreement. If an agreement cannot be reached, the valuation will be determined by a court order. For amalgamation or spin off, a dissenting shareholder may exercise its appraisal right by serving written notice on the Company before or during the related shareholders’ meeting or by raising and registering its objection in the shareholders’

meeting. For other major corporate actions, a dissenting shareholder may exercise his or her appraisal right by serving written notice on the Company before the related shareholders’ meeting and by raising and registering its objection in the shareholders’ meeting.

In addition to appraisal rights, within 30 days after the date of the shareholders’ meeting, any shareholder has the right to annul any resolution adopted at a shareholders’ meeting where the procedures or the method of resolution were legally defective. However, if the court is of the opinion that such violation is not material and does not affect the result of the resolution, the court may reject or dismiss the shareholder’s lawsuit. If the substance of a resolution adopted at a shareholders’ meeting contradicts any applicable law or regulation or the Articles, a shareholder may bring a suit to determine the validity of such resolution.

Shareholders may bring suit against directors and supervisors under the following circumstances:

" Shareholders who have continuously held 3% or more of the total number of issued and outstanding shares for a period of one year or longer may request in writing that a supervisor institute an action against a director on the Company’s behalf. In case the supervisor fails to institute an action within 30 days after receiving such request, the shareholders may institute an action on the Company’s behalf. In the event that shareholders institute an action, a court may, upon application of the defendant, order such shareholders to furnish appropriate security.
" In the event that any director, supervisor, officer or shareholder holds more than 10% of the issued and outstanding shares and their respective spouse and minor children and/or nominees sells shares within six months after the acquisition of such shares, or repurchases the shares within six months after the sale, the Company may make a claim for recovery of any profits realized from the sale and purchase. If the board of directors or the supervisors fail to make a claim for recovery, any shareholder may request that the board of directors or the supervisors exercise the right of claim within 30 days. After such 30-day period, such requesting shareholder will have the right to make a claim for such recovery on the Company’s directors and supervisors will be jointly and severally liable for damages suffered by the Company as a result of their failure to exercise the right of claim.

In addition, one or more shareholders who have held more than 3% of the issued and outstanding shares of the Company for over a year may require the board of directors of the Company to convene an extraordinary shareholders’ meeting by sending a written request to the board of directors.

Annual Financial Statements

Under the ROC Company Law, ten days before the ordinary shareholders’ meeting, the Company’s annual audited financial statements must be available at the principal office of the Company in Hsinchu, Taiwan, for inspection by the shareholders.

Transfers of Common Shares

Under the ROC Company Law, the transfer of Shares (in registered form) is effected by endorsement and delivery of share certificates. In order to assert shareholders’ rights against the Company, the transferee must have his name and address registered on the Company’s register of shareholders. Shareholders are required to register their respective specimen seal or chop with the Company. The settlement of trading of the common stock is normally carried out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.

Acquisition by the Company of its own Common Shares

Under the ROC Company Law, with minor exceptions, the Company cannot acquire its own Shares, and any Share acquired by the Company must be sold by the Company at the current market price within six months after its acquisition.

In addition, under the Securities and Exchange Law, a company whose shares are listed on the TSE or traded on the GTSM may, pursuant to a board resolution adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant to the procedures prescribed by the ROC SFC, purchase its shares on the TSE or GTSM or by a tender offer for the following purposes:

" for transfer of shares to its employees;
" for conversion into shares from bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by the company; and
" for maintaining its credit and its shareholders’ equity; provided that the shares so purchased shall be cancelled thereafter.

Shares purchased by the Company for the purposes set out in the first two items of the preceding paragraph shall be deemed cancelled if not transferred to the intended transferees within three years of the relevant purchase. Shares purchased by the Company for the purpose set out in the last item of the preceding paragraph shall be cancelled, and the Company is required to amend the registration of its issued paid-in capital to reflect such cancellation within six months of such purchase.

The total Shares purchased by the Company shall not exceed 10% of its total issued and outstanding Shares. In addition, the total amount for purchase of the Shares shall not exceed the aggregate amount of the retained earnings, the premium from stock issues and the realized portion of the capital reserve.

The Shares purchased by the Company shall not be pledged or hypothecated. In addition, the Company may not exercise any shareholders’ rights attaching to such Shares. The Company’s affiliates (as defined in Article 369-1 of the ROC Company Law), directors, supervisors, managers and their respective spouses and minor children and/or nominees are prohibited from selling the Shares of the Company held by them during the period in which the Company purchases its own Shares on the TSE.

Liquidation Rights

In the event of the liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses, taxes and distributions to holders of preferred shares, if any, will be distributed pro rata to the shareholders in accordance with the ROC Company Law.

Significant Shareholders and Transfer Restrictions

The ROC Securities and Exchange Law currently requires (1) each director, supervisor, manager or significant shareholder (i.e., a shareholder who, together with his or her spouse, minor children or nominees, holds more than 10% of the shares of a public company) to report any change in that person’s shareholding to the issuer of the shares, and (2) each director, supervisor, manager or significant shareholder to report his or her intent to transfer any shares traded on the TSE or GTSM to the ROC SFC at least three days before the intended transfer, unless the number of shares to be transferred is less than 10,000. The Securities and Exchange Law also limits the number of shares that can be sold or transferred on the TSE or GTSM by each director, supervisor, manager or significant shareholder per day.

Limitation on Shareholdings in the Company and Reporting Obligations

The Securities and Exchange law requires each director, supervisor, manager or significant shareholder (i.e., a shareholder who, together with his or her spouse, minor children or nominees, holds more than 10% of the Company’s issued and outstanding shares) to report any change in that person’s shareholding to the Company before the fifth day of each month and the Company shall report the same to the ROC SFC before the 15th day of each month. Such persons are also required to report to the Company immediately the pledge of their Shares in the Company and the Company shall report the same to the ROC SFC within five days from the pledge date. A person or a person who along with other persons (as defined under the ROC SFC regulations) acquires more than 10% of the issued and outstanding Shares of the Company shall report to the ROC SFC, within ten days from the acquisition date, the acquisition purpose, funding sources and other information required by the ROC SFC.

Register of Shareholders

SinoPac Securities Corporation acts as the Company’s Share registrar and maintains the register of shareholders of the Company at its offices in Taipei, Taiwan, and enters transfers of Shares in such register upon presentation of, among other documents, certificates in respect of the transferred Shares.

The ROC Company Law permits the Company to set a record date and close its shareholder register for a specified period in order for the Company to determine the shareholders or pledgees that are entitled to certain rights pertaining to the Company’s Shares by giving advance public notice. Pursuant to the ROC Company Law and the Articles, the Company’s register is closed for a period of 60 and 30 days, respectively, before each ordinary and extraordinary meeting of shareholders and a period of five days before each record date.

Employee Stock Options

Under the ROC Company Law and relevant regulations promulgated by the ROC SFC, a company may issue employee stock options by a resolution adopted by at least a majority of the directors presented at the board of directors’ meeting in which a quorum of at least two-thirds of all directors are presented. The options so subscribed by the employees may not be transferred except in the case of inheritance. Subject to the conditions set forth by the company, the company may issue new shares or, in the case that the company’s shares are listed on the TSE or traded on the GTSM, purchase its own shares for the options holders to subscribe.

TAXATION

The Bonds may be deemed by taxing authorities in various jurisdictions to be issued with original issue discount. Prospective investors should consult their own adviser concerning the tax consequences of an investment in Bonds or Shares.

ROC Taxation of Non-Residents

The following is a summary under present law of the principal ROC tax consequences of the ownership and disposition of Bonds and Shares to a Non-ROC Resident Individual or Non-ROC Resident Entity that holds Bonds or Shares (each a ‘‘Non-ROC Holder’’). As used in the preceding sentence, a ‘‘Non-ROC Resident Individual’’ is a foreign national individual who owns Bonds or Shares and is not physically present in the ROC for 183 days or more during any calendar year and a ‘‘Non-ROC Resident Entity’’ is a profit seeking corporation or a non-corporate body that owns Bonds or Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent establishment in the ROC.

Dividends on the Shares

Dividends (whether in cash or Shares) declared by the Company out of retained earnings and paid out to Non-ROC Holders of Shares are normally subject to ROC income tax collected by way of withholding at the time of distribution. The current rate of withholding for Non-ROC Holder is 20% of the amount of the distribution in the case of cash dividends or the par value of the shares distributed in the case of stock dividends. Distributions of stock dividends declared by the Company out of capital reserves are not subject to withholding tax. In accordance with the ROC Income Tax Law, a 10% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The retained earnings tax so paid will further deduct the retained earnings available for future distribution. When the Company declares dividends out of those retained earnings, a maximum amount of up to 10% of the declared dividends will be credited against the 20% withholding tax imposed on the Non-ROC Holder.

Capital Gains

Under current ROC law, gain realized upon the sale or other disposition of securities is exempt from ROC income tax. This exemption will apply to a sale or other disposition of Bonds or Shares.

ROC law currently provides no specific provisions regarding the ROC income tax consequences of a conversion of Bonds into Shares. Without further clarification from the ROC tax authorities, it is impossible to conclude definitively that gain on the conversion of Bonds into Shares will not be deemed as taxable gain, additional interest income (subject to the 20% withholding tax) or otherwise subject to other ROC taxes. Transfers of Bonds by Non-ROC Holders are regarded as transactions outside the ROC and thus any gains derived therefrom are not subject to ROC income tax.

Securities Transaction Tax

The ROC Government imposes a securities transaction tax that will apply to sales of Shares. The transaction tax, which is payable by the seller, is generally levied on sales of Shares at the rate of 0.3% of the transaction price.

There is no ROC stamp, issue or registration tax imposed on the issuance of Shares upon conversion of the Bonds.

Inheritance Tax and Gift Tax

ROC inheritance tax is payable on any property within the ROC of a deceased Non-ROC Resident Individual, and ROC gift tax is payable on any property within the ROC donated by a Non-ROC Resident Individual. Inheritance tax is currently imposed at rates ranging from 2% of the first NT$600,000 to 50% of amounts in excess of NT$100,000,000. Gift tax is imposed at rates ranging from 4% of the first NT$600,000 donated to 50% of amounts donated in excess of NT$45,000,000. Under ROC inheritance and gift tax laws, the Bonds and Shares will be deemed to be located in the ROC without regard to the location of the owner.

Tax Treaty

At present, the ROC has income tax treaties with, among other countries, Indonesia, Singapore, New Zealand, Australia, South Africa, Gambia, Switzerland, Malaysia, Macedonia, The Netherlands, United Kingdom and Vietnam. It is unclear whether a Non-ROC Holder will be considered to own Bonds or Shares for the purposes of such treaties. Accordingly, a holder of Bonds or Shares who is otherwise entitled to the benefit of a treaty should consult its own tax advisers concerning eligibility for benefit under the treaty with respect to Bonds or Shares.

Withholding Tax on Payments of Premium

Premium (if any) and interest (if any) payable on the Bonds to the Non-ROC Holders is subject to a withholding tax in the ROC currently equal to 20% of the gross amount of such premium (if any) and interest (if any) at the time of payment.

Subscription Rights

Distributions of subscription rights for the Shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are currently exempted from income tax but are subject to securities transaction tax, currently at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights that are not evidenced by securities are subject to capital gains tax at the rate of (i) 25% of the gains realized for NonROC Resident Entities, and (ii) 35% of the gains realized for Non-ROC Resident Individuals. Subject to compliance with ROC law, the Company has the sole discretion to determine whether statutory subscription rights are evidenced by securities or not.

UNDERWRITING

Yuanta Core Pacific Securities (Hong Kong) Company Limited (the ‘‘Lead Manager’’), Yuanta Core Pacific Securities Co., Ltd. and SinoPac Securities (Asia) Limited (together with the Lead Manager, the ‘‘Managers’’) have, pursuant to a Subscription Agreement to be dated February 14, 2003 (the ‘‘Subscription Agreement’’), severally and not jointly agreed with the Company to subscribe and purchase the Bonds at the issue price of 100% of their principal amount less the combined management and underwriting commission and selling fee of 1.2% and subject to relevant reimbursements on the aggregate principal amount of the Bonds.

The Company has agreed in the Subscription Agreement to indemnify the Managers with certain liabilities, including the liabilities under the Securities Act, in connection with the offering of the Bonds.

The Company has agreed in the Subscription Agreement that, for a period of 120 days from the date of the Subscription Agreement, neither it nor any person acting on its behalf will issue, offer, pledge, sell, contract to sell, grant any option to purchase or otherwise dispose of, any equity securities, or any securities convertible or exchangeable for equity securities, or any rights, warrants or options to subscribe for equity securities of the Company, or announce plans or otherwise make public an intention to do any of the foregoing, in any case outside of Taiwan or denominated in a currency other than NT Dollars, other than pursuant to employee benefit plans or employee stock option plans or distributions of dividends or employee bonuses in the form of Shares and conversion of the Bonds, or the issue of Shares to sponsor any DR facility, in any such case without the prior written consent of the Lead Manager, which consent may not be unreasonably withheld.

The Bondholders who purchase the Bonds from the Managers may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the issue price of the Bonds.

Selling Restrictions

No action has been or will be taken in any jurisdiction that would permit a public offering of the Bonds or the Shares issuable upon conversion of the Bonds, or the possession, circulation or distribution of this Offering Circular or any other material relating to the Company, the Bonds or the Shares issuable upon conversion of the Bonds, in any jurisdiction where action for the purpose is required. Accordingly, neither the Bonds nor any Shares issuable upon conversion of the Bonds may be offered or sold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisements in connection with the Bonds or the Shares issuable upon conversion of the Bonds may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction.

United States

Each Manager has acknowledged and agreed that the Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the Securities Act, and may not (i) as part of their distribution at any time or (ii) prior to the 40th day after the closing of the offering of the Bonds be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S.

In addition, until 40 days after the closing of the offering of the Bonds, an offer or sale of the Bonds or the Shares to be issued upon conversion of the Bonds within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

United Kingdom

Each Manager has represented and agreed that:

(1) it has not offered or sold and prior to the date six months after the issue of the Bonds and will not offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal

or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offer of Securities Regulations 1995;

(2) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed onto any person in the United Kingdom any document received by it in connection with the issue of the Bonds, if that person is of a kind described in Articles 19, 47 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or is a person to whom such document may otherwise lawfully be issued or passed on.

The ROC

Each Manager has acknowledged and agreed that the Bonds may not be offered, sold or delivered in the ROC, as part of the distribution of the Bonds.

Hong Kong

Each Manager has acknowledged and agreed that (1) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong; and (2) it has not issued or had in its possession and will not issue or have in its possession any document, invitation or advertisement relating to the Bonds in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are intended to be disposed of to persons outside Hong Kong or to be disposed of in Hong Kong only to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent.

Japan

The Bonds and Shares have not been and will not be registered under the Securities and Exchange Law of Japan. Accordingly, each Manager has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds or Shares in Japan or to, or for the benefit of, any resident of Japan, except that the Manager may offer and sell such Bonds or Shares pursuant to an exemption from the registration requirements of, and otherwise in compliance with the Securities and Exchange Law of Japan and other applicable laws and regulations of Japan. As used in this paragraph, ‘‘resident of Japan’’ means any person resides in Japan, including any corporation or other entity organized under the laws of Japan.

Singapore

Each Manager has acknowledged and agreed that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore, and the Bonds will be offered in Singapore only pursuant to exemptions invoked under sections 274 and/or 275 of the Securities and Futures Act 2001 (the ‘‘SFA’’). Accordingly, each Manager offering the Bonds acknowledges and agrees that it has not offered or sold and will not offer or sell nor will it circulate or distribute this Offering Circular or any other offering document or material relating to the Bonds, either directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person specified in section 274 of the SFA, (ii) to a sophisticated investor, and in accordance with the conditions, specified in section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.

LEGAL MATTERS

Certain legal matters with respect to the Bonds will be passed upon for the Company by Lee and Li, Attorneys-at-Law, and for the Managers by Baker & McKenzie. Baker & McKenzie will rely upon Lee and Li, Attorneys-at-Law with respect to certain matters of ROC law. Lee and Li, Attorneys-at-Law will rely upon Baker & McKenzie with respect to certain matters of United States federal and New York law.

INDEPENDENT AUDITORS

The consolidated and non-consolidated financial statements of the Company as of and for the years ended December 31, 1999, 2000, and 2001, and the non-consolidated financial statements of Altek as of and for the nine-month period ended September 30, 2002 included in this Offering Circular have been audited or reviewed by PricewaterhouseCoopers, independent auditors, as stated in their reports appearing herein. The non-consolidated financial statements of Altek as of and for the nine-month period ended September 30, 2001 were not audited or reviewed by independent auditors as the Company was not listed during the period.

GENERAL INFORMATION

Registered Office and Principal Place of Business

The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 97307625. The Company’s registered office is located at 3F, No. 10, Li-Hsin Road, Science-Based Industrial Park, Hsinchu, Taiwan, R.O.C.

Company Confirmation

The Company, having made all reasonable inquiries, confirms that this Offering Circular contains all information with respect to the Company, the Company and its subsidiaries as a whole, the Bonds, and the Shares which is material in the context of the issue and offering of the Bonds (including all information required by applicable laws of the ROC); that the information contained herein (save as set out below) is true and accurate in all material respects and is not misleading; that the opinions and intentions expressed herein are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions; that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this Offering Circular as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects; that all reasonable inquiries have been made by the Company to verify the accuracy of such information; and that this Offering Circular does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading. The Company accepts responsibility accordingly. Information provided herein with respect to the ROC, its political status and economy, has been derived from government and other public sources, and the Company accepts responsibility only for accurately extracting information from such sources.

Authorizations

The offering of the Bonds was authorized and approved by the Company’s board of directors on December 30, 2002 and by the ROC SFC on January 28, 2003.

Listing and Trading

Application has been made to list the Bonds on the Luxembourg Stock Exchange. The legal notice relating to the issue of the Bonds and the Company’s articles of incorporation will be registered prior to the listing with the Chief Registrar of the District Court in Luxembourg (Greffier en Chef du Tribunal d’Arrondissement de et E[`] Luxembourg), where such documents will be available for inspection and where copies thereof can be obtained upon request.

According to Chapter VI, Article 3, Point A/II/2 of the Rules and Regulations of the Luxembourg Stock Exchange, the Bonds shall be freely transferable and therefore no transaction made on the Luxembourg Stock Exchange shall be cancelled.

Documents Available

Copies (and certified English translations where the documents are not in English) of the following documents may be inspected and freely obtainable at the specified office of the Paying Agent in Luxembourg for as long as the Bonds are listed on the Luxembourg Stock Exchange:

" the Company’s Articles of Incorporation;
" a copy of the annual reports of the independent accountants, containing the audited nonconsolidated and consolidated financial statements of the Company as at and for the years ended December 31, 1999, 2000 and 2001;
" the Subscription Agreement relating to the Bonds; and

" the Indenture constituting the Bonds (which includes the form of the Global Certificate) and the Paying and Conversion Agency Agreement (which includes the Regulations concerning transfer of Bonds).

In addition, copies of this Offering Circular and the most recent consolidated and non-consolidated annual financial statements of the Company and the Company’s non-consolidated quarterly and semi-annual financial statements (in each case in English), will be available at the specified office of the Paying Agent in Luxembourg free of charge for as long as the Bonds are listed on the Luxembourg Stock Exchange. All notices, including all financial notices concerning the Company and notices of the Company’s general meetings, to holders of the Bonds will be published in a daily newspaper of general circulation (which is expected to be the Luxemburger Wort).

Paying and Conversion Agents

The Company will at all times maintain paying and conversion agents having specified offices in London and so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, an agent in Luxembourg. The names of the initial agents and their specified offices are set out at the end of this Offering Circular.

No Material Adverse Change

Except as disclosed herein, there has been no material adverse change in the financial position of the Company and its subsidiaries since December 31, 2001, the date of the latest audited consolidated financial statements contained herein.

Governing Law

The Subscription Agreement, the Paying and Conversion Agency Agreement and the Indenture in connection with the offering are governed by the laws of the State of New York.

Clearance

The Bonds have been accepted for clearance by Euroclear and Clearstream, Luxembourg. Relevant clearance and settlement information for the Bonds is set forth below:

Common Code . . . . . . . . . . . . . . 016210277 ISIN . . . . . . . . . . . . . . . . . . . . . XS0162102775

Litigation

The Company is not involved in any legal or arbitration proceedings which may have, or have had in the past twelve months, a significant adverse effect on the consolidated financial position of the Company and the Company’s subsidiaries taken as a whole, nor is the Company aware that any such proceedings are pending or threatened. See ‘‘Business — Legal Proceedings’’.

Depositary Receipt Facility

The Company has not at the date of this Offering Circular established or authorized the establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently available.

100

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ROC GAAP AND U.S. GAAP

Financial statements prepared in accordance with ‘‘Rules Governing Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the Republic of China (collectively referred herein as ‘‘ROC GAAP’’) differ in certain respects from U.S. GAAP. The following is a summary of the principal differences between ROC GAAP and ROC SFC requirements, as applicable to the Company, and U.S. GAAP. The summary below should not be considered to be exhaustive. Additionally, it may exclude certain differences that may affect the disclosure, presentation or classification of transactions or events in the Company’s financial statements. Further, this summary does not take into account numerous projects currently being undertaken by standard setting bodies in the United States and ROC which could have an impact on the comparison between ROC GAAP and U.S. GAAP, which are applicable to the Company. Finally, no attempt has been made to identify all future differences between ROC GAAP and U.S. GAAP that may affect the financial statements as a result of transactions or events that may occur in the future.

ROC GAAP U.S. GAAP 1. Presentation of non-consolidated financial statements Under ROC GAAP, non-consolidated financial statements of Under U.S. GAAP, parent-company-only non-consolidated a company are presented as the primary financial statements financial statements are not allowed to be presented as the and consolidated financial statements as supplemental primary financial statements for any period. financial statements. 2. Employee stock bonus It is a statutory requirement that bonuses paid to employees Under U.S. GAAP, employee bonuses and remuneration and remuneration paid to directors and supervisors out of issued to directors and supervisors are charged to income as retained earnings are not regarded as expenses, but instead compensation expenses in the year when related services are are reported as a distribution from retained earnings in the provided, irrespective of whether the bonuses are paid in the year the shareholders approve the distribution of earnings. form of cash or stock. For bonuses paid in stock, the shares Under certain circumstances, employee bonuses may be paid are valued using the fair value or the intrinsic value method. in the form of newly issued stocks, in which case the stock issuance is recorded at par value and is reported as a distribution of retained earnings. The stock bonus to employees is given retroactive effect in Under U.S. GAAP, stock bonus to employees is given only the computation of earnings per share. prospective effect in the computation of earnings per share. 3. Stock dividends Under ROC GAAP, the issuance of stock dividends is Under U.S. GAAP, when the ratio of distribution is less than recorded based on the par value of the shares, multiplied by 25% of shares of the same class outstanding, stock dividends the number of shares issued. are generally recorded based on the fair value method, with the par value recorded in the capital stock accounts and the excess of fair value over the par value being recorded as additional paid-in capital. Distribution in excess of 25% is generally considered as stock split. 4. Employee share purchase In connection with a number of new shares issued to Under U.S. GAAP, such issues would be recorded as capital shareholders, the company also issue shares to employees at contribution for the cash amount received from the the same issue price, which usually represented a discount to employees. In addition, compensation expense would be the quoted market price. Under ROC GAAP, such issues are recorded, for the difference between the shares issue price recorded as capital contribution for the cash amount received and the fair market value, during the period when such issues from the employees. were made.

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U.S. GAAP

5. Consolidation

Under ROC GAAP, a company is required to include in its annual consolidated financial statements only those subsidiaries, which are directly or indirectly over 50% owned. For subsidiaries (i) with total assets and operating revenues which are less than 10% of the company’s nonconsolidated total assets and operating revenues, respectively, or (ii) which are in a negative equity position, the company has the option of whether or not to consolidate such subsidiaries. Irrespective of the above test, if the combined revenues or total assets of all such nonconsolidated subsidiaries exceeds 30% of the company’s nonconsolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues greater than 3% of the company’s respective nonconsolidated amounts shall be consolidated. In addition, under the Company Law in the Republic of China, the company is required to include in its consolidated financial statements the financial statements of its less than majority owned investee companies if the company has the ability to control the human resources, finance or operations of the investee companies.

Under ROC GAAP, a company is not required to prepare interim financial statements on a consolidated basis. Instead, the company is only required to recognize investment income/loss in majority owned subsidiaries under the equity method. Under ROC GAAP, a company is not required to recognize in its three months and nine months interim financial statements investment income/loss on investee companies in which the company has, directly or indirectly, 20% to 50% ownership interest. Investment income/loss in these investee companies is required only to be recognized in the semi-annual and annual financial statements.

ROC GAAP provides that when a company’s interest in a subsidiary changes from a majority interest to a minority interest, the investment in the subsidiary should be accounted for under the equity basis in the consolidated financial statements in the current year. In addition, ROC GAAP construes such change to be a change in the reporting entity which requires that in order to maintain consistency in the application of accounting standards, the prior year(s) comparative consolidated financial statements should be retroactively restated.

Under U.S. GAAP, the parent company’s consolidated financial statements generally include the financial statements of majority-owned subsidiaries, unless (i) control is considered temporary or (ii) control does not rest with the majority owner.

U.S. GAAP requires that the accounting principles and practices used by an enterprise in the preparation of its interim statements be based on those used in its latest annual financial statements unless a change of accounting practice or policy has been adopted in the current year. Thus, if the enterprise’s latest annual financial statements were prepared on a consolidated basis, accordingly the interim financial statements shall also be prepared on a consolidated basis, except as discussed above.

Under U.S. GAAP, for purposes of application of the consistency standard, a change in the reporting entity is not deemed to result from the creation, cessation, purchase, or disposition of a subsidiary or other business. Accordingly, when a company’s interest in a specific subsidiary or investee affiliate changes during the year, that change is generally accounted for prospectively and retroactive restatement is not required.

6. Business combination

Under ROC GAAP, business combinations are generally accounted for under purchase method, but pooling of interest method is still allowed if certain criteria are met. When business combinations are accounted for under purchase method and the consideration given up by the acquirer is in the form of shares, the cost to the acquirer is generally determined based on the fair value of the assets acquired and liabilities assumed. When business combinations are accounted for under pooling of interest method, the acquired company’s income and loss accounts before the merger are included in the acquirer company’s income, and then transferred to capital reserve pursuant to the Company Law and the related regulations in the ROC.

Under U.S. GAAP, all business combinations initiated after June 30, 2001 are accounted for under purchase method. The cost to the acquirer in a purchase business combination is the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident and more reliably measurable. When the consideration is the publicly traded equity securities issued by the acquirer, fair value is generally based on the market price of the equity securities issued. The market price is determined based on a reasonable period before and after the date of the terms of the acquisition are agreed to and announced. The cost of an acquired company should be allocated to the assets (both tangible and intangible) acquired and liabilities assumed on the basis of their estimated fair values at the date of acquisition.

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ROC GAAP

U.S. GAAP

Under ROC GAAP, goodwill is the excess of the investment cost over the fair value of acquired net assets. Goodwill is capitalized as an intangible asset and amortized to the income statement over five to twenty years. Negative goodwill is accounted for similarly.

Under ROC GAAP, the company’s individual profit and loss account may include the results of operations of the acquired company for the period prior to the acquisition in the year of acquisition, then adjusted through minority interest income/ loss account for the same amount.

Under U.S. GAAP, goodwill acquired after June 30, 2001 shall not be amortized. Instead, it shall be tested for impairment at reporting unit level at least annually. Goodwill acquired before June 30, 2001 should continue be amortized through December 31, 2001 over its estimated useful life but not exceeding 40 years. Effective January 1, 2002, all goodwill are subject non-amortization provision as described above. Negative goodwill being the excess of fair value of acquired net assets over cost, after certain adjustments, is an extraordinary gain.

Under U.S. GAAP, the company’s profit and loss accounts only include the results of operations of the acquired company after acquisition.

7. Equity investments of at least 20%

Under ROC GAAP, equity investments where the company has voting rights of at least 20% are generally required to be accounted for under the equity method; however, when the company has not received the audited financial statements of the equity-method investee company in time to recognize its equity in the investee company’s income (loss), the company may delay the recognition of its equity in the investee company’s income (loss) until the subsequent year, unless the company meets the following criteria, in which case no delay in recognition is possible: (i) the beginning balance of the company’s long-term investment balance exceeds NT$50 million and 5% of the investor company’s paid-in-capital; (ii) direct ownership of the investee company exceeds 30%, or direct ownership plus indirect ownership through directors, supervisors, and management exceeds 50%; and (iii) the investor company is one of the top three shareholders of the investee company or the investee company’s chairperson or general manager was appointed by the investor company. If the company is required to prepare interim financial statements, such investment income (loss), which is calculated based on the proportionate share in the prior year’s annual income (loss) of the investee company, has to be recognized in the semi-annual financial statements of the company in the subsequent year at the latest. In addition, such delay in recognition is not possible when the company has a direct or indirect control over the management of the personnel, financial or business operation of the investee company.

When the accounting treatment for a long-term equity investment is changed from cost method to equity method, the difference between the cost of investment and the company’s share of the investee company’s equity at the time of the change is deferred and amortized over 5 years.

Under U.S. GAAP, the equity method of accounting is generally required for investments with an ownership percentage of at least 20% but less than 50%, unless (i) the investment is considered temporary or (ii) the investor does not possess the ability to exercise significant influence over the investee. There are no provisions, which allow the investor company to delay recognition of its equity in the investee company’s income (loss).

Under U.S. GAAP, when the accounting treatment for a longterm equity investment is changed from cost method to equity method, retroactive restatement is required. If the company is unable to relate the difference between the carrying amount of the investment and the company’s share of the investee company’s equity to specific accounts of the investee, the difference should be considered to be goodwill and tested for impairment at least annually.

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U.S. GAAP

Equity investments of less than 20% or debt investments/ short-term investment

Long-term investments of less than 20% of a company’s shares are accounted for at the lower of cost or market value for listed investee companies and at cost for unlisted investee companies and if the company has no ability to exercise significant influence in the management of the investee company. Valuation allowance under this lower of cost or market value method is shown under stockholders’ equity. When it becomes evidently clear that there has been a permanent impairment in investments value and the chance of recovery is minimal, loss is recognized in current year earnings.

Under ROC GAAP, investments in foreign investee companies, denominated in foreign currencies, accounted for at cost method are converted to New Taiwan dollars using the exchange rate prevailing at balance sheet date and the resulting exchange loss but not gain is recorded in stockholders’ equity under the cumulative translation adjustment account.

Short-term investments are stated at the lower of cost or market value. In the subsequent period, recoveries of market value are recognized as other income to the extent of the original cost of the investments.

Equity investments of less than 20% that have readily determinable fair value and debt investments are classified in three categories and accounted as follows:

(a) Debt and equity securities classified as trading securities are marked to market at the end of the accounting period with unrealized gains or losses taken to current earnings.
(b) Debt securities classified as held to maturity are reported at amortized cost, with any premium or discount amortized over the period of the investment.
(c) Debt and equity securities classified as available for sale are marked to market at the end of the accounting period with unrealized gains or losses taken to a separate component of shareholders’ equity, unless there is a permanent decline in the value of such investment in which case it is recorded against income.

Investments that have no readily determinable fair value are accounted for at historical cost subject to impairment test.

9. Accounting for changes in ownership interest in investee companies

Under ROC GAAP, when an investee company issues additional shares and the investor’s ownership interest changes as a result, any resulting difference between the investor’s investment balance and its proportionate share of the investee company’s net equity is adjusted to its investment account with an offsetting entry to the investor’s capital reserve or retained earnings if the related capital reserve balance is insufficient. Upon subsequent disposition of the investment, amounts previously recorded to capital reserve or retained earnings relating to the respective investment will be reversed and recorded as part of the gain or loss on disposal.

Under U.S. GAAP, when an investee company issues additional shares at an amount over/under the carrying value of the shares held by the investor and the investor’s ownership interest decreases as a result of not fully subscribing to the issue, the resulting difference between the investor’s investment balance and its proportionate share of investee company’s net equity is adjusted to its investment account with an offsetting entry either to (i) gain or loss to record the deemed disposition of shares or (ii) to paid-incapital. If an adjustment has been made to paid-in-capital to recognize investee capital transactions, U.S. GAAP would not permit the adjustment of such amounts on the subsequent disposition of all or a part of the investments.

10. Impairment of long-lived assets or long-lived assets to be disposed

No specific standards address impairment of long-lived assets; normally such assets would be carried at cost less accumulated depreciation. However, when events or changes in circumstance indicate that a significant impairment occurs, an impairment loss should be recorded in the current period.

Assets purchased for use in the business but not subsequently used for that purpose are generally recorded as idle assets and reclassified from fixed assets to other assets, in which case there is a requirement to assess the net realizable value such that idle assets are not recorded at an amount in excess of net realizable value.

U.S. GAAP requires that long-lived assets held for years and used by an entity be reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. For assets held for use, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized for the difference between the carrying value and the fair value which is generally determined based on discounted cash flow.

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U.S. GAAP

11.	Prepayment of fixed assets
	Under ROC GAAP, prepayment of fixed assets is presented	Under U.S. GAAP, prepayment of fixed assets should be
	as part of fixed assets.	presented as other assets.
12.	Depreciation of fixed assets
	Depreciation is generally provided using the guideline	Depreciation is provided over the asset’s estimated economic
	service lives as prescribed by the ROC Tax Authorities plus	useful life. Salvage value, if any, is based on the estimated
	one additional year as salvage value.	net realizable value of the asset at the end of its estimated
		economic useful life.
13.	Organization cost
	Under ROC GAAP, organization costs are deferred and	Under U.S. GAAP, organization costs are expensed as
	amortized over five year. However, in accordance with the	incurred.
	revised ROC SFAS No. 19, ‘‘Accounting for Development
	Stage Companies’’, organization costs are expensed as
	incurred. This revised Statement is effective for financial
	statements issued for fiscal year ended after December 31,
	2002 and early adoption is encouraged.
14.	Convertible preferred stock and debt securities
	When convertible bonds are issued, ROC GAAP does not	Under U.S. GAAP, such beneficial conversion feature should
	recognize or account for any beneficial conversion feature	be recognized and measured by allocating a portion of the
	embedded in the securities.	proceeds equal to the intrinsic value of that feature to
		additional paid-in capital. That amount should be calculated
		at the commitment date as the difference between the
		conversion price and the fair value of the common stock,
		multiplied by the number of shares into which the security is
		convertible.
15.	Accounting for derivative instruments
	There are no specific accounting standards under ROC GAAP	Under U.S. GAAP requires that all entities recognize
	which address measurement for derivative instruments except	derivative instruments as assets and liabilities in the
	for foreign currency forward contracts. Such contracts are	statement of financial position and subsequently measure
	classified as hedge or speculative contracts.	them at fair value. If certain conditions are met, entities may
		elect to designate a derivative instrument as one of the
		following:
		Fair value hedge — a hedge of the exposures to changes (that
		are attributable to a particular risk) in the fair value of (1) a
		recognized asset or liability or (2) an unrecognized firm
		commitment;
		Cash-flow hedge — a hedge of the exposure to variability
		(that is attributable to a particular risk) in the cash flows of a
		forecasted transaction; and
		Foreign-currency hedge — a hedge of the foreign-currency
		exposure of (1) an unrecognized firm commitment, (2) an
		available-for-sale security, (3) a forecasted transaction, or (4)
		a net investment in a foreign operation.
16.	Compensated absences
	ROC GAAP has no specific accounting practice regarding	Compensated absences must be accrued based on the liability
	compensated absences.	for employees’ rights to receive compensation for future
		absences when certain conditions are met.

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U.S. GAAP

17.	Cost of sales
	Under ROC GAAP, provisions for normal inventory	Under U.S. GAAP, provisions for normal inventory
	scrap and obsolescence are recorded as non-operating	scrap and obsolescence are generally charged to cost of
	expenses.	sales.
	Under ROC GAAP, the unrealized gross profit generated	Under U.S. GAAP, the unrealized gross profit generated
	from downstream intercompany transactions is	from downstream transactions is generally charged
	eliminated and presented as a reconciling item of gross	against cost of sales and credited the investment account.
	profit in the statement of income. A corresponding
	liability is recorded for the amount of the unrealized
	gross profit in the balance sheet.
18.	Concentration of risk
	ROC GAAP has no specific disclosure requirements for	Disclose concentration of risk on one or more parties, as
	concentration of risk.	appropriate, including such parties as sole/major
		customer, supplier, franchiser, distributor, general agent,
		borrower or lender is required.
19.	Segment information
	ROC GAAP requires disclosure of segment information	Under U.S. GAAP, public business enterprise is required
	in the footnotes information to the financial statements	to present segment information based on operating
	according to industry and geographic information, which	segments. Several operating segments may, provided
	need not necessarily be the same as the management’s	aggregation criteria are met, be aggregated to reportable
	internal report to company decision-makers.	segments for which the required information is
		disclosed. Disclosure is based on the management’s
		approach for reporting segments information to
		Company chief operating decision makers that are used
		internally for evaluating segment performance and
		deciding resources allocation to segments.
20.	Statement of cash flows
	Under ROC GAAP, certificates of time deposits with	Under U.S. GAAP, certificates of time deposits with
	original maturities of greater than three months are	original maturities of over three months are classified as
	classified as cash.	trading securities.
21.	Pension
	Under ROC GAAP, the amortization of unrecognized net	Under U.S. GAAP, no such limitation on the
	gain/loss cannot exceed the excess of unrecognized net	amortization of unrecognized net gain/loss is required.
	gain/loss and unrecognized net transition obligation.
	With respect to the pension plan disclosure, under ROC	With respect to the pension plan disclosure, under U.S.
	GAAP, disclosure of changes in plan assets and benefit	GAAP, changes in plan assets and benefit obligations are
	obligations is not required.	required to be disclosed.
22.	Revenue recognition
	Under ROC GAAP, revenue is recognized when realized	Under U.S. GAAP, revenue recognition is usually
	or realizable.	prescriptive and revenue is generally recognized when it
		is realized or realizable and earned when all of the
	According to ROC SFAS No. 32 issued in June 2002 in	following criteria are met: (i) persuasive evidence of an
	relation to revenue recognition, similar criteria for	arrangement exists, (ii) delivery has occurred or services
	revenue recognition are adopted. This Statement is	have been rendered, (iii) the seller’s price to the buyer is
	effective for financial statements issued for fiscal year	fixed or determinable, and (iv) collectibility is
	ending after December 31, 2003 and early adoption is	reasonably assured.
	encouraged.

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ROC GAAP

U.S. GAAP

23. 10% additional income tax on undistributed earnings

Under the current tax regulations, current year’s earnings, on tax basis, not distributed in the following year are subject to 10% additional income tax. This 10% additional income tax is recognized as a tax expense in the following year when the amount is determined. In addition, the effect of the 10% tax on temporary differences is not recognized.

Under U.S. GAAP, this 10% additional income tax is recognized in the period during which the related income is generated and the impact of the 10% tax is measured for both current and deferred tax.

24. Disclosure of new accounting pronouncements

Under ROC GAAP, disclosure of recently issued accounting standards but not yet effective as of the balance sheet date is not required.

U.S. GAAP requires disclosure of the impact that recently issued accounting standards will have on the financial statement of the company when adopted in the future.

25. Comprehensive income

Under ROC GAAP, there is no standard for accounting and reporting of comprehensive income.

U.S. GAAP requires that comprehensive income be displayed with the same prominence as other financial statements. Comprehensive income is composed of two subsets — ‘‘net income’’ and ‘‘other comprehensive income’’. Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. (e.g. cumulative translation adjustments, minimum pension liabilities, unrealized gains or losses on available-for-sales securities and the effective portion of the change in the fair value of cash flow and net investment hedges)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Balance Sheets as of December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Non-Consolidated Financial Statements for the years ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Balance Sheets as of September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Statements of Income for the nine months ended September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Non-Consolidated Financial Statements for the nine months ended September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Page
	F-3 F-4 F-6 F-7 F-8 F-9 N-1 N-2 N-4 N-5 N-6 N-7 P-1 P-2 P-4 P-5 P-7

Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 1999, 2000 and 2001
. . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Balance Sheets as of
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Statements of Income for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Statements of Changes in Stockholders’ Equity for the years
ended December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Non-Consolidated Financial Statements for the years ended
December 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Balance Sheets as of September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Statements of Income for the nine months ended
September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Non-Consolidated Financial Statements for the nine months ended
September 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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These English financial statements expressed in thousands of New Taiwan Dollars were translated from the financial statements prepared originally in the Chinese language.

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F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Altek Corporation

We have audited the accompanying consolidated balance sheets of Altek Corporation (the ‘‘Company’’) and its subsidiaries as of December 31, 1999, 2000 and 2001, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for the years then ended, expressed in thousands of New Taiwan dollars. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the ‘‘Rules Governing Examinations of Financial Statements by Certified Public Accountants’’ and generally accepted auditing standards in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Altek Corporation and its subsidiaries as of December 31, 1999, 2000 and 2001, and the results of their operations and their cash flows for the years then ended, in conformity with the ‘‘Rules Governing the Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the Republic of China.

The financial statements of Altek Corporation and its subsidiaries as of and for the year ended December 31, 2001 expressed in United States dollars are presented solely for the convenience of the reader and were translated from the New Taiwan dollar financial statements using the average of buying and selling exchange rates of U.S.$1.00: NT$34.95 on December 31, 2001. This basis of translation is not in accordance with generally accepted accounting principles in the Republic of China.

PricewaterhouseCoopers Hsinchu, Taiwan Republic of China February 8, 2002

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows of the Company and its subsidiaries in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

F-3

ALTEK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Expressed in Thousands of Dollars)

ASSETS Current Assets Cash (Note 4 (1)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments (Not 4 (2)) . . . . . . . . . . . . . . . . . Notes receivables, net (Note 4 (3)) . . . . . . . . . . . . . . . . . Accounts receivables, net (Note 4(4)). . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Notes 4 (5)) . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets (Notes 4(12) and 6). . . . . . . . . . . . . . Property and Equipment (Note 4 (6)) Cost Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . Test equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . . . . . . . . . . . . . . Construction in progress and prepayments for equipment . . Intangible Assets Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets Deposits out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2(3)) $ 391,332 $ 825,772 $23,627 — 139,191 3,983 29,400 38,439 1,100 711,386 598,039 17,111 7,312 13,840 396 496,049 140,293 4,014 67 6,274 180 1,926 934 26 146,606 169,012 4,836 1,784,078 1,931,794 55,273 12,828 12,235 350 11,357 15,726 450 2,463 2,569 74 11,963 18,837 539 15,907 16,950 485 5,631 5,218 149 60,149 71,535 2,047 (23,214) (34,577) (989) — — — 36,935 36,958 1,058 101,033 84,123 2,406 28,935 — — 129,968 84,123 2,406 2,930 1,873 54 308 98 3 3,238 1,971 57 $1,954,219 $2,054,846 $58,794	December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2(3)) $ 391,332 $ 825,772 $23,627 — 139,191 3,983 29,400 38,439 1,100 711,386 598,039 17,111 7,312 13,840 396 496,049 140,293 4,014 67 6,274 180 1,926 934 26 146,606 169,012 4,836 1,784,078 1,931,794 55,273 12,828 12,235 350 11,357 15,726 450 2,463 2,569 74 11,963 18,837 539 15,907 16,950 485 5,631 5,218 149 60,149 71,535 2,047 (23,214) (34,577) (989) — — — 36,935 36,958 1,058 101,033 84,123 2,406 28,935 — — 129,968 84,123 2,406 2,930 1,873 54 308 98 3 3,238 1,971 57 $1,954,219 $2,054,846 $58,794
	1999 NT$ $ 23,399 — 16 103,908 8,197 201,221 655 2,819 6,306 346,521 7,744 9,903 1,062 6,948 12,930 2,131 40,718 (10,259) 1,795 32,254 — 37,839 37,839 2,584 518 3,102 $419,716	2000 NT$ $ 391,332 — 29,400 711,386 7,312 496,049 67 1,926 146,606 1,784,078 12,828 11,357 2,463 11,963 15,907 5,631 60,149 (23,214) — 36,935 101,033 28,935 129,968 2,930 308 3,238 $1,954,219
			NT$ $ 825,772 139,191 38,439 598,039 13,840 140,293 6,274 934 169,012 1,931,794 12,235 15,726 2,569 18,837 16,950 5,218 71,535 (34,577) — 36,958 84,123 — 84,123 1,873 98 1,971 $2,054,846

The accompanying notes are an integral part of these consolidated financial statements.

F-4

ALTEK CORPORATION

CONSOLIDATED BALANCE SHEETS — (Continued)

(Expressed in Thousands of Dollars)

	December 31,	December 31,	December 31,
1999 NT$ $ 12,635 14,943 — 118,265 — 26,023 2,822 354 175,042 — 175,042 400,000 — 14,000 (169,326) — 244,674 $419,716	2000 NT$ $ 83,065 — 2,783 781,456 26 26,014 2,108 14,632 910,084 126 910,210 645,000 93,119 384,000 (86,264) 8,154 1,044,009 $1,954,219	2001
		NT$ $ — — 10,870 417,203 5,975 121,267 43,887 1,191 600,393 311 600,704 738,119 — 384,000 317,943 14,080 1,454,142 $2,054,846	U.S.$
			(Unaudited) (Note 2(3)) $ — — 311 11,937 171 3,470 1,256 34
			17,179
			9
			17,188
			21,119 — 10,987 9,097 403
			41,606
			$58,794

The accompanying notes are an integral part of these consolidated financial statements.

F-5

ALTEK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Expressed in Thousands of Dollars, Except For Per Share Amount)

Operating revenues Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs Costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative and general expenses . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of investments, net . . . . . . . . . . . . . . . . Foreign currency exchange gain, net . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property and equipment . . . . . . . . . . . Foreign currency exchange loss, net. . . . . . . . . . . . . . . . . Loss on obsolescence of inventories. . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . . . . . . . . . Income tax expense (Note 4(13)). . . . . . . . . . . . . . . . . . . . . Preacquisition loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Simple earnings (loss) per common share (in dollars) (Note 4(14)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fully diluted earnings (loss) per common share (in dollars) (Note 4(14)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $290,987 $2,410,656 $3,837,990 $10,984 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,179,848) (3,217,631) (92,064) (50,222) 167,551 620,269 17,747 (5,171) (10,006) (36,908) (1,056) (16,458) (37,879) (72,325) (2,069) (45,578) (64,702) (187,039) (5,352) (67,207) (112,587) (296,272) (8,477) (117,429) 54,964 323,997 9,270 4,610 10,843 30,160 863 971 3,096 460 13 — 28,237 58,216 1,666 1,302 372 38,279 1,095 6,883 42,548 127,115 3,637 (204) (1,947) — — — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,745) (565) — (486) (13,958) (399) (5,410) 16,794 (36,877) (1,055) (115,956) 80,718 414,235 11,852 (4) (25) (10,028) (287) — 2,369 — (—) $(115,960) $ 83,062 $ 404,207 $11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $290,987 $2,410,656 $3,837,990 $10,984 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,179,848) (3,217,631) (92,064) (50,222) 167,551 620,269 17,747 (5,171) (10,006) (36,908) (1,056) (16,458) (37,879) (72,325) (2,069) (45,578) (64,702) (187,039) (5,352) (67,207) (112,587) (296,272) (8,477) (117,429) 54,964 323,997 9,270 4,610 10,843 30,160 863 971 3,096 460 13 — 28,237 58,216 1,666 1,302 372 38,279 1,095 6,883 42,548 127,115 3,637 (204) (1,947) — — — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,745) (565) — (486) (13,958) (399) (5,410) 16,794 (36,877) (1,055) (115,956) 80,718 414,235 11,852 (4) (25) (10,028) (287) — 2,369 — (—) $(115,960) $ 83,062 $ 404,207 $11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $290,987 $2,410,656 $3,837,990 $10,984 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,179,848) (3,217,631) (92,064) (50,222) 167,551 620,269 17,747 (5,171) (10,006) (36,908) (1,056) (16,458) (37,879) (72,325) (2,069) (45,578) (64,702) (187,039) (5,352) (67,207) (112,587) (296,272) (8,477) (117,429) 54,964 323,997 9,270 4,610 10,843 30,160 863 971 3,096 460 13 — 28,237 58,216 1,666 1,302 372 38,279 1,095 6,883 42,548 127,115 3,637 (204) (1,947) — — — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,745) (565) — (486) (13,958) (399) (5,410) 16,794 (36,877) (1,055) (115,956) 80,718 414,235 11,852 (4) (25) (10,028) (287) — 2,369 — (—) $(115,960) $ 83,062 $ 404,207 $11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16
	1999 NT$ $290,987 — (4,970) 286,017 (336,239) (50,222) (5,171) (16,458) (45,578) (67,207) (117,429) 4,610 971 — 1,302 6,883 (204) — (2,635) (2,571) — (5,410) (115,956) (4) — $(115,960) $ (3.28) $ (3.28)	2000 NT$ $2,410,656 — (63,257) 2,347,399 (2,179,848) 167,551 (10,006) (37,879) (64,702) (112,587) 54,964 10,843 3,096 28,237 372 42,548 (1,947) (678) — (13,683) (486) 16,794 80,718 (25) 2,369 $ 83,062 $ 1.42 $ 1.42
			NT$ $3,837,990 (24) (66) 3,837,900 (3,217,631) 620,269 (36,908) (72,325) (187,039) (296,272) 323,997 30,160 460 58,216 38,279 127,115 — (3,174) — (19,745) (13,958) (36,877) 414,235 (10,028) — $ 404,207 $ 5.48 $ 5.48

The accompanying notes are an integral part of these consolidated financial statements.

F-6

ALTEK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

(Expressed in Thousands of Dollars)

1999, 2000 and 2001 — NT$ Balance at January 1, 1999. . . . . . . . . Issuance of common stock for cash . . . Net loss in 1999 . . . . . . . . . . . . . . . . Balance at December 31, 1999 . . . . . . Issuance of common stock and convertible preferred stock for cash . Net income in 2000 . . . . . . . . . . . . . . Cumulative translation adjustment . . . . Balance at December 31, 2000 . . . . . . Conversion of preferred stock into common stock. . . . . . . . . . . . . . . . Net income in 2001 . . . . . . . . . . . . . . Cumulative translation adjustment . . . . Balance at December 31, 2001 . . . . . . 2001 — U.S.$ Balance at January 1, 2001. . . . . . . . . Conversion of preferred stock into common stock. . . . . . . . . . . . . . . . Net income in 2001 . . . . . . . . . . . . . . Cumulative translation adjustment . . . . Balance at December 31, 2001 . . . . . .	Capital stock Common stock Preferred stock $260,000 $ — 140,000 — — — 400,000 — 245,000 93,119 — — — — 645,000 93,119 93,119 (93,119) — — — — $738,119 $ — $ 18,455 $ 2,664 2,664 (2,664) — — — — $ 21,119 $ —	Capital reserve $ — 14,000 — 14,000 370,000 — — 384,000 — — — $384,000 $ 10,987 — — — $ 10,987	Retained earnings (deficit) $ (53,366) — (115,960) (169,326) — 83,062 — (86,264) — 404,207 — $317,943 $ (2,468) — 11,565 — $ 9,097	Cumulative translation adjustment $ — — — — — — 8,154 8,154 — — 5,926 $14,080 $ 233 — — 170 $ 403	Total $ 206,634 154,000 (115,960) 244,674 708,119 83,062 8,154 1,044,009 — 404,207 5,926 $1,454,142 $ 29,871 — 11,565 170 $ 41,606
	Common stock $260,000 140,000 — 400,000 245,000 — — 645,000 93,119 — — $738,119 $ 18,455 2,664 — — $ 21,119

The accompanying notes are an integral part of these consolidated financial statements.

F-7

ALTEK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Thousands of Dollars)

Cash flows from operating activities: Net income(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bad debts expense. . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of short-term investments. . . . . . . . . . Provision for loss on obsolescence of inventories. . . . . . Loss on disposal of property and equipment, net . . . . . . Changes in assets and liabilities: (Increase) decrease in assets: Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . Other receivables, prepaid expenses and prepayments. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in liabilities: Notes payable and account payable . . . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses, other payable and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension liabilities . . . . . . . . . . . . . . . . . . . Net cash (used in) provided by operating activities . . . . . . . . Cash flows from investing activities: Decrease in pledged assets, net . . . . . . . . . . . . . . . . . . . . Increase in short-term investments, net. . . . . . . . . . . . . . . Acquisition of property and equipment. . . . . . . . . . . . . . . Increase in deferred charges . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in deposits out, net. . . . . . . . . . . . . . . Cash received from consolidation of subsidiaries . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Increase (decrease) in short-term loans. . . . . . . . . . . . . . . Decrease (increase) in bankers’ acceptances payable . . . . . Proceeds from issuance of common stock and convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . . . . . . Effect of exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . Cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplemental disclosures of cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing activities partially paid by cash: Increase in property and equipment . . . . . . . . . . . . . . . . . Add: Property and equipment payable at beginning of year Decrease: Property and equipment payable at end of year . Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2(3)) $(115,960) $ 83,062 $404,207 $11,565 6,000 9,760 12,685 363 6,888 19,404 51,002 1,459 — — 18,496 529 — — (460) (13) 2,571 13,683 19,745 565 — 765 3,690 106 209 (29,384) (9,039) (259) (103,796) (607,041) 94,851 2,714 2,325 3,982 (12,039) (344) (180,957) (308,511) 336,012 9,614 107,470 665,767 (356,166) (10,191) — — 5,974 171 16,883 14,185 124,137 3,552 — 126 185 5 (258,367) (134,202) 693,280 19,836 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) (14,714) (13,491) (16,755) (479) (18,601) (613) — — (93) (26) 1,057 30 — (121,164) — — (36,674) (275,594) (176,753) (5,057) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) — 14,123 978 28 (113,463) 367,933 434,440 12,430 136,862 23,399 391,332 11,197 $ 23,399 $391,332 $825,772 $23,627 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,053 $ 116 $16,107 $ 12,862 $ 16,405 $ 469 903 2,296 1,667 48 (2,296) (1,667) (1,317) (38) $ 14,714 $ 13,491 $ 16,755 $ 479	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2(3)) $(115,960) $ 83,062 $404,207 $11,565 6,000 9,760 12,685 363 6,888 19,404 51,002 1,459 — — 18,496 529 — — (460) (13) 2,571 13,683 19,745 565 — 765 3,690 106 209 (29,384) (9,039) (259) (103,796) (607,041) 94,851 2,714 2,325 3,982 (12,039) (344) (180,957) (308,511) 336,012 9,614 107,470 665,767 (356,166) (10,191) — — 5,974 171 16,883 14,185 124,137 3,552 — 126 185 5 (258,367) (134,202) 693,280 19,836 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) (14,714) (13,491) (16,755) (479) (18,601) (613) — — (93) (26) 1,057 30 — (121,164) — — (36,674) (275,594) (176,753) (5,057) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) — 14,123 978 28 (113,463) 367,933 434,440 12,430 136,862 23,399 391,332 11,197 $ 23,399 $391,332 $825,772 $23,627 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,053 $ 116 $16,107 $ 12,862 $ 16,405 $ 469 903 2,296 1,667 48 (2,296) (1,667) (1,317) (38) $ 14,714 $ 13,491 $ 16,755 $ 479	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2(3)) $(115,960) $ 83,062 $404,207 $11,565 6,000 9,760 12,685 363 6,888 19,404 51,002 1,459 — — 18,496 529 — — (460) (13) 2,571 13,683 19,745 565 — 765 3,690 106 209 (29,384) (9,039) (259) (103,796) (607,041) 94,851 2,714 2,325 3,982 (12,039) (344) (180,957) (308,511) 336,012 9,614 107,470 665,767 (356,166) (10,191) — — 5,974 171 16,883 14,185 124,137 3,552 — 126 185 5 (258,367) (134,202) 693,280 19,836 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) (14,714) (13,491) (16,755) (479) (18,601) (613) — — (93) (26) 1,057 30 — (121,164) — — (36,674) (275,594) (176,753) (5,057) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) — 14,123 978 28 (113,463) 367,933 434,440 12,430 136,862 23,399 391,332 11,197 $ 23,399 $391,332 $825,772 $23,627 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,053 $ 116 $16,107 $ 12,862 $ 16,405 $ 469 903 2,296 1,667 48 (2,296) (1,667) (1,317) (38) $ 14,714 $ 13,491 $ 16,755 $ 479
	1999 NT$ $(115,960) 6,000 6,888 — — 2,571 — 209 (103,796) 2,325 (180,957) 107,470 — 16,883 — (258,367) (3,266) — (14,714) (18,601) (93) — (36,674) 12,635 14,943 154,000 181,578 — (113,463) 136,862 $ 23,399 $ 180 $ 4 $16,107 903 (2,296) $ 14,714	2000 NT$ $ 83,062 9,760 19,404 — — 13,683 765 (29,384) (607,041) 3,982 (308,511) 665,767 — 14,185 126 (134,202) (140,300) — (13,491) (613) (26) (121,164) (275,594) 70,430 (14,943) 708,119 763,606 14,123 367,933 23,399 $391,332 $ 1,971 $ — $ 12,862 2,296 (1,667) $ 13,491
			NT$ $404,207 12,685 51,002 18,496 (460) 19,745 3,690 (9,039) 94,851 (12,039) 336,012 (356,166) 5,974 124,137 185 693,280 (22,325) (138,730) (16,755) — 1,057 — (176,753) (83,065) — — (83,065) 978 434,440 391,332 $825,772 $ — $ 4,053 $ 16,405 1,667 (1,317) $ 16,755

The accompanying notes are an integral part of these consolidated financial statements

F-8

ALTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 2000 AND 2001

(Expressed in Thousands of Dollars Unless Stated Otherwise)

1. HISTORY AND ORGANIZATION

(1) Altek Corporation (the ‘‘Company’’) was incorporated on December 24, 1996 under the provision of the Company Law of the Republic of China (‘‘R.O.C.’’) and commenced its operations on April 1, 1999. The Company engages in the research, development, design, testing and sales of digital camera.

(2) Consolidated subsidiaries

Company name Altek International Investment Co., Ltd. . . . . . . . . . . . . Altek Lab Inc. . . . . . . . . . .	Relationship with the Company A direct wholly owned subsidiary An indirect wholly owned subsidiary	Main operating activities Investment holding Company Design of engineering and sales of optical components	Direct and indirect ownership percentage	Direct and indirect ownership percentage	Direct and indirect ownership percentage
			1999 — —	2000 100% 100%	2001
					100% 100%

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of consolidation
a. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. However, pursuant to the regulations of the R.O.C. Securities and Futures Commission (‘‘SFC’’), if the total assets and operating revenues of a subsidiary are less than 10% of the nonconsolidated total assets and operating revenues of the Company, respectively, the subsidiary’s financial statements are not required to be consolidated. Irrespective of the above test, when the total combined assets or operating revenues of all such nonconsolidated subsidiaries exceed 30% of the Company’s non-consolidated total assets or operating revenues, respectively, then each individual subsidiary with total assets or operating revenues greater than 3% of the Company’s non-consolidated total assets or operating revenues, respectively, is required to be included in the consolidation. The consolidated financial statements included the financial statements of the Company and its subsidiaries, Altek International Investment Co., Ltd. and Altek Lab Inc.
b. The variance between the Company’s investment balance and its proportionate share in the consolidated subsidiaries’ net assets is debited as ‘‘Goodwill’’ or credited as ‘‘Other liabilities-others’ and amortized over five to fifteen years.

(2) Use of estimates

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

(3) Convenience translation into U.S. dollars (unaudited)

The Company maintains its accounting records and prepares its financial statements in New Taiwan dollars. The United States dollar amounts disclosed in the consolidated financial statements as of and for the year ended December 31, 2001 are presented solely for the convenience of the reader and were translated to U.S. dollars using the exchange rate of U.S.$1.00 : NT$34.95, the average of

F-9

buying and selling rates on December 31, 2001. Such translation amounts are unaudited and should not be construed as representations that the New Taiwan dollar amounts represent, or have been or could be converted into United States dollars at that or any other rate.

(4) Translation of foreign currency transactions

The accounts of the Company and its consolidated subsidiaries are maintained in their functional currencies. Transactions denominated in foreign currencies, except for forward contracts, are translated into their functional currencies at the rates of exchange prevailing on the transaction dates. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated into their functional currencies at the rates of exchange prevailing at the balance sheet date. Exchange gains or losses are included in the current year’s net income.

The financial statements of the foreign subsidiaries are translated into New Taiwan dollars using the exchange rates prevailing at the balance sheet date for asset and liability accounts, average exchange rates during the period for profit and loss accounts and historical exchange rates for equity accounts. The cumulative translation effects for the subsidiaries using functional currencies other than the New Taiwan dollar are included in the cumulative translation adjustment in stockholders’ equity.

(5) Forward contracts

Forward exchange contracts in the form of hedges are recognized and translated into New Taiwan dollars using the spot rate at the date of inception of the contract. The premium or discount arising from the difference between the exchange rate on the contracted forward date and the spot rate at the date of inception of the contract is amortized to income or expense over the period of the forward contract. The outstanding contracts at the balance sheet date are adjusted at the spot rate of the balance sheet date. The exchange difference is recognized as current gain or loss. Exchange gains or losses accounted for at the settlement dates of the forward contracts are also included in the current year’s net income.

(6) Short-term investments

Short-term investments are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed stocks is determined by the average closing prices during the last month of the fiscal year. The market value for open-end funds is determined based on the net asset value at the balance sheet date. The amount by which aggregate cost exceeds market value is reported as a loss in the current year. In subsequent periods, recoveries of market value are recognized as a gain to the extent that the market value does not exceed the original aggregate cost of the investment.

(7) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on an evaluation of the aging and the collectibility of the ending balances of notes receivable, accounts receivable and other receivables.

(8) Provision for sales allowance

Provision for sales allowance is calculated based on an evaluation of the contract.

(9) Inventories

Inventories are stated at the lower of cost or market value. Cost is determined by the weighted average method. Market value is determined based on the current replacement cost for raw materials and supplies, and the net realizable value is used for work in process and finished goods. A provision is made for obsolete and slow-moving items, when necessary, and is charged against current net income.

F-10

(10) Property and equipment

a. Property and equipment are stated at cost. Interest costs incurred during the construction or installation of the assets are capitalized.
b. Depreciation is provided using the straight-line method over the assets’ economic service lives plus one year as residual value. Residual values of property and equipment which are still in use after the end of their original estimated service lives are depreciated over the assets’ new estimated remaining service lives. The estimated service lives of property and equipment are 3–10 years.
c. Maintenance and repairs are expensed as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated accordingly. When an asset is disposed, its original cost and accumulated depreciation is written-off, and the related gain or loss is recorded as non-operating income or loss.

(11) Intangible assets and deferred charges

a. Deferred charges are mainly composed of the electric wire installation and the organization cost, which are stated at cost and amortized on a straight-line basis over 5 years.
b. Acquired technology know-how is stated at cost and amortized on a straight-line basis over 5 years.

(12) Pension plan

The Company

a. The Company has a defined benefit retirement plan (the ‘‘Plan’’) covering all regular employees. Benefits under the Plan are generally determined based upon years of credited service, age at retirement and average compensation in accordance with the R.O.C. Labor Standards Law. The Company recognizes accrued pension liabilities and net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation and pension gains/losses, based on an actuarial valuation in accordance with R.O.C. FAS No. 18, ‘‘Accounting for Pension Cost’’. The transition obligation is amortized on a straight-line basis over 15 years.
b. The Company contributes monthly 2% of the total monthly salaries and wages to an independent retirement trust fund, with the Central Trust of China as the custodian. The trust fund assets are not included in the Company’s financial statements.

The consolidated subsidiaries

The consolidated subsidiaries have their pension plans in accordance with the regulations in the countries where they are operating.

(13) Income tax

a. Income tax expense is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred tax consequences of loss carryforwards and investment tax credits are recorded as deferred tax assets. A valuation allowance is provided on deferred income tax assets to the extent that it is more likely than not that the tax benefits will not be realized. Over or under provision of prior years’ income tax liabilities is included in the current year’s income tax expense.
b. According to R.O.C. FAS No. 12, ‘‘ Accounting for income tax credits’’, the Company’s income tax credits generated from the acquisition of automation equipment or technology, expenses for research and development and loss carryforwards are recognized in the period when the tax credits arise.

F-11

c. An additional 10% corporate income tax on earnings derived on or after January 1, 1998, which are not distributed in the following year, is included as income tax expense in the year when the stockholders approved the resolution to retain the earnings.

(14) Earnings per share

Simple earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the year. Primary and fully diluted earnings per share are calculated and disclosed, if the diluted result exceeds 3% of the simple earnings per share, by taking into consideration the additional common shares that would have been outstanding had the dilutive share equivalents had been issued.

(15) Revenue and expense recognition

Revenue is recognized when earned. Expenses are recognized as incurred.

(16) Research and development

Costs incurred in research and development activities are expensed as incurred.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES

Effective January 1, 2000, the Company adopted R.O.C. FAS No. 18 to account for pension cost based on the actuarial report. The change in accounting principle did not have a significant impact on the Company’s financial position and results of operations.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash

	December 31,	December 31,	December 31,
1999 NT$ $ 70 — 23,329 — $23,399	2000 NT$ $ 141 10 62,862 328,319 $391,332	2001
		NT$ $ 549 806 165,861 658,556 $825,772	U.S.$
			(Unaudited) (Note 2 (3)) $ 16 23 4,725 18,843
			$23,627

(2) Short-term investments

	December 31,	December 31,	December 31,
1999 NT$ $—	2000 NT$ $—	2001
		NT$ $139,191	U.S.$
			(Unaudited) (Note 2 (3)) $3,983

	December 31,	December 31,	December 31,
1999 NT$ $16	2000 NT$ $29,400	2001
		NT$ $38,439	U.S.$
			(Unaudited) (Note 2 (3)) $1,100

F-12

(4) Accounts receivable, net

	December 31,	December 31,	December 31,
1999 NT$ $103,908 — — $103,908	2000 NT$ $774,067 — (62,681) $711,386	2001
		NT$ $640,945 (18,496) (24,410) $598,039	U.S.$
			(Unaudited) (Note 2 (3)) $18,339 (529) (699)
			$17,111

(5) Inventories

	December 31,	December 31,	December 31,
1999 NT$ $ 91,977 110,889 698 228 203,792 (2,571) $201,221	2000 NT$ $ 84,024 287,129 103,383 37,768 512,304 (16,255) $496,049	2001
		NT$ $ 27,066 93,075 5,556 50,595 176,292 (36,000) $140,292	U.S.$
			(Unaudited) (Note 2 (3)) $ 774 2,663 159 1,448
			5,044 (1,030)
			$4,014

(6) Property and equipment

December 31, 1999	December 31, 1999
Cost Accumulated depreciation NT$ NT$ $ 7,744 $ (1,026) 9,903 (3,084) 1,062 (60) 6,948 (2,002) 12,930 (3,972) 2,131 (115) 1,795 — $42,513 $(10,259) December 31, 2000		Book value
		NT$
		$ 6,718 6,819 1,002 4,946 8,958 2,016 1,795
		$32,254

Cost NT$ $12,828 11,357 2,463 11,963 15,907 5,631 $60,149	Accumulated depreciation NT$ $ (2,378) (5,559) (941) (5,457) (6,850) (2,029) $(23,214)	Book value
		NT$
		$10,450 5,798 1,522 6,506 9,057 3,602
		$36,935

F-13

December 31, 2001	December 31, 2001
Cost Accumulated depreciation NT$ NT$ $12,236 $ (3,079) 15,726 (8,930) 2,569 (1,298) 18,837 (8,810) 16,950 (9,495) 5,217 (2,965) $71,535 $(34,577) December 31, 2001 (Unaudited		Book value
		NT$
		$ 9,157 6,796 1,271 10,027 7,455 2,252
		$36,958
		— note 2 (3))
Cost U.S.$ $ 350 450 74 539 485 149 $1,746	Accumulated depreciation U.S.$ $ (88) (256) (37) (252) (271) (85) $(989)	Book value
		U.S.$
		$ 262 194 37 287 214 64
		$1,058

No interest expense was capitalized for the years ended December 31, 1999, 2000 and 2001.

(7) Short-term loans

	December 31,	December 31,	December 31,
1999 NT$ $ — 12,635 $12,635 1.74%–8.9%	2000 NT$ $83,065 — $83,065 —	2001
		NT$ $— — $— —	U.S.$
			(Unaudited) (Note 2 (3)) $— —
			$—
			—

(8) Bankers’ acceptances payable

	December 31,	December 31,	December 31,
1999 NT$ $15,000 (57) $14,943 5.10%	2000 NT$ $— — $— —	2001
		NT$ $— — $— —	U.S.$
			(Unaudited) (Note 2 (3)) $— —
			$—
			—

(9) Pension plan
a. The balance of the retirement fund with the Central Trust of China was NT$0, NT$3,135 and NT$5,578 (U.S.$160) as of December 31, 1999, 2000 and 2001, respectively.

F-14

b. Based on actuarial assumptions, the discount rate, expected rate of return on plan asset and the rate of compensation increase were as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected rate of return on plan asset . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . .	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
	1999 — — —	2000 5.75% 5.75% 3.00%	2001
			4.25% 4.00% 3.25%

c. The funded status of the pension plan as of December 31, 1999, 2000 and 2001, which are the measurement dates, was as follows:

	December 31,	December 31,	December 31,
1999 NT$ $— — — — — — — — — $—	2000 NT$ $ — (2,649) (2,649) (1,877) (4,526) 3,135 (1,391) 1,265 — $ (126)	2001
		NT$ $ — (5,418) (5,418) (4,023) (9,441) 5,578 (3,863) 1,180 2,372 $ (311)	U.S.$
			(Unaudited) (Note 2 (3)) $ — (155)
			(155) (115)
			(270) 160
			(110) 33 68
			$ (9)

d. The components of net periodic pension costs for 1999, 2000 and 2001 were as follows:

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $— — — — $—	2000 NT$ $1,612 — — — $1,612	2001
		NT$ $2,314 260 (180) 84 $2,478	U.S.$
			(Unaudited) (Note 2 (3)) $66 8 (5) 2
			$71

(10) Common stock and preferred stock

a. As of December 31, 2001, the Company’s authorized capital was NT$1,000,000 representing 100,000,000 shares at NT$10 (in dollars) par value per share. As of December 31, 2001, the total issued and outstanding capital was NT$738,119 (U.S.$21,119).
b. On March 26, 2000, the Company issued 2,000,000 shares of common stock and 9,311,785 shares of convertible preferred stock for cash. In accordance with the Company’s Article of Incorporation, each issued share of preferred stock is required to convert into one share of common stock before the Company becomes a listed company. Accordingly, in accordance with the resolution adopted by the board of directors on October 30, 2001, 9,311,785 shares of preferred stock were converted into same shares of common stock. The registration of this stock conversion was completed.

F-15

(11) Capital reserve

a. The Company Law of the R.O.C. requires that capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash and donation income be used exclusively to cover losses, if legal reserve is insufficient to cover such losses, or to increase capital within the allowed limit of 10% of total capital.
b. According to the R.O.C. SFC regulation, the capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash can be used to increase capital only once a year starting in the year following issuance of the stocks.

(12) Retained earnings

In accordance with the Company’s Article of Incorporation, the Company, after paying all taxes and dues and having made up prior years’ losses, shall set aside 10% of its current year’s net income as legal reserve. The balance, after distributing 10% of the bonus to the employees, if any, can be proposed to be distributed as dividends to stockholders in accordance with the resolution adopted by the board of directors and approved in the stockholders’ meeting.

(13) Income tax

a.
Income tax expense and (receivable) payable:

Income tax expense . . . . . . . . . . . . . . . Less: Under provision of prior year’s income tax . . . . . . . . . . . . . . . . Prepaid income tax . . . . . . . . . . Income tax (receivable) payable . . . . . . 10% additional income tax on unappropriated earnings included in income tax expense . . . . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $4 $ 25 $10,028 $287 — (25) (28) (1) (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $— $ 9,193 $263	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $4 $ 25 $10,028 $287 — (25) (28) (1) (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $— $ 9,193 $263	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $4 $ 25 $10,028 $287 — (25) (28) (1) (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $— $ 9,193 $263
	1999 NT$ $4 — (4) $— $—	2000 NT$ $ 25 (25) (970) $(970) $—
			NT$ $10,028 (28) (4,025) $ 5,975 $ 9,193

b. As of December 31, 1999, 2000 and 2001, the balance of deferred income tax assets was as follows:

Deferred income tax assets — current . . Deferred income tax assets — noncurrent Allowance for deferred income tax assets		December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $20,503 $20,183 $ 577 29,371 47,665 1,364 (49,874) (67,848) (1,941) $ — $ — $ —	December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (3)) $20,503 $20,183 $ 577 29,371 47,665 1,364 (49,874) (67,848) (1,941) $ — $ — $ —
	1999 NT$ $ 723 50,049 (50,772) $ —	2000 NT$ $20,503 29,371 (49,874) $ —
			NT$ $20,183 47,665 (67,848) $ —

F-16

c. As of December 31, 1999, 2000 and 2001, the components of deferred income tax assets were as follows:

			December 31,	December 31,
1999		20	00		2	001
Amount	Tax effect	Amount	Tax effect	Amount	Tax effect	Amount	Tax effect
$ 134 — — 800 2,571 112 — — — 1,600 112 165,885	$ 27 — — 160 514 22 — — (723)	$ 6,616 — — 800 16,255 — 22,425 — — 800 — 44,850	$ 1,654 — — 200 4,064 — 5,606 8,979 (20,503)	$ 131 12,087 8,903 800 36,000 — — 311 11,129 — — —	$ 32 3,022 2,226 200 9,000 — — 5,703 (20,183)	(Unaudited) (Note 2 (3)) $4 $ 1 346 86 255 64 23 6 1,030 257 — — — — 163 (577) — 9 2 318 80 — — — — — — 1,282 (1,364) — $ —
	—		—		—		—
	— — 320 22 33,177 16,530 (50,049)		— — 200 — 11,212 17,959 (29,371)		78 2,782 — — — 44,805 (47,665)		2 80 — — — 1,282 (1,364)
	—		—		—		—
	$ —		$ —		$ —		$ —

d. As of December 31, 1999, 2000 and 2001, the Company’s unused investment tax credits resulting from the acquisition of equipment and expenditures on research and development amounted to approximately NT$16,818, NT$26,938, and NT$50,508 (U.S.$1,445), respectively, and will expire in December 2005.
e. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by stockholders, including foreign stockholders, against the withholding tax on dividends, In addition, the domestic stockholders can claim a proportionate share in the company’s corporate income tax credit against its individual income tax liability effective 1998. the Company’s related information was as follows:

	December 31,	December 31,	December 31,
1999 NT$ $—	2000 NT$ $4	2001
		NT$ $4,030	U.S.$
			(Unaudited) (Note 2 (3)) $115

F-17

Deductible tax credit ratio for the appropriation of earnings: Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 NT$ Undistributed earnings: Before 1998 . . . . . . . . . . . . . . . . . . $ (7,270) In and after 1998 . . . . . . . . . . . . . . (162,056) $(169,326)	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
	1999 2000 — — — — December 31,		2001
			—
			1.27%

1999	2000 NT$ $ (7,270) (78,994) $(86,264)	2001
NT$		NT$ $ (7,270) 325,213 $317,943		U.S.$
				(Unaudited) (Note 2 (3)) $ (208) 9,305
				$9,097

f. The Company’s income tax returns have been assessed and approved by the Tax Authority through 1999.

(14) Earnings (loss) per share

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $(115,960) — $(115,960) 35,333 — 35,333 $ (3.28) $ (3.28)	2000 NT$ $83,062 (10,479) $72,583 51,247 7,143 58,390 $ 1.42 $ 1.42	2001
		NT$ $404,207 — $404,207 73,812 — 73,812 $ 5.48 $ 5.48	U.S.$
			(Unaudited) (Note 2 (3)) $11,565 —
			$11,565
			73,812 —
			73,812
			$ 0.16
			$ 0.16

Fully diluted earnings per common share was calculated as if the preferred shares were fully converted. The rights of preferred shareholders were exactly the same as those of common shareholders.

5. RELATED PARTY TRANSACTIONS

None.

F-18

6. ASSETS PLEDGED AS COLLATERAL (RECORDED AS ‘‘OTHER CURRENT ASSETS’’)

December 31,

Assets Time deposits . . . . Time deposits . . . .	1999 NT$ $6,030 — $6,030	2000 NT$ $ 16,606 130,000 $146,606	2001 NT$ U.S.$ (Unaudited) (Note 2 (3)) $ — $ 168,931 4,834 $168,931 $4,834	Purpose
			NT$ $ — 168,931 $168,931	Short-term loans Guarantee for material purchase contracts

7. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases office space under a non-cancelable operating lease agreement. As of December 31, 2001, future minimum lease payments under this lease are as follows:

Period 2002.1.1–2002.7.31	Amount
	$2,604

8. SIGNIFICANT CASUALTY LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. OTHER INFORMATION

(1) Information on derivative transactions

The Company entered into several forward exchange contracts with a bank as follows:

a. Purpose: To hedge the fluctuation of exchange rate of foreign currency denominated assets or liabilities.
b.
Accounting principle: Please see note 2(5)
c. Credit risk and market risk: There is no significant credit risk with respect to the above contracts because the counterparty of the contracts is a reputable bank. As the purpose of the contracts is for hedging, the market risk is considered low.
d. For the years ended December 31, 1999, 2000 and 2001, the information on the forward exchange contract is as follows:

For the year ended December 31, 2001

Item Forward exchange contract . . . . .	Contract amount U.S.$ 11,000 (Buy) NT$379,264 (Sell)	Settlement date March 25, 2002	Fair value NT$5,596 (U.S.$ 160)	Book value NT$5,596 (U.S.$ 160)	Recognized loss
					(NT$5,296) (U.S.$ 152)

For the years ended December 31, 1999 and 2000: None.

e. Future cash flows: As the purpose of the forward exchange contracts is to hedge the existing assets and liabilities denominated in foreign currencies, which will generate cash inflows or outflows in the future, no additional cash demand is to be expected.

F-19

(2) Fair value of financial instruments

December 31,

1999	1999	20	00			2001
Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value
NT$	NT$	NT$	NT$	NT$	NT$	U.S.$	U.S.$
$144,420 —	$144,420 —	$1,288,746 —	$1,288,746 —	$1,646,894 139,190	$1,646,894 139,449	(Unaudited) (Note 2 (3)) $47,121 3,983	(Unaudited) (Note 2 (3)) $47,121 3,990
$144,420	$144,420	$1,288,746	$1,288,746	$1,786,084	$1,786,343	$51,104	$51,111
$174,688	$174,688	$895,358	$895,358	$593,917	$593,917	$16,994	$16,994
$ —	$ —	$ —	$ —	$ 5,596	$ 5,596	$ 160	$ 160

The methods and assumptions used to measure the fair value of financial instruments are as follows:

a. Short-term financial assets and liabilities, including cash, notes receivables, accounts receivables, other receivables, deposits out, short-term loans, bankers’ acceptances payable, notes payable, accounts payable, income tax payable, accrued expenses, other payable and other current liabilities: The carrying amounts approximate fair values due to their short maturity.
b. Short-term investments: If there is a market value, the fair value is the market value, otherwise other available financial information is the fair value.
c. Derivative financial instruments: The estimated fair value is the expected cash inflows or outflows generated from the derivative financial instruments, including the unrealized gain or loss of the outstanding contracts, assuming that the contracts are terminated at the balance sheet date. The Company obtained the quotes provided by the bank as a reference of the fair value.

11. OTHER DISCLOSURE ITEMS

Pursuant to R.O.C. SFC requirements, the related information of the Company and its subsidiaries is as follows:

(1) Information about significant transactions:
a. Lending to others:

None.

b. Endorsements and guarantees for others:

None.

F-20

December 31, 2001	Type and name of Relationship of the Number of Book value Ownership	Name of the company marketable securities investee with the Company General ledger account shares (Note 1) Percentage Market value	Amount Amount	Altek Corporation . . . . . . . . . Invesco Bond Fund N/A Short-term investments 3,958,387.30 NT$54,191 None NT$54,324	(U.S.$1,551) (U.S.$1,554)	Altek Corporation . . . . . . . . . Grand Cathay Bond Fund N/A Short-term investments 4,217,843.20 NT$50,000 None NT$50,074	(U.S.$1,431) (U.S.$1,433)	Altek Corporation . . . . . . . . . Capital Bond Fund N/A Short-term investments 2,606,552.10 NT$35,000 None NT$35,051	(U.S.$1,001) (U.S.$1,003)	Altek Corporation . . . . . . . . . Altek International Investment Co., Ltd. Wholly-owned subsidiary Long-term investments 3,800,000 NT$102,379 100% NT$102,379	— Common stock (U.S.$2,929) (U.S.$2,929)	Altek International Investment Altek Lab Inc. — Common stock and Wholly-owned subsidiary Long-term investments 11,311,875 NT$98,495 100% NT$98,495	Co., Ltd. . . . . . . . . . . . . . preferred stock (Note 2) (U.S.$2,818) (U.S.$2,818)	Note 1: Including cumulative translation adjustment.	Note 2: Including common stock of 9,311,875 shares and preferred stock of 2,000,000 shares.	Marketable securities acquired or sold for the year ended December 31, 2001 in excess of NT$100,000 or over 20% of capital stock:	Beginning balance Additions Disposals Ending balance	Type and Relationship	name of General of the Number of Number of Number of Number of	Name of the marketable ledger investee with shares (in shares (in shares (in Selling Disposal shares (in	Company securities account the Company thousands) Amount thousands) Amount thousands) price Book value gain thousands) Amount	Altek Corporation . . Invesco Bond Short-term N/A — $— 16,852 NT$27,000 12,894 NT$173,248 NT$172,810 NT$438 3,958 NT$54,190	Fund investments (—) (U.S.$6,495) (U.S.$4,957) (U.S.$4,944) (U.S.$13) (U.S.$1,551)	Real estate acquired for the year ended December 31, 2001 amounting to over NT$100,000 or 20% of the Company’s capital stock:	None.
																d.								e.

F-21

					Note
Accounts (payable)	receivable	Percentage	of accounts	(payable)	Amount receivable	(NT$1,984) 0.47%	(U.S.$57)		NT$1,984 100%	(U.S.$57)
Difference with general	Transactions transactions		Percentages of	Relationship with Purchases purchases	Company Counterpart the counterpart (sales) Amount (sales) Term Unit price Term	Altek Corporation . Altek Lab Inc. Wholly-owned Purchase NT$113,210 4.28% Net 30 days Approximately the same (Note)	subsidiary (U.S.$3,239) as the prices with	third parties	Altek Lab Inc. . . . Altek Corporation Parent company (Sales) NT$113,210 (100%) Net 30 days Approximately the same (Note)	(U.S.$3,239) as the prices with	third parties	Note 1: Net 30–60 days with third parties.	Receivables from related parties as of December 31, 2001 totalling over NT$100,000 or 20% of the Company’s capital stock:	None.

F-22

				—			(Note)	(Note)
Investment	loss recorded	by the	Company	(NT$19,338)	(U.S.$553)		(NT$19,962)	(U.S.$571)
The net	income (loss)	of the investee	Company	(NT$19,338)	(U.S.$553)		NT$1,849	(U.S.$53)
Shares held by the Company		Number of	shares Percentage Book value	3,800,000 100% NT$102,379	(U.S.$2,929)		Common stock 100% NT$98,495	of 9,311,875 (U.S.$2,818)	shares and	preferred stock	of 2,000,000	shares
Original amount		The main December 31, December 31,	Investor Investee Company Location business scope 2001 2000	Altek Corporation . . Altek International British Virgin Investment NT$116,816 NT$116,816	Investment Co., Islands holding (U.S.$3,342) (U.S.$3,342)	Ltd. company	Altek International Altek Lab Inc. U.S.A Design of NT$113,119 NT$113,119	Investment engineering (U.S.$3,237) (U.S.$3,237)	Co., Ltd. . . . . . . and sales of	optical	components		Note: Including the amortization of the excess of the acquisition cost over the investee company’s net asset value.

F-23

12. SEGMENT INFORMATION

(1) Financial information by business segment

Not applicable as the Company and its subsidiaries mainly operate in one segment.

(2) Financial information by geographic areas

Not applicable as the operations of the Company and its subsidiaries are mainly in Taiwan.

(3) Export revenues

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $285,723	2000 NT$ $2,275,998	2001
		NT$ $3,819,468	U.S.$
			(Unaudited) (Note 2 (3)) $109,284

(4) Major customers

Revenues from specific customers that represent over 10% of total revenues of the Company and its subsidiaries for the years ended December 31, 1999, 2000 and 2001 are listed as follows:

For the year ended December 31, 1999 — NT$	For the year ended December 31, 1999 — NT$
Customers Sales amount Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $222,848 Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,366 For the year ended December 31, 2000 — NT$		%
		78% 21%
Customers Sales amount Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,843,767 Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,902 For the year ended December 31, 2001		%
		79% 12%
Customers Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Sales amount NT$ U.S.$ (Unaudited) (Note 2 (3)) $3,743,941 $107,123	%
	NT$ $3,743,941	98%

F-24

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Altek Corporation

We have audited the accompanying unconsolidated balance sheets of Altek Corporation (the ‘‘Company’’) as of December 31, 1999, 2000 and 2001, and the related unconsolidated statements of income, of changes in stockholders’ equity and of cash flows for the years then ended, expressed in thousands of New Taiwan dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the accompanying unconsolidated financial statements present fairly, in all material respects, the financial position of Altek Corporation as of December 31, 1999, 2000 and 2001, and the results of its operations and its cash flows for the years then ended, in conformity with the ‘‘Rules Governing the Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the Republic of China.

The financial statements of Altek Corporation as of and for the year ended December 31, 2001 expressed in United States dollars are presented solely for the convenience of the reader and were translated from the New Taiwan dollar financial statements using the average of buying and selling exchange rates of U.S.$1.00: NT$34.95 on December 31, 2001. This basis of translation is not in accordance with generally accepted accounting principles in the Republic of China.

PricewaterhouseCoopers Hsinchu, Taiwan Republic of China February 8, 2002

The accompanying unconsolidated financial statements are not intended to present the financial position and results of operations and cash flows of the Company in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying unconsolidated financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

N-1

ALTEK CORPORATION

UNCONSOLIDATED BALANCE SHEETS

(Expressed in Thousands of Dollars)

ASSETS Current Assets Cash (Note 4 (1)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term Investments (Note 4 (2)). . . . . . . . . . . . . . . . . Notes receivables, net (Note 4 (3)) . . . . . . . . . . . . . . . . . Accounts receivables, net (Note 4 (4)) . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 4 (5)) . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets (Note 4 (12) and 6). . . . . . . . . . . . . . Funds and Long-term Investments (Note 4 (6)) Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . Property and Equipment (Note 4 (7)) Cost Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . Test equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . . . . . . . . . . . . . . Construction in progress and prepayments for equipment . . Intangible Assets Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets Deposits out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 388,394 $ 809,610 $23,165 — 139,190 3,983 29,400 38,439 1,100 711,386 598,039 17,111 2,637 13,850 396 493,312 140,292 4,014 67 6,274 180 1,926 934 27 146,606 169,012 4,835 1,773,728 1,915,640 54,811 115,791 102,379 2,929 12,828 12,236 350 11,357 15,726 450 1,062 1,062 30 8,316 12,479 357 15,123 16,121 461 4,170 3,425 98 52,856 61,049 1,746 (19,543) (28,416) (813) — — — 33,313 32,633 933 28,935 — — 2,587 1,511 43 308 98 3 2,895 1,609 46 $1,954,662 $2,052,261 $58,719	December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 388,394 $ 809,610 $23,165 — 139,190 3,983 29,400 38,439 1,100 711,386 598,039 17,111 2,637 13,850 396 493,312 140,292 4,014 67 6,274 180 1,926 934 27 146,606 169,012 4,835 1,773,728 1,915,640 54,811 115,791 102,379 2,929 12,828 12,236 350 11,357 15,726 450 1,062 1,062 30 8,316 12,479 357 15,123 16,121 461 4,170 3,425 98 52,856 61,049 1,746 (19,543) (28,416) (813) — — — 33,313 32,633 933 28,935 — — 2,587 1,511 43 308 98 3 2,895 1,609 46 $1,954,662 $2,052,261 $58,719
	1999 NT$ $ 23,399 — 16 103,908 8,197 201,221 655 2,819 6,306 346,521 — 7,744 9,903 1,062 6,948 12,930 2,131 40,718 (10,259) 1,795 32,254 37,839 2,584 518 3,102 $419,716	2000 NT$ $ 388,394 — 29,400 711,386 2,637 493,312 67 1,926 146,606 1,773,728 115,791 12,828 11,357 1,062 8,316 15,123 4,170 52,856 (19,543) — 33,313 28,935 2,587 308 2,895 $1,954,662
			NT$ $ 809,610 139,190 38,439 598,039 13,850 140,292 6,274 934 169,012 1,915,640 102,379 12,236 15,726 1,062 12,479 16,121 3,425 61,049 (28,416) — 32,633 — 1,511 98 1,609 $2,052,261

N-2

ALTEK CORPORATION

UNCONSOLIDATED BALANCE SHEETS — (Continued)

(Expressed in Thousands of Dollars)

	December 31,	December 31,	December 31,
1999 NT$ $ 12,635 14,943 — 118,265 — — 26,023 2,822 354 175,042 — 175,042 400,000 — 14,000 (169,326) — 244,674 $419,716	2000 NT$ $ 83,065 — 2,783 770,028 13,652 — 24,325 2,042 14,632 910,527 126 910,653 645,000 93,119 384,000 (86,264) 8,154 1,044,009 $1,954,662	2001
		NT$ $ — — 10,870 413,549 1,984 5,975 120,352 43,887 1,191 597,808 311 598,119 738,119 — 384,000 317,943 14,080 1,454,142 $2,052,261	U.S.$
			(Unaudited) (Note 2 (2)) $ — — 311 11,832 57 171 3,443 1,256 34
			17,104
			9
			17,113
			21,119 — 10,987 9,097 403
			41,606
			$58,719

The accompanying notes are an integral part of these unconsolidated financial statements.

N-3

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF INCOME

(Expressed in Thousands of Dollars, Except For Per Share Amount)

Operating revenues Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs (Note 5) Costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative and general expenses . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of investments, net . . . . . . . . . . . . . . . . Foreign currency exchange gain, net . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment loss, net (Note 4 (6)). . . . . . . . . . . . . . . . . . . Loss on disposal of property and equipment . . . . . . . . . . . Foreign currency exchange loss, net. . . . . . . . . . . . . . . . . Loss on obsolescence of inventories. . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . . . . . . . . . Income tax expense (Note 4 (13)) . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Simple earnings (loss) per common share (in dollars) (Note 4 (14)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fully diluted earnings (loss) per common share (in dollars) (Note 4 (14)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 290,987 $2,410,656 $3,837,990 $109,814 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,192,021) (3,247,974) (92,932) (50,222) 155,378 589,926 16,879 (5,171) (10,006) (36,908) (1,056) (16,458) (27,643) (51,195) (1,465) (45,578) (50,957) (158,294) (4,529) (67,207) (88,606) (246,397) (7,050) (117,429) 66,772 343,529 9,829 4,610 10,558 29,923 856 971 3,096 460 13 — 28,237 58,205 1,665 1,302 372 38,279 1,095 6,883 42,263 126,867 3,629 (204) (1,947) — — — (9,179) (19,337) (553) — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,746) (565) — (486) (13,932) (398) (5,410) (25,973) (56,189) (1,607) (115,956) 83,062 414,207 11,851 (4) — (10,000) (286) $(115,960) $ 83,062 $ 404,207 $ 11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 290,987 $2,410,656 $3,837,990 $109,814 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,192,021) (3,247,974) (92,932) (50,222) 155,378 589,926 16,879 (5,171) (10,006) (36,908) (1,056) (16,458) (27,643) (51,195) (1,465) (45,578) (50,957) (158,294) (4,529) (67,207) (88,606) (246,397) (7,050) (117,429) 66,772 343,529 9,829 4,610 10,558 29,923 856 971 3,096 460 13 — 28,237 58,205 1,665 1,302 372 38,279 1,095 6,883 42,263 126,867 3,629 (204) (1,947) — — — (9,179) (19,337) (553) — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,746) (565) — (486) (13,932) (398) (5,410) (25,973) (56,189) (1,607) (115,956) 83,062 414,207 11,851 (4) — (10,000) (286) $(115,960) $ 83,062 $ 404,207 $ 11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 290,987 $2,410,656 $3,837,990 $109,814 — — (24) (1) (4,970) (63,257) (66) (2) 286,017 2,347,399 3,837,900 109,811 (336,239) (2,192,021) (3,247,974) (92,932) (50,222) 155,378 589,926 16,879 (5,171) (10,006) (36,908) (1,056) (16,458) (27,643) (51,195) (1,465) (45,578) (50,957) (158,294) (4,529) (67,207) (88,606) (246,397) (7,050) (117,429) 66,772 343,529 9,829 4,610 10,558 29,923 856 971 3,096 460 13 — 28,237 58,205 1,665 1,302 372 38,279 1,095 6,883 42,263 126,867 3,629 (204) (1,947) — — — (9,179) (19,337) (553) — (678) (3,174) (91) (2,635) — — — (2,571) (13,683) (19,746) (565) — (486) (13,932) (398) (5,410) (25,973) (56,189) (1,607) (115,956) 83,062 414,207 11,851 (4) — (10,000) (286) $(115,960) $ 83,062 $ 404,207 $ 11,565 $ (3.28) $ 1.42 $ 5.48 $ 0.16 $ (3.28) $ 1.42 $ 5.48 $ 0.16
	1999 NT$ $ 290,987 — (4,970) 286,017 (336,239) (50,222) (5,171) (16,458) (45,578) (67,207) (117,429) 4,610 971 — 1,302 6,883 (204) — — (2,635) (2,571) — (5,410) (115,956) (4) $(115,960) $ (3.28) $ (3.28)	2000 NT$ $2,410,656 — (63,257) 2,347,399 (2,192,021) 155,378 (10,006) (27,643) (50,957) (88,606) 66,772 10,558 3,096 28,237 372 42,263 (1,947) (9,179) (678) — (13,683) (486) (25,973) 83,062 — $ 83,062 $ 1.42 $ 1.42
			NT$ $3,837,990 (24) (66) 3,837,900 (3,247,974) 589,926 (36,908) (51,195) (158,294) (246,397) 343,529 29,923 460 58,205 38,279 126,867 — (19,337) (3,174) — (19,746) (13,932) (56,189) 414,207 (10,000) $ 404,207 $ 5.48 $ 5.48

The accompanying notes are an integral part of these unconsolidated financial statements.

N-4

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

(Expressed in Thousands of Dollars)

1999, 2000 and 2001 — NT$ Balance at January 1, 1999. . . . . Issuance of common stock for cash Net loss in 1999 . . . . . . . . . . . . Balance at December 31, 1999 . . Issuance of common stock and convertible preferred stock for cash . . . . . . . . . . . . . . . . . . Net income in 2000 . . . . . . . . . . Cumulative translation adjustment of long-term investments . . . . Balance at December 31, 2000 . . Conversion of preferred stock into common stock. . . . . . . . . . . . Net income in 2001 . . . . . . . . . . Cumulative translation adjustment of long-term investments . . . . Balance at December 31, 2001 . . 2001 — U.S.$ Balance at January 1, 2001. . . . . Conversion of preferred stock into common stock. . . . . . . . . . . . Net income in 2001 . . . . . . . . . . Cumulative translation adjustment of long-term investments . . . . Balance at December 31, 2001 . .	Capital stock Common stock Preferred stock $260,000 $ — 140,000 — — — 400,000 — 245,000 93,119 — — — — 645,000 93,119 93,119 (93,119) — — — — $738,119 $ — $18,455 $2,664 2,664 (2,664) — — — — $ 21,119 $ —	Capital reserve $ — 14,000 — 14,000 370,000 — — 384,000 — — — $384,000 $ 10,987 — — — $ 10,987	Retained earnings (deficit) $ (53,366) — (115,960) (169,326) — 83,062 — (86,264) — 404,207 — $317,943 ($ 2,468) — 11,565 — $ 9,097	Cumulative translation adjustment $ — — — — — — 8,154 8,154 — — 5,926 $14,080 $ 233 — — 170 $ 403	Total $ 206,634 154,000 (115,960) 244,674 708,119 83,062 8,154 1,044,009 — 404,207 5,926 $1,454,142 $ 29,871 — 11,565 170 $ 41,606
	Common stock $260,000 140,000 — 400,000 245,000 — — 645,000 93,119 — — $738,119 $18,455 2,664 — — $ 21,119

The accompanying notes are an integral part of these unconsolidated financial statements.

N-5

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Thousands of Dollars)

Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation Amortization Bad debts expense Gain on disposal of short-term investments Provision for loss on obsolescence of inventories Long-term investment loss accounted for under equity method Loss on disposal of property and equipment, net Changes in assets and liabilities: (Increase) decrease in assets: Notes receivable Accounts receivable Other receivables, prepaid expenses and prepayments Inventories Increase (decrease) in liabilities: Notes payable Accounts payable Accounts payable — related parties Income tax payable Accrued expenses, other payable and other current liabilities Accrued pension liabilities Net cash (used in) provided by operating activities Cash flows from investing activities: Decrease in pledged assets, net Increase in short-term investments, net Acquisition of long-term investments Acquisition of property and equipment Increase in deferred charges (Increase) decrease in deposits out, net Net cash used in investing activities Cash flows from financing activities: Increase (decrease) in short-term loans Decrease (increase) in bankers’ acceptances payable Proceeds from issuance of common stock and convertible preferred stock Net cash provided by (used in) financing activities Net (decrease) increase in cash Cash at beginning of year Cash at end of year Supplemental disclosures of cash flow information: Interest paid Income tax paid Investing activities partially paid by cash: Increase in property and equipment Add: Property and equipment payable at beginning of year Decrease: Property and equipment payable at end of year Cash paid	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $(115,960) $ 83,062 $ 404,207 $ 11,565 6,000 9,518 10,480 300 6,888 9,199 29,145 834 — — 18,496 529 — — (460) (13) 2,571 13,683 19,746 565 — 9,179 19,337 553 — 765 3,690 106 209 (29,384) (9,039) (258) (103,796) (607,478) 94,851 2,714 2,325 7,041 (16,504) (472) (180,957) (305,774) 333,275 9,536 — 2,783 8,087 231 107,470 651,763 (356,479) (10,200) — 13,652 (11,668) (334) — — 5,975 171 16,883 12,645 124,781 3,570 — 126 185 5 (258,367) (129,220) 678,105 19,402 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) — (116,816) — — (14,714) (12,187) (13,845) (396) (18,601) (85) — — (93) (3) 1,076 31 (36,674) (269,391) (173,824) (4,973) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) (113,463) 364,995 421,216 12,052 136,862 23,399 388,394 11,113 $ 23,399 $388,394 $809,610 $23,165 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,025 $ 115 $ 16,107 $ 11,342 $ 13,495 $ 386 903 2,296 1,451 42 (2,296) (1,451) (1,101) (32) $ 14,714 $ 12,187 $ 13,845 $ 396	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $(115,960) $ 83,062 $ 404,207 $ 11,565 6,000 9,518 10,480 300 6,888 9,199 29,145 834 — — 18,496 529 — — (460) (13) 2,571 13,683 19,746 565 — 9,179 19,337 553 — 765 3,690 106 209 (29,384) (9,039) (258) (103,796) (607,478) 94,851 2,714 2,325 7,041 (16,504) (472) (180,957) (305,774) 333,275 9,536 — 2,783 8,087 231 107,470 651,763 (356,479) (10,200) — 13,652 (11,668) (334) — — 5,975 171 16,883 12,645 124,781 3,570 — 126 185 5 (258,367) (129,220) 678,105 19,402 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) — (116,816) — — (14,714) (12,187) (13,845) (396) (18,601) (85) — — (93) (3) 1,076 31 (36,674) (269,391) (173,824) (4,973) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) (113,463) 364,995 421,216 12,052 136,862 23,399 388,394 11,113 $ 23,399 $388,394 $809,610 $23,165 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,025 $ 115 $ 16,107 $ 11,342 $ 13,495 $ 386 903 2,296 1,451 42 (2,296) (1,451) (1,101) (32) $ 14,714 $ 12,187 $ 13,845 $ 396	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $(115,960) $ 83,062 $ 404,207 $ 11,565 6,000 9,518 10,480 300 6,888 9,199 29,145 834 — — 18,496 529 — — (460) (13) 2,571 13,683 19,746 565 — 9,179 19,337 553 — 765 3,690 106 209 (29,384) (9,039) (258) (103,796) (607,478) 94,851 2,714 2,325 7,041 (16,504) (472) (180,957) (305,774) 333,275 9,536 — 2,783 8,087 231 107,470 651,763 (356,479) (10,200) — 13,652 (11,668) (334) — — 5,975 171 16,883 12,645 124,781 3,570 — 126 185 5 (258,367) (129,220) 678,105 19,402 (3,266) (140,300) (22,325) (639) — — (138,730) (3,969) — (116,816) — — (14,714) (12,187) (13,845) (396) (18,601) (85) — — (93) (3) 1,076 31 (36,674) (269,391) (173,824) (4,973) 12,635 70,430 (83,065) (2,377) 14,943 (14,943) — 154,000 708,119 — — 181,578 763,606 (83,065) (2,377) (113,463) 364,995 421,216 12,052 136,862 23,399 388,394 11,113 $ 23,399 $388,394 $809,610 $23,165 $ 180 $ 1,971 $ — $ — $ 4 $ — $ 4,025 $ 115 $ 16,107 $ 11,342 $ 13,495 $ 386 903 2,296 1,451 42 (2,296) (1,451) (1,101) (32) $ 14,714 $ 12,187 $ 13,845 $ 396
	1999 NT$ $(115,960) 6,000 6,888 — — 2,571 — — 209 (103,796) 2,325 (180,957) — 107,470 — — 16,883 — (258,367) (3,266) — — (14,714) (18,601) (93) (36,674) 12,635 14,943 154,000 181,578 (113,463) 136,862 $ 23,399 $ 180 $ 4 $ 16,107 903 (2,296) $ 14,714	2000 NT$ $ 83,062 9,518 9,199 — — 13,683 9,179 765 (29,384) (607,478) 7,041 (305,774) 2,783 651,763 13,652 — 12,645 126 (129,220) (140,300) — (116,816) (12,187) (85) (3) (269,391) 70,430 (14,943) 708,119 763,606 364,995 23,399 $388,394 $ 1,971 $ — $ 11,342 2,296 (1,451) $ 12,187
			NT$ $ 404,207 10,480 29,145 18,496 (460) 19,746 19,337 3,690 (9,039) 94,851 (16,504) 333,275 8,087 (356,479) (11,668) 5,975 124,781 185 678,105 (22,325) (138,730) — (13,845) — 1,076 (173,824) (83,065) — — (83,065) 421,216 388,394 $809,610 $ — $ 4,025 $ 13,495 1,451 (1,101) $ 13,845

The accompanying notes are an integral part of these unconsolidated financial statements

N-6

ALTEK CORPORATION

NOTES TO UNCONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 2000 AND 2001

(Expressed in Thousands of Dollars Unless Stated Otherwise)

1. HISTORY AND ORGANIZATION

Altek Corporation (the ‘‘Company’’) was incorporated on December 24, 1996 under the provisions of the Company Law of the Republic of China (‘‘R.O.C.’’) and commenced its operations on April 1, 1999. The Company engages in the research, development, design, testing and sales of digital camera.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Use of estimates

(2) Convenience translation into U.S. dollars (unaudited)

The Company maintains its accounting records and prepares its financial statements in New Taiwan dollars. The United States dollar amounts disclosed in the financial statements as of and for the year ended December 31, 2001 are presented solely for the convenience of the reader and were translated to U.S. dollars using the exchange rate of U.S.$1.00: NT$34.95, the average of buying and selling rates on December 31, 2001. Such translation amounts are unaudited and should not be construed as representations that the New Taiwan dollar amounts represent, or have been or could be converted into United States dollars at that or any other rate.

(3) Translation of foreign currency transactions

The accounts of the Company are maintained in New Taiwan dollars. Transactions denominated in foreign currencies, except forward foreign exchange contracts, are translated into New Taiwan dollars at the rates of exchange prevailing on the transaction dates. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars at the rates of exchange prevailing at the balance sheet date. Exchange gains or losses are included in the current year’s net income.

(4) Forward contracts

(5) Short-term investments

Short-term investments are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed stocks is determined by the average closing prices during the last month of the fiscal year. The market value for open-end funds is determined based on the net asset value per share at the balance sheet date. The amount by which aggregate cost exceeds market value is reported as a loss in the current year. In subsequent periods, recoveries of market value are recognized as a gain to the extent that the market value does not exceed the original aggregate cost of the investment.

N-7

(6) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on an evaluation of the aging and the collectibility of the ending balances of notes receivable, accounts receivable and other receivables.

(7) Provision for sales allowance

Provision for sales allowance is calculated based on an evaluation of the contract.

(8) Inventories

(9) Long-term investments

a. Long-term investments are stated at the lower of cost or market value for listed companies and at cost for unlisted companies if the Company owns less than 20% of the voting rights of the investee company and has no significant influence on the investee company’s operational decisions. Unrealized loss resulting from the decline in market value is deducted from stockholders’ equity. However, when it becomes evidently clear that there has been a permanent impairment in value and the chance of recovery is minimal, such loss is recognized in the current year’s net income.
b. Long-term investments in which the Company owns at least 20% of the voting rights of the investee companies are accounted for under the equity method, unless there is evidence that the Company cannot exercise significant influence over the investee company. The excess of the acquisition cost over the investee company’s net asset value is capitalized and amortized over five years.
c. In accordance with the regulations of the Securities and Futures Commission (‘‘SFC’’) and generally accepted accounting principles in the R.O.C., the Company prepares annual financial statements on both a unconsolidated basis and consolidated basis, which includes the accounts of the majority owned subsidiaries, which have total assets or operating revenues of at least 10% of the Company’s unconsolidated total assets and operating revenues. In addition, if the combined total assets or operating revenues of all such unconsolidated subsidiaries exceed 30% of the Company’s unconsolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues greater than 3% of the Company’s respective unconsolidated total assets or operating revenues shall also be consolidated.
d. For the financial statements of foreign investee companies accounted for under the equity method, the assets and liabilities are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date. Equity accounts are translated at historical rates, except for beginning retained earnings which are carried over from the prior year’s ending retained earnings in New Taiwan dollars. Income and expense accounts are translated into New Taiwan dollars at the weighted average rate of exchange prevailing during the year. The Company’s proportionate share of the investee company’s cumulative translation adjustment resulting from translating the foreign investee company’s financial statements into New Taiwan dollars is recognized by the Company and included in the stockholders’ equity account as ‘‘Cumulative Translation Adjustment’’.
e. Unrealized intercompany gains and losses are eliminated under the equity method. Profits or losses from sales of depreciable assets between the subsidiaries and the Company are amortized and recognized based on the assets’ economic service lives. Profits or losses from other types of intercompany transactions are recognized when realized. The resulting unrealized profit or loss is presented as other liabilities or other assets in the balance sheet.

N-8

(10) Property and equipment

a. Property and equipment are stated at cost. Interest costs incurred during the construction or installation of the assets are capitalized.
b. Depreciation is provided using the straight-line method over the assets’ economic service lives plus one year as residual value. Residual values of property and equipment which are still in use after the end of their original estimated service lives are depreciated over the assets’ new estimated remaining service lives. The estimated service lives of property and equipment are 3–10 years.
c. Maintenance and repairs are expensed as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated accordingly. When an asset is disposed, its original cost and accumulated depreciation is written-off, and the related gain or loss is recorded as non-operating income or loss.

(11) Intangible assets and deferred charges

a. Deferred charges are mainly composed of the electric wire installation and the organization cost, which are stated at cost and amortized on a straight-line basis over 5 years.
b. Acquired technology know-how is stated at cost and amortized on a straight-line basis over 5 years.

(12) Pension plan

a. The Company has a defined benefit retirement plan (the ‘‘Plan’’) covering all regular employees. Benefits under the Plan are generally determined based upon years of credited service, age at retirement and average compensation in accordance with the R.O.C. Labor Standards Law. The Company recognizes accrued pension liabilities and net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation and pension gains/losses, based on an actuarial valuation in accordance with R.O.C. FAS No. 18, ‘‘Accounting for Pension Cost’’. The transition obligation is amortized on a straight-line basis over 15 years.
b. The Company contributes monthly 2% of the total monthly salaries and wages to an independent retirement trust fund, with the Central Trust of China as the custodian. The trust fund assets are not included in the Company’s financial statements.

(13) Income tax

a. Income tax expense is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred tax consequences of loss carryforwords and investment tax credits are recorded as deferred tax assets. A valuation allowance is provided on deferred income tax assets to the extent that it is more likely than not that the tax benefits will not be realized. Over or under provision of prior years’ income tax liabilities is included in the current year’s income tax expense.
b. According to R.O.C. FAS No. 12, ‘‘Accounting for income tax credits’’, the Company’s income tax credits generated from the acquisition of automation equipment or technology, expenses for research and development and loss carryforwards are recognized in the period when the tax credits arise.
c. An additional 10% corporate income tax on earnings derived on or after January 1, 1998, which are not distributed in the following year, is included as income tax expense in the year when the stockholders approved the resolution to retain the earnings.

N-9

(14) Earnings per share

(15) Revenue and expense recognition

Revenue is recognized when earned except for sales to majority owned subsidiaries which are recognized when the goods are sold by the subsidiaries to third parties. Expenses are recognized as incurred.

(16) Research and development

Costs incurred by the Company in research and development activities are expensed as incurred.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash

	December 31,	December 31,	December 31,
1999 NT$ $ 70 — 23,329 — $23,399	2000 NT$ $ 141 10 59,924 328,319 $388,394	2001
		NT$ $ 549 806 149,699 658,556 $809,610	U.S.$
			(Unaudited) (Note 2 (2)) $ 16 23 4,283 18,843
			$23,165

(2) Short-term investments

	December 31,	December 31,	December 31,
1999 NT$ $—	2000 NT$ $—	2001
		NT$ $139,190	U.S.$
			(Unaudited) (Note 2 (2)) $3,983

	December 31,	December 31,	December 31,
1999 NT$ $16	2000 NT$ $29,400	2001
		NT$ $38,439	U.S.$
			(Unaudited) (Note 2 (2)) $1,100

N-10

(4) Accounts receivable, net

	December 31,	December 31,	December 31,
1999 NT$ $103,908 — — $103,908	2000 NT$ $774,067 — (62,681) $711,386	2001
		NT$ $640,945 (18,496) (24,410) $598,039	U.S.$
			(Unaudited) (Note 2 (2)) $18,339 (529) (699)
			$17,111

(5) Inventories

	December 31,	December 31,	December 31,
1999 NT$ $91,977 110,889 698 228 203,792 (2,571) $201,221	2000 NT$ $84,024 287,129 100,646 37,768 509,567 (16,255) $493,312	2001
		NT$ $27,066 93,075 5,556 50,595 176,292 (36,000) $140,292	U.S.$
			(Unaudited) (Note 2 (2)) $774 2,663 159 1,448
			5,044 (1,030)
			$4,014

(6) Long-term investments

a. The details of long-term investments are as follows:

	December 31,	December 31,
1999 Percentage of ownership Amount NT$ — $—	2000 Percentage of ownership Amount NT$ 100% $115,791		2001
Percentage of ownership —	Percentage of ownership 100%	Percentage of ownership 100%	Amount NT$ $102,379	Amount
				U.S.$
				(Unaudited) (Note 2 (2)) $2,929

b. The investment loss accounted for under the equity method recognized by the Company for the years ended December 31, 1999, 2000 and 2001 was as follows:

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $—	2000 NT$ $(9,179)	2001
		NT$ $(19,338)	U.S.$
			(Unaudited) (Note 2 (2)) $(553)

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(7) Property and equipment

December 31, 1999	December 31, 1999	December 31, 1999
Cost Accumulated depreciation Book value NT$ NT$ NT$ $7,744 $(1,026) $6,718 9,903 (3,084) 6,819 1,062 (60) 1,002 6,948 (2,002) 4,946 12,930 (3,972) 8,958 2,131 (115) 2,016 1,795 — 1,795 $42,513 $(10,259) $32,254 December 31, 2000		Book value
		NT$
		$6,718 6,819 1,002 4,946 8,958 2,016 1,795
		$32,254
Cost Accumulated depreciation Book value NT$ NT$ NT$ $12,828 $(2,378) $10,450 11,357 (5,559) 5,798 1,062 (236) 826 8,316 (3,621) 4,695 15,123 (6,455) 8,668 4,170 (1,294) 2,876 $52,856 $(19,543) $33,313 December 31, 2001		Book value
		NT$
		$10,450 5,798 826 4,695 8,668 2,876
		$33,313
Cost Accumulated depreciation NT$ NT$ $12,236 $(3,079) 15,726 (8,930) 1,062 (413) 12,479 (5,075) 16,121 (9,008) 3,425 (1,911) $61,049 $(28,416) December 31, 2001 (Unaudited		Book value
		NT$
		$9,157 6,796 649 7,404 7,113 1,514
		$32,633
		— Note 2 (2))
Cost U.S.$ $350 450 30 357 461 98 $1,746	Accumulated depreciation U.S.$ $(88) (256) (12) (145) (258) (54) $(813)	Book value
		U.S.$
		$262 194 18 212 203 44
		$933

No interest expense was capitalized for the years ended December 31, 1999, 2000 and 2001.

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(8) Short-term loans

	December 31,	December 31,	December 31,
1999 NT$ $ — 12,635 $12,635 1.74%–8.9%	2000 NT$ $83,065 — $83,065 —	2001
		NT$ $— — $— —	U.S.$
			(Unaudited) (Note 2 (2)) $— —
			$—
			—

(9) Bankers’ acceptances payable

	December 31,	December 31,	December 31,
1999 NT$ $15,000 (57) $14,943 5.10%	2000 NT$ $— — $— —	2001
		NT$ $— — $— —	U.S.$
			(Unaudited) (Note 2 (2)) $— —
			$—
			—

(10) Pension plan

a. The balance of the retirement fund with the Central Trust of China was NT$0, NT$3,135 and NT$5,578 (U.S.$160) as of December 31, 1999, 2000 and 2001, respectively.
b. Based on actuarial assumptions, the discount rate, expected rate of return on plan asset and the rate of compensation increase were as follows:

Discount rate Expected rate of return on plan asset Rate of compensation increase	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
	1999 — — —	2000 5.75% 5.75% 3.00%	2001
			4.25% 4.00% 3.25%

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c. The funded status of the pension plan as of December 31, 1999, 2000 and 2001, which are the measurement dates, is as follows:

Vested benefit obligation . . . . . . . . . . . Unvested benefit obligation . . . . . . . . . Accumulated benefit obligation . . . . . . . Effect on future salary increase . . . . . . . Projected benefit obligation . . . . . . . . . Fair value of plan assets. . . . . . . . . . . . Funded status . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation. . . . . Unrecognized gain or loss . . . . . . . . . . Accrued pension liabilities . . . . . . . . . .		December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ — $ — $ — (2,649) (5,418) (155) (2,649) (5,418) (155) (1,877) (4,023) (115) (4,526) (9,441) (270) 3,135 5,578 160 (1,391) (3,863) (110) 1,265 1,180 33 — 2,372 68 $( 126) $( 311) $( 9)	December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ — $ — $ — (2,649) (5,418) (155) (2,649) (5,418) (155) (1,877) (4,023) (115) (4,526) (9,441) (270) 3,135 5,578 160 (1,391) (3,863) (110) 1,265 1,180 33 — 2,372 68 $( 126) $( 311) $( 9)
	1999 NT$ $— — — — — — — — — $—	2000 NT$ $ — (2,649) (2,649) (1,877) (4,526) 3,135 (1,391) 1,265 — $( 126)
			NT$ $ — (5,418) (5,418) (4,023) (9,441) 5,578 (3,863) 1,180 2,372 $( 311)

d. The components of net periodic pension costs for 1999, 2000 and 2001 were as follows:

Service costs . . . . . . . . . . . . . . . . . . . Interest costs . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . Amortization of transition obligation . . . Net periodic pension costs . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $— $1,612 $2,314 $66 — — 260 8 — — (180) (5) — — 84 2 $— $1,162 $2,478 $71	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $— $1,612 $2,314 $66 — — 260 8 — — (180) (5) — — 84 2 $— $1,162 $2,478 $71	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $— $1,612 $2,314 $66 — — 260 8 — — (180) (5) — — 84 2 $— $1,162 $2,478 $71
	1999 NT$ $— — — — $—	2000 NT$ $1,612 — — — $1,162
			NT$ $2,314 260 (180) 84 $2,478

(11) Common stock and preferred stock

a. As of December 31, 2001, the Company’s authorized capital was NT$1,000,000 representing 100,000,000 shares at NT$10 (in dollars) par value per share. As of December 31, 2001, the total issued and outstanding capital was NT$738,119 (U.S.$21,119).
b. On March 26, 2000, the Company issued 2,000,000 shares of common stock and 9,311,785 shares of convertible preferred stock for cash. In accordance with the Company’s Article of Incorporation, each issued share of preferred stock is required to convert into one share of common stock before the Company becomes a listed company. Accordingly, in accordance with the resolution adopted by the board of directors on October 30, 2001, 9,311,785 shares of preferred stock were converted into same shares of common stock. The registration of this stock conversion was completed.

(12) Capital reserve

a. The Company Law of the R.O.C. requires that capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash and donation income be used exclusively to cover losses, if legal reserve is insufficient to cover such losses, or to increase capital within the allowed limit of 10% of total capital.
b. According to the R.O.C. SFC regulation, the capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash can be used to increase capital only once a year starting in the year following issuance of the stocks.

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(13) Retained earnings

(14) Income tax

a.
Income tax expense and (receivable) payable:

Income tax expense . . . . . . . . . . . . . . . Less: Prepaid income tax . . . . . . . . . . Income tax (receivable) payable . . . . . . 10% additional income tax on unappropriated earnings included in income tax expense . . . . . . . . . . . . .	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 4 $ — $10,000 $286 (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $ — $ 9,193 $263	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 4 $ — $10,000 $286 (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $ — $ 9,193 $263	For the years ended December 31, 1999 2000 2001 NT$ NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 4 $ — $10,000 $286 (4) (970) (4,025) (115) $— $(970) $ 5,975 $171 $— $ — $ 9,193 $263
	1999 NT$ $ 4 (4) $— $—	2000 NT$ $ — (970) $(970) $ —
			NT$ $10,000 (4,025) $ 5,975 $ 9,193

b. As of December 31, 1999, 2000 and 2001, the balance of deferred income tax assets was as follows:

Deferred income tax assets — current. . . . . . . . . . . . . . . . . . . Deferred income tax assets — noncurrent . . . . . . . . . . . . . . . . Allowance for deferred income tax assets		December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 20,503 $ 20,183 $ 577 29,371 54,794 1,568 (49,874) (74,977) (2,145) $ — $ — $ —	December 31, 2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $ 20,503 $ 20,183 $ 577 29,371 54,794 1,568 (49,874) (74,977) (2,145) $ — $ — $ —
	1999 NT$ $ 723 50,049 (50,772) $ —	2000 NT$ $ 20,503 29,371 (49,874) $ —
			NT$ $ 20,183 54,794 (74,977) $ —

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c. As of December 31, 1999, 2000 and 2001, the components of deferred income tax assets were as follows:

		Decem	Decem	ber 31,	ber 31,
1999		2000		20		01
NT$		NT$		NT$		U.S.$
Amount	Tax effect	Amount $ 6,616 — — 800 16,255 — 22,425 — — 800 — — 44,850	Tax effect	Amount	Tax effect	Amount	Tax effect
$ 134 — — 800 2,571 112 — — — 1,600 — 112 165,885	$ 27 — — 160 514 22 — — (723)		$ 1,654 — — 200 4,064 — 5,606 8,979 (20,503)	$ 131 12,087 8,903 800 36,000 — — 311 11,129 — 28,517 — —	$ 32 3,022 2,226 200 9,000 — — 5,703 (20,183)
	—		—		—
	— — 320 — 22 33,177 16,530 (50,049)		— — 200 — — 11,212 17,959 (29,371)		78 2,782 — 7,129 — — 44,805 (54,794)
	—		—		—
	$ —		$ —		$ —

d. As of December 31, 1999, 2000 and 2001, the Company’s unused investment tax credits resulting from the acquisition of equipment and expenditures on research and development amounted to approximately NT$16,818, NT$26,938, and NT$50,508 (U.S.$1,445) respectively, and will expire in December 2005.
e. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by stockholders, including foreign stockholders, against the withholding tax on dividends, In addition, the domestic stockholders can claim a proportionate share in the company’s corporate income tax credit against its individual income tax liability effective 1998. The Company’s related information was as follows:

December 31,	December 31,	December 31,
2000 2001 NT$ NT$ U.S.$ (Unaudited) (Note 2 (2)) $4 $4,030 $115 For the years ended December 31,	2001
		U.S.$
		(Unaudited) (Note 2 (2)) $115
1999 — —	2000 — —	2001
		—
		1.27%

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	December 31,	December 31,	December 31,
1999 NT$ $ (7,270) (162,056) $(169,326)	2000 NT$ $ (7,270) (78,994) $(86,264)	2001
		NT$ $ (7,270) 325,213 $317,943	U.S.$
			(Unaudited) (Note 2 (2)) $ (208) 9,305
			$9,097

f. The Company’s income tax returns have been assessed and approved by the Tax Authority through 1999.

(15) Earnings (loss) per share

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $(115,960) — $(115,960) 35,333 — 35,333 $ (3.28) $ (3.28)	2000 NT$ $83,062 (10,479) $72,583 51,247 7,143 58,390 $ 1.42 $ 1.42	2001
		NT$ $404,207 — $404,207 73,812 — 73,812 $ 5.48 $ 5.48	U.S.$
			(Unaudited) (Note 2 (3)) $11,565 —
			$11,565
			73,812 —
			73,812
			$ 0.16
			$ 0.16

Fully diluted earnings per common share was calculated as if the preferred shares were fully converted. The rights of preferred shareholders were exactly the same as those of common shareholders.

5. RELATED PARTY TRANSACTIONS

(1) Name and relationship of related parties

Name of the related party

Relationship with the Company

Altek Lab Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Company’s indirect wholly owned subsidiary

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(2) Significant transactions with related party

a. Purchase

		For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999		2000			2001
Amount	Percentage of net purchase	Amount	Percentage of net purchase	Amount	Percentage of net purchase	Amount
						U.S.$
$—	—	$46,955	2.03%	$113,210	4.28%	(Unaudited) (Note 2 (2)) $3,239

The terms of purchase from related parties are approximately the same as those with third parties.

b. Accounts payable

		December 31,	December 31,	December 31,
1999		2000			2001
Amount	Percentage of accounts payable	Amount	Percentage of accounts payable	Amount	Percentage of accounts payable	Amount
						U.S.$
$—	—	$13,652	1.74%	$1,984	0.47%	(Unaudited) (Note 2 (2)) $57

c. IC design service expenses and accrued expenses

For the years ended December 31, 1999, 2000 and 2001, the IC design service expenses charged by Altek Lab Inc. were NT$0, NT$0 and NT$10,911 (U.S.$312), respectively. As of December 31, 1999, 2000 and 2001, the outstanding balance of the IC design service expenses and other miscellaneous expenses was follows:

		December 31,	December 31,	December 31,
1999		2000			2001
Amount	Percentage of accrued expenses	Amount	Percentage of accrued expenses	Amount	Percentage of accrued expenses	Amount
						U.S.$
$— —		$154 1.10%		$1,983 4.52%		(Unaudited) (Note 2 (2)) $57

6. ASSETS PLEDGED AS COLLATERAL (RECORDED AS ‘‘OTHER CURRENT ASSETS’’)

December 31,

Assets Time deposits . . . . . . . Time deposits . . . . . . .	1999 NT$ $6,030 — $6,030	2000 NT$ $16,606 130,000 $146,606	2001 NT$ U.S.$ (Unaudited) (Note 2 (2)) $ — $ — 168,931 4,834 $168,931 $4,834	Purpose
			NT$ $ — 168,931 $168,931	Short-term loans Guarantee for material purchase contracts

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7. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases office space under a non-cancelable operating lease agreement. As of December 31, 2001, future minimum lease payments under this lease are as follows:

Period Amount 2002.1.1~2002.7.31 . . . . . . $2,604

8. SIGNIFICANT CASUALTY LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. OTHER INFORMATION

(1) Information on derivative transactions

The Company entered into several forward exchange contracts with a bank as follows:

a. Purpose: To hedge the fluctuation of exchange rate of foreign currency denominated assets or liabilities.
b.
Accounting principle: Please see note 2 (4)
c. Credit risk and market risk: There is no significant credit risk with respect to the above contracts because the counterparty of the contracts is a reputable bank. As the purpose of the contracts is for hedging, the market risk is considered low.
d. For the years ended December 31, 1999, 2000 and 2001, the information on the forward exchange contract is as follows:

Item Forward exchange contract	For the year ended December 31, 2001	For the year ended December 31, 2001	For the year ended December 31, 2001	For the year ended December 31, 2001
	Contract amount U.S.$11,000 (Buy) NT$379,264 (Sell)	Settlement date March 25, 2002	Fair value NT$5,596 (U.S.$160)	Book value NT$5,596 (U.S.$160)	Recognized loss
					(NT$5,296) (U.S.$152)

For the years ended December 31, 1999 and 2000: None.

e. Future cash flows: As the purpose of the forward exchange contract is to hedge the existing assets and liabilities denominated in foreign currencies, which will generate cash inflows or outflows in the future, no additional cash demand is to be expected.

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(2) Fair value of financial instruments

Instruments				December 31,	December 31,
	1999		20	00			2001
	Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value
	NT$	NT$	NT$	NT$	NT$	NT$	U.S.$	U.S.$
Non-derivative financial instruments Financial assets with fair value equal to book value . . . . . . Short-term investments. . . . . . . Long-term investments. . . . . . . Financial liabilities with fair value equal to book value . . Derivative financial instruments Forward exchange contract . . . .	$144,420 — —	$144,420 — —	$1,281,009 — 115,791	$1,281,009 — 115,791	$1,630,380 139,190 102,379	$1,630,380 139,449 102,379	(Unaudited) (Note 2 (2)) $46,649 3,983 2,929	(Unaudited) (Note 2 (2)) $46,649 3,990 2,929
	$144,420	$144,420	$1,396,800	$1,396,800	$1,871,949	$1,872,208	$53,561	$53,568
	$174,688	$174,688	$ 896,021	$ 896,021	$591,332	$ 591,332	$16,919	$16,919
	$ —	$ —	$ —	$ —	$ 5,596	$ 5,596	$ 160	$ 160

The methods and assumptions used to measure the fair value of financial instruments are as follows:

a. Short-term financial assets and liabilities, including cash, notes receivables, accounts receivables, other receivables, deposits out, short-term loans, bankers’ acceptances payable, notes payable, accounts payable, income tax payable, accrued expenses, other payable and other current liabilities: The carrying amounts approximate fair values due to their short maturity.
b. Short-term investments: If there is a market value, the fair value is the market value, otherwise other available financial information is the fair value.
c. Long-term investments: If there is a market value, the fair value is the market value; otherwise, the Company’s equity in the underlying net assets of the investee companies is the fair value when market value information is not available.
d. Derivative financial instruments: The estimated fair value is the expected cash inflows or outflows generated from the derivative financial instruments, including the unrealized gain or loss of the outstanding contract, assuming that the contracts are terminated at the balance sheet date. The Company obtained the quotes provided by the bank as a reference of the fair value.

11. OTHER DISCLOSURE ITEMS

Pursuant to R.O.C SFC requirements, the related information of the Company and its investee companies is as follows:

(1) Information about Significant Transactions:
a. Lending to others:

None.

b. Endorsements and guarantees for others:

None.

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December 31, 2001	Relationship of the Number of Book value Ownership	Name of the Company Type and name of marketable securities investee with the Company General ledger account shares (Note 1) Percentage Market value	Amount Amount	Altek Corporation . . . . Invesco Bond Fund N/A Short-term investments 3,958,387.30 NT$54,191 None NT$54,324	(U.S.$1,551) (U.S.$1,554)	Altek Corporation . . . . Grand Cathay Bond Fund N/A Short-term investments 4,217,843.20 NT$50,000 None NT$50,074	(U.S.$1,431) (U.S.$1,433)	Capital Bond Fund N/A Short-term investments 2,606,552.10 NT$35,000 None NT$35,051	(U.S.$1,001) (U.S.$1,003)	Altek International Investment Co., Ltd. Wholly-owned subsidiary Long-term investments 3,800,000 NT$102,379 100% NT$102,379	— Common stock (U.S.$2,929) (U.S.$2,929)	Altek International Altek Lab Inc. — Common stock and Wholly-owned subsidiary Long-term investments 11,311,875 NT$98,495 100% NT$98,495	Investment Co., Ltd. preferred stock (Note 2) (U.S.$2,818) (U.S.$2,818)	Note 1: Including cumulative translation adjustment.	Note 2: Including common stock of 9,311,875 shares and preferred stock of 2,000,000 shares	d. Marketable securities acquired or sold for the year ended December 31, 2001 in excess of NT$100,000 or over 20% of capital stock:	Beginning balance Additions Disposals Ending balance	Type and Relationship	name of General of the Number of Number of Number of Number of	Name of the marketable ledger investee with shares (in shares (in shares (in Selling Disposal shares (in	Company securities account the Company thousands) Amount thousands) Amount thousands) price Book Value gain thousands) Amount	Altek Corporation . . Invesco Bond Short-term None — $— 16,852 NT$27,000 12,894 NT$173,248 NT$172,810 NT$438 3,958 NT$54,190	Fund investments (—) (U.S.$6,495) (U.S.$4,957) (U.S.$4,944) (U.S.$13) (U.S.$1,551)	e. Real estate acquired for the year ended December 31, 2001 amounting to over NT$100,000 or 20% of the Company’s capital stock:	None.	f. Real estate disposed of for the year ended December 31, 2001 amounting to over NT$100,000 or 20% of the Company’s capital stock	None.

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g. Purchases and sales transactions with related parties for the year ended December 31, 2001 over NT$100,000 or 20% of the Companys capital stock:	Difference with general Accounts (payable)	Transactions transactions receivable	Percentage	Relationship of accounts	with the Purchases Percentages of (payable)	Company Counterpart counterpart Note (sales) Amount purchases (sales) Term Unit price Term Amount receivable	Altek Corporation . . . Altek Lab Inc. Wholly-owned Purchase NT$113,210 4.28% Net 30 days Approximately (Note) (NT$1,984) 0.47%	subsidiary (U.S.$3,239) the same as (U.S.$57)	the prices with	third parties	Altek Lab Inc. . . . . . Altek Corporation Parent company (Sales) NT$113,210 (100%) Net 30 days Approximately (Note) NT$1,984 100%	(U.S.$3,239) the same as (U.S.$57)	the prices with	third parties	Note: Net 30–60 days with third parties.	h. Receivables from related parties as of December 31, 2001 totalling over NT$100,000 or 20% of the Company’s capital stock:	None.	Information of direct and indirect investee companies:	Original amount Shares held by the Company The net Investment	income loss	(loss) of the recognized	The main investee by the December December	Investor Investee Company Location business scope company Company 31, 2001 31, 2000 Number of shares Percentage Book value	Altek Corporation . . . . Altek International British Investment holding NT$116,816 NT$116,816 3,800,000 100% NT$102,379 (NT$19,338) (NT$19,338) —	Investment Co., Virgin company (U.S.$3,342) (U.S.$3,342) (U.S.$2,929) (U.S.$553) (U.S.$553)	Ltd. Islands	Altek International Altek Lab Inc. U.S.A Design of engineering NT$113,119 NT$113,119 Common stock of 100% NT$98,495 NT$1,849 (NT$19,962) (Note)	Investment Co., Ltd. and sales of optical (U.S.$3,237) (U.S.$3,237) 9,311,875 shares (U.S.$2,818) (U.S.$53) (U.S.$571) (Note)	components and preferred stock	of 2,000,000 shares

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12. SEGMENT INFORMATION

(1) Financial information by business segment

Not applicable as the Company mainly operates in one segment.

(2) Financial information by geographic areas

Not applicable as the operations of the Company are mainly in Taiwan.

(3) Export revenues

For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
1999 NT$ $285,723	2000 NT$ $2,275,998	2001
		NT$ $3,819,468	U.S.$
			(Unaudited) (Note 2 (2)) $109,284

(4) Major customers

Revenues from specific customers that represent over 10% of total revenues of the Company for the years ended December 31, 1999, 2000 and 2001 are listed below:

For the year ended December 31, 1999 — NT$

For the year ended December 31, 1999 — NT$	For the year ended December 31, 1999 — NT$
Customers Sales amount Customer A . . . $222,848 Customer B . . . 61,366 For the year ended December 31, 2000 — NT$		%
		78% 21%
Customers Sales amount Customer C . . . $1,843,767 Customer A . . . 285,902 For the year ended December 31, 2001		%
		79% 12%
Customers Customer C . . .	Sales amount NT$ U.S.$ (Unaudited) (Note 2 (2)) $3,743,941 $107,123	%
	NT$ $3,743,941	98%

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REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Altek Corporation

We have reviewed the accompanying unconsolidated balance sheets of Altek Corporation (the ‘‘Company’’) as of September 30, 2002, and the related unconsolidated statements of income and of cash flows for the nine-month period then ended, expressed in thousands of New Taiwan dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a review report on these financial statements based on our review.

Except for the explanation in the third paragraph, we conducted our review in accordance with the review standards generally accepted in the Republic of China. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements take as a whole. Accordingly, we do not express such an opinion.

As described in Note 4(6) to the financial statements, the long-term investment accounted for under the equity method of NT$153,473 thousand as of September 30, 2002 and the related investment loss of NT$23,479 thousand for the nine-month period then ended were based on the financial statements of the investee company as of such date, which were not reviewed by independent accountants.

Based on our review, except for the effect on the unconsolidated financial statements of any adjustment as might have been determined to be necessary had the investee company’s financial statements been reviewed as explained in the third paragraph, we are not aware of any material modifications that should be made to the unconsolidated financial statements referred to in the first paragraph for them to be in conformity with the ‘‘Rules Governing the Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the Republic of China.

The unconsolidated financial statements of Altek Corporation as of and for the nine-month period ended September 30, 2001 were not reviewed by independent accountants due to the Company was not a listed company during the period. Accordingly, these financial statements presented herein were only for comparative purpose.

The unconsolidated financial statements of Altek Corporation as of and for the nine-month period ended September 30, 2002 expressed in United States dollars are presented solely for the convenience of the reader and were translated from the New Taiwan dollar financial statements using the average of buying and selling exchange rates of U.S.$1.00: NT$34.92 on September 30, 2002. This basis of translation is not in accordance with generally accepted accounting principles in the Republic of China.

PricewaterhouseCoopers

Hsinchu, Taiwan Republic of China October 18, 2002

The accompanying unconsolidated financial statements are not intended to present the financial position and results of operations and cash flows of the Company in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the review of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying unconsolidated financial statements and review report of the independent accountants are not intended for use by those who are not informed about the accounting principles or review standards generally accepted in the Republic of China, and their applications in practice.

P-1

ALTEK CORPORATION

UNCONSOLIDATED BALANCE SHEETS (Expressed in Thousands of Dollars) (Unaudited)

ASSETS Current Assets Cash (Note 4(1)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments (Note 4(2)) . . . . . . . . . . . . . . . . . . . . . Notes receivables, net (Note 4(3)) . . . . . . . . . . . . . . . . . . . . . . Accounts receivables, net (Note 4(4)). . . . . . . . . . . . . . . . . . . . Other receivables (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 4(5)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets (Notes 4(13) and 6). . . . . . . . . . . . . . . . . . Funds and Long-term Investments (Notes 4(6)) Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments for long-term investments . . . . . . . . . . . . . . . . . . Property and Equipment (Notes 4(7)) Cost Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . Test equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . Construction in progress and prepayments for equipment . . . . Intangible Assets Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets Deposits out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		September 30,	2002 U.S.$ (Note 2(2)) $ 35,196 — 1,002 43,036 262 23,802 52 47 3,007 106,404 4,395 81 4,476 541 386 128 869 543 1,806 4,273 (1,140) 326 3,459 — — 86 1 87 $114,426
	2001 NT$ (Unreviewed) $ 848,910 15,081 318 457,406 5,599 275,743 2,251 6,933 170,950 1,783,191 101,257 — 101,257 13,910 17,004 1,062 8,335 15,123 4,169 59,603 (27,173) 17,525 49,955 22,258 22,258 1,440 151 1,591 $1,958,252	2002 NT$ $1,229,038 — 34,993 1,502,814 9,167 831,158 1,821 1,638 104,991 3,715,620 153,473 2,830 156,303 18,892 13,489 4,479 30,365 18,951 63,054 149,230 (39,793) 11,374 120,811 — — 2,999 25 3,024 $3,995,758

The accompanying notes are an integral part of these unconsolidated financial statements. See review report of independent accountants dated October 18, 2002.

P-2

ALTEK CORPORATION

UNCONSOLIDATED BALANCE SHEETS — (Continued) (Expressed in Thousands of Dollars) (Unaudited)

	September 30,
2001 NT$ (Unreviewed) $ 39,933 490,034 22,576 — 60,309 6,702 14,987 634,541 5 634,546 645,000 93,119 384,000 — — 193,433 8,154 1,323,7061 $1,958,252	2002 NT$ $ 75,653 1,063,355 204,391 5,635 165,427 33,345 90,773 1,638,579 1,516 1,640,095 1,155,000 — 739,188 1,665 31,794 414,129 13,887 2,355,663 $3,995,758	2002
		U.S.$
		(Note 2(2)) $ 2,167 30,451 5,853 161 4,737 955 2,600
		46,924
		43
		46,967
		33,076 — 21,168 48 910 11,859 398
		67,459
		$114,426

The accompanying notes are an integral part of these unconsolidated financial statements. See review report of independent accountants dated October 18, 2002.

P-3

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF INCOME

(Expressed in Thousands of Dollars, Except For Per Share Amount) (Unaudited)

Operating revenues Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs (Note 5) Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative and general expenses . . . . . . . . . . . . . . . . . . . . Research and development expenses (Note 5) . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of property and equipment, net . . . . . . . . . . . . Gain on disposal of investments, net . . . . . . . . . . . . . . . . . . . . Foreign currency exchange gain, net . . . . . . . . . . . . . . . . . . . . Gain on reversal of allowance for doubtful accounts . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment loss, net (Note 4 (6)). . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property and equipment, net . . . . . . . . . . . . Loss on physical inventory count, net . . . . . . . . . . . . . . . . . . . Foreign currency exchange loss, net. . . . . . . . . . . . . . . . . . . . . Loss on obsolescence of inventories. . . . . . . . . . . . . . . . . . . . . Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (Note 4(13)). . . . . . . . . . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic and diluted earnings per common share (Notes 3 and 4(14)) (In dollars) Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the nine-month periods ended September 30, 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $2,304,218 $3,307,533 $94,717 — (3,986) (114) (29) — — 2,304,189 3,303,547 94,603 (1,940,820) (2,683,790) (76,855) 363,369 619,757 17,748 (30,232) (9,369) (268) (31,982) (62,374) (1,786) (87,681) (132,438) (3,793) (149,895) (204,181) (5,847) 213,474 415,576 11,901 21,135 10,949 313 — 28 1 349 12,877 369 46,492 — — — 12,289 352 38,279 852 24 106,255 36,995 1,059 — (11) — (14,533) (23,479) (672) (84) (71) (2) (415) — — — (32,257) (924) (25,000) (8,000) (229) (40,032) (63,818) (1,827) 279,697 388,753 11,133 — (5,000) (143) $ 279,697 $ 383,753 $10,990 $ 2.73 $ 3.62 $ 0.10 $ 2.73 $ 3.58 $ 0.10	For the nine-month periods ended September 30, 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $2,304,218 $3,307,533 $94,717 — (3,986) (114) (29) — — 2,304,189 3,303,547 94,603 (1,940,820) (2,683,790) (76,855) 363,369 619,757 17,748 (30,232) (9,369) (268) (31,982) (62,374) (1,786) (87,681) (132,438) (3,793) (149,895) (204,181) (5,847) 213,474 415,576 11,901 21,135 10,949 313 — 28 1 349 12,877 369 46,492 — — — 12,289 352 38,279 852 24 106,255 36,995 1,059 — (11) — (14,533) (23,479) (672) (84) (71) (2) (415) — — — (32,257) (924) (25,000) (8,000) (229) (40,032) (63,818) (1,827) 279,697 388,753 11,133 — (5,000) (143) $ 279,697 $ 383,753 $10,990 $ 2.73 $ 3.62 $ 0.10 $ 2.73 $ 3.58 $ 0.10
	2001 NT$ (Unreviewed) $2,304,218 — (29) 2,304,189 (1,940,820) 363,369 (30,232) (31,982) (87,681) (149,895) 213,474 21,135 — 349 46,492 — 38,279 106,255 — (14,533) (84) (415) — (25,000) (40,032) 279,697 — $ 279,697 $ 2.73 $ 2.73	2002 NT$ $3,307,533 (3,986) — 3,303,547 (2,683,790) 619,757 (9,369) (62,374) (132,438) (204,181) 415,576 10,949 28 12,877 — 12,289 852 36,995 (11) (23,479) (71) — (32,257) (8,000) (63,818) 388,753 (5,000) $ 383,753 $ 3.62 $ 3.58

The accompanying notes are an integral part of these unconsolidated financial statements. See review report of independent accountants dated October 18, 2002.

P-4

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Thousands of Dollars) (Unaudited)

Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bad debts expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of short-term investments. . . . . . . . . . . . . . . . Gain on reversal of allowance for doubtful accounts . . . . . . . . . Provision for loss on obsolescence of inventories. . . . . . . . . . . . Long-term investment loss accounted for under the equity method Loss on disposal of property and equipment . . . . . . . . . . . . . . . Changes in assets and liabilities: (Increase) decrease in assets: Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables, prepaid expenses and prepayments. . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in liabilities: Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable-related parties . . . . . . . . . . . . . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses, other payables and other current liabilities . . . Accrued pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) operating activities . . . . . . . . . . . . Cash flows from investing activities: Decrease (increase) in pledged assets, net. . . . . . . . . . . . . . . . . Decrease (increase) in short-term investments, net . . . . . . . . . . . Acquisition of long-term investments . . . . . . . . . . . . . . . . . . . . Acquisition of property and equipment. . . . . . . . . . . . . . . . . . . Proceeds from disposal of property and equipment. . . . . . . . . . . Increase (decrease) in deposits out, net. . . . . . . . . . . . . . . . . . . Net cash (used in) provided by investing activities. . . . . . . . . . . . . Cash flows from financing activities: Decrease in short-term loans. . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common stock for cash . . . . . . . . . . . . . . . . . . . . . Net cash (used in) provided by financing activities . . . . . . . . . . . . Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash at the beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . Cash at the end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the nine-month periods ended September 30 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $279,697 $ 383,753 $10,989 7,991 11,734 336 6,834 73 2 14,147 — — (349) (12,877) (369) — (12,289) (352) 25,000 8,000 229 14,533 23,479 672 84 44 1 29,082 3,446 99 239,833 (892,486) (25,558) (11,656) 3,525 101 192,570 (698,865) (20,013) 37,150 64,783 1,855 (279,994) 649,806 18,608 8,924 202,407 5,796 — (340) (10) 36,064 95,360 2,731 (121) 1,205 35 599,789 (169,242) (4,848) (22,841) 68,923 1,974 (14,732) 152,067 4,355 — (75,931) (2,174) (22,751) (77,085) (2,207) 2,969 90 3 1,147 (1,488) (43) (56,208) 66,576 1,908 (83,065) — — — (36,906) (1,057) — 559,000 16,008 (83,065) 522,094 14,951 460,516 419,428 12,011 388,394 809,610 23,185 $848,910 $1,229,038 $35,196	For the nine-month periods ended September 30 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $279,697 $ 383,753 $10,989 7,991 11,734 336 6,834 73 2 14,147 — — (349) (12,877) (369) — (12,289) (352) 25,000 8,000 229 14,533 23,479 672 84 44 1 29,082 3,446 99 239,833 (892,486) (25,558) (11,656) 3,525 101 192,570 (698,865) (20,013) 37,150 64,783 1,855 (279,994) 649,806 18,608 8,924 202,407 5,796 — (340) (10) 36,064 95,360 2,731 (121) 1,205 35 599,789 (169,242) (4,848) (22,841) 68,923 1,974 (14,732) 152,067 4,355 — (75,931) (2,174) (22,751) (77,085) (2,207) 2,969 90 3 1,147 (1,488) (43) (56,208) 66,576 1,908 (83,065) — — — (36,906) (1,057) — 559,000 16,008 (83,065) 522,094 14,951 460,516 419,428 12,011 388,394 809,610 23,185 $848,910 $1,229,038 $35,196
	2001 NT$ (Unreviewed) $279,697 7,991 6,834 14,147 (349) — 25,000 14,533 84 29,082 239,833 (11,656) 192,570 37,150 (279,994) 8,924 — 36,064 (121) 599,789 (22,841) (14,732) — (22,751) 2,969 1,147 (56,208) (83,065) — — (83,065) 460,516 388,394 $848,910	2002 NT$ $ 383,753 11,734 73 — (12,877) (12,289) 8,000 23,479 44 3,446 (892,486) 3,525 (698,865) 64,783 649,806 202,407 (340) 95,360 1,205 (169,242) 68,923 152,067 (75,931) (77,085) 90 (1,488) 66,576 — (36,906) 559,000 522,094 419,428 809,610 $1,229,038

The accompanying notes are an integral part of these unconsolidated financial statements See review report of independent accountants dated October 18, 2002

P-5

ALTEK CORPORATION

UNCONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) (Expressed in Thousands of Dollars) (Unaudited)

Supplemental disclosures of cash flows information Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing activities partially paid by cash Increase in property and equipment . . . . . . . . . . . . . . . . . . . . . Less: Property and equipment payable at end of period. . . . . . . Add: Property and equipment payable at beginning of period . . Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplemental disclosures of financing activities Declared directors’ and supervisors’ remuneration . . . . . . . . . . . Declared employees’ bonus. . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Other payables at end of period. . . . . . . . . . . . . . . . . . . Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the nine-month periods ended September 30 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $ — $ 11 $ — $ — $ 5,340 $ 153 $27,685 $100,041 $2,865 (6,386) (24,058) (689) 1,452 1,102 31 $22,751 $ 77,085 $2,207 $ — $ 5,723 $ 164 — 76 2 — (5,799) (166) $ — $ — $ —	For the nine-month periods ended September 30 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $ — $ 11 $ — $ — $ 5,340 $ 153 $27,685 $100,041 $2,865 (6,386) (24,058) (689) 1,452 1,102 31 $22,751 $ 77,085 $2,207 $ — $ 5,723 $ 164 — 76 2 — (5,799) (166) $ — $ — $ —
	2001 NT$ (Unreviewed) $ — $ — $27,685 (6,386) 1,452 $22,751 $ — — — $ —	2002 NT$ $ 11 $ 5,340 $100,041 (24,058) 1,102 $ 77,085 $ 5,723 76 (5,799) $ —

The accompanying notes are an integral part of these unconsolidated financial statements See review report of independent accountants dated October 18, 2002

P-6

ALTEK CORPORATION

NOTES TO UNCONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 AND 2002

(Expressed in Thousands of Dollars Unless Stated Otherwise)

(Unaudited)

1. HISTORY AND ORGANIZATION

On June 17, 2002 the Company applied for the initial public offering of its common stock and this application was approved by Securities and Futures Commission (‘‘SFC’’) on September 27, 2002.

The Company’s common stock has been traded as Emerging Stock on the R.O.C. Gre Tai Securities Market since September 10, 2002.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Use of estimates

(2) Convenience translation into U.S. dollars (unaudited)

The Company maintains its accounting records and prepares its financial statements in New Taiwan dollars. The United States dollar amounts disclosed in the financial statements as of and for the nine-month period ended September 30, 2002 are presented solely for the convenience of the reader and were translated to U.S. dollars using the exchange rate of U.S.$1.00: NT$34.92, the average buying and selling rates on September 30, 2002. Such translation amounts are unaudited or unreviewed and should not be construed as representations that the New Taiwan dollar amounts represent, or have been or could be converted into United States dollars at that or any other rate.

(3) Translation of foreign currency transactions

(4) Forward contracts

P-7

(5) Short-term investments

Short-term investments are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed stocks is determined by the average closing prices during the last month of the accounting period. The market value for open-end funds is determined based on the net asset value at the balance sheet date. The amount by which aggregate cost exceeds market value is reported as a loss in the current period. In subsequent periods, recoveries of market value are recognized as a gain to the extent that the market value does not exceed the original aggregate cost of the investment.

(6) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on an evaluation of the aging and the collectibility of the ending balances of notes receivable, accounts receivable and other receivables.

(7) Provision for sales allowance

Provision for sales allowance is calculated based on an evaluation of the contract.

(8) Inventories

(9) Long-term investments

a. Long-term investments are stated at the lower of cost or market value for listed companies and at cost for unlisted companies if the Company owns less than 20% of the voting rights of the investee company and has no significant influence on the investee company’s operational decisions. Unrealized loss resulting from the decline in market value is deducted from stockholders’ equity. However, when it becomes evidently clear that there has been a permanent impairment in value and the chance of recovery is minimal, such loss is recognized in the current period’s net income.
b. Long-term investments in which the Company owns at least 20% of the voting rights of the investee companies are accounted for under the equity method, unless there is evidence that the Company cannot exercise significant influence over the investee company. The excess of the acquisition cost over the investee company’s net asset value is capitalized and amortized over five years.
c. For the financial statements of foreign investee companies accounted for under the equity method, the assets and liabilities are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date. Equity accounts are translated at historical rates, except for beginning retained earnings which are carried over from the prior year’s ending retained earnings in New Taiwan dollars. Income and expense accounts are translated into New Taiwan dollars at the weighted average rate of exchange prevailing during the period. The Company’s proportionate share of the investee company’s cumulative translation adjustment resulting from translating the foreign investee company’s financial statements into New Taiwan dollars is recognized by the Company and included in the stockholders’ equity account as ‘‘Cumulative Translation Adjustment’’.
d. Unrealized intercompany gains and losses are eliminated under the equity method. Profits or losses from sales of depreciable assets between the subsidiaries and the Company are amortized and recognized based on the assets’ economic service lives. Profits or losses from other types of intercompany transactions are recognized when realized. The resulting unrealized profit or loss is presented as other liabilities or other assets in the balance sheet.

P-8

(10) Property and equipment

a. Property and equipment are stated at cost. Interest costs incurred during the construction or installation of the assets are capitalized.
b. Depreciation is provided using the straight-line method over the assets’ economic service lives plus one year as residual value. Residual values of property and equipment which are still in use after the end of their original estimated service lives are depreciated over the assets’ new estimated remaining service lives. The estimated service lives of property and equipment are 2–10 years.
c. Maintenance and repairs are expensed as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated accordingly. When an asset is disposed, its original cost and accumulated depreciation is written-off, and the related gain or loss is recorded as non-operating income or loss.

(11) Intangible assets and deferred charges

a. Deferred charges are mainly composed of the electric wire installation, which is stated at cost and amortized on a straight-line basis over 5 years.
b. Acquired technology know-how is stated at cost and amortized on a straight-line basis over 5 years.

(12) Pension plan

a. The Company has a defined benefit retirement plan (the ‘‘Plan’’) covering all regular employees. Benefits under the Plan are generally determined based upon years of credited service, age at retirement and average compensation in accordance with the R.O.C. Labor Standards Law. The Company recognizes accrued pension liabilities and net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation and pension gains/losses, based on an actuarial valuation in accordance with R.O.C. FAS No. 18, ‘‘Accounting for Pension Cost’’. The transition obligation is amortized on a straight-line basis over 15 years.
b. The Company contributes monthly 2% of the total monthly salaries and wages to an independent retirement trust fund, with the Central Trust of China as the custodian. The trust fund assets are not included in the Company’s financial statements.

(13) Income tax

a. Income tax expense is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred tax consequences of loss carryforwards and investment tax credits are recorded as deferred tax assets. A valuation allowance is provided on deferred income tax assets to the extent that it is more likely than not that the tax benefits will not be realized. Over or under provision of prior years’ income tax liabilities is included in the current year’s income tax expense.
b. According to R.O.C. FAS No.12, ‘‘ Accounting for income tax credits’’, the Company’s income tax credits generated from the acquisition of automation equipment or technology, expenses for research and development and loss carryforwards are recognized in the period when the tax credits arise.
c. An additional 10% corporate income tax on earnings derived on or after January 1, 1998, which are not distributed in the following year, is included as income tax expense in the year when the stockholders approved the resolution to retain the earnings.

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(14) Earnings per share

Effective January 1, 2002, the Company adopted the revised R.O.C. FAS No. 24, ‘‘Earnings per Share’’, to calculate and disclose earnings per share. Basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated by taking into consideration additional common shares that would have been outstanding if the dilutive share equivalents had been issued except that the dilutive share equivalents had an antidilutive effect on earnings per share.

(15) Revenue and expense recognition

(16) Research and development

Costs incurred by the Company in research and development activities are expensed as incurred.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES

Effective January 1, 2002, the Company adopted revised R.O.C. FAS No. 24, ‘‘Earnings per Share’’ to calculate and disclose earnings per share. The change in accounting principle did not have impact on the Company’s financial position and results of operations as of and for the nine-month period ended September 30, 2002.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash

	September 30,
2001 NT$ (Unreviewed) $ 321 656 53,362 794,571 $848,910	2002 NT$ $ 585 2,149 929,869 296,435 $1,229,038	2002
		U.S.$
		(Note 2 (2)) $ 17 61 26,629 8,489
		$35,196

(2) Short-term investments

	September 30,
2001 NT$ (Unreviewed) $15,081	2002 NT$ $—	2002
		U.S.$
		(Note 2 (2)) $—

(3) Notes receivable, net

	September 30,
2001 NT$ (Unreviewed) $318	2002 NT$ $34,993	2002
		U.S.$
		(Note 2 (2)) $1,002

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(4) Accounts receivable, net

	September 30,
2001 NT$ (Unreviewed) $495,963 (14,147) (24,410) $457,406	2002 NT$ $1,533,431 (6,207) (24,410) $1,502,814	2002
		U.S.$
		(Note 2 (2)) $43,913 (178) (699)
		$43,036

(5) Inventories

	September 30,
2001 NT$ (Unreviewed) $ 42,894 271,187 1,880 315,961 (40,218) $275,743	2002 NT$ $145,287 725,720 4,151 875,158 (44,000) $831,158	2002
		U.S.$
		(Note 2 (2)) $ 4,161 20,782 119
		25,062 (1,260)
		$23,802

(6) Long-term investments

a. The details of long-term investments are as follows:

September 30,

Investee Company The equity method: Altek International Investment Co., Ltd. . . . . . . . . . . . . . Prepayments for long-term investments: Altek Japan Corporation. . . . .	2001 Amount Percentage of Ownership NT$ (Unreviewed) $101,257 100% — — $101,257		2002
		Amount Percentage of Ownership NT$ $153,473 100% 2,830 — $156,303		Amount
				U.S.$
				(Note 2 (2)) $4,395 81
				$4,476

b. The investment loss accounted for under the equity method recognized by the Company for the nine-month periods ended September 30, 2001 and 2002, was based on the financial statements of the investee company, which were not reviewed by independent accountants, as follows:

For the nine-month periods ended September 30,	For the nine-month periods ended September 30,	For the nine-month periods ended September 30,
2001 NT$ (Unreviewed) $(14,533)	2002 NT$ $(23,479)	2002
		U.S.$
		(Note 2 (2)) $(672)

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(7) Plant and equipment

September 30, 2001 (Unreviewed)	September 30, 2001 (Unreviewed)	September 30, 2001 (Unreviewed)
Cost Accumulated depreciation Book value NT$ NT$ U.S.$ $13,910 $ (3,280) $10,630 17,004 (8,395) 8,609 1,062 (369) 693 8,335 (4,634) 3,701 15,123 (8,363) 6,760 4,169 (2,132) 2,037 17,525 — 17,525 $77,128 $(27,173) $49,955 September 30, 2002		Book value
		U.S.$
		$10,630 8,609 693 3,701 6,760 2,037 17,525
		$49,955
Cost Accumulated depreciation Book value NT$ NT$ NT$ $ 18,892 $ (4,926) $ 13,966 13,489 (4,128) 9,361 4,479 (986) 3,493 30,365 (14,958) 15,407 18,951 (11,590) 7,361 63,054 (3,205) 59,849 11,374 — 11,374 $160,604 $(39,793) $120,811 September 30, 2002 (Note 2(2))		Book value
		NT$
		$ 13,966 9,361 3,493 15,407 7,361 59,849 11,374
		$120,811
Cost U.S.$ $ 541 386 128 869 543 1,806 326 $4,599	Accumulated depreciation U.S.$ $ (141) (118) (28) (429) (332) (92) — $(1,140)	Book value
		U.S.$
		$ 400 268 100 440 211 1,714 326
		$3,459

No interest expense was capitalized for the nine-month periods ended September 30, 2001 (unreviewed) and 2002.

(8) Pension plan

The Company recognized pension costs amounting to NT$1,897 (unreviewed) and NT$3,421 (U.S.$98) for the nine-month periods ended September 30, 2001 and 2002, respectively. The balance of the retirement fund with the Central Trust of China was NT$5,047 (unreviewed) and $7,979 (U.S.$228) as of September 30, 2001 and 2002, respectively.

(9) Common stock

a. As of September 30, 2002, the Company’s authorized capital was NT$2,000,000, representing 200,000,000 shares at NT$10 (in dollars) par value per share. As of September 30, 2002, the total issued and outstanding capital was NT$1,155,000 (U.S.$33,076).

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b. On May 27, 2002, the Company’s stockholders resolved to issue 28,688,125 shares by capitalizing unappropriated earnings of NT$213,069 (including employees’ bonuses of NT$28,540) and capital reserve of NT$73,812. The Company had completed the procedures for registration of this capital increase.
c. In accordance with the resolution adopted by the board of directors on March 6, 2002, the Company issued 13,000,000 shares of common stock at an issuance price of NT$43 (in dollars) per share for cash on June 20, 2002. The registration of this capital increase was completed.
d. In accordance with the Company’s Article of Incorporation, each issued share of preferred stock is required to convert into one share of common stock before the Company becomes a listed company. Accordingly, in accordance with the resolution adopted by the board of directors on October 30, 2001, 9,311,785 shares of preferred stock were converted into same shares of common stock. The registration of this stock conversion was completed.

(10) Employee stock option plan

On July 16, 2002, the Company’s employee stock option plan (the ‘‘Option Plan’’) was approved by SFC to issue 6,930 shares of stock options, representing 6,930,000 shares of common stock. The major terms of the Option Plan are as follows:

a. The grant date of the options was July 18, 2002 and the exercise price was NT$20.8 (in dollar) per share.
b. The Company will issue new shares of common stock upon exercise of the options.
c. Adjustments to the exercise price: The exercise price will be adjusted due to the capitalization of capital reserve and retained earnings. This adjustment will be made in accordance with the Option Plan and related regulations.
d. Under the Option Plan, the options vest 40%, 30% and 30% of total granted shares after two years, three years and four years from the grant date, respectively. The life of the options is six years from the grant date. The options can only be transferred through inheritance.

(11) Capital reserve

a. The Company Law of the R.O.C. requires that capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash and donation income be used exclusively to cover losses, if legal reserve is insufficient to cover such losses, or to increase capital within the allowed limit of 10% of total capital.
b. According to the R.O.C. SFC regulation, the capital reserve resulting from paid-in capital in excess of par value from the issuance of stock for cash can be used to increase capital only once a year starting in the year following issuance of the stocks.

(12) Retained earning

According to the Company’s amended Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:

a. paying all taxes and dues;
b. covering prior years’ losses, if any;
c. setting aside 10% of the remaining amount, after deducting items a and b, as legal reserve;
d. setting aside a special reserve in accordance to the rules set forth in the Securities and Exchange Law;

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e. allocating 10% of the remaining amount, after deducting items a, b and c from the current year’s earnings, as employees’ bonus;
f. allocating 2% of the remaining amount, after deducting items a, b and c from the current year’s earnings, as directors’ and supervisors’ remuneration; and
g. distributing the remaining amount as common stockholders’ dividends in accordance with the resolution adopted by the board of directors and approved at the stockholders’ meeting.

(13) Income tax

a.
Income tax expense and payable (receivable):

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Over provision of prior year’s income tax. . . . . . . . Less: Prepaid income tax . . . . . . . . . . . . . . . . . . . . . . . Income tax payable (receivable) . . . . . . . . . . . . . . . . . . 10% additional income tax on unappropriated earnings included in income tax expense. . . . . . . . . . . . . . . . .	For the nine-month periods ended September 30, 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $ — $ 5,000 $143 — 1,662 47 (2,194) (1,027) (29) $(2,194) $5,635 $161 $9,193 $13,981 $400	For the nine-month periods ended September 30, 2001 2002 2002 NT$ NT$ U.S.$ (Unreviewed) (Note 2 (2)) $ — $ 5,000 $143 — 1,662 47 (2,194) (1,027) (29) $(2,194) $5,635 $161 $9,193 $13,981 $400
	2001 NT$ (Unreviewed) $ — — (2,194) $(2,194) $9,193	2002 NT$ $ 5,000 1,662 (1,027) $5,635 $13,981

b. As of September 30, 2001 and 2002, the balance of deferred income tax assets was as follows:

Deferred income tax assets — current . . . . . . . . . . . . . . Deferred income tax assets — noncurrent . . . . . . . . . . . . Allowance for deferred income tax assets . . . . . . . . . . . .		September 30,	2002 U.S.$ (Note 2 (2)) $1,273 2,457 (3,730) $ —
	2001 NT$ (Unreviewed) $19,899 48,301 (68,200) $ —	2002 NT$ $ 44,460 85,821 (130,281) $ —

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c. As of September 30, 2001 and 2002, the components of deferred income tax assets were as follows:

	September 30,	September 30,	September 30,
2001 Amount Tax effect NT$ (Unreviewed) $ 1,621 $ 404 — — — — 40,218 10,055 14,947 3,737 5,703 (19,899) — 23,713 5,929 205 51 42,321 (48,301) — $ —		2002
	Amount Tax effect NT$ $10,126 $ 2,532 (12,156) (3,039) 87,003 21,751 44,000 11,000 15,310 3,827 8,389 (44,460) — 51,995 12,999 5,968 1,492 71,330 (85,821) — $ —		Amount Tax effect U.S.$	Tax effect
	$10,126 (12,156) 87,003 44,000 15,310 51,995 5,968		(Note $ 290 (348) 2,491 1,260 438 1,489 171	2 (2)) $ 72 (87) 623 315 110 240 (1,273)
				—
				372 43 2,042 (2,457)
				—
				$ —

d. As of September 30, 2002, the Company’s unused investment tax credits according to Income Tax Law and Statute for Promotion of Industrial Upgrading were as follows:

Item Research and development expense . . . . . . . . . . .	Total amount $97,174	Unused amount $79,719	Year of expiry
			2006

e. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by stockholders, including foreign stockholders, against the withholding tax on dividends, In addition, the domestic stockholders can claim a proportionate share in the company’s corporate income tax credit against its individual income tax liability effective 1998. The Company’s related information was as follows:

	September 30,
2001 NT$ (Unreviewed) $3,558 . . . . . . . . . .	2002 2002 NT$ U.S.$ (Note 2 (2)) $883 $25 For the nine-month periods ended September 30,	2002
		U.S.$
		(Note 2 (2)) $25
	2001 (Unreviewed) $2.48%	2002
		$0.21%

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	September 30,
2001 NT$ (Unreviewed) $193,433	2002 NT$ $414,129	2002
		U.S.$
		(Note 2 (2)) $11,859

f. The Company’s income tax returns have been assessed and approved by the Tax Authority through 1999.
g. Pursuant to the ‘‘Statute for the Establishment and Administration of Science-Based Industrial Park,’’ the Company’s income derived from the manufacturing of certain digital camera products is not subject to taxation. This income tax exemption will expire in December, 2005.

(13) Earnings per share

For the nine-month period ended September 30, 2001 (Unreviewed)

Amount Income before income tax Net income NT$ $279,697 $279,697 (35,285) (35,285) 244,412 244,412 35,285 35,285 $279,697 $279,697 For the nine-month	Weighted average outstanding common shares (Note) Earnings per share Income before income tax Net income NT$ 89,575 $2.73 $2.73 12,925 102,500 $2.73 $2.73 period ended September 30, 2002	Earnings per share	Earnings per share
		Income before income tax Net income NT$	Net income
			$2.73
			$2.73
Amount Income before income tax Net income NT$ $388,753 $388,753	Weighted average outstanding common shares (Note) 107,267	Earnings per share
		Income before income tax Net income NT$	Net income
$388,753		$3.62	$3.58

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For the nine-month period ended September 30, 2002 (Note 2 (2))	For the nine-month period ended September 30, 2002 (Note 2 (2))	For the nine-month period ended September 30, 2002 (Note 2 (2))	For the nine-month period ended September 30, 2002 (Note 2 (2))
Amount Income before income tax Net income U.S.$ $11,133 $10,990	Weighted average outstanding common shares (Note) 107,267	Earnings per share
		Income before income tax Net income U.S.$	Net income
$11,133		$0.10	$0.10

Note: In thousands of shares

5. RELATED PARTY TRANSACTIONS

(1) Names and relationships of related parties

Names of the related parties Altek International Investment Co., Ltd.. . . . . . . . Altek Lab Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Leading Tech. Co., Ltd. . . . . . . . . . . . . . . . . . . . Digicam Tech. (Kunshan) Co., Ltd. . . . . . . . . . . .	Relationships with the Company
	A direct wholly owned subsidiary A subsidiary owned by Altek International Investment Co., Ltd. A subsidiary owned by Altek International Investment Co., Ltd. A subsidiary owned by Leading Tech. Co., Ltd.

(2) Significant transactions with related parties
a. Purchase

For the nine-month periods ended September 30,	For the nine-month periods ended September 30,	For the nine-month periods ended September 30,	For the nine-month periods ended September 30,
2001 Amount Percentage of net purchase NT$ (Unreviewed) $54,076 — — — — — $54,076 —		2002
	Amount Percentage of net purchase NT$ $393,264 12% 22,114 1% 27,360 1% $442,738 14%		Amount
			U.S.$
	$393,264 22,114 27,360 $442,738		(Note 2 (2)) $11,262 633 783
			$12,678

The above purchases are dealt with in the ordinary course of business similar to those with third parties. The payment term is approximately net 30 days.

b. Other receivables

September 30,

Digicam Tech. (Kunshan) Co., Ltd. . . . . . Altek International Investment Co., Ltd.. .	2001 Amount Percentage of other receivables NT$ (Unreviewed) $— — — — $— —		2002
		Amount Percentage of other receivables NT$ $4,818 53% 829 9% $5,647 62%		Amount
				U.S.$
		$4,818 829 $5,647		(Note 2 (2)) $138 24
				$162

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c. Accounts payables

September 30,	September 30,	September 30,
2001 Amount Percentage of accounts payable NT$ (Unreviewed) $22,576 4% — — — — $22,576 4%		2002
	Amount Percentage of accounts payable NT$ $158,478 13% 28,024 2% 17,889 1% $204,391 16%		Amount
			U.S.$
	$158,478 28,024 17,889 $204,391		(Note 2 (2)) $4,538 803 512
			$5,853

d. Processing costs

For the nine-month periods ended September 30,

Altek International Investment Co., Ltd.. . Digicam Tech. (Kunshan) Co., Ltd. . . . . .	2001 Amount Percentage of processing cost NT$ (Unreviewed) $— — — — $— —		2002
		Amount Percentage of processing cost NT$ $29,767 22% 10,965 8% $40,732 30%		Amount
				U.S.$
		$29,767 10,965 $40,732		(Note 2 (2)) $ 852 314
				$1,166

e. IC design services expense

For the nine-month periods ended September 30,	For the nine-month periods ended September 30,	For the nine-month periods ended September 30,
2001 Amount NT$ (Unreviewed) $10,911	2002
	Amount NT$ $—	Amount
		U.S.$
		(Note 2 (2)) $—

6. ASSETS PLEDGED AS COLLATERAL

Assets Time deposits (Recorded as ‘‘other current assets’’) . . . . . . . . . . . . . . . . . . . . . . . . .		September 30, 2002 NT$ U.S.$ (Note 2 (2)) $100,008 $2,864	Purpose
	2001 NT$ (Unreviewed) $169,477
		NT$ $100,008	Guarantee for material purchase contracts

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7. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases office space under certain non-cancelable operating lease agreements expiring through July 2005. As of September 30, 2002, future minimum lease payments, for the years ending December 31, under the leases are as follows:

Period
2002.10.01–2002.12.31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003.01.01–2003.12.31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004.01.01–2004.12.31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005.01.01–2005.07.31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

NT$

$ 2,978
11,914
11,914
6,950

8. SIGNIFICANT CASUALTY LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. OTHER INFORMATION

(1) Information on derivative transactions

The Company entered into several forward exchange contracts with a bank as follows:

a. Purpose: To hedge the fluctuation of exchange rate of foreign currency assets or liabilities.
b. Accounting principle: Please see note 2(4).
c. Credit risk and market risk: There is no significant credit risk with respect to the above contracts because the counterparty of the contracts is a reputable bank. As the purpose of the contracts is for hedging, the market risk is considered low.
d. As of September 30, 2002, the terms and characteristics of the forward contract are as follows:

Item				September 30, 2002	September 30, 2002	September 30, 2002
	Contract amount	Book Value	Fair Value	Conditions of transaction			Recognized exchange loss during the period
				Contract inception dates	Spot rates at settlement dates	Settlement dates
Forward contract .	U.S.D4,000,000				U.S.$1 = NT$33.95– NT$34.05	October 21, 2002– October 28, 2002	(NT$5,108) (U.S.$146)

For the nine-month period ended September 30, 2001: None.

e. Future cash flows: As the purpose of the forward exchange contract is to hedge the existing assets and liabilities denominated in foreign currency, which will generate cash inflows or outflows in the future, no additional cash demand is to be expected.

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(2) Fair value of financial instruments

	September 30,	September 30,	September 30,
2001 Book value Fair value NT$ (Unreviewed) $1,483,120 $1,483,120 15,081 15,218 101,257 101,257 $1,599,458 $1,599,595 $ 61,559 $ 619,559 $ — $ —		2002
	Book value Fair value NT$ $2,879,019 $2,879,019 — — 156,303 156,303 $3,035,322 $3,035,322 $1,549,322 $1,549,322 $ (3,490) $ (430)
	$2,879,019 — 156,303 $3,035,322 $1,549,322 $ (3,490)		(Note $82,446 — 4,476 $86,922 $44,367 $ (100)

The methods and assumptions used to measure the fair value of financial instruments are as follows:

a. Short-term financial assets and liabilities, including cash, notes receivables, accounts receivables, other receivables, deposits out, short-term loans, bankers’ acceptances payable, notes payable, accounts payable, income tax payable, accrued expenses, other payable and other current liabilities: The carrying amounts approximate fair values due to their short maturity.
b. Short-term investments: If there is a market value, the fair value is the market value, otherwise other available financial information is the fair value:
c. Long-term investments: If there is a market value, the fair value is the market value; otherwise, the Company’s equity in the underlying net assets of the investee companies is the fair value when market value information is not available.
d. Derivative financial instruments: The estimated fair value is the expected cash inflows or outflows generated from the derivative financial instruments, including the unrealized gain or loss of the outstanding contract, assuming that the contracts are terminated at the balance sheet date. The Company obtained the quotes provided by the bank as a reference of the fair value.

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										Market value	Amount	NT$153,473	(U.S.$4,395)	NT$ 2,830	(U.S.$81)		U.S.$ 2,624		U.S.$ 1,680		U.S.$ 1,680
								September 30,	Book value Ownership	(Note 1) percentage	Amount	NT$153,473 100%	(U.S.$4,395)	NT$2,830 —	(U.S.$81)		U.S.$2,624 88.29%		U.S.$1,680 100%		U.S.$1,680 100%
(1) Information about significant transactions:		a. Lending to others:	None.	b. Endorsements and guarantees for others:		None.	c. Details of marketable securities as of September 30, 2002:		Types and Name of Relationship of the General Number	Investor marketable securities issuer with the Company ledger account of shares		Altek Corporation . . . . . . . . . . . . . . . . . . Altek International Investment A subsidiary Long-term 3,821,000	Co., Ltd. — Common stock investments	Altek Corporation . . . . . . . . . . . . . . . . . . Altek Japan Corporation N/A Prepayments for —	long-term	investments	Altek International Investment Co., Ltd.. . . Altek Lab Inc. — Common A subsidiary Long-term 11,311,875	stock and preferred stock investments (Note 2)	Altek International Investment Co., Ltd.. . . Leading Tech. Co., Ltd. A subsidiary Long-term 21,000	— Common stock investments	Leading Tech. Co., Ltd. . . . . . . . . . . . . . . Digicam Tech. (Kunshan) Co., A subsidiary Long-term —	Ltd. investments	Note 1: Including cumulative translation adjustment.	Note 2: Including common stock of 9,311,875 shares and preferred stock of 2,000,000 shares.

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d. Marketable securities acquired or sold for the nine-month period ended September 30, 2002 in excess of NT$100,000 or over 20% of capital stock:	Beginning balance Additions Disposals Ending balance	Relationship	Type and name of General of the Number of Number of Number of Number of	Name of the marketable ledger investee with shares (in shares (in shares (in Selling Disposal shares (in	Company securities account the Company thousands) Amount thousands) Amount thousands) price Book Value gain thousands) Amount	Altek Corporation . . Invesco Bond Fund Short-term N/A 3,958 NT$54,190 6,895 NT$95,000 10,853 NT$151,001 NT$149,190 NT$1,811 — $—	investments (U.S.$1,552) (U.S.$2,720) (U.S.$4,324) (U.S.$4,727) (U.S.$52) —	Altek Corporation . . Grand Cathay Bond Short-term N/A 4,218 NT$50,000 5,885 NT$70,000 10,103 NT$121,989 NT$120,000 NT$1,989 — —	Fund investments (U.S.$1,432) (U.S.$2,004) (U.S.$3,493) (U.S.$3,436) (U.S.$57) —	e. Real estate acquired for the nine-month period ended September 30, 2002 amounting to over NT$100,000 or 20%of the Company’s capital stock:	None.	f. Real estate disposed of for the nine-month period ended September 30, 2002 amounting to over NT$100,000 or 20% of the Company’s capital stock	None.	g. Purchases and sales transactions with related parties for the nine-month period ended September 30, 2002 over NT$100,000 or 20 % of the Company’s	capital stock:	Difference with general Accounts (payable)	Transactions transactions receivable	Percentages Percentage	Transaction Relationship with Purchases of purchases of accounts	Company object the Company (sales) Amount (sales) Term Unit price Term Amount payable Note	Altek Corporation . Altek Lab Inc. An indirect owned Purchase NT$393,264 12% Net 30 days The prices of purchase from (Note) (NT$158,478) 13%	subsidiary (U.S.$11,262) related parties were (U.S.$4,538)	approximately the same	as those with third parties	Altek Lab Inc. . . . Altek Corporation Parent company (Sales) (NT$393,264) (100%)Net 30 days The prices of purchase from (Note) NT$158,478 100%	(U.S.$11,262) related parties were (U.S.$4,538)	approximately the same	as those with third parties	Note: Net 30–60 days with third parties.

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	Investment	loss	recognized	by the	Company	(NT$23,479)	(U.S.$672)	(U.S.$260)	(Note2)			(U.S.$420)		(U.S.$420)
	The net	income (loss)	of the	investee	Company	(NT$23,479)	(U.S.$672)	U.S.$228				(U.S.$420)		(U.S.$420)
Shares held by the Company				Book value	Number of shares Percentage (Note1)	3,821,000 100% NT$153,473	(U.S.$4,395)	Common stock 88.29% U.S.$2,624	9,311,875 and	preferred stock	2,000,000	21,000 100% U.S.$1,680		N/A 100% U.S.$1,680
Original amount				September 30, September 30,	2002 2001	NT$189,917 NT$116,816	(U.S.$5,439) (U.S.$3,345)	U.S.$3,680 U.S.$3,680				U.S.$2,100 —		U.S.$2,100 —
					The main business scope	Investment holding	company	Design of engineering and	sales of optical	components		Investment holding	company	Manufacture and sales of	digital still camera and	the accessories.
					Investor Investee Company Location	Altek Corporation . . . Altek International British Virgin	Investment Co., Ltd. Islands	Altek International Altek Lab Inc. U.S.	Investment Co., Ltd.			Altek International Leading Tech. Co., Ltd. Cayman Island	Investment Co., Ltd.	Leading Tech. Co., Ltd. Digicam Tech. Mainland China	(Kunshan) Co., Ltd.

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A. The related information of investments in Mainland China is as follows:	Amount of remittance out in	2002	Ending Ending	balance of Shares held balance of Ending	Beginning remittance by the Profit/loss book value balance of	Balance of from Taiwan Company recognized on profit	Name of investee in Main activities of Method of remittance in Remittance Remittance on September (Direct and during the September remittance	Mainland China investee Capital investment 2002 out in 30, 2002 indirect) period 30, 2002 into Taiwan	Digicam Tech. Manufacture and sales NT$70,308 Invested by Leading — NT$70,308 — NT$70,308 100% (NT$14,481) NT$58,682 $—	(Kunshan) of digital still (U.S.$2,100) Tech CO., Ltd. (U.S.$2,100) (U.S.$2,100) (U.S.$420) (U.S.$1,680)	Co., Ltd. . . . . . . . camera and the	accessories.	Approved investment amount by Ministry of The ceiling amount of the Company for investment	Ending balance of investment from Taiwan on September 30, 2002 Economic Affairs R.O.C. in Mainland China	NT$70,308 NT$349,300 NT$942,265	(U.S.$2,100) (U.S.$10,000) (U.S.$26,984)

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B. Significant transactions with the direct and indirect investments in Mainland China:
(a) Accounts payable:
1. As of September 30, 2001 and 2002, the balances of the Company’s accounts payable to Altek International Investment Co., Ltd. (‘‘AII’’), which indirectly invested in a Mainland China company, were NT$0 (unreviewed) and NT$17,889 (U.S.$512), respectively.
2. As of September 30, 2001 and 2002, the balances of AII’s accounts payable to Digicam Tech. (Kunshan) Co., Ltd. (‘‘DTK’’), which is AII’s indirect investee in Mainland China, were NT$0 (unreviewed) and NT$12,724 (U.S.$364), respectively, which accounted for 0% (unreviewed) and 60% of total accounts payable of AII as of September 30, 2001 and 2002, respectively.
(b) Processing costs:
1. For the nine-month periods ended September 30, 2001 and 2002, the processing costs charged by AII were NT$0 (unreviewed) and NT$29,767 (U.S.$852), respectively, which account for 0% (unreviewed) and 22% of the Company’s total processing costs for the periods, respectively.
2. For the nine-month periods ended September 30, 2001 and 2002, AII’s processing costs charged by DTK were NT$0 (unreviewed) and NT$16,712 (U.S.$479), respectively.

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APPENDIX A — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The information presented in this appendix has been extracted from publicly available documents which have not been prepared or independently verified by the Company, the Managers, the Trustee or any of their respective affiliates or advisors in connection with the offering.

Foreign Investment

Historically, foreign investment in the ROC securities market has been restricted. From 1983 onwards, however, the ROC Government has from time to time enacted legislation and adopted regulations to permit foreign investment in the ROC securities market.

Overseas Corporate Bonds

Since 1989, the ROC SFC has approved a series of overseas corporate bond issues (‘‘OCBs’’) by ROC companies listed on the TSE in offerings directed outside the ROC. Since December 1994, the ROC SFC has also permitted ROC companies whose shares are traded on the GTSM to issue and offer OCBs. In 2002, the ROC SFC further permitted public-issue companies to issue OCBs on a private placement basis.

Under the current ROC laws and policies, OCBs can be converted by bondholders (other than PRC persons) into shares of the relevant ROC companies or (subject to the ROC SFC approval) may be converted into depositary receipts issued under the sponsorship of the same ROC company or the shares of other companies, in case of exchangeable bonds. Public issuing companies may issue corporate debt in offerings outside the ROC. Proceeds from sales of the shares converted from OCBs may be used for re-investment in securities listed on the TSE or traded on the GTSM. These reinvestments will need to comply with the limitations and restrictions which apply to qualified foreign institutional investors or general foreign investors discussed below.

Under current ROC law, a converting bondholder when exercising the conversion right to convert the bonds into shares of an ROC company is required to appoint a local agent (with such qualifications as are set by the ROC SFC) to open a securities trading account with a local brokerage firm, remit funds, exercise shareholders’ rights and perform such other actions as may be designated by such converting bondholder, on behalf of and as agent for such converting bondholder. In addition, the converting bondholder is required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmations and settle trades and report all relevant information and such converting bondholder is also required to appoint a tax guarantor for filing tax returns and making tax payments.

Unless otherwise limited by the CBC, an ROC Company may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT Dollars to other currencies, including U.S. Dollars, in respect of the proceeds of the redemption of the Bonds or payment of interest on, or the repayment of principal upon maturity of, the Bonds. However, a converting bondholder must obtain prior approval from the Central Bank of China on a payment-by-payment basis for conversion from NT Dollars into other currencies in respect of the proceeds from the sale of subscription rights for newly issued shares if the proceeds is in excess of U.S.$100,000 per remittance.

In addition, a non-ROC converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert NT Dollars into foreign currencies of net proceeds realized from the sale of the converted shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such shares, as well as for inward remittances of subscription payments in connection with a rights offering and tax payment.

Any such cash received by the converting bondholder (qualified as a QFII or General Foreign Investor) may be used for further investment in ROC securities subject to the requirements and restrictions generally applicable to QFIIs and General Foreign Investors (as applicable). Such further investment will be used in calculating the applicable investment quota.

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Depositary Receipts

In April 1992, the ROC SFC promulgated regulations permitting ROC companies with securities listed on the TSE, with the prior approval of the ROC SFC, to sponsor the issuance and sale to foreign investors of depositary receipts. Depositary receipts evidence depositary shares representing deposited shares of ROC companies. In December 1994, a series of new regulations (the ‘‘Regulations’’) was promulgated by the ROC Ministry of Finance allowing companies whose shares are traded on the GTSM or listed on the TSE to sponsor, upon approval by the ROC SFC, the issuance and sale of depositary receipts. In 2002, the ROC SFC further permitted public companies to participate the issuance of depository receipts on a private placement basis.

The Regulations, as amended, provide that any depositary receipt holder may, from three months after the issue date of the depositary receipts (in the case that the deposited shares are new shares) or immediately (in the case that the deposited shares are existing shares), request the depositary bank either to cause the underlying shares to be sold in the ROC and distribute the proceeds of such sale to the depositary receipt holder or to withdraw the underlying shares from the depositary receipt facility and deliver such shares to such holder. A citizen of the PRC or an entity organized under the laws of the PRC is not permitted to withdraw and hold the Shares.

Under existing ROC laws and regulations, a depositary may, without obtaining further approvals from the CBC or any other government authority or agency of the ROC, convert NT Dollars into other currencies, including U.S. Dollars, in respect of the proceeds of the sale of shares represented by depositary receipts or received as stock dividends in respect of such shares and deposited into the depositary receipt facility and any cash dividends or distributions received in respect of such shares. In addition, a depositary may convert inward remittances of payments into NT Dollars for purchases of underlying shares for deposit in the depositary receipt facility against the creation of additional depositary receipts. With respect to conversion from NT dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares, proceeds in excess of U.S.$100,000 per remittance may not be remitted overseas unless CBC approval is obtained. In addition, a depositary receipt holder may, after becoming a holder of shares, convert NT dollars into other currencies for proceeds from the sale of any underlying shares withdrawn from the depositary receipt facility and delivered to the depositary receipt holder and for conversion from foreign currencies into NT dollars for subscription payments in respect of rights offering. A depositary must obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT Dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares or the depositary’s conversion from foreign currencies into NT Dollars for subscription payments in respect of rights offerings. It is expected that the Central Bank of China will grant such foreign exchange approval as a routine matter.

A depository receipt holder wishing to withdraw shares represented by depository receipts in order to hold the shares is required to appoint a qualified local agent to, amongst other things, open a securities account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. In addition, the withdrawing holder is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades and to report all relevant information. Without making these appointments and opening these accounts, the withdrawing holder would be unable to hold or subsequently sell shares withdrawn from a depository receipt facility on the TSE or otherwise. Furthermore, the withdrawing holder is required to appoint a tax guarantor in the ROC for filing tax returns and making tax payments.

In addition, any such cash received by the depositary receipt holder (qualified as a QFII (as hereinafter defined) or a non-ROC resident foreign investor (‘‘General Foreign Investor’’) may be used for further investment in ROC securities, subject to the requirements and restrictions generally applicable to QFIIs and General Foreign Investors (as applicable). Such further investment will be calculated towards the applicable investment quota.

Direct Share Offerings

The ROC Government has permitted ROC companies listed on the TSE or the GTSM to issue shares directly (not through depositary receipt facilities) overseas. In addition, public-issue companies may issue shares directly overseas on a private placement basis.

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Qualified Foreign Institutional Investors

The Executive Yuan has approved guidelines for direct investment in ROC securities listed on the TSE. GTSM or emerging stocks or other ROC securities approved by the ROC SFC by certain qualified foreign institutional investors (each a ‘‘QFII’’) that applied for and received, ROC SFC and, if applicable, CBC approval, including:

(i) banks which hold securities assets of at least U.S.$100 million;
(ii) insurance companies which hold securities assets of at least U.S.$100 million;
(iii) fund management institutions which manage securities assets of at least U.S.$100 million;
(iv) offshore fund management companies which are more than 50% owned by a ROC securities investment trust enterprise provided that the funds to be invested do not come from sources in the ROC or PRC and are not owned by such offshore fund management companies;
(v) general securities firms which have a net worth of at least U.S.$50 million;
(vi) offshore securities firms which are more than 50% owned by a ROC securities firm, or other offshore securities firms which are wholly owned by such offshore securities firms;
(vii) offshore securities firms which are wholly-owned by a ROC securities firms, or other offshore securities firms which are more than 51% owned by such offshore securities firms;
(viii) foreign government-owned investment institutions provided that all the funds to be invested shall be owned by the foreign government;
(ix) pension funds;
(x) mutual funds, unit trusts or investment trusts which have assets of at least U.S.$100 million;
(xi) trust companies which hold securities assets in trust of at least U.S.$100 million;
(xii) academic or charitable institutions that, according to their articles of incorporation, may invest their funds, provided those investments are managed externally by a third party; and
(xiii) any other professional institutional investors which hold securities or assets of at least U.S.$100 million.

Each QFII who wishes to invest directly in the ROC securities market is required to apply for an investment permit from the ROC SFC, provided that any application for investment exceeding U.S.$50 million will require approvals from both the CBC and the ROC SFC. QFIIs who receive the permit(s) may currently invest up to U.S.$3 billion, with certain limited exceptions. Except for some restrictions imposed by specific law and regulation, from January 1, 2001, the individual and aggregate foreign ownership of the issued share capital in a TSE listed company or a GTSM quoted company is not restricted. ROC custodians for QFIIs are required to submit to the CBC and the ROC SFC a report of trading activities and status of assets under custody and other matters every month. Capital remitted to the ROC under these guidelines may be remitted out of the ROC at any time after the date such capital is remitted to the ROC. Capital remitted out of the ROC may be returned to the ROC within the approved two-year period without ROC SFC approval so long as its aggregate inward remittance after netting off its aggregate outward remittance does not exceed the investment amount approved by the ROC SFC and the CBC (if applicable). Capital gains and income on investments may be remitted out of the ROC at any time.

General Foreign Investors

Except for QFIIs, General Foreign Investors may currently invest in ROC securities up to U.S.$5 million (in the case of individual investors) and U.S.$50 million (in the case of institutional investors) after obtaining approval issued by the TSE. General Foreign Investors are also subject to the foreign ownership limitations on certain specified industries as described in ‘‘Prohibited and Restricted Industries’’.

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Foreign Investment Approval

With the exception of QFIIs, General Foreign Investors and investors in OCBs and depositary receipts, under existing ROC laws and regulations relating to foreign investment, investors (both institutional and individual) who are not ROC persons and wish to make direct investment in the shares of ROC companies are required to submit a Foreign Investment Approval (‘‘FIA’’) application to the Investment Commission of the MOEA or other government authority. The Investment Commission or such other government authority reviews each FIA application and approves or disapproves each application after consultation with other government agencies (such as the CBC and the ROC SFC). Under current law, any non-ROC person possessing an FIA may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends attributable to such investment. Stock dividends, investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other government authorities have been obtained.

Prohibited and Restricted Industries

In addition to the general restriction against direct investment by non-ROC persons in shares of ROC companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC pursuant to the Negative List as amended by the Executive Yuan from time to time. The prohibition on foreign investment in the prohibited industries specified in the Negative List is absolute and provides no specific exemption from its application. Pursuant to the Negative List, certain other industries are restricted so that non-ROC persons may invest in such industries only up to a specified level and with the specific approval of the relevant competent authority which is responsible for enforcing the relevant legislation which the Negative List is intended to implement. The business of the Company is not in a prohibited or restricted industry under the Negative List.

Exchange Controls

The ROC’s Foreign Exchange Control Statute and regulations thereunder provide that all foreign exchange transactions must be executed by banks designated to handle such business by the ROC MOF and by the CBC. Current regulations favor trade-related foreign exchange transactions.

Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the import of merchandise and services may be purchased freely from the designated banks for conducting foreign exchange.

ROC companies and resident individuals may also, without foreign exchange approval, remit into and out of the ROC foreign currencies of up to U.S.$50 million (or its equivalent) and U.S.$5 million (or its equivalent), respectively, in each calendar year. The above limits apply to remittances involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of the ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittance involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies. A requirement is also imposed on all enterprises to register medium-and-long-term foreign debt with the Central Bank of China.

In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each remittance. The above limit applies only to remittances involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies.

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APPENDIX B — THE SECURITIES MARKET OF THE ROC

In 1960, the ROC Government established the Securities and Exchange Commission to supervise and control all aspects of the securities market. The Securities and Exchange Commission of the ROC was restructured in early 1997 and renamed as the ROC SFC. In the 1970’s and the early 1980’s, the ROC Government implemented a number of steps designed to upgrade the quality and importance of the ROC securities market, such as encouraging listing on the TSE and establishing an over-the-counter market. In the mid-1980’s, the ROC Government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalization of the ROC securities market.

The Taiwan Stock Exchange

In 1961, the ROC SFC established the TSE to provide a marketplace for securities trading. The TSE is a corporation owned by government-controlled entities and private banks and enterprises. The TSE is independent of entities transacting business through it, each of which pays a user’s fee. Generally, all transactions in listed securities by brokers, traders and integrated securities firms must be made through the TSE.

The TSE commenced operations in 1962. During the early 1980s, the ROC SFC actively encouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 643 by October 31, 2002. As of October 31, 2002, the market capitalization of companies listed on the TSE was NT$9,184 billion.

Historically, Taiwan companies have listed only shares and bonds on the TSE. However, the ROC SFC has encouraged companies to list other types of securities. In 1988, the ROC SFC permitted the issuance of the Taiwan’s first convertible bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and Dragon Bonds issued by Asian Development Bank are also listed on the TSE or traded on the GTSM. The GTSM also has regulations which permit foreign issuers to list their equity securities directly on the TSE or through the use of depositary receipts. To date, four foreign issuers have listed their equity securities on the TSE through the use of depositary receipts in accordance with these regulations.

The TSE requirements for listing are based on the following company attributes:

" the number and distribution of stockholders;
" length of time in business;
" amount of capital; and
" profitability.

However, special listing criteria apply to technology companies and key businesses engaging in national economic development.

The GreTai Securities Market

To complement the TSE, the GTSM was established in September 1982 on the initiative of the ROC SFC to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of February 12, 2003, 404 companies have listed equity securities on the GTSM and the total market capitalization of those companies was NT$898 billion.

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In addition, the Emerging Market was established on January 2, 2002 on the initiative of the ROC SFC to encourage trading of securities of companies that do not qualify for listing on the TSE or the GTSM. The price of shares is decided by negotiation between securities firms and investors. As of February 12, 2003, 225 companies have registered equity securities on the Emerging Market.

The following table sets forth, for the periods indicated, certain information relating to the GTSM Index:

:
Period ended 1995 . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . 2003 (through February 12) . . .	Number of listed companies at period end 41 79 114 176 264 300 333 384 404	Trading value (in millions of NT Dollars) 2,796 453,509 2,310,659 1,198,158 1,899,925 4,479,663 2,326,889 2,794,724 143,908	Index high 101.96 234.83 343.99 281.41 207.18 329.47 136.23 164.57 104.99	Index low 94.02 99.92 210.22 163.89 138.99 99.86 106.74 89.20 94.98	Index at period end
					101.96 233.09 245.05 165.80 207.18 104.93 136.23 94.38 95.28

Sources: GTSM Monthly Review; GTSM Data Base; Taiwan Economic Journal.

Taiwan Stock Exchange Index

The TSE Index is calculated on the basis of a wide selection of listed shares weighted according to the number of shares outstanding. This weighted average method is also used for the Standard and Poor’s Index in the United States and the Nikkei Stock Average in Japan. The TSE Index is compiled by dividing the market value by the base day’s total market value for the index shares. The TSE Index is the oldest and most widely quoted market index in Taiwan.

The weighting of shares in the index is fixed as long as the number of shares outstanding remains constant. When the total number of shares outstanding changes, the weight of each stock is adjusted. Stock splits and stock dividends are adjusted automatically. Cash dividends are not included in the calculation.

The following table shows for the periods indicated information relating to the TSE Index.

Period Ended 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 (through February 12) . . . . . . . . . . . . . . . .	Number of Listed Companies at Period End 199 221 56 285 313 347 375 404 437 462 474 584 638 636	Index High 12,495.34 4,305.22 5,391.63 6,070.56 7,183.75 7,051.49 6,982.81 10,116.84 9,277.09 8,608.91 10,202.20 6,104.24 6,484.93 5,078.80	Index Low 2,560.47 3,316.26 3,327.67 3,135.56 5,194.63 4,503.37 4,690.22 6,820.35 6,251.38 5,475.00 8,349.91 3,446.26 3,845.76 4,524.87	Index at Period End
				4,530.16 3,377.06 4,600.67 6,070.56 7,124.66 5,173.73 6,933.94 8,187.27 6,418.43 8,448.84 8,842.63 5,551.24 4,452.45 4,624.87

Source: Status of Securities Listed on Taiwan Stock Exchange.

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As indicated above, the performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility.

Price Limits, Commissions, Transaction Tax and Other Matters

The TSE has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots or more must be registered and executed pursuant to certain TSE guidelines. Fluctuations in the price of stock traded on the TSE are currently subject to a restriction of 7% above and below the previous day’s closing price (or reference price set by the TSE if the previous day’s closing price is not available because of lack of trading activity) in the case of equity securities, and 5% in the case of debt securities. Brokerage commissions are proposed by the TSE and approved by the ROC SFC. The current approved maximum brokerage commission is 0.1425% of the transaction price for equity securities; however, a lower rate may be charged to clients by securities firms at their sole discretion, provided that they must report such rate to the TSE. A securities transaction tax, currently levied at the rate of 0.3% of the transaction price, is payable by the seller of equity securities and a tax at the rate of 0.1% of the transaction price is payable by the seller of debt securities other than government bonds. Such securities transaction taxes are withheld at the time of the transaction giving rise to such taxes. According to the amended Statute for Upgrading Industries effective as of February 1, 2002, no securities transaction tax will be imposed on the sale of the Bonds from February 1, 2002 to December 31, 2009. Sales of shares of companies listed on the TSE are currently sold in lots of 1,000 shares. Odd lot trading, or the purchase or sale of less than 1,000 shares, can be conducted in after-hours trading. Investors who desire to sell odd lots of shares of a listed company occasionally experience delays in effecting such sales.

Regulation and Supervision

The ROC SFC has been under the jurisdiction of the Ministry of Finance since 1981. The ROC SFC has extensive regulatory authority over companies listed on the TSE, companies whose shares are traded on the GTSM and unlisted public-issue companies. Such companies are generally required to obtain approval from, or registration with, the ROC SFC for all securities offerings. The ROC SFC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public-issue companies. In addition, the ROC SFC is responsible for the establishment of standards for financial reporting and carries out licensing and supervision with respect to the other participants in the ROC securities markets. The ROC SFC has responsibility for implementation of the ROC Securities and Exchange Law and for overall administration of governmental policies in the ROC securities markets. It has extensive regulatory authority over the offering, issuing and trading of securities. In addition, the ROC Securities and Exchange Law specifically empowers the ROC SFC to promulgate rules under certain circumstances.

The ROC Securities and Exchange Law prohibits market manipulation. It permits a company to recover certain short swing trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors and shareholders, together with their spouses, minor children and nominees, holding 10% or more of the shares of the company, as well as spouses, minor children and nominees of these parties. The ROC Securities and Exchange Law prohibits trading by ‘‘insiders’’ based on non-public information that materially affects share price movement. Pursuant to the ROC Securities and Exchange Law, the term ‘‘insiders’’ includes directors, supervisors, managers and shareholders (together with their spouses, minor children and nominees) having more than 10% or more shareholding, as well as spouses, minor children and nominees of the parties, or any person who has learned such information due to an occupational or controlling relationship with the issuing company and any person who has learned such information from any of the foregoing. Sanctions can include prison terms. In addition, damages may be awarded to persons injured by the transaction.

The ROC Securities and Exchange Law also imposes criminal liability on certified public accountants and lawyers who make false certifications in their examination and audit of a company’s contracts, reports and other evidentiary documents that are related to securities transactions. ROC SFC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

The ROC Securities and Exchange Law also provides for, among other things, regulations relating to public offerings of securities; measures to strengthen the capital structure of issuers; civil liability for material misstatements or omissions made by issuers; more stringent regulation of the securities activities of

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officers, supervisors, directors and major shareholders of issuers; regulations regarding tender offers; and a significant expansion of the prohibitions against insider trading, including the imposition of treble civil damages and criminal sanctions.

The ROC SFC does not have criminal or civil enforcement powers under the ROC Securities and Exchange Law. Criminal actions may be pursued only by prosecutors. Under ROC law, civil actions may only be brought by plaintiffs who assert that they have suffered damages. The ROC SFC is directly empowered to curb abuses and violations of applicable laws and regulations only through administrative measures.

In addition to providing a market for securities trading, the TSE has primary responsibility for reviewing applications by issuers to list securities on the TSE and the GTSM has primary responsibility for reviewing applications by issuers to list securities on the GTSM. The ROC SFC reviews all securities offerings by listed companies. If issuers of listed securities violate relevant laws and regulations or encounter significant difficulties, the TSE and the GTSM may, with the approval of the ROC SFC, delist securities of such issuers.

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REGISTERED OFFICE OF THE COMPANY

Altek Corporation 3F, No. 10, Li-Hsin Road Science-Based Industrial Park Hsinchu, Taiwan, R.O.C.

TRUSTEE REGISTRAR The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street 21st Floor West 21st Floor West New York, NY 10286 New York, NY 10286 U.S.A. U.S.A.

PRINCIPAL PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York One Canada Square 48th Floor, London E14 5AL England

AUDITORS TO THE COMPANY

PricewaterhouseCoopers 27F, International Building 333 Keelung Road, Sec. 1 Taipei, Taiwan, ROC

ROC LEGAL ADVISORS TO THE COMPANY Lee and Li, Attorneys-at-Law 7th Floor, 201 Tun-Hwa N. Road Taipei, Taiwan ROC

LEGAL ADVISORS TO THE MANAGERS Baker & McKenzie 14/F, Hutchison House 10 Harcourt Road Hong Kong

LUXEMBOURG LISTING, PAYING, TRANSFER AND CONVERSION AGENT The Bank of New York (Luxembourg) S.A. Aerogolf Centre 1A, Hoehenhof

L-1736 Senningerberg Grand Duchy of Luxembourg

Printed by ROMAN 8683-1

AI assistant

Altek — Capital/Financing Update 2015

52290_rns_2015-06-22_95df310a-8eb5-4983-8b7c-983bf31d7986.pdf

ALTEK CORPORATION

U.S.$60,000,000

Zero Coupon Convertible Bonds due 2008

Issue Price: 100%

Yuanta Core Pacific Securities (Hong Kong) Company Limited

Managers

Yuanta Core Pacific Securities Limited

SinoPac Securities (Asia) Limited

NOTICE TO INVESTORS

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

TABLE OF CONTENTS

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

SUMMARY

The Company

Competitive Strengths

Business Strategy

Corporate and Other Information

Summary Financial Information

Risks Relating to the Company’s Financial Condition and Business

The Company’s business depends on a small number of customers.

The Company may experience shortages of key components and parts.

The Company’s business is highly dependent on the digital image processing product sectors.

The Company does not usually enter into long-term supply contracts with its customers and therefore its customers may cancel, reduce or postpone their orders.

The Company’s historical sales growth and historical margins may not be sustainable.

The Company may not be able to develop new products or keep pace with technological change.

The Company faces intense competition from other digital still camera developers and manufacturers.

The Company’s operating results vary significantly

The Company is subject to operational risks and its insurance may not be adequate.

The Company may be unable to manage its growth effectively.

The Company’s business depends in part on its ability to obtain and preserve intellectual property rights.

Certain existing shareholders may have a significant influence on the Company, and the interests of these shareholders may be inconsistent with the interests of the other shareholders.

The Company’s operations may be adversely affected by natural disasters.

The Company may be subject to changes in tax benefits and increased taxes.

Internally prepared annual financial information published by the Company from time to time pursuant to recent requirements of the ROC SFC may be inaccurate and incomplete.

Risks Relating to the Offering

Holders of the Bonds will be required to appoint several local agents in Taiwan if they convert the Bonds into Shares, which may make ownership burdensome.

The Bondholders’ ability to exercise their conversion rights may be limited.

Transfers of the Bonds and Shares are restricted.

An active trading market for the Bonds may not develop.

Shares eligible for future sale by the current shareholders may adversely affect the market price of the Shares.

A Bondholder or its designee requesting the conversion of its Bonds into Shares may be required to provide certain information to the Company, and failure to provide such information may prevent conversion or cause the conversion to be delayed

Risks Relating to the ROC

Disruptions in the ROC’s political environment could seriously harm the Company’s business.

Foreign exchange approvals may be required.

Risks relating to the PRC

The Company is subject to the political and economic situation and legal developments in the PRC.

The Company is subject to risks associated with the PRC legal system.

MARKET PRICE INFORMATION

DIVIDENDS AND DIVIDEND POLICY

EXCHANGE RATES

CAPITALIZATION

SELECTED FINANCIAL DATA

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

Overview

Basis of Presentation

Revenues

Cost of Sales

Gross Margin

Operating Income and Margin

Product Pricing Trends

Cost Reduction Initiatives

Results of Operations

Consolidated operating results

2001 compared to 2000

Operating expenses and income from operations.

2000 Compared to 1999

Operating expenses and income (loss) from operations.

Non-consolidated operating results

Net operating revenues for the fourth quarter of 2002

Nine months ended September 30, 2002 compared to nine months ended September 30, 2001

Inventories and Receivables

Liquidity and Capital Resources

Inflation

Foreign Exchange Matters

Income Tax

Investment

Altek Capital/Financing Update 2015