ASIA — Capital/Financing Update 2013

Dec 26, 2013

OFFERING CIRCULAR

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ASIA OPTICAL CO., INC.

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

U.S.$75,000,000

Zero Coupon Convertible Bonds due 2008

Issue Price: 101.0%

The U.S.$75,000,000 Zero Coupon Convertible Bonds due 2008 (the “ Bonds ”, which term shall include any additional Bonds issued pursuant to the option to increase the principal amount of the Bonds issued referred to below) will be issued in registered form by Asia Optical Co., Inc. (the “ Company ”) in reliance on Regulation S under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”).

The Bonds will be direct and unconditional obligations of the Company and will rank at least pari passu in right of payment with all other unsecured and unsubordinated debt of the Company, except as otherwise provided herein. The Bonds will not bear interest except in the limited circumstances set forth herein. Holders of the Bonds may convert the Bonds into the common shares, par value NT$10 per share, of the Company (the “ Shares ”) at any time (subject to certain restrictions) on or after November 14, 2003 and prior to the close of business (at the place the Bond is deposited for conversion) on September 14, 2008. The Conversion Price (as defined herein) will initially be U.S.$7.463 per Share subject to adjustment in the manner provided herein and with a fixed rate of exchange applicable on conversion of the Bonds of NT$33.767 = U.S.$1.00. 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 (“ TSE ”) and application will be made to list the Shares issued on conversion of the Bonds on the TSE. On October 3, 2003, the closing price of the Shares on the TSE was NT$220.0 per Share.

Unless the Bonds have been previously redeemed, repurchased and cancelled or converted, the Company will, at the option of the holder of any Bond (the “ Bondholder ”), redeem all or part of the Bondholder’s Bonds (i) on October 14, 2005 at 100% and (ii) on October 14, 2006 at 99%, of the principal amount. The Company has the option, having given not less than 40 days or more than 60 days notice to the Bondholders, to redeem all, or part only, of the Bonds (i) on or at any time after October 14, 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, is at least 125% of the Conversion Price in effect on each such trading day translated into U.S. Dollars at the exchange rate established on the Pricing Date (as defined herein) or (ii) the Bonds outstanding are less than 10% of the issue amount. The Bonds also may be redeemed in whole at any time at the option of the Company at the principal amount in the event that certain changes relating to Republic of China (“ ROC ” or “ Taiwan ”) taxation have been made which will result in additional costs to the Company. The Company will redeem the Bonds at 98% of their principal amount at maturity on October 14, 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 October 14, 2003 (the “ Closing Date ”).

The Bonds and Shares to be issued upon conversion of the Bonds have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds are not being offered in the ROC.

The Lead Manager (as defined in “ Underwriting ”) may, under certain circumstances, purchase up to an additional U.S.$8,000,000 in aggregate principal amount of the Bonds from the Company at the offering price pursuant to the over-allotment option on or before the 30th day following the Closing Date. These additional Bonds are included in the total amount of Bonds indicated above. See “Underwriting”.

Sole Bookrunner Lead Manager

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Managers

Chinatrust Commercial Bank Limited Offshore Banking Branch KGI Securities Company Limited

Offering Circular dated October 8, 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 respect, 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 any 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 law. 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.

IN CONNECTION WITH THIS OFFERING, LEAD MANAGER OR ANY PERSON ACTING FOR IT, ON BEHALF OF THE MANAGERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE BONDS AND, SUBJECT TO APPLICABLE ROC LAWS, THE COMMON SHARES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD AFTER THE CLOSING DATE. HOWEVER, LEAD MANAGER AND ITS AGENT ARE UNDER NO OBLIGATION TO OVER-ALLOT OR EFFECT SUCH TRANSACTIONS. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME, AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD.

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 the Closing Date (as defined herein) with a common depositary for, Euroclear Bank S.A./N.V., as operator of the Euroclear System (“ Euroclear ”) and Clearstream Banking, société anonyme (“ Clearstream, Luxembourg ”).

The Company has prepared the audited consolidated financial statements of the Company and its subsidiaries as at and for the years ended 31st December, 2000, 2001 and 2002 and the audited non-consolidated financial statements of the Company as at and for the six months ended 30th June, 2002 and 2003, contained herein in accordance with accounting principles generally accepted in the ROC.

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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 paragraph (3) above, if then applicable;

• (6) it understands that, except in the circumstances referred to under the heading “The Bonds — The Form of the Bonds”, the Bonds, and beneficial interests therein, will be represented by the Global Certificate;

• (7) it understands that the Global Certificate will bear a legend to the following effect (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 FORTY DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2008 OF ASIA OPTICAL CO., INC.”

(8) it acknowledges that the Company and the Managers and others will rely upon the truth accuracy and completeness 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.

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For further information about the requirements under the Indenture (as defined herein) to effect exchanges or transfers of interests in the Global Certificates and of Bonds in certificated form, see “The Bonds — The Form of the Bonds”.

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.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

The Company is a company limited by shares incorporated in the ROC under the ROC Company Law. All of the Company’s directors and executive officers and its respective 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 them 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 not be enforced by the courts of the ROC without further review of the merits if any of the following situations applies: (i) the court rendering the judgment does not have jurisdiction according to the laws of the ROC; (ii) the judgment or the procedure is 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, except where the Company or such persons were served within the jurisdiction of such court within a certain period of time or where 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 not recognized and enforceable in the court rendering the judgment on a reciprocal basis. Remittance out of the ROC of any amount recovered from enforcing a foreign judgment in the ROC is also subject to the Foreign Exchange Control Statute and regulations as described in “Appendix A — Foreign Investment and Exchange Controls in the ROC” herein.

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TABLE OF CONTENTS

	Page		Page
Summary..........................................................	1	Changes in Issued Share Capital......................	71
Risk Factors.....................................................	8	Terms and Conditions of the Bonds..................	72
Use of Proceeds ...............................................	18	The Form of the Bonds .....................................	89
Market Price Information ..............................	19	Description of the Shares..................................	92
Dividends and Dividend Policy.......................	20	Taxation.............................................................	97
Exchange Rates ...............................................	21	Underwriting.....................................................	99
Capitalization...................................................	22	Legal Matters ....................................................	101
Business...........................................................	24	Independent Auditors........................................	101
Selected Financial Information........................	52	General Information..........................................	102
Management’s Discussion and Analysis	54	Summary of Certain Difference between
of Financial Condition and Results		ROC GAAP and U.S. GAAP .......................
of Operation .................................................
Management and Employees...........................	66	Index to Financial Statements ...........................	F-1
		Appendix A — Foreign Investment and
		Exchange Controls in the ROC ....................	A-1
Principal Shareholders.....................................	70	Appendix B — The Securities Market
		of the ROC ...................................................	B-1

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Except where the context otherwise requires, all references herein to “ Asia Optical ” or the “ Company ” are to Asia Optical Co., Inc. and all references herein to the “ Group ” are to the Company and its consolidated subsidiaries, as a whole. 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 ” are to the People’s Republic of China. All references herein to the “ TSE ” are to the Taiwan Stock Exchange and all references herein to the “ GTSM ” are references to The GreTai Securities Market (previously known as the ROC Over-the-Counter Securities Exchange).

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, including the United States, other than those in the ROC. The material differences between ROC GAAP and U.S. GAAP, as applicable to the Company are discussed under “Summary of Certain 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.

The Group does not exist as a legal entity. References herein to the Group and to financial or statistical information relating to the Group are for convenience of presentation only. Except as otherwise indicated, all financial information set forth herein with respect to various members of the Group 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 and all references herein to “ United States Dollars ,” “ U.S. Dollars ” and “ U.S.$ ” are to United States Dollars. All translations from New Taiwan Dollars to United States Dollars were made on the basis of the average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollar as certified by Bank of Taiwan of NT$34.755 = U.S.$1.00 as of 31st December, 2002, and of NT$34.61 = U.S.$1.00 as of 30th June, 2003. All amounts translated into United States Dollars as described above 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

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particular rate, the above rates or at all. See “Exchange Rates”. The closing rate between the NT Dollar and the U.S. Dollar on October 3, 2003 was NT$33.767 = U.S.$1.00.

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SUMMARY

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

Asia Optical Overview

The Company is Taiwan’s leading designer, developer and manufacturer of optical components, finished optical and opto-electronic products that employ advanced technologies to capture, display and process images and spatial data as well as other products such as photoconducting image sensors. The Group utilizes a suite of core technologies that it has developed or acquired in the design and manufacture of its optical and opto-electronic products. The Group supplies its products as an original equipment manufacturer (“ OEM ”) and original design manufacturer (“ ODM ”) to many of the world’s leading brandname makers of optical and opto-electronic goods, such as cameras, DVDs player, and office automation (“ OA ”) equipment.

Core technologies owned and utilized by the Company include optical system design, multi-layer coating technologies, and aspheric lens manufacturing techniques. The Company believes that its ability to combine technologies in such areas as advanced coatings and aspheric lens design, together with technical know-how applied to large-scale production gives it a competitive advantage in an industry that is capital-, technology- and labor-intensive. The Company also believes that it is one of the few companies that is able to successfully combine the fields of advanced optics, consumer electronics and engineering in the design and manufacture of new consumer products.

Principal products designed, manufactured and sold by the Group include:

� Optical components

The Group is the world’s largest supplier of single-piece glass lenses producing approximately 8.5 million pieces per month with a range of optical specifications, accounting for approximately 25% of worldwide market share in 2002. The Group is also one of the world leaders, and is Taiwan’s leader, in the development and manufacture of lens units and modules for finished photographic products such as cameras and OA equipment, with a worldwide market share in 2002 of approximately 20%.

� Cameras

Cameras manufactured by the Group include 35 mm cameras, APS cameras and digital still cameras. The Company designs and manufactures cameras solely on an OEM/ODM basis to a number of world’s leading brandname camera makers and their contract manufacturers, such as Canon Inc. (“ Canon ”), Hewlett-Packard Company (“ Hewlett Packard ”), Eastman Kodak Company (“ Kodak ”), Nikon Corporation (“ Nikon ”), Olympus Optical Co., Ltd. (“ Olympus ”), Asahi Optical Co., Ltd. (“ Pentax ”), and Ricoh Co., Ltd. (“ Ricoh ”). In 2002, the Group shipped approximately 1.4 million digital still cameras to its customers.

� DVD pick-up heads

The Group started manufacturing precision DVD pick-up heads utilizing its aspheric lens and multi-layer coating technologies in 2000. Currently, the Group is the exclusive third-party supplier of DVD pick-up heads to Pioneer Electronics Inc. (“ Pioneer ”) globally.

� Others finished optical products

In addition to cameras, the Group also is one of the global market leaders in the design, development and manufacture of other finished optical products on an OEM/ODM basis. These products include laser range finders, riflescopes and microscopes and projectors. The Group’s OEM/ODM customers include some of the best-known and most reputable industry leaders such as Bushnell Corporation (“ Bushnell ”), , Funai Electric Co. Ltd. (“ Funai ”), , Hitachi, Ltd. (“ Hitachi ”), Koninklijke Philips Electronics N.V. (“ Philips ”), Sony Corporation (“ Sony ”), Tasco Worldwide, Inc. (“ Tasco ”) and others.

• Photoconducting image sensors

The Company also produces photoconducting image sensors and other products such camera as flash units and shutters solely on an OEM basis.

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The Group’s manufacturing facilities are located in Taiwan, mainland China and the Philippines. The Group’s research and development facilities are located principally in Taiwan and mainland China, and the core technologies are managed by the research and development team in Taiwan.

Recent Developments

On 9th September, 2003, the Company executed a letter of intent with Ricoh for the Company to purchase a controlling interest in Taiwan Ricoh Co., Ltd. (“ Taiwan Ricoh ”). Ricoh is one of the world's leading suppliers of office automation equipment, including printers, copiers, facsimile machines, data processing systems and related products. Taiwan Ricoh was established in 1966 as Ricoh’s Taiwan camera manufacturing facility. The Company has been a long-term supplier of Ricoh Taiwan for the key components. The Company has also had joint manufacturing site for camera and office equipment and components with Ricoh in China since 1990. Pursuant to the letter of intent, Company will acquire more than 82.5% of the shares in Taiwan Ricoh. It is expected that Taiwan Ricoh will continue to have the right to use Ricoh’s patents after the change of control contemplated by the letter of intent; the scope of use and payment terms are subject to further negotiation between the Company and Ricoh. Through the strategic alliance, the Company is expected to be permitted to use the proprietary information with respect to the optical technologies, precision mold grinding technologies and manufacturing know-how developed and owned by Ricoh or Taiwan Ricoh. Also, the acquisition will help the Company to increase its market share in the DSC lens and handset camera modules market.

The Company recorded consolidated sales growth of 67.2% and 22.6% for the years 2001 and 2002, respectively. In 2002, the Company recorded consolidated net sales of NT$13,229.8 million (U.S.$380.7 million) and consolidated net income of NT$1,271.5 million (U.S.$36.6 million), compared to NT$10,788.5 million and NT$814.6 million in 2001, representing increases of 22.6% and 56.1%, respectively.

Competitive Strengths

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

• Strong optical engineering expertise

• Highly vertically-integrated development and manufacturing process

• Close relationships with key industry leaders

• Strong research and development programs

• Strict quality control processes and standards

• Strong and committed management team

• Integrated management information systems

Business Strategy

The Group’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

• Focus on high-growth markets while retaining flexibility

• Shift from OEM to ODM

Corporate Information

The Company’s corporate headquarters are located at No. 22-3 South Second Road, Taichung Export Processing Zone, Taichung 427, Taiwan, ROC. The Company’s principal place of business is the An-he Plant located at No. 98 An-he Road, Tan-Zu Shiang, Taichung 427, Taiwan, ROC.

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	The Offering
Issuer ...............................................	Asia Optical Co., Inc.
Bonds...............................................	U.S.$75,000,000 Zero Coupon Convertible Bonds due 2008 convertible
	into fully-paid common shares with a par value of NT$10 each of the
	Company (“Shares”).
Over-allotment Option.....................	The Company has granted to the Lead Manager an option exercisable
	within 30 days from the Closing Date to purchase up to an additional
	U.S.$8,000,000 aggregate principal amount of Bonds, solely to cover
	over-allotment, if any. See “Underwriting”.
Issue Price........................................	101%
The Offering....................................	The Bonds will not be offered or sold in the ROC or in the United States.
	The Bonds will be offered only in offshore transactions in reliance on
	Regulation S under the U.S. Securities Act of 1933.
Closing Date....................................	October 14, 2003
Maturity Date...................................	October 14, 2008
Status ...............................................	The Bonds will be direct, unconditional, unsecured and unsubordinated
	obligations of the Company and will rank at least_pari passu_without any
	preference or priority among themselves and shall at all times rank at
	least equally with all other present and future direct, unsecured and
	unsubordinated obligations of the Company.
Interest.............................................	No interest will be payable on the Bonds prior to the Maturity Date,
	except in certain circumstances where an event of default has occurred.
Withholding Tax..............................	Premium (if any) and interest (if any) payable on the Bonds to
	non-residents of the ROC is subject to a withholding tax in the ROC
	equal to 20% of the gross amount of such premium (if any) 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 principal
	amount in the event of changes in ROC taxation which will result in
	additional costs to the Company to gross up for payment of principal, or
	to gross up for payments of premium (if any) or interest (if any), if any,
	at the rate exceeding 20%. 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 subject as otherwise provided herein, the
	Bonds are convertible at any time on or after November 14, 2003 and
	prior to the close of business (at the place at which the Bond is deposited
	for conversion) on September 14, 2008, except during any Closed Period
	(as defined herein), into Shares at a conversion price per Share (subject
	to adjustment in certain circumstances) (the “Conversion Price”) of

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U.S.$7.463, determined on the basis of a fixed exchange rate of NT$33.767 = 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) from the date the notification of the Conversion Notice is received by the Company from the Principal Agent (as defined herein), deliver Shares issued upon conversion of the Bonds to the agent or representative appointed by the converting Bondholder, subject to the applicable laws and regulations. The Shares will be delivered by electronic credit to the account established by the agent or representative, through the facilities of the Taiwan Securities Central Depositary Co., Ltd.

Conversion Price Reset....................

The Conversion Price may be adjusted on each Reset Date, which may be April 14, 2005, April 14, 2006, April 14, 2007 and April 14, 2008, 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 30 consecutive trading days immediately prior to the Reset Date is less than the Conversion Price then in effect on the relevant Reset Date converted into U.S. Dollars at the fixed exchange rate established on the Pricing Date; provided that the Conversion Price Reset (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 Price Reset ..................................

The Company may declare that, within seven Trading Days commencing from the fourth Business Day immediately following September 14, 2005 and September 14, 2006 (each an “ Alternative Reset Date ”) to the relevant Put Date, the Bondholder may convert the Bonds at an Alternative Conversion Price equal to 95.0% and 95.0%, respectively, of the then market price which is the lowest among the average closing prices of the Shares of 10, 15 and 20 Trading Days immediately preceding the applicable Alternative Reset Date. 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 98% of their principal amount in U.S. Dollars on October 14, 2008. See “Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation”.

Redemption at the Option of the Company...............................

• The Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders, redeem all, or part only, of the Bonds at their principal amount in the event that (i) on or at any time after October 14, 2005, the closing price of the Shares on the TSE in U.S. Dollars at the prevailing rate for each of the 20 consecutive trading days, is at least 125% of the Conversion Price in effect on each such trading day translated into the exchange rate established on the Pricing Date or (ii) the Bonds outstanding are less than 10% of the issue amount. In addition, the Company may at any time and from time to time purchase Bonds in the open market or otherwise. Bonds so purchased will be deemed cancelled and may not be reissued or resold. See “Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation — Redemption

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at the Option of the Company”.

Redemption at the option of Bondholders............................

Until and unless previously redeemed, converted or repurchased and cancelled, the Company will at the Bondholder’s option redeem all or part of the Bondholder’s Bonds (a) on October 14, 2005 at 100% and (b) on October 14, 2006 at 99%, of the principal amount. See “Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation — Redemption at the Option of Bondholders”.

Form and Registration of the Bonds................................

The Bonds will be issued in registered form in the denomination of U.S.$1,000 each. The Bonds will be offered and sold in principal amounts of U.S.$1,000 or an integral multiple thereof. The Bonds will be represented by a Global Certificate deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear and 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 Bonds - the Form of the Bonds - Registration of Title”.

Governing Law................................ The laws of the State of New York, U.S.A.

Trustee............................................. The Bank of New York. Listing.............................................. Application has been made to have the Bonds listed 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 net proceeds from the offering of the Bonds, after deducting underwriting fees, including selling concessions, and other expenses, are estimated to be approximately U.S.$83.0 million, assuming the Over-allotment Option is fully exercised. The net proceeds will be used as follows:

• approximately U.S.$33 million for procurement of manufacturing equipment;

• approximately U.S.$8 million for procurement of raw materials;

• approximately U.S.$18 million for purchase of land and manufacturing plant; and

• remainder for overseas investment.

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SUMMARY FINANCIAL DATA

The summary income statement data for the years ended 31st December, 2000, 2001 and 2002 and the summary balance sheet data as of 31st December, 2000, 2001 and 2002 set forth below are derived from the Company’s audited consolidated financial statements included else where in this Offering Circular. The summary non-consolidated financial information for the six months ended 30th June, 2002 and 2003 have been derived from the Company’s audited non-consolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The summary financial data of the relevant periods are qualified in their entirety by reference to such financial statements, including the notes thereto, and should be read in conjunction with them and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Results for the six months ended 30th June, 2003 may not be indicative of results for the full year. Such financial statements are English translations of the auditors’ report and financial statements in Chinese prepared for and used in the ROC in accordance with ROC GAAP and are not intended to present the financial position or results of operations and cash flows in accordance with accounting principals and practices generally accepted in other countries or jurisdictions, including the United States, other than those of the ROC. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the ROC. For a discussion of certain differences between ROC GAAP and U.S. GAAP, see “Summary of Certain Differences Between ROC GAAP and U.S. GAAP”.

(non- consolidated) 1998 NT$ (audited) Statement of Income Data: ROC GAAP Operating revenue — net ............... 959,970 Cost of revenues............................. (826,224) Gross profit..................................... 133,746 Operating expenses......................... (96,062) Operating income ........................... 37,684 Non-operating income.................... 24,051 Non-operating expenses ................. (14,207) Income before income tax and minority interest.......................... 47,528 Income tax expenses....................... (7,430) Minority interest income ................ ---- Preacquisition income .................... ---- Net income...................................... 40,098 Per Share Data Dividend-Adjusted Earnings per Share (in dollars)................... 0.85(2)	Y	ear ended 31st December (consolidated)	ear ended 31st December (consolidated)		2002 U.S.$(1) re data) 380,660 (324,026) 56,634 (16,907) 39,727 5,675 (4,002) 41,400 (1,441) (1,511) (1,864) 36,584 0.30(2)	Six months ended 30th June, (non-consolidated)	Six months ended 30th June, (non-consolidated)	Six months ended 30th June, (non-consolidated)
	1999	2000	2001	2002		2002	2003	2003
	NT$ 2,695,845 1,755,089 940,756 (261,270) 679,486 93,459 (30,698) 742,247 (76,542) (245,709) (183,369) 236,627 2.78(2)	NT$ NT$ NT$ (audited) (in thousands, except per Sha 6,450,889 10,788,477 13,229,843 (5,126,791) (8,977,089) (11,261,541) 1,324,098 1,811,388 1,968,302 (348,345) (537,225) (587,588) 975,753 1,274,163 1,380,714 157,944 234,236 197,221 (110,267) (101,215) (139,090) 1,023,430 1,407,184 1,438,845 (169,714) (214,739) (50,069) (318,898) (320,420) (52,522) (21,254) (57,469) (64,788) 513,564 814,556 1,271,466 4.74(2) 6.74(2) 10.32(2)				NT$ 1,176,111 (1,011,548) 164,563 (86,825) 79,884 379,589 (45,570) 413,903 (72,962) ---- ---- 340,941 2.27(3)	NT$ (audited) 1,976,407 (1,704,905) 271,502 (131,823) 135,321 728,406 (33,081) 830,646 28,228 ---- ---- 858,874 5.71(3)	U.S.$(1) 57,105 (49,260) 7,845 (3,809) 3,910 21,046 (956) 24,000 816 ---- ---- 24,816 0.16(3)

The above summary financial data for the year ended 31st December 1998 was taken from the audited non-consolidated financial statements of the Company for the year ended 31st December, 1998, which are not included in this Offering Circular. Such non-consolidated financial statements were audited by Deloitte & Touche, chartered accountants and independent auditors.

6

(non- consolidated) 1998 NT$ (audited) Balance Sheet Data: ROC GAAP Current assets ................................ 268,823 Long-term investments.................. 56,200 Property, plant and equipment....... 133,170 Intangible assets ............................ 6,323 Other assets.................................... 11,680 Total Assets.................................... 476,196 Current liabilities........................... 170,991 Long-term liabilities...................... 0 Other liabilities.............................. 41,931 Total liabilities............................... 212,922 Total stockholders’ equity.............. 263,274 Total liabilities and stockholders’ equity....................... 476,196		As of 31st December (consolidated)	As of 31st December (consolidated)		2002 U.S.$(1) 177,170 15,465 95,142 869 2,811 291,457 77,476 63,695 21,077 162,248 129,209 291,457	As of 30th June, (non-consolidated)	As of 30th June, (non-consolidated)	As of 30th June, (non-consolidated)
	1999	2000	**2001 **	**2002 **		**2002 **	2003	2003
	NT$ 1,433,003 55,104 799,778 7,892 37,863 2,333,640 495,639 0 714,619 1,210,258 1.123.382 2,333,640	NT$ 3,153,294 83,518 1,408,416 11,447 31,437 4,688,112 2,041,620 80,000 697,022 2,818,642 1,869,470 4,688,112	NT$ NT$ (audited) (in thousands) 4,598,373 6,157,548 333,767 537,476 2,765,776 3,306,654 6,037 30,216 74,786 97,683 7,778,739 10,129,577 2,435,088 2,692,676 544,130 2,213,723 895,293 732,517 3,874,511 5,638,916 3,904,228 4,490,661 7,778,739 10,129,577			NT$ 2,569,784 2,876,610 1,547,603 7,162 73,188 7,074,347 886,390 2,351,187 474,009 3,711,586 3,362,761 7,074,347	NT$ (audited) 3,606,395 4,376,909 1,969,546 33,745 68,352 10,054,947 3,630,148 1,202,498 448,844 5,281,490 4,773,457 10,054,947	U.S.$(1) 104,201 126,464 56,907 975 1,974 290,521 104,887 34,744 12,969 152,600 137,921 290,521

---

• (1) Translated into United States Dollars using the average of buying and selling rates published by the Bank of Taiwan at December 31, 2002 of NT$34.755 = U.S.$1.00, and at June 30, 2003 of NT$34.61 = 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 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.

• (3) Earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each six-month period after adjusting retroactively for the effect of stock dividends.

The above summary financial data as of 31st December 1998, was taken from the audited non-consolidated financial statements of the Company for the year ended 31st December, 1998, which are not included in this Offering Circular. Such non-consolidated financial statements were audited by Deloitte & Touche, chartered accountants and independent auditors.

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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 Group’s actual results and could cause them to differ materially from estimates in any forward-looking statements given by or on behalf of the Group. ROC laws and regulations may differ from the laws and regulations in other countries.

Risks Relating to the Group’s Financial Condition and Business

The Group’s diversification into new business or product lines may not be successful

The Group has continuously diversified its product range to opto-electronics, communications and consumer products. See “Business — New Products”. The Group’s expansion into these business areas represents a move by the Group into a highly technical and complex business area in which it has limited business experience. In connection with its expansion, the Group expects to incur additional costs (including increased management attention) and to face intense competition in the optical market from other companies, including those with more relevant technological and managerial experience.

The Group’s diversification into new businesses will put pressure on its managerial, technical, financial, production, operational and other resources, its internal control systems, its ability to hire additional skilled personnel and to manage relationships with a greater number of customers, suppliers, equipment vendors and other third parties.

There can be no assurance that the Group will be able to successfully compete in these businesses or products; that demand in these businesses or for these products will grow to the extent that the Group expects; that its optical products will gain market acceptance; that these businesses or products will provide the returns that the Group expects them to or that the Group’s attempts to position itself to take advantage of any growth in these businesses or with respect to these products will be successful. Moreover, there can be no assurance that the implementation of such plans, including the management attention that such implementation is expected to require, will not adversely affect the Group’s existing operations.

The Group’s business is highly dependent on the optical components, cameras, DVD pick-up heads and other finished optical products sectors.

Most of the Group’s sales are to customers in the optical components, cameras, DVD pick-up heads and other finished optical products sectors on an OEM/ODM basis. Therefore, the Group’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 Group’s major customers or competitors in particular, could have a material adverse effect on the Group’s results of operations. The Group’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 Group’s business could be materially adversely affected.

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

The Group recorded sales growth of 67.2% and 22.6% for the years 2001 and 2002, respectively. This level of sales growth may not be sustained in future periods. As the Group 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. Gross margins decreased to 14.9% in 2002, compared to 16.8% in 2001. 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 Group’s results of operations. Therefore, period-to-period comparisons of operating results may not be meaningful and investors should not rely on the results of any period as an indication of future performance.

The Group’s business depends on a limited number of customers.

For 2002, the Group’s largest customer and second largest customer accounted for 29.1% and 9.7% of consolidated net operating revenues, respectively, and for 2001 the Group’s largest and second largest customer accounted for 14.0% and 9.7% of consolidated net operating revenues, respectively. In addition, the Company

8

depends on one or two major customers for a number of its major product lines, including digital still camera and DVD pick-up heads. Most of the Group’s key customers operate in the cyclical optical and 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 long-term contract or purchase commitment made between the Group and its customers, there can be no assurance that such customers or any other customers will continue to place orders with the Group in the future at the same levels as in prior periods.) The loss of one or more of the Group’s customers, or reduced orders by its key customers, could adversely affect the Group’s results of operations. See “— The Group’s customers may cancel their orders, change production quantities or delay production.”

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

The Group’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 Group’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 Group will be successful in developing new products as a result of its research and development efforts or its cooperation with industry leaders 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 Group’s business or on the results of operations.

The Group faces intense competition from other manufacturing companies.

The optical and opto-electronic industry in which the Group 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 Group’s industry is characterized by price erosion and rapid technological change. The Group competes with different companies depending upon the type of product or geographic area. The Group also faces competition from the manufacturing operations of its current and prospective customers, who continuously evaluate the merits of manufacturing products internally. A number of the Group’s competitors are much larger and have greater manufacturing, financial, research and development and marketing resources than the Group. Some of these competitors also carry product lines that the Group does not carry and provide services that the Group does not provide. No assurance can be given that the Group will be able to continue to compete successfully in its relevant markets.

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

The Group will need significant amounts of capital to build, expand, maintain and upgrade its facilities including the construction and outfitting of a new facility in Shenzhen, PRC and Burma. The Group currently expects to fund its further capital expenditures from external sources, including the proceeds of this offering, additional debt and equity financing and internally generated funds. The Group’s ability to do so will depend on market conditions, its financial performance and other factors, many of which are beyond the Group’s control. Necessary funding to implement the Group’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 Group, the Group 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 Group must continue to invest significantly on research and development. The Group has established a central research and development center (the “ RD Center ”) through which the research and development resources of Asia Optical, Asia Photonics, Dongguan Sintai and Hangzhou Nikon Camera will be coordinated and focused for the development of new products and processes on a project basis. Related research and development costs will be allocated, and rights to use resulting technologies will be shared, as specified in each project proposal. The Group may not be able to generate cash flow from operations in sufficient amounts to allow it to maintain this level of spending on research and development. Any failure to maintain adequate research and development spending could jeopardize the Group’s long-term prospects.

The Group’s customers may cancel their orders, change production quantities or delay production.

The Group does not generally obtain firm, long-term purchase commitments from its customers and it continues to experience reduced lead-time in customer orders. Customers may cancel their orders, change

9

production quantities or delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers could seriously adversely affect the Group’s results of operations.

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

The Group’s operating results vary significantly.

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

• the timing of customer orders;

• the volume of these orders relative to the Group’s capacity;

• market acceptance of customers’ new products;

• changes in demand for customers’ products and product obsolescence;

• the timing of the Group’s expenditures in anticipation of future orders;

• the Group’s effectiveness in managing manufacturing processes and yields;

• changes in the cost and availability of labor and components;

• changes in the Group’s product mix;

• changes in economic conditions; and

• local factors and events that may affect the Group’s production volume, such as local holidays.

The markets for the Group’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 Group’s second- and third-quarter revenues are ordinarily higher, and its first-quarter sales are ordinarily lower, than average.

The Group may experience shortages of raw materials and components.

The Group currently purchases certain of its key components and raw materials from a limited number of suppliers. These suppliers’ capacity may be insufficient should the Group’s requirements increase. In addition, the Group is, in certain circumstances, required to source certain key components from suppliers who have been qualified by its customers and the Group 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 Group will be able to obtain an adequate alternative supply of components and raw materials to meet production demand. If the Group is unable to obtain sufficient components and raw materials on a timely basis, the Group could experience manufacturing and shipping delays, which could adversely affect customer relationships and reduce sales. In addition, there can be no assurance that the Group would be able to pass on increased costs of components and raw materials to its customers. See “Business — Raw Material and Components”.

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

The Group’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:

10

• the cleanliness of the manufacturing environment;

• human error;

• equipment malfunction;

• use of defective raw materials; and

• inadequate testing.

From time to time, the Group 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 Group’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 Group fails to maintain high quality production standards and yields, its reputation and profitability may suffer and the Group’s customers may cancel their orders or return products for reworking.

The Group 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 Group’s manufacturing plants. These problems could cause delivery delays and reduced output.

The Group currently maintains insurance for facilities and inventories based on the historical rather than the replacement cost. Such insurance, however, may not provide adequate coverage in certain circumstances. In addition, in accordance with industry practice, the Group 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 Group’s property or relating to Company operations. The Group does not carry business interruption insurance. No assurance can be given that uninsured losses and liabilities incurred by the Group might not have a material adverse effect on the Group’s results of operations.

The Group may be unable to manage its growth effectively.

The Group has grown rapidly. The Group’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 Group fails to manage growth effectively, the Group’s results of operations could be adversely affected.

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

The Group’s ability to compete successfully and achieve future growth will depend, in part, on the Group’s ability to protect its proprietary technology. The Group 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 Group’s intellectual property or commercial advantage. For example, the Group’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 Group 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. Protection of intellectual property rights in different countries may vary. See “Business — Research and Development; Core Technologies” and “Business — Intellectual Property”.

The Group may be involved in intellectual property disputes.

The Group may from time to time receive communications from third parties asserting patent rights to the Group’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 Group 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 Group from time to time. Irrespective of

11

the validity or successful assertion of these claims, the Group could incur significant costs with respect to the defense of such claims which could have an adverse effect on the Group’s business and results of operation. See “Business - Legal Proceedings”.

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

The Group’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 Group 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 Group will be able to continue to attract and retain the services of qualified employees essential for the Group’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 Group.

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

As of 30th September, 2003, the Company’s directors and supervisors owned approximately 26.33% 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 Group’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 Group’s manufacturing process generates various waste products that could expose the Group to litigation or to liability under applicable environmental regulations.

The Group’s manufacturing process generates solid and liquid waste, as well as discharge of wastewater. The Group is subject to a variety of regulations in Taiwan, the PRC and other countries relating to the use, storage, discharge and disposal of chemicals and waste used in its manufacturing processes. Moreover, disposal of certain of these products may give rise to subsequent claims of liability against various parties, including the manufacturers of the products. Although the Group has not been the subject of any material environmental claims in the past and believes its activities conform to presently applicable environmental regulations in all material respects, environmental claims or the failure to comply with present or future regulations could result in the assessment of damages or the imposition of fines against the Company or any member of the Group, suspension of production or cessation of operations. In addition, new environmental regulations could require the Group to install costly abatement equipment or to incur significant expenses.

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

The Group’s existing manufacturing facilities are located in central Taiwan, mainland China and the Philippines, all which are vulnerable to natural disasters. Disruption of operations at the 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 Group has in the past experienced a number of major power outages, each of which resulted in a brief suspension of production. In September 1999, a major earthquake occurred with its epicenter in central Taiwan. The earthquake caused interruptions to power supplies and significant damage to buildings across Taiwan. As a result of the earthquake, the Group was obliged to suspend its manufacturing operation in Taiwan for two days. Similar incidents may occur in the future, which could have a material adverse effect on the Group’s results of operations.

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

The Group has structured its operations among various jurisdictions in the most tax efficient manner. If the tax rates and policies applicable to the Group are rescinded or changed or if tax authorities were to challenge successfully the manner in which profits are recognized among the members of the Group, the Group’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”.

12

Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance.

The Group 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 and the United Kingdom. In addition, the Group’s financial statements are prepared in accordance with the ROC GAAP, which differ in certain material respects from U.S. GAAP. See “Summary of Certain 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, the Company paid employee bonuses of 2% of the after-tax profits, less legal reserves, in the form of Shares or cash or combination of the two and expects that, subject to shareholder approval, it will pay all or some of employee bonuses for future periods in the form of Shares or cash or combination of the two. The Company granted an aggregate of 425,687 Shares, 923,312 Shares and 1,466,199 Shares in the years 2000, 2001 and 2002 to its employees, respectively. 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 employee bonus shares is treated as an allocation from retained earnings when the distribution of employees bonuses is approved by the shareholders, and the Company is not required to, and does not, charge the value of the employee bonus shares to income. 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 would be material.

In addition, because the Shares issued under the employee share bonus scheme are issued at less than market value, such issuances also have a dilutive effect on existing shareholders. However, the Conversion Price of the Bonds is adjusted for such issuances.

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

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 since the Shares have been listed on the TSE and the Company intends to continue to comply with this requirement. The internally-prepared unaudited 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.

In addition, financial forecasts published by the Company in response to these requirements are based on numerous assumptions and inherently subject to numerous risks and uncertainties, including the risks described herein. The occurrence of any one or more of such risks may cause the Company’s actual performance and results to differ from forecast performance and results, and such variance may be material and adverse. Accordingly, none of the information contained in this Offering Circular is based on the Company’s published financial forecasts, and investors are cautioned not to place undue reliance on such forecasts.

Political and Economic Risks

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

The Company is incorporated in the ROC. Significant assets of the Company are located in, and substantial revenues are derived from, its operations in the ROC. Accordingly, the Company’s business and financial condition and the market price of the Shares may be affected by changes in local governmental policies and local political and social instability. The ROC has a unique international political status. The PRC asserts sovereignty over mainland China and the ROC and does not recognize the legitimacy of the ROC 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

13

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 Group’s business and the market price of the Shares.

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

Currently, a substantial part of the Group’s operations and assets are located in the PRC and the Group expects to make further investments in the PRC in the future. The Group also makes limited sales of its products in the PRC. Accordingly, the financial condition, results of operations and future prospects of the Group are subject, to a significant degree, to the political and economic situation and legal developments in the PRC. There can be no assurance that the Company’s investment in the PRC and its production operations in the PRC will not be adversely affected if relations between the PRC and the ROC are further strained.

Prior to 1978, the PRC operated under 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 the 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 Group.

The Group 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 Group.

If economic conditions in the ROC deteriorate, the Group’s current business and future growth would be materially and adversely affected.

In recent years, the currencies of many East Asian countries, including the ROC, have experienced considerable volatility and depreciation. The Central Bank of China, the central bank of the ROC, has from time to time intervened in the foreign exchange market to minimize the fluctuation of the U.S. Dollar/NT Dollar exchange rate and to prevent significant decline in the value of the NT dollar.

In addition, the banking sector in the ROC has been seriously harmed by the general economic downturn in Asia and the ROC which has caused a depressed property market and an increase in the number of companies filing for corporate reorganization and bankruptcy protection. As a result, financial institutions are more cautious in providing credit to businesses in the ROC. The Group cannot assure that it will continue to have access to credit at commercially reasonable rates of interest or at all.

Disruptions in the international trading environment may seriously decrease the Group’s international sales.

A substantial portion of the Group’s net sales revenue is derived from sales to customers located outside of the ROC. In 2000, 2001 and 2002, sales to the Group’s customers outside the ROC accounted for 93.9 %., 97.2% and 96.63%, respectively, of the Group’s net sales revenue. The Group expects sales to customers outside of the ROC to continue to represent a significant portion of its net sales revenue in the future. Accordingly, the Group’s financial condition and results of operations may be affected by changes in governmental policies, inflation, increasing interest rates, social instability and other political, economic or social developments in or affecting the countries in which the Group sells its products that are not within its control. As a result, the Group’s business will continue to be vulnerable to disruptions in the international trading environment including adverse changes in foreign government regulations, political unrest and international economic downturns. These disruptions in the international trading environment may affect the demand for the Group’s products and

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change the terms upon which the Group sells its products overseas, which could seriously decrease the Group’s international sales.

The Group’s business may be harmed, and the price of the Bonds and Shares may be adversely affected, by changes in general economic and business conditions resulting from the recent terrorist attacks on the United States.

On 11[th] September, 2001, terrorist attacks on the United States caused significant loss of life and property damage and disruptions in U.S. and global markets. The long-term impact of these events, including United States military action or possible economic or diplomatic sanctions, is unclear, but could have a material effect on general economic conditions and market liquidity. An economic downturn may reduce the demand for the Group’s products and negatively impact the Group’s results of operations. In addition, the market value of the Bonds and Shares may be adversely affected due to increased market volatility and to the reasons stated above.

The value of the Bonds and the Company’s Shares may be adversely affected by the volatility of the Taiwan securities market.

The Taiwan securities market is smaller and more volatile than the securities markets in the United States and in certain European and other countries. The TSE and the GTSM have experienced substantial fluctuations in the prices and trading volumes of listed securities, and there are currently limits on the range of daily price movements on the TSE and the GTSM. From time to time, the ROC regulatory agencies have intervened in the Taiwan stock market during periods of extreme volatility. In the past decade, the TSE Index peaked at 10,393.59 in February 2000, and reached a low of 3,411.68 in September 2001. During 2003, the TSE Index peaked at 5,727.01 on Sep 8, 2003, and reached a low of 4,139.50 on April 28, 2003. In addition, the TSE and the GTSM have experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could adversely affect the market price and liquidity of the securities of Taiwan companies, including our Common Shares. For more information, please see “Appendix B — The Securities Markets of the ROC”.

The Group is exposed to the risks of currency exchange rate fluctuations.

Historically, a majority of the operating costs and expenses of the Group have been denominated in U.S. Dollars, Japanese Yen, RMB and NT Dollars and the Group’s sales revenue has been denominated primarily in U.S. Dollars and NT Dollars. Accordingly, a portion of the Group’s consolidated costs of sales, operating expenses and revenues are exposed to fluctuations between the U.S. Dollar, Japanese Yen, RMB and NT Dollar. Although the Group attempts to mitigate the effects of exchange rate fluctuations primarily through the use of foreign currency borrowings and currency option, fluctuations in exchange rates may have an adverse impact on the Group’s future gross and operating margins and results of operations. See “Exchange Rates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In addition, the Group has substantial investments in the PRC, and any devaluation in the value of RMB may have an adverse impact on the value of such investments in the PRC.

Risks Relating to the Bonds and Shares and the Group’s Trading Markets

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 were to develop, the Bonds could trade at prices that may be lower than the initial offering price. Whether or not the Bonds could trade at lower prices depends on many factors including:

• prevailing interest rates and the markets for similar securities;

• general economic conditions; and

• the Group’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 Official List and admitted for trading 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

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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.

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.

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

Bondholders will not be able to exercise their conversion rights during certain Closed Periods. Under current ROC law, regulations and policy, PRC persons are not permitted to hold or to convert the Bonds or to register as the Company’s shareholders.

The Company cannot assure the Bondholders that the market for the Company’s Shares will be active and liquid; the offering of the Bonds will not result in additional liquidity to those markets until the commencement of the Conversion Period, if at all.

The average daily trading volume for the Shares in 2001 and 2002 was approximately 873,864 Shares and 1,002,371 Shares, respectively. The Company cannot assure the Bondholders that the liquidity of the Shares will be maintained or enhanced after the offering of the Bonds. Since the holders of the Bonds cannot convert the Bonds into the Shares until November 14, 2003, and may elect never to exercise their conversion rights, the sale of the Bonds will not result in additional liquidity of the Shares until such dates, if at all.

Future sales of securities by the Company or existing shareholders may adversely affect the market price of the Shares.

The market price of the Bonds and Shares could decline as a result of future sales of a large number of Shares or the perception that such sales could occur. As of 31st December, 2002, an aggregate of 123,162,981 Shares were issued and outstanding which will be freely tradeable. If the Company or the holders of the Shares sell a large number of Shares, the market price for the Bonds or Shares could be depressed.

Holders of the Bonds will be required to register with TSE and obtain an investment ID and to appoint several local agents in Taiwan if they convert the Bonds into the Shares and become shareholders, which may make ownership burdensome.

According to the amendments to the Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals approved by the Execution Yuan on June 27, 2003 and September 30, 2003, Bondholders must register with the TSE and obtain an investment ID to invest in securities in ROC prior to conversion, unless an investment approval or the investment ID has been previously obtained. Approval from the Central Bank of China may also be required if the converting Bondholder is a Non-Resident Foreign Institutional Investor without having a sub-investment account.

Upon conversion, Bondholders will be required to specify an account number with the Taiwan Securities Central Depository Co., Ltd. in the Conversion Notice. Failure to do so may result in rejection of the Conversion Notice by the Conversion Agent. The Bondholders are required to appoint a qualified agent or representative to open a securities trading account with a local brokerage firm to submit application of conversion, exercise shareholders’ rights, apply for foreign exchange remittance and pay ROC taxes on their behalf. The Bondholders are also required to appoint a custodian bank approved by the Ministry of Finance act as the custodian for the funds and securities upon conversion. In addition, the Bondholders are also required to appoint a local securities firm or financial institution to act as an agent to open a New Taiwan dollar bank account. Bondholders would not be able to receive, hold or to sell or otherwise transfer the Shares into which the Bonds may have been converted without complying with the procedures herein stated.

If the Bondholder had opened a conversion account for overseas corporate convertible bonds, a redemption account for overseas deposit shares, or a sales account for overseas stock prior to June 27, 2003, they shall submit the documents as required, to the TSE to transfer the assets to the general investment account.

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Foreign exchange approvals may be required.

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 the 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. There can be no assurance that such exemption will be retained in the future. See “Appendix A — Foreign Investment and Exchange Controls in the ROC — Overseas Corporate Bonds”.

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USE OF PROCEEDS

The net proceeds from the offering of the Bonds, after deducting underwriting fees, including selling concessions, and other expenses, are estimated to be approximately U.S.$83.0 million, assuming the over-allotment option is fully exercised. The net proceeds will be used as follows:

• approximately U.S.$33 million for procurement of manufacturing equipment;

• approximately U.S.$8 million for procurement of raw materials;

• approximately U.S.$18 million for purchase of land and manufacturing plant; and

• remainder for overseas investment.

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MARKET PRICE INFORMATION

The Shares have been listed on the TSE since 26th August, 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, employee bonus issues and stock dividends) and the high and low of the daily closing values of the TSE Index.

2002 (listed on 26th August) August.................................... September............................... October................................... November............................... December ............................... 2003 January ................................... February ................................. March..................................... April....................................... May ........................................ June ........................................ July......................................... August.................................... September...............................	Closing Priceper Share High Low (NT$) 153 141 147 129 173 120 175 147.50 199 161 174 154 173 154 180 156 181 151 176 158 189 175 236 165 227 170 248 205	Average Daily Trading Volume (in thousands of Shares) 529.40 529.60 1,312.18 1,287.76 1,429.95 1,149.11 586.69 555.95 627.95 515.43 1,173.60 2,473.22 2,270.81 3,240.76	TSE index	TSE index
			High 4,968.85 4,668.01 4,601.37 4,813.53 4,823.67 5,078.80 4,833.58 4,599.25 4,658.30 4,555.90 5,048.91 5,451.80 5,686.85 5,757.91	Low
				4,572.35 4,185.95 3,850.04 4,500.55 4,452.45 4,524.87 4,432.46 4,260.45 4,139.50 4,187.82 4,678.08 5,017.78 5,214.60 5,611.41

Source: TSE

(1) A stock dividend of NT$2.0 and a cash dividend of NT$3.0 were paid by the Company on July 25, 2003.

On October 3, 2003, the reported closing price of the Shares was NT$220.0 per Share and the TSE Index closed at 5,747.79.

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DIVIDENDS AND DIVIDEND POLICY

The Company has paid annual stock dividends on the Shares since 1998.

The following table sets forth the aggregate number of outstanding Shares entitled to dividends, as well as the cash and stock dividends paid during each of the years indicated. 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 1998...................... 1999...................... 2000...................... 2001...................... 2002...................... 2003......................	Cash dividends per Share Stock dividends per Share(1) (NT$) (NT$) 1.0 2.4 -- 2.0 1.0 4.5 1.0 4.0 1.0 4.0 3.0 2.0	Total Shares issued as stock dividends 2,400,000 3,650,000 16,605,000 24,572,000 34,771,000 24,633,000	Outstanding Shares on record date(2)
			10,000,000 18,250,000 36,900,000 61,431,000 86,926,000 123,163,000

• (1) Holders of Shares receive 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 has historically paid stock 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 and/or stock dividends on the Shares will depend upon the Company’s earnings, cash flow, financial condition and other factors.

Except in certain limited circumstances, the Company is not permitted to distribute dividends or make other distributions to shareholders for any year in which the Company has no earnings (including retained earnings). The ROC Company Law and the Articles of Incorporation of the Company (the “ Articles ”), also require that 10% of the Company’s annual income, less prior years’ losses and outstanding tax, if any, be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company also shall set aside a special earning reserve in accordance with the regulations of competent authorities, if applicable.

In addition, the Articles provide that the remaining portion of the earnings will be distributed in the following manner: (1) the employee bonuses shall be at least 2%, and (2) the remuneration of all directors and supervisors shall be 2%. Further, as provided in the Articles, the residual earnings after employee bonuses and remuneration may be distributed to shareholders in proportion to shareholder’s holdings as approved by the shareholders. However, the amount of the dividends shall not exceed 90% of the amount equal to the residual part of the earnings after the deduction of employee bonuses and remuneration plus the accumulated retained earnings of the preceding year. Dividends may be distributed in cash, in the form of shares or a combination of the two, as determined by the shareholders. However, the Articles provide that dividends distributed in cash shall be no less than 10% of the total dividends.

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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.

Set forth below are the period-end average of buying and selling exchange rates in effect between the NT Dollar and the U.S. Dollar, expressed in NT Dollars per U.S. Dollar, for the period indicated.

1999 ................................................................ 2000 ................................................................ 2001 ................................................................ 2002 January........................................................ February...................................................... March.......................................................... April............................................................ May............................................................. June............................................................. July ............................................................. August......................................................... September................................................... October ....................................................... November ................................................... December.................................................... 2003 January........................................................ February...................................................... March.......................................................... April............................................................ May............................................................. June............................................................. July ............................................................. August......................................................... September...................................................	Average 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 34.71 34.82 34.71 34.62 34.40 34.33 34.00	High 33.24 33.20 35.16 35.10 35.13 35.09 35.00 34.60 34.16 33.87 34.24 34.99 35.17 34.86 34.95 34.81 34.85 34.79 34.94 34.80 34.70 34.58 34.47 34.15	Low 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 34.46 34.74 34.60 34.76 34.62 34.52 34.25 34.16 33.74	Atperiod-end
				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 34.76 34.69 34.75 34.75 34.85 34.71 34.61 34.41 34.16 33.78

Source: Bank of Taiwan

On October 3, 2003, the closing rate between the NT Dollar and the U.S. Dollar was NT$33.767 = U.S.$1.00.

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CAPITALIZATION

The following table sets forth the capitalization of the Company as at 31st December, 2002 on a consolidated basis, as adjusted to reflect the issuance of the Bonds, without regard to the over-allotment option, and as determined under ROC GAAP. This table should be read in conjunction with the Company’s consolidated financial statements for the year ended and as at 31st December, 2002 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”.

Long-term debt: Long-term loans, less current portion ....................... Bonds payable........................................................... Total Long-term debt ................................................ Stockholders’ equity: Common stock ........................................................ Capital surplus ........................................................ Unappropriated earnings........................................... Legal reserve ........................................................... Special reserve ........................................................ Cumulative translation adjustment............................ Minority interest ....................................................... Total Stockholders’ equity ....................................... Total consolidated capitalization .............................	As at 31st December, 2002	As at 31st December, 2002
	Actual As adjusted NT$ U.S.$(1) NT$ U.S.$(1) (in thousands) 104,760 3,014 104,760 3,014 2,108,963 60,681 4,715,588 135,681 2,213,723 63,695 4,820,348 138,695 1,231,630 35,437 1,231,630 35,437 1,071,669 30,835 1,071,669 30,835 1,799,164 51,768 1,799,164 51,768 166,731 4,797 166,731 4,797 5,797 167 5,797 167 32,847 945 32,847 945 . 182,823 5,260 182,823 5,260 4,490,661 129,209 4,490,661 129,209 6,704,384 192,904 9,311,009 267,904	As adjusted
	NT$ 104,760 2,108,963 2,213,723 1,231,630 1,071,669 1,799,164 166,731 5,797 32,847 . 182,823 4,490,661 6,704,384

(1) New Taiwan Dollar amounts have been translated into U.S. Dollars (and the principal amount of the Bonds, being U.S.$75,000,000 has been translated into NT Dollars) using the average of buying and selling exchange rates published by the Bank of Taiwan at 31st December, 2002 of NT$34.755 = U.S.$1.00 solely for the convenience of the reader.

Except for cash dividends paid out of the legal reserve in the amount of NT$369,489,000 in 2002 and the reduction of minority interest resulting from increase of equity interest from 70% to 95% in Asia Optical International Ltd., there has been no material change in consolidated capitalization of the Company since 31st December, 2002.

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The following table sets forth the capitalization of the Company as at 30[th] June, 2003 on a consolidated basis, as adjusted to reflect the issuance of the Bonds, without regard to the over-allotment option, and as determined under ROC GAAP.

As at 30thJune, 2003 Actual As adjusted NT$ U.S.$(1) NT$ U.S.$(1) (in thousands) Short-term debt: (including current portion of long-term debt) Short-term loans........................................................ -- -- -- -- Current portion of long-term debt............................. 2,116,088 61,141 2,116,088 61,141 Total Short-term debt ................................................ 2,116,088 61,141 2,116,088 61,141 Long-term debt: Long-term loans, less current portion ....................... -- -- -- -- Bond payable ............................................................ 1,202,498 34,744 3,798,248 109,744 Total Long-term debt ................................................ 1,202,498 34,744 3,798,248 109,744 Stockholders’ equity: Common stock ........................................................ 1,231,630 35,586 1,231,630 35,586 Stock dividends to be distributed .............................. 271,501 7,845 271,501 7,845 Capital surplus ........................................................ 1,071,669 30,964 1,071,669 30,964 Unappropriated earnings........................................... 1,867,015 53,944 1,867,015 53,944 Legal reserve ........................................................... 293,878 8,491 293,878 8,491 Special reserve.......................................................... 5,797 167 5,797 167 Cumulative translation adjustment............................. 31,967 924 31,967 924 Total Stockholders’ equity ....................................... 4,773,457 137,921 4,773,457 137,921 Total consolidated capitalization ............................. 5,975,955 172,665 8,571,705 247,665	As at 30th	June, 2003
		As adjusted

(1) New Taiwan Dollar amounts have been translated into U.S. Dollars (and the principal amount of the Bonds, being U.S.$75,000,000 has been translated into NT Dollars) using the average of buying and selling exchange rates published by the Bank of Taiwan at 30th June, 2003 of NT$34.61 = U.S.$1.00 solely for the convenience of the reader.

There has been no material change in non-consolidated capitalization of the Company since 30th June, 2003.

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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”.

General

The Company is Taiwan’s leading designer, developer and manufacturer of optical components, finished optical and opto-electronic products that employ advanced technologies to capture, display and process images and spatial data as well as other products such as photoconducting image sensors. The Group utilizes a suite of core technologies that it has developed or acquired in the design and manufacture of its optical and opto-electronic products. The Group supplies its products as an original equipment manufacturer (“ OEM ”) and original design manufacturer (“ ODM ”) to many of the world’s leading brandname makers of optical and opto-electronic goods, such as cameras, DVDs player, and office automation (“ OA ”) equipment.

Core technologies owned and utilized by the Company include optical system design, multi-layer coating technologies, and aspheric lens manufacturing techniques. The Company believes that its ability to combine technologies in such areas as advanced coatings and aspheric lens design, together with technical know-how applied to large-scale production gives it a competitive advantage in an industry that is capital-, technology- and labor-intensive. The Company also believes that it is one of the few companies that is able to successfully combine the fields of advanced optics, consumer electronics and engineering in the design and manufacture of new consumer products.

Principal products designed, manufactured and sold by the Group include:

• Optical components

The Group is the world’s largest supplier of single-piece glass lenses producing approximately 8.5 million pieces per month with a range of optical specifications, accounting for approximately 25% of worldwide market share in 2002. The Group is also one of the world leaders, and is Taiwan’s leader, in the development and manufacture of lens units and modules for finished photographic products such as cameras and OA equipment, with a worldwide market share in 2002 of approximately 20%.

� Cameras

Cameras manufactured by the Group include 35 mm cameras, APS cameras and digital still cameras. The Company designs and manufactures cameras solely on an OEM/ODM basis to a number of world’s leading brandname camera makers and their contract manufacturers, such as Canon Inc. (“ Canon ”), Hewlett-Packard Company (“ Hewlett Packard ”), Eastman Kodak Company (“ Kodak ”), Nikon Corporation (“ Nikon ”), Olympus Optical Co., Ltd. (“ Olympus ”), Asahi Optical Co., Ltd. (“ Pentax ”), and Ricoh Co., Ltd. (“ Ricoh ”). In 2002, the Group shipped approximately 1.4 million units of digital still cameras to its customers.

� DVD pick-up heads

The Group started manufacturing precision DVD pick-up heads utilizing its aspheric lens and multi-layer coating technologies in 2000. Currently, the Group is the exclusive third-party supplier of DVD pick-up heads to Pioneer Electronics Inc. (“ Pioneer ”) globally.

• Other finished optical products

In addition to cameras, the Group also is one of the global market leaders in the design, development and manufacture of other finished optical products on an OEM/ODM basis. These products include laser range finders, riflescopes and microscopes and projectors. The Group’s OEM/ODM customers include some of the best-known and most reputable industry leaders such as Bushnell Corporation (“ Bushnell ”), Funai Electric Co. Ltd. (“ Funai ”), Hitachi, Ltd. (“ Hitachi ”), Koninklijke Philips Electronics N.V. (“ Philips ”), Sony Corporation (“ Sony ”), Tasco Worldwide, Inc. (“ Tasco ”) and others.

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• Photoconducting image sensors

The Company also produces photoconducting image sensors and other products such camera as flash units and shutters solely on an OEM basis.

The Group’s manufacturing facilities are located in Taiwan, mainland China and the Philippines. The Group’s research and development facilities are located principally in Taiwan and mainland China, and the core technologies are managed by the research and development team in Taiwan.

Recent Developments

Investment in Taiwan Ricoh

On 9th September, 2003, the Company executed a letter of intent with Ricoh for the Company to purchase a controlling interest in Taiwan Ricoh Co., Ltd. (“ Taiwan Ricoh ”). Ricoh is one of the world’s leading suppliers of office automation equipment, including printers, copiers, facsimile machines, data processing systems and related products. Taiwan Ricoh was established in 1966 as Ricoh’s Taiwan camera manufacturing facility. The Company has been a long-term supplier of Ricoh Taiwan for the key components. The Company has also had joint manufacturing site for camera and office equipment and components with Ricoh in China since 1990.

Pursuant to the letter of intent, Company will acquire more than 82.5% of the shares in Taiwan Ricoh. It is expected that Taiwan Ricoh will continue to have the right to use Ricoh’s patents after the change of control contemplated by the letter of intent; the scope of use and payment terms are subject to further negotiation between the Company and Ricoh. Through the strategic alliance, the Company is expected to be permitted to use the proprietary information with respect to the optical technologies, precision mold grinding technologies and manufacturing know-how developed and owned by Ricoh or Taiwan Ricoh. Also, the acquisition will help the Company to increase its market share in the DSC lens and the handset camera modules market.

The Company recorded consolidated sales growth of 67.2% and 22.6% for the years 2001 and 2002, respectively. In 2002, the Company recorded consolidated net sales of NT$13,229.8 million (U.S.$380.7 million) and consolidated net income of NT$1,271.5 million (U.S.$36.6 million), compared to NT$10,788.5 million and NT$814.6 million in 2001, representing increases of 22.6% and 56.1%, respectively.

Competitive Strengths

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

Strong optical engineering expertise

The Group’s strong expertise and extensive know-how in optical engineering such as glass molding, coating, optical testing and opto-electronics place the Group at the technological forefront in its product markets. The Company believes that the Group is one of the few producers of optical lenses worldwide to have mastered and commercialized the glass molding process to make aspheric lenses for more compact products and instruments and advanced multi-layer coating technologies for high-end photonic products. The Group’s strength in optical engineering also allows it to produce prototypes for new products according to customers’ schedules and to ramp up production rapidly to commercial volumes.

In addition to its expertise in glass molding and coating, the Group has the ability to manufacture and assemble finished optical products by utilizing its integrated optical-electronic technologies. The Group has also developed and equipped with system engineering expertise and digital image processing technology for the design and manufacture of digital still cameras. Systems engineering expertise enables the Group to integrate its optics, electronics and mechanics technologies into a single product. The Company believes that it is one of the few optical manufacturers in Taiwan and in the world that are able to develop sophisticated digital image processing technologies. The Group’s strength in optics, systems and image processing engineering allows it to provide “one-stop shopping” solutions to its finished products customers.

Highly vertically-integrated development and manufacturing process

The Company endeavors to ensure that it is equipped with all of the core technologies and manufacturing processes that are critical to its production. Accordingly, the Group’s manufacturing processes are highly vertically integrated and most of the critical lens units and optical components used in the production of finished

25

optical products are produced in-house. This gives the Group control over quality, costs and supply chain management, as well as the flexibility necessary to customize components to match its customers’ specifications and to roll out and ramp up production of new products. The Company believes that its ability to fully integrate its manufacturing from components to finished products to meet customers’ needs gives it a competitive advantage in lowering manufacturing costs and maintaining long-term relationships with major customers.

The design, research and development activities are fully integrated with the Group’s manufacturing and sales activities and, through the sales and marketing teams working closely with the customers, the Company obtains valuable customer feedback. As a result, the Group is able to develop products that address the customers’ specific needs and to introduce these products to the customers in the most efficient and timely way. The research and development team produces optical and opto-electronics designs of new products and components and immediately transfers the designs to the manufacturing divisions and subsidiaries within the Group. These divisions and subsidiaries quickly produce prototypes on site, based on the research and development team’s designs, and deliver the prototypes back to the research and development team for testing and analysis.

Close relationships with key industry leaders

The Group has established close supplier-customer relationships with many of the world’s leading manufacturers of cameras, laser measurement devices, audio/video electronics, and other products utilizing optical components. Such leading companies as Bushnell, Canon, Funai, Hewlett Packard, Hitachi, Kodak, Nikon, Olympus, Pentax, Philips, Pioneer, Ricoh, Sony and Tasco purchase optical components directly from the Group or contract with the Group for assembly and manufacture of finished products. Moreover, the Group is increasingly named as designated vendor by a number of major customers to engage in the joint development and design of cameras, laser measurement devices and fiber-optic communications modules for customers’ new products. This allows the Group 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 Group with up-to-date market information and allows the Group to have input into new product decisions, ensuring that the Group’s new products are tailored to and responsive to its customers’ needs. The Company believes that this process will help to increase the Group’s technological advantage in relation to its competitors, cement its relationships with important customers, and raise the threshold for the Group’s competitors.

Strong research and development programs

The Group 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 Group’s research and development activities is new product development, process and technology improvement and costs efficiency. Currently, the Company outsources development tasks in connection with part of its fiber-optic communications and laser measurement devices to Asia Photonics Technology Co., Ltd., an affiliate of the Company. Asia Photonics specializes in research and development of opto-electronics technologies and conducts research and development for the Company on an exclusive basis. Asia Photonics employs more than 40 full-time professional engineers. The Company’s research and development department focuses on new product research and development in the areas of precision molding, grinding and coating of optical components, and the incorporation of optical components with various properties in consumer, OA and fiber-optic communication products.

The Company, both on its own and through Asia Photonics, actively engages in research and development so as to continuously increase the types and scope of its ODM products. The Company possesses considerable capabilities in the development of optical components containing aspheric lenses, research on precision coated optics and development of laser opto-electronic products, thus enabling it to compete with large international photonic manufacturers of related products.

The Group has established a central research and development center (the “ RD Center ”) through which the research and development resources of Asia Optical, Asia Photonics, Dongguan Sintai and Hangzhou Nikon Camera will be coordinated and focused for the development of new products and processes on a project basis. Related research and development costs will be allocated, and rights to use resulting technologies will be shared, as specified in each project proposal. The RD Center is further divided into Prototype Center, Optical Engineering Center, Opto-electronics Center, Imaging Technology Center, Image Center and Molding Center to cover the Group’s research and development activities in relation to all different product areas. The RD Center’s ability to involve research and development staffs across all relevant sub-centers and solve problems in the initial stage of development enables the Group to conduct research and development more efficiently.

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Strict quality control processes and standards

The Group implements a comprehensive quality assurance program to ensure the implementation of its firmwide quality policy. This policy rests on five basic principles: customer first; efficiency; utilization of leading technologies; systematic quality processes; and in-process quality assurance. To implement the quality assurance program comprehensively, the Company has established a Quality Assurance Division, which is responsible for the quality control from co-development of new products with customers to delivery of goods. The Company also employs an extensive material quality control process by a Quality Control Division, which is separate from the Quality Assurance Division. The Quality Assurance Division provides quality assurance services and support for each of the manufacturing divisions. The Quality Control Division implements a series of rigorous quality checks at all stages of product development and production. All members of the Group 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 traditional photonic industries.

Strong and committed management team

The senior management of the Company is led by a core team of highly experienced professionals in the fields of management, finance and optical engineering, with an average of over 23 years experience. The Company endeavors to create a flexible working environment that encourages innovation by the most progressive elements of management styles from Japan. The Company believes that it has the leadership it needs to continue to leverage its core strengths in the future.

Integrated management information systems

The Company has successfully implemented an enterprise resource planning (“ ERP ”) system in 2003, which gives it improved control over and access to information concerning all aspects of its operations from order to delivery. By implementing the ERP, the Company is able to collect the information of customers’ purchase orders, procure adequate volume of raw material and prepare production lines in response to current purchase orders on a single electronics platform. The ERP system is extremely valuable in oversight of process controls, real-time job tracking, assisting control of engineering changes and capacity planning. The Company’s management is able to use this system to control costs, improve production efficiency and evaluate employee performance. Moreover, with the real time information collected by the ERP, the Company’s management is able to implement timely and informed material procurement plans and manufacturing plans.

Business Strategy

The Group’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; focus on high-growth markets while retaining business flexibility; and shift from OEM to ODM.

Focus on core technology and continue investing in research and development

The Company believes that the current trend to the integration of electronics and optical technologies will continue to be one of the primary directions of the evolution of optical devices. To meet current and anticipated future demand, the Company has committed significant resources to the research and development of opto-electronic technology for use in optical communications and laser measurement devices. Among the Company’s achievements in this area are the development of one of the world’s smallest Coarse Wavelengths Division Multiplexing (“ CWDM ”) modules for fiber-optic communications and one of the world’s most compact weatherproof laser range finders.

Focus on high-growth markets while retaining flexibility

The Company will focus its product development efforts on high-growth markets. These markets include fiber-optic communications, handset camera modules and laser devices. The Company believes that the rate of turnover in these areas will increase rapidly with evolving new standards, increasing functionality of each successive generation and increasing rates of penetration. Moreover, because of the emphasis on miniaturization in these products, the Group’s design and engineering superiority, supported by the Group’s lens processing capabilities, is expected to enable the Group to increase sales and earnings.

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Shift from OEM to ODM

In 2002, approximately 50% of the Company’s consolidated net sales revenues were derived from finished products manufactured on an OEM basis and approximately 50% from sales of products on an ODM basis. ODM sales generally generate higher profit margins than OEM sales. However, ODM manufacturing requires stronger research and development capability. The Company plans to increase its profit margin by increasing ODM sales by utilizing its core technologies through focused research and development project teams.

Industry Background

Overview

The opto-electronic sector comprises all industries that manufacture equipment and systems applying elements with opto-electronic technologies and using opto-electronic and optical elements as key parts and components. The opto-electronic sector can be divided by product into five categories:

Category �Optical components and equipment �Opto-electronic applications �Optical communications �Opto-electronic elements �Optical information*	Equipment Photographic equipment, monoculars, binoculars, microscopes, CD/VCD/DVD pick-up heads, OA equipment Optical measurement devices, laser medical equipment, laser processing equipment Optical communications equipment, including fiber-optic communications systems and devices N/A Optical image storage equipment, optical output equipment, optical input equipment	Parts and Components
		Optical lenses, spectacles, holographic optical elements N/A Optic fibers (including optic cables), optical transmission active elements, optical transmission passive elements Light-emitting elements, light detecting elements and display elements N/A

• The Company launched the products in the optical communications sector in 2002.

** Not within the Group’s current business scope.

The Group’s current business is principally in the optical components and equipment and opto-electronic applications sectors. Products having the optical properties to cause the focusing, collimation, filtering, reflection or refraction of light, such as lenses, mirror surfaces and prisms used to process optical images fall within the optical components category. Optical equipment includes products such as cameras, monoculars, binoculars, microscopes, DVD pick-up heads and OA equipment, which incorporate optical components. In recent years, opto-electronic applications such as laser technologies, integrated with precision optical techniques, increasingly have been applied in precision measurement and medical treatment areas. Laser products include laser measurement devices such as laser range finders, laser meters and laser surgery instruments. Optical communications technologies provide fast and reliable broadband communications. Due to incompatibility between fiber-optic communications equipment and traditional copper wire systems, the Company expects that the fiber-optic communications sector will grow substantially.

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Optical components

The optical components industry is characterized by a large number of entrants with widely varying degrees of engineering and manufacturing expertise and sophistication. Because of the labor-intensive nature of optical component processing, most of the optical components facilities are located in the Asia Pacific region including Malaysia, Thailand, mainland China and Taiwan. Manufacturers located in these regions enjoy a labor cost advantage over manufacturing in other parts of the world. The Company believes that the trend toward outsourcing of manufacturing and the globalization of distribution has had a significant impact on the optical components sector and favors large optical components manufacturers who have the capacity to service large OEMs.

Optical equipment

The optical equipment industry supplies a wide variety of consumer, home and office optical equipment products. These products include still and video cameras, imaging devices such as monoculars, binoculars, microscopes and riflescopes and OA equipment such as scanners, photocopiers, laser printers, facsimile machines and LCD projectors. Currently, the optical equipment market is largely dominated by Japanese and U.S. brands. As the development of new optical equipment featuring central processing unit (“ CPU ”) and computerized memory increasingly utilizes state-of-the-art computer technologies, the Company believes that the market for computerized optical equipment such as digital cameras and OA equipment will continue to grow. The growth of the computerized optical equipment market may offset the decline of traditional, non-computerized imaging devices market, which mainly includes traditional cameras, binoculars, riflescopes and microscopes.

Opto-electronic applications

The opto-electronic applications sector includes products that employ laser technologies such as laser range finders. The main function of ordinary consumer laser range finders is the measurement of distances. As more people in the U.S. and Europe are placing importance on leisure and recreational activities than ever, the demand for these products in leisure and recreational areas such as golfing and mountaineering is increasing. The Group is one of the three current designers and producers of laser range finders worldwide.

Optical communications

The optical communications sector mainly consists of the systems and devices used for and related to fiber-optic communication technologies. The traditional method of fiber-optic communications is limited to several wavelengths such as optic signals 850 nm, 980 nm, 1,310 nm and 1,550 nm. To solve the problem of expensive right of way issues and high cable installation costs encountered by fiber-optic communication providers, high efficiency techniques such as dense wavelength division multiplexing (“ DWDM ”) are utilized to replace the time division multiplexing (TDM) technique. The development of DWDM technology requires several subsystems that the Group is currently able to provide such as collimators, transceivers, thin-film filters and DWDM modules.

Significant industry characteristics

Unit prices of products are affected by the level of the processing technology. Traditional optical equipment such as cameras, binoculars and microscopes are produced in large quantities because such products are necessary for day-to-day use. The unit prices of the optical components used in such products, including glass and plastic lenses, are generally low because the products are mass produced and easy to shape and process. On the other hand, the unit prices of high-end optical components, such as aspheric lenses which are used in high-end compact optical products, are relatively high because the optical components require more sophisticated processing technology. The Group is one of the leaders in the sophisticated processing technology which enables the Group to produce high-end high-margin optical products as well as lenses.

Most sales are on an OEM/ODM basis. For cost saving reasons, almost all brand names of optical products outsource the product manufacturing and designing work to third parties, such as the Group, on an OEM and ODM basis. As the Group is equipped with core optical and opto-electronic technologies, its products and customers are diversified. A substantial number of reputable brand names outsource the manufacturing and design work to the Group and all of the Group’s sales are on an OEM/ODM basis.

The manufacturing center is moving toward Southeast Asia and mainland China. Responding to the intense price competition in the optical components and equipment markets, many manufacturers gradually are

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moving their manufacturing center to Southeast Asia and mainland China in order to enjoy lower production costs. As a result, many Taiwanese optical components and equipment producers have manufacturing facilities located in both Taiwan and mainland China. While the Taiwan workforce manufactures more sophisticated optical components and equipment, the mainland China facilities mass-produce labor-intensive products.

History and Organization of the Group

The Company has operated in the optical components industry for more than 21 years since its incorporation in October 1980. Its original product line focused on the design and manufacture of optical components such as single-piece lenses, lens units and modules and finished optical products. The Company’s headquarters, certain production facilities and development facilities are located in Taichung, Taiwan. Originally, the Company’s business involved only processing optical components including grinding and coating of lenses. Some of the Group’s significant business milestones include:

• In 1982, the Company entered into a technical cooperation agreement with Sekon (Optical) Co., Ltd., a Japanese company, to produce lenses for optical apparatus for Sekon.

• In 1982, the Company started supplying Ricoh with lenses for 35 mm auto-focus cameras.

• In 1984, the Company entered into a technical cooperation agreement with Kenko Co., Ltd., a Japanese company, to develop and produce astronomical telescopes.

• In 1985, the Company entered into a cooperation agreement with Tasco for the production of riflescopes.

• In 1988, the Company started its overseas business investment and operation.

• In 1988, the Company successfully developed plastic injection technology for producing aspheric lenses.

• In 1989, the Company started manufacturing microscopes for medical and bio-chemical use under a cooperation agreement with Olympus.

• In 1992, the Group started manufacturing the Video 8 camera conversion lens for Sony.

• In 1993, the Company developed its own Optical Monitoring System in conjunction with Optical Electronics and System Laboratories (“ OES ”) of the Industrial Technology Research Institute, a government-operated research institute, and acquired an automatic optical-film processing system from Optical-Film Laboratory under the OES.

• In 1994, the Company acquired the nonlinear crystal coating technology from Optical-Film Laboratory of OES.

• In 1994, the Company commenced a joint-development program with the Information Storage Division of OES for the MODD (Magneto-optic Disk Driver) pick-up heads.

• In 1996, the laser range finder was successfully developed.

• In 1997, the Group successfully developed laser riflescopes; the production of laser riflescopes started in June 1998.

• In 1997, the Company passed the ISO 9001 certification.

• In 2000, the Group started producing DVD pick-up heads for Pioneer brand DVD ROMs and players.

• In 2000, the Group started manufacturing digital still cameras on an OEM basis.

• On 31st October, 2000, the Company was listed on the GTSM.

• In 2000, the Company started its precision glass molding manufacturing process.

• In 2001, the Company announced its success in the development of fiber-optic communication system components, such as DWDM modules, thin film filters, transceivers, collimators and fiber patchcords.

• On 26th August, 2002, the Company was listed on the TSE.

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The Group has continuously improved its multi-layer coating technologies for optical components in previous years, positioning itself as one of the leaders in multi-layer coating technology along with Japanese optical lens manufacturers. Recently, the Group has concentrated on the research, development and manufacture of aspheric lenses utilizing advanced glass molding and plastic injection technologies. The Group has attracted internationally well-known companies such as Bushnell, Canon, Funai, Hewlett Packard, Hitachi, Kodak, Nikon, Olympus, Pentax, Philips, Pioneer, Ricoh, Sony and Tasco as its customers for the production of camera lenses and lens units and modules for cameras, OA equipment, laser range finders, riflescopes and microscopes.

In 2000, the Group signed a contract with Pioneer to manufacture precision DVD pick-up heads utilizing its aspheric lens and multi-layer coating technologies. The Group commenced manufacturing of DVD pick-up heads for Pioneer in August 2000. Currently, the Group is the exclusive third-party supplier of DVD pick-up heads to Pioneer globally. The Company also is utilizing its aspheric lens and multi-layer coating technologies to develop and produce devices for fiber-optic communication on an ODM basis. Such devices include transceivers modules, collimators, fiber patch cords and erbium-dopped fiber amplifiers. The fiber-optic communications system components designed and manufactured by the Group are currently undergoing customer’s qualification process and are expected to be produced in the third quarter of 2002.

The Company’s first manufacturing plant in Taiwan is located at the corporate headquarters in Taichung, which commenced operations in 1981 providing lens grinding, polishing and coating. In 2001, the Company moved its sales and marketing department, research and development team and part of its manufacturing facilities into the An-he Plant in Taichung, Taiwan, which is located close to the headquarters.

The Group commenced manufacturing operations in the PRC with the opening of the Dongguan Plant in Guangdong Province, PRC in 1989 for the production of single-piece lenses, lens units and finished optical products. The Group’s Dongguan facilities are co-located with the Dongguan facilities of some of its principal customers including Nikon and Ricoh. This proximity enables the Group to coordinate closely with these customers and control supply chain issues such as inventory management and manufacturing lead-time. Currently, more than 70% of the Group’s products are produced at manufacturing plants in the PRC. The Group commenced operation of the Manila Plant in the Philippines in 1991 which produces principally riflescopes.

The Group has received ISO 9000 series accreditation for all of its facilities. In addition, the headquarters and the An-he Plant have been recommended for ISO 14001 certification.

The following diagram shows the structure of the Group, including the Company and its principal subsidiaries and affiliates, as of 30th June, 2003, together with details of the Company’s direct and indirect equity interests in its subsidiaries and affiliates. See “ — Principal Subsidiaries and Affiliates”.

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==> picture [505 x 195] intentionally omitted <==

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

Asia Optical Co., Inc.
100% 100% 100% 33.3%
Powerlink Richman Asia
Asia Optical Electronic Internationa Photonics
International International l Group Co. Technology
Ltd. [(1)] Ltd. [(1)] Ltd. Co., Ltd.
23.9% [(2)]
14% 40% 60% 100% 35% 55% 19.5% [16.1% ]
Dongguan
Technology Dongguan Pioneer Instruments Surveying Nikon International Industries Winton Optical Co., Dongguan Sintai Camera Co., Hangzhou Nikon Optical Co., Scopro Ltd. [(1)] Lab, Inc.Match Optical Co., Dongguan Tailien
Co. Ltd. Co., Ltd. Ltd. Ltd. [(1)] Ltd. 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) The investment from the Company to Dongguan Tailien is made through Richman International Group Co., Ltd. Richman International Group Co., Ltd. holds the shares for the benefit of the Company.

• (3) As of June 30, 2003, the Company has acquired 100% of Asia Optical International Ltd.

The Company’s corporate headquarters are located at No. 22-3 South Second Road, Taichung Export Processing Zone (T.E.P.Z.), Taichung 427, Taiwan, ROC. The Company’s principal place of business is the An-he Plant located at No. 98 An-he Road, Tan-Zu Shiang, Taichung 427, Taiwan, ROC.

Research and Development; Core Technologies

The Company believes that its continuing research and development efforts facilitate its ability to periodically introduce innovative, 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 Group’s operations. The speed and efficiency of its efforts are enhanced by a close working relationship between its sales and marketing department, its research and development team and the factories. Designs for new products can be developed efficiently into prototypes that can be analyzed, tested and re-engineered. Further, the Group’s extensive sales network is responsible for understanding the Group’s customers’ evolving needs and providing customer feedback regarding customer needs and requirements directly to the research and development team.

The Group 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 endeavors to apply approximately 3% of its net revenues to research and development. The focus areas of the Group’s research and development activities are new product development, process and technology improvement and costs efficiency. The Group’s research and development facilities are located principally in Taiwan and mainland China, while core technologies are managed by the research and development team in Taiwan. Currently, the Company outsources development tasks in connection with part of its fiber-optic communications and laser measurement devices to Asia Photonics Technology Co., Ltd., an affiliate of the Company. Asia Photonics specializes in research and development of opto-electronics technologies and conducts research and development for the Company on an exclusive basis. Asia Photonics employs more than 40 full-time professional engineers. The Company’s research and development department focuses on new product research and development in the areas of precision molding, grinding and coating of optical components, and the incorporation of optical components with various properties in consumer, OA and fiber-optic communications products.

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The Group has established the RD Center, through which the research and development resources of Asia Optical, Asia Photonics, Dongguan Sintai and Hangzhou Nikon Camera will be coordinated and focused for the development of new products and processes on a project basis. Related research and development costs will be allocated, and rights to use resulting technologies will be shared, as specified in each project proposal. The RD Center is further divided into Prototype Center, Optical Engineering Center, Opto-electronics Center, Imaging Technology Center, Image Center and Molding Center to cover the Group’s research and development activities in relation to all different product areas. The RD Center’s ability to involve research and development staffs across all relevant sub-centers and solve problems in the initial stage of development enables the Group to conduct research and development more efficiently.

The Group employs a broad range of technologies in manufacturing the Group’s products and developing new products. All of the Group’s optical components and lens units products and many of the Group’s final products incorporate the following three core technologies: (i) optical system design in order to capture high-resolution images; (ii) multi-layer lens coating technologies to achieve desired reflection and refraction characteristics; and (iii) aspheric lens manufacturing techniques to make compact but high-resolution lenses and lens units. The Company believes that the multi-layer coating technologies and the aspheric lens processing technologies are significant factors to the success of the Group’s optical components, cameras, DVD pick-up heads and other finished optical products. The Group is currently among the top-tier manufacturers of multi-layer coated aspheric lenses, which are core components of high-end finished optical products and fiber-optic communication modules.

Optical system design

Optical system design is the foundation for creating reliable imaging devices such as cameras, scanners, facsimile machines, monoculars and binoculars. 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. The Group’s engineers develop either 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 films in 35 mm cameras or sensors in digital still cameras. Examples of design adjustments include:

• Curvature design : The Group’s engineers design the curvature of a lens 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. Experienced engineers are able to design a lens unit with the fewest lenses required to provide perfect image resolutions.

• 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 has a wealth of expertise in designing zooming lens units to reach focal point optimization.

Multi-layer coating technologies

Coating is an optical process that adjusts the reflection in physical imaging. When light passes from one optical medium to another (especially from air to glass and vice versa in a lens), approximately 4% to 8% of it is lost by reflection at the interface. The light loss is compounded appreciably in complex multi-layer lenses. In addition, a portion of the reflected light still reaches the film or other image processing device, causing ghost images light spots or contrast-reducing scattered light. To reduce such losses and avoid scattered light effects, the air-to-glass surfaces of modern lenses typically carry a microscopically thin coating of metallic fluorides. The coating eliminates most reflected rays. In practice, a coating lens surface reflects about 0.5% of incident white light, which is one-tenth of the light lost by an uncoated lens. Multi-layer coating can reduce reflections over a wider wavelength range.

Coating on lenses can be processed by either e-beam technology or ion-beam technology:

• E-beam coating technology involves placing the glass component to be coated at the top of a vacuum chamber. At the bottom of the chamber are the elements to be applied one layer at a time. A

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heating element applies intense heat, which vaporizes the chemical and sends it into the chamber and on to the surface of the glass. After the chemical cools in an even layer due to the vacuum, the layer is tested for any deviation. If there is deviation, it can be corrected to some degree before the next chemical layer is applied. However, given that some of the deviation will remain even after the correction process, it is imperative that each layer be applied as accurately as possible, especially for glass with multiple coatings.

• Ion-beam coating technology involves placing the glass component to be coated at the top of a vacuum chamber with the chemical to be applied at the bottom. Instead of using heat, an electric pulse gun is used to break down the chemical into its crystalline structure, sending it into the chamber and on to the glass. Each layer also must be tested and corrected as needed.

E-beam is a widely used coating method with efficiency advantage but is less precise than the ion-beam method. The ion-beam process is an advanced coating technology specifically developed for lenses requiring precision coatings. Both the e-beam and the ion-beam process attach a thin coating of metallic fluorides on the lens surfaces. The Group applies both technologies in manufacturing products to rigorous technical specifications such as DVD pick-up heads, which require 40 or more coating layers, and thin-film filters for fiber-optic communications, which require up to 180 layers. The Company believes that the Group is one of the world leaders in the application of multi-layer coating technologies.

Aspheric lens molding technologies

In the traditional production process, optical lenses are produced by automatic or manual grinding and polishing and the lenses produced are all spherical lenses. The processing of spherical lenses is time-consuming and labor intensive. The Company produces spherical lenses, which are used in a wide variety of applications from cameras to OA equipment, in large volumes at its facilities in the PRC. Spherical rectifying lenses usually must be used in combination with spherical lenses to correct distortions that may be introduced by the spherical lenses. This necessity to use multiple lenses adds to the size and weight of a lens unit and limits flexibility in designing lighter and more compact consumer products.

To address these issues, the Group and other leading manufacturers are working on the development of high precision aspheric lens technologies. An aspheric lens is an optical glass with the variable curvature of a parabolic or other surface rather than the constant curvature of a spherical one. Due to the variety in the curved surface, aspheric lenses can reduce the image deviation created by spherical lenses so as to improve the quality of image and reduce the size of a lens unit. As an aspheric lens unit contains no spherical rectifying lenses to supplement and correct the image deviation, it is suitable for compact products such as scanners, digital still cameras, DVD pick-up heads, PC cameras and collimators.

Aspheric lenses can be created in the following three ways:

• Glass molding : The surface of the lens is formed in a mold into a specified shape by applying appropriate temperature and pressure, depending on the characteristic of the material glass. Molded aspheric lenses are suitable for mass-production, but they may not realize the high optical performance demanded by customers if the mold is not precisely and correctly tooled. The Company has developed leading tooling technology for glass molding and is capable of manufacturing aspheric lenses on a mass-production basis.

• Hybrid : Melted plastic formed in a mold is added to the surface of a lens in order to reach correct curvature. The hybrid process is fast and efficient, but the curvature is more likely to lose its shape due to differential physical characteristics of glass and plastics.

• Plastic injection : Plastic rather than glass is used to make aspheric lenses. The process is more time and cost efficient than hybrid and glass molding. However, temperature changes usually seriously impact the curvature of the lens, which results in an increase in the aberration between real and optimum focal point.

Using all of the above techniques, the Company produces aspheric lenses and lens units required by its customers for specific products and applications on a mass-production basis.

Products

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The Group capitalizes on its optical and industrial engineering expertise, its vertically integrated production process and its expertise in low cost, high quality mass production to offer quality products to its customers. The products manufactured by the Group can be categorized as follows:

• optical components including single-piece lenses, lens units and modules;

• cameras including 35 mm, APS and digital still cameras;

• DVD pick-up heads;

• Other finished products including laser range finders, microscopes and riflescopes and projectors; and

• photoconducting image sensors and other products.

The Group supplies its products on an OEM/ODM basis to leading brand names of opto-electronic and imaging products, laser range finders, microscopes, riflescopes, cameras, DVD pick-up heads, photoconducting image sensors and other consumer opto-electronic products.

The table below sets out the Company’s consolidated net sales and percentages by product category for the years ended 31st December, 2000, 2001 and 2002.

2000 NT$’000 Optical components(1).................................. 3,142,674 Cameras(2).................................................... 1,283,525 DVD pick-up heads(3).................................. 251,468 Other finished optical products(4) ................ 753,310 Photoconducting image sensors and other products(5)............................... 1,019,912 Net sales ...................................................... 6,450,889		Year ended 31st December,	Year ended 31st December,	Year ended 31st December,	Year ended 31st December,
	2000	% 48.7 19.9 3.9 11.7 15.8 100.0	(consolidated) 2001 NT$’000 % 3,771,182 35.0 2,276,787 21.1 1,740,612 16.1 889,798 8.2 2,110,098 19.6 10,788,477 100.0	2002
			NT$’000 3,771,182 2,276,787 1,740,612 889,798 2,110,098 10,788,477	NT$’000 4,278,702 1,540,511 4,198,293 1,096,697 2,115,640 13,229,843	% 32.3 11.7 31.7 8.3 16.0
					100.0

(1) Includes single-piece lenses and lens units and modules.

(2) Includes 35 mm, APS and digital still cameras.

(3) Since August 2000, the Group has supplied DVD pick-up heads to Pioneer for use in its DVD ROMs and players.

(4) Includes laser range finders, microscopes, riflescopes and projectors.

(5) Other products include camera flash units, camera shutters and OA equipment components other than photoconducting image sensors.

Optical components

The Group designs, manufactures and sells single-piece optical lenses processed by its grinding, coating and/or glass molding technologies to be used in a variety of imaging or range measurement products. The Group’s single-piece lens products include optical lenses, lens surface and prism lenses. Although some of the Group’s customers purchase single-piece lenses directly from the Group, most of the Group’s single-piece lens products are incorporated into the lens units, finished products, cameras, DVD pick-up heads and other finished products produced by the members of the Group.

Lens units and modules which integrate multiple single-piece lenses and other materials, such as plastic cases, are in most cases among the critical components for finished products such as OA equipment, laser measurement devices, cameras, DVD pick-up heads and other imaging products. The Group manufactures and sells a wide variety of lens units and modules primarily for 35 mm cameras, APS cameras, digital still cameras, handset camera modules, laser measurement devices, DVD pick-up heads and OA equipment includes scanners,

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photocopiers, laser printers, facsimile machines and LCD projectors. Currently, the Group is developing fiber-optic communication system components that employ the Group’s lens units.

The chart below summarizes the applications for the Group’s lens units and modules, together with the information of any special lens utilized:

Product � Camera, exchange lenses and video camera.................................. � Projectors and projecting televisions...................................... � CD player, VCD player and DVD player ................................... � Image scanner and bar code reader .............................. � Laser printer................................... � Laser measuring, testing and processing meter............................ � Telescope and microscope..................................... � Facsimile and photocopying machine...................	Lens Combination Lens, imaging, zoom lens Lens, reflex lens, condenser lens, filter lens pick-up lens, collimator lens, prism lens Image scanner lens unit Collimator lens, image scanning lens unit Collimator lens Object lens, eyepieces lens, collimator lens Magnifying lens, image scanner lens unit	Special Lens
		Aspheric lens Aspheric lens, cold optical lens, filter optical lens Aspheric lens, spectroscope lens, translucent lens, refractive index distribution lens Aspheric lens, refractive index distribution lens Refractive index distribution lens Aspheric lens Aspheric lens, prism lens Aspheric lens, refractive index distribution lens

For the years ended 31st December, 2000, 2001 and 2002, sales of optical components accounted for 48.7%, 35.0% and 32.3%, respectively, of the Company’s consolidated net sales. Optical components also are used in the finished products, including cameras and DVD pick-up heads manufactured by members of the Group. The sales information for optical components discussed in this Offering Circular excludes such internal sales.

Cameras

Cameras manufactured by the Group include digital still cameras, 35 mm cameras and APS cameras. For the years ended 31st December, 2000, 2001 and 2002, camera products accounted for 19.9%, 21.1% and 11.7%, respectively, of the consolidated net sales of the Company.

Digital still cameras. 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 began manufacturing digital still cameras in 2000. Currently, the Company supplies digital still cameras primarily to Olympus on an ODM basis. The Company has continuously developed new models for its existing customers and plans to supply digital still cameras to other brand name manufactures on an ODM basis. In addition to the ODM manufacturing, the Group also manufactures digital still cameras on an OEM basis for other contract manufacturers, such as Altek Corporation (“ Altek ”). In 2002, the Group produced approximately 1,159,000 digital still cameras for Altek, those were further supplied to the brand name digital still camera makers.

The Group’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 Group are: 1.3 million, 2.1 million, 2.3 million and 3.3 million pixels per frame. Additional features incorporated into some models include liquid crystal display images, optical zoom

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features (with 2 or 3 times magnification), digital zoom features (with 7 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 Group is 2.3 million-pixel models, though its technology is capable of manufacturing 4.3 million pixels or higher resolution digital still cameras.

35 mm cameras. The designation “35 mm” in “35 mm cameras” refers to the most commonly used film format applied in these cameras. In this format the film is 35 mm wide. The Company began to manufacture 35 mm cameras for its customers under the customers’ brand names in 2000. The Group continues to develop and manufacture 35 mm cameras for major brand-name customers only on an ODM or OEM basis.

The Group’s 35 mm cameras can be categorized into fixed focus cameras, auto-focus cameras and cameras with a zoom lens feature of 1.6, 2, 3, 4 or 10 times magnification. Different models of automatic cameras are equipped with additional features such as automatic flash, automatic red-eye reduction flash, a date module which prints the date when the photograph was taken on the negative, automatic exposure control, self-timer and remote control, among others. Camera models are also distinguished by the shape, color, material and decoration of the casing which is designed to appeal to particular market segments and to reflect customer brand characteristics.

APS cameras. The Advanced Photo System, or APS, is a system for amateur photography introduced in 1996. APS was jointly developed by Canon, Kodak, Fuji, Minolta and Nikon. APS is based on a new film format and on new camera design and manufacturing and photo finishing techniques. APS provides thumbnail prints to enable the preview of photographs prior to printing and provides the option to take photographs in landscape or panoramic proportions. It also allows drop-in film loading and permits the film to be removed and re-inserted mid-roll.

In 2001, the Group manufactured two different models of APS cameras under licenses from customers on behalf of the joint developers of APS. The Group’s APS cameras can be categorized into fixed-focus and auto-focus APS cameras and APS cameras with a zoom lens feature of 2 and 3 times magnification. Different models of APS cameras are equipped with additional features such as automatic flash, automatic red-eye reduction flash, automatic exposure control, self-timer and remote control, among others. APS camera models also are distinguished by the shape, color, material and decoration of the casing which is designed to appeal to particular market segments and to reflect customer brand characteristics.

DVD pick-up heads

In 1995, Philips and Sony introduced a new type of disc, known as a digital videodisc (“ DVD ”), which was able to store up to 4.7 gigabytes of data, such as high-definition digital video files. The mechanical function of playing back a DVD is the same as playing back a compact disc (“ CD ”). When the light beam strikes a land on the surface of a DVD, it is reflected back to a photodiode and an electrical pulse is generated; when the light beam strikes a pit, however, no electrical pulse is generated. Although a DVD has the same dimensions as a standard CD, it uses a higher-power red laser (0.65 micrometer) that enables smaller pits (0.4 micrometer) and separation tracks (0.74 micrometer). Therefore, the laser signal reader or pick-up head in a DVD requires more precise optical characteristics than an ordinary CD signal pick-up head.

In 2000, the Company signed a contract with Pioneer to manufacture precision DVD pick-up heads utilizing its aspheric lens and multi-layer coating technologies. The Group commenced manufacturing of DVD pick-up heads for Pioneer in August 2000. Currently, the Group is the exclusive third-party supplier of DVD pick-up heads to Pioneer globally. All DVD pick-up heads supplied to Pioneer are manufactured in the Group’s Dongguan Plant.

For the years ended 31st December, 2000, 2001 and 2002, DVD pick-up heads accounted for 3.9% and 16.1% and 31.7%, respectively, of the consolidated net sales of the Company.

Finished optical products

Finished optical products produced by the Group principally consist of:

• laser range finders;

• riflescopes;

• microscopes; and

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• projectors.

The Company manufactures finished optical products for its customers solely on an OEM/ODM basis.

For the years ended 31st December, 2000, 2001 and 2002, sales of finished optical products accounted for 11.7%, 8.2% and 8.3%, respectively, of the Company’s consolidated net sales.

Laser range finder. The laser range finder is a relatively new product line of the Group. The Group plans to expand the product lines and sales volume of this product line in the next few years.

The key function of a laser range finder for ordinary consumers is to measure distance. Over the years, people start using a laser range finder in leisure and recreational activities such as golfing and mountaineering. To satisfy the various demands in the market, the size and weight of laser range finders have been decreased over time. Currently, the Group produces most of the laser range finder products sold under the Nikon and Bushnell brand names on an ODM basis.

The Group currently is producing laser range finders with maximum effectiveness of 800 meters. The Group’s monthly capacity for laser range finders is approximately 29,000 units.

The Company currently is developing a new laser measurement device referred to as a laser meter, with shorter but more precise measurement functions, accurate to less than 1 mm, to be used for consumer’s day-to-day measuring needs. The Company believes that laser range finders and laser meters will become one of the Company’s most popular products in the foreseeable future.

For the years ended 31st December, 2000, 2001 and 2002, sales of laser range finders accounted for 3.4% and 3.6% and 3.5%, respectively, of the Company’s consolidated net sales.

Riflescopes. Riflescopes are used for hunting. The Group’s riflescopes products are all produced by Scopro Optical Co., Inc., a subsidiary of the Company located in the Philippines. Sales of riflescopes manufactured by Scopro, sold under the brand names Bushnell and Tasco, accounted for more than one third of total riflescopes imported into the United States in 2001.

For the years ended 31st December, 2000, 2001 and 2002, riflescopes accounted for 5.7%, 3.5% and 3.4%, respectively, of the consolidated net sales of the Company.

Microscopes. The Group manufactures microscopes for medical and experimental purposes on an ODM basis under the Olympus brand name.

For the years ended 31st December, 2000, 2001 and 2002, microscopes accounted for 2.6%, 1.2% and 1.4%, respectively, of the consolidated net sales of the Company.

Projectors. In 2002, the Group entered into an agreement with Philips to co-develop the projection engines for LCD projectors and DLP projectors on an ODM basis utilizing its optical components technology. The Group manufactures the projectors based on the specification provided by Philips and delivers the projectors in the form of finished products. In response to Philips’s request, the Group has organized a 40-person team concentrated on the research and production of projectors. The Group also supplies projectors to Funai.

Photoconducting image sensors

The Group manufactures photoconducting image sensors (“ PIS ”) in its mainland China facilities on an OEM basis. PIS is a critical part widely used in modern OA equipment such as photocopiers, scanners, laser printers and facsimile machines.

PIS consist of amorphous silicon thin films which are amorphous semiconductors. Amorphous selenium (Se) or amorphous arsenic selenide (As2Se3) is used to form the thin-film, large-area photoconducting element that lies at the heart of the xerographic process. Amorphous silicon film serves as the photoreceptor in all xerographic photocopiers, scanners, laser printers and facsimile machines by utilizing its ability to be vapor-deposited in the form of large-area thin films. The photoconductor, which is an electrical insulator in the absence of light but which conducts electricity when illuminated, is exposed to an image of the document to be copied or scanned. The electrical impulses generated are then transformed into digital or analogue signals for further processing, including being transmitted through a modem in the case of facsimile machines. This process is also widely used in laser printers, in which the photoconductor is exposed to a digitally controlled on-and-off laser beam that is raster scanned over the photoconductor surface.

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For the years ended 31st December, 2000, 2001 and 2002, photoconducting image sensor products accounted for 12.8%, 17.0% and 12.3%, respectively, of the consolidated net sales of the Company.

In addition, since 1989, the Group has manufactured camera flash units and camera shutters on an OEM basis. For the years ended 31st December, 2000, 2001 and 2002, the flash units and camera shutters products as a whole accounted for 3.0%, 2.7% and 3.7%, respectively, of the consolidated net sales of the Company.

New Products

In evaluating the feasibility of new product introductions, the Group’s research and development and sales and marketing teams evaluate both the anticipated demand for the product, and whether the product will allow the Company to capitalize on the comparative advantage provided by its core technologies and competence. Such products with attractive margins and that have the potential to support the Company’s revenue growth targets are undertaken as new products.

Fiber-optic communication system components

The Group started to manufacture fiber-optic communication system components such as DWDM, CWDM, transceiver, collimator and thin-film filter in 2003.

The traditional manner of fiber-optic communication is limited to several wavelengths such as optic signals 850 nm, 980 nm, 1,310 nm and 1,550 nm. To solve the problem of expensive right of way issues and high cable installation costs encountered by fiber-optic communication providers, they have developed a high efficiency set of fiber-optic communication technology, the DWDM system, to replace the TDM technology.

The DWDM system uses one fiber to transmit optic signals of different wavelengths. Information from various sources is enclosed in a single collimator but transmitted by multiple wavelengths. A single optical fiber can carry as many as 128 channels, which greatly increases the bandwidth of network transmission. The DWDM system lowers the congestion in the telecommunication network by increasing the bandwidth of a single collimator.

By utilizing its core technologies and experience in optical engineering, the Company is producing thin-film filter for use in DWDM modules. A piece of thin-film filter measuring as large as 10 cm[2] is produced in a matrix consisting of 100 tiny optical lenses. These optical lenses “merge” light rays of different wavelengths into one ray to facilitate transmission by a single collimator and “cut” the transmitted ray into its original wavelengths after being amplified. The Company also manufactures various fiber-optic communications products such as CWDMs, transceivers modules, collimators, fiber patch cords and erbium-dopped fiber amplifiers.

Advanced binoculars

The Group’s research and development team is developing an advanced binocular that integrates the traditional binocular, laser range finder and digital compass into one unit. The integrated binocular provides the user with sharp image as well as distance and direction information. The Company believes that consumers will find the advanced binocular to be ideal for marine and other outdoor activities.

The Company has successfully developed new models of advanced binoculars which are equipped with digital still cameras. The digital still camera binoculars are able to zoom in distant objects in fine detail like traditional binoculars, and digitally capture and save images like digital still cameras at the same time. The Company’s digital still camera binoculars products were co-developed with Kowa Company Limited, which provided its expertise in the mechanics of binoculars. The Company has launched the new products in the second half of 2003.

Production Process

The Group’s production process for all of its product lines starts with lens processing. Using a wide variety of technologies and processes from design and procurement through final manufacturing and testing, the Group manufactures virtually all of the optical components it requires for incorporation into finished products, thereby achieving a high degree of vertical integration. The following flowchart illustrates the production process from processing optical components and lens units to assembly of finished products:

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==> picture [445 x 309] intentionally omitted <==

The divisions responsible for manufacturing the optical components work closely with the divisions responsible for the production of final products to match the demand for optical components with the required characteristics. Through vertical integration, the Company believes that the Group is able to achieve a greater degree of quality control and control over its supply chain and inventory levels.

Quality control tests are conducted on raw optical glass and plastics used in the production process. In addition, quality control procedures and tests are conducted at each manufacturing and assembly stage. The Group also arranges for certain of its customers to conduct periodic on-site quality inspections. See “— Quality Control”.

Although the Company has installed computerized equipment to increase the automation of its production process, it believes that manual assembly will continue to be one of the important elements in the production of certain of its products. Since 2002, the Company has taken steps to increase the efficiency and decrease costs associated with manual processing.

Quality Control

The Company has instituted a comprehensive quality assurance program to ensure the implementation of its firmwide quality assurance policy. This policy rests on five basic principles, namely:

• customer first — products must consistently achieve highest quality to meet customer demands;

• efficiency — provision of prototypes and final products within the timeframe as required by the customers;

• leading technology — utilization of increasingly advanced technical solutions will accelerate the Company’s competitive advantage;

• systematic quality assurance processes — quality assurance processes are implemented on a systematic basis to create an environment that supports use of statistical tools to evaluate and improve performance; and

• in-process quality assurance — the quality of each processing stage must be assured to reduce the cost and time of duplicated quality checking.

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In order to implement the quality assurance program comprehensively, the Company has established a Quality Assurance Division. The Quality Assurance Division is responsible for:

• quality goal planning and follow-up;

• establishing and auditing the operation of the quality assurance system;

• certification programs, including ISO;

• quality assurance education and training;

• customer complaint follow-up and improvement; and

• quality assurance documentation control.

The Quality Assurance Division provides support in all of the above areas to the quality assurance division of each of the manufacturing divisions. The Quality Assurance Division 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.

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 the optical and photonic industries. The Company has been accredited for ISO9001 certification since 1998 and the certification is extended to subsidiaries.

The above quality assurance program is followed by all facilities operated by the members of the Group. The Company also employs an extensive material quality control process by a Quality Control Division, which is separate from the Quality Assurance Division.

Raw Materials and Components

Raw materials

The Group uses a variety of raw materials and components in its manufacturing processes. Raw materials used in the manufacturing process of optical components include raw optical glasses, optical plastic, plastic resins, aluminum plates and specialty chemicals for coating. The Group purchases these items in quantity from a number of suppliers based on market prices. To a large extent, the pricing and other terms of these purchases follow world commodity prices. The principal raw materials used by the Group include:

Products �Single-piece lenses ........................... �Lens units and modules ....................	Raw materials and components
	Raw optical glasses, optical plastics, flat lens and coating chemicals. Raw optical glasses, optical plastics, flat lens and coating chemicals, plastic resins and aluminum plates.

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Primary suppliers of key raw materials include:

Material �Raw optical glasses........................... �Optical plastics ................................. �Coating chemicals.............................	Suppliers
	Ohara, NSG, Hoya Itochu, Hong Kong TTC, Canon Taiwan Shuwa, Mabuchi

Components and parts for finished products

The Group relies on third party suppliers for components and parts other than the optical components manufactured in-house for assembling of finished products. Many of the third party suppliers are related parties who provide components and parties to the Group on an arms-length basis. See “— Principal Subsidiaries and Affiliates”, “— Related Party Transactions” and Note 21 to the “Consolidated Financial Statements as at and for the years ended 31st December, 2000, 2001 and 2002”. In the case of certain components and parts, the Group is required to purchase from third party suppliers approved not only by it, but by its OEM/ODM customers as well.

Primary components and parts as well as the key suppliers for finished products categorized by the products are as follows:

Finishedproducts �Laser ranger finders.................. �Riflescopes ............................... �Microscopes ............................. �DVD pick-up heads.................. �35 mm and APS cameras.......... �Digital still cameras..................	Key components andparts �Laser Diode �Body �Inner scope �Outside scope �Prism �Body �IC; PCB �Capacitor; Resistor �Auto range finder �AF PCB �LS Motor �Main Board	Key suppliers
		Prosil, Perkinelmer, EG&G Panwell Metal Yunglun Industrial Panwell Metal Olympus Olympus Pioneer, Towada Pioneer, Towada, Had Shin, Hong Kong EPE Copal Copal Nittoh Info-tek, Chip Set

The Group 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 principal raw materials and components. Procurement of the Group’s raw materials and components is centralized based on the requirements provided by each production division and subsidiary 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 raw materials and components is performed by each of the members of the Group. The Group’s Quality Control Division performs a series of incoming quality checks to assure compliance with the standards of all incoming raw materials and components.

The Group has not experienced any significant delay or constraint in production due to disruption of supply of raw materials and components. The Company believes that there are sufficient alternative suppliers of all of the Group’s important raw materials and components to allow the Group to shift to such other suppliers if necessary.

Facilities

The Company and its subsidiaries operate four production facilities in Taiwan, mainland China and the Philippines. Some of the Group’s key customers lease space from the Group and have established their subsidiaries within the Group’s production facilities in mainland China for the prompt delivery of products and ease of communications.

The following table sets forth the location and primary use of the production facilities of the Group as of 31st January, 2002:

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Location Taiwan Headquarters........................ An-he Plant, Taichung......... Mainland China Dongguan, Guangdong........ The Philippines Manila..................................	Principalproducts andprocessing Glass grinding, microscopes, fiber polishing Glass molding center, fiber-optic telecommunication system modules, precision coating, microscopes Optical components, laser range finders, DVD pick-up heads, cameras and OA equipment components Riflescopes	Total floor area m2 9,663 13,051 35,800 2,986	Owned or leased
			Leased and owned Owned Owned Owned

Taiwan

The Group has two production facilities in Taichung Hsien, Taiwan, including the Company’s headquarters and the An-he Plant. These facilities are capable of performing complicated optical processes such as glass molding of aspheric lenses and principally produce high-end optical components. The An-he Plant also has a tooling center to support the aspheric lenses molding operations in all facilities.

Headquarters. The Company’s headquarters are located within the Taichung Export Processing Zone (“ T.E.P.Z. ”), which is an industrial zone specially established by the ROC Ministry of Economic Affairs. The Company’s headquarters are in an eleven-floor building that is partially owned by the Company. The total floor area of the Company’s headquarters is 9,663 square meters. Without carrying any administrative, sales and marketing and research and development functions, the facilities within the headquarters concentrate on the processing of optical components and assembly of microscopes. The Company intends to maintain the headquarters within the T.E.P.Z. in order to enjoy certain tax benefits and other government incentive awards.

An-he Plant. The Company’s An-he Plant is located in Taichung Hsien, Taiwan, in a seven-floor building that is owned by the Company. The total floor area of the An-he Plant building is 13,051 square meters. The Company engages in sales and marketing, research and development and testing and provides administrative services at the An-he Plant. The Company’s tooling center and certain manufacturing facilities also are located in the An-he Plant building. Asia Photonics is located in the An-he Plant in order to work closely with the Company’s research and development team and provide immediate technical support for all plants, including the one in the An-he Plant building.

Mainland China

Dongguan Plant. The Dongguan Plant produces a wide range of products from optical components to finished products, excluding riflescopes and microscopes. As the Group positions itself as an OEM/ODM manufacturer of optical and opto-electronic products, some of the Group’s key customers such as Pioneer, Philips, Nikon and Ricoh established their subsidiaries in Dongguan Plant to obtain prompt manufacturing solutions from the Group. The Group also has research and development and testing facilities at the Dongguan Plant. The Dongguan Plant complex is comprised of three adjacent buildings that are owned by the Group. The total floor area of the Dongguan plant complex is 35,800 square meters. The factory complex also has dormitory facilities to accommodate factory workers.

The Philippines

Manila Plant. The Group produces riflescopes at the Manila Plant. Scopro Optical Co., Inc., the Company’s Philippines subsidiary, is a licensed exporter of riflescopes into the United States certified by U.S. Customs. Riflescopes are the only product manufactured in the Manila Plant. 270 employees work in the Manila Plant. The Manila Plant is located in a three-floor building that is owned by the Group. The total floor area of Manila Plant is 2,986 square meters.

Intellectual Property

As of 30th June, 2003, the Company held a total of 41 patents registered in the ROC, the United States, the PRC and elsewhere for products and technologies developed through its own efforts as well as joint research

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and development efforts with other companies. Most of the Company’s current patents will expire between 2017 and 2020. In addition, as of 30th June, 2003, the Company had 143 patents either pending or under review in various jurisdictions including the ROC and the United States. The Company generally intends to continue to seek patent protection on any new inventions in design or process technology.

A number of elements of the Group’s products and technological processes are proprietary in nature and are owned by the Company.

The Company has registered seven trademarks and service marks in the ROC and one trademark in the PRC.

Competition

The Group operates in an international market characterized by intense competition among companies that engage in optical components manufactured for cameras, OA equipment, laser measurement devices, DVD pick-up heads and other imaging products. The Company also competes with the other OEM/ODM manufacturers of riflescopes, microscopes, cameras, laser range finders, DVD pick-up heads, OA equipment components and other imaging products. The Group competes with different companies depending on the type of product or geographic area. The Group’s major competitors in different product areas include:

Products Areas �Optical components .......................... �Digital still cameras (including ODM / OEM basis) ......... �DVD pick-up heads (components and sets) ......................	Competitors
	Largan Inc. (“Largan”), Altek Sanyo Electric Co., Ltd. (“Sanyo”), Premier Image Technology Corporation, Altek, Aiptek Incorporated, Primax Electronics, Mustek Systems Inc. (“Mustek”), Ability Enterprise Co., Ltd, Largan, Philips; Sony Corporation, Sanyo, Mustek

In light of the broad diversification of the Group’s product lines, most of the Group’s competitors do not compete with the Group across the entire spectrum of product lines. However, a number of companies are much larger and have greater manufacturing, financial, research and development and marketing resources than the Group. Some of these competitors also carry product lines that the Group does not carry and provide services that the Company does not provide. The Group also faces competition from the manufacturing operations of its OEM/ODM customers, who continuously evaluate the merits of manufacturing products internally versus outsourcing to contract manufacturers.

The Company believes that the primary bases of competition are a combination of engineering capability, support 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 the Group currently competes favorably with respect to all these factors. However, to remain competitive, the Group must continue to provide technologically advanced manufacturing services, maintain quality levels, offer flexible and reliable delivery and provide competitive pricing.

Sales and Marketing

The Group’s sales and marketing efforts are conducted by a direct sales force. The Group sells its products pursuant to specific customer purchase orders. In limited cases the customers may cancel the purchase orders subject to a penalty, which is charged based on the timing of such cancellation. The sales and marketing process usually 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 has been an approved vendor for major photonic manufacturers including Nikon, Canon, Ricoh and Tasco, since the 1980s. The Group also conducts a direct and active marketing strategy including advertising in trade publications and attending trade shows and exhibitions.

The Group’s customers generally are invoiced at the time of delivery of the products with varying credit terms depending, in part, on where the customer is located and the product type. The Group’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.

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The following table sets forth a breakdown of the Group’s total sales by geographical region for the periods indicated:

Taiwan Asia (except Taiwan) Americas Europe and Others Total	Year ended 31st December,	Year ended 31st December,	Year ended 31st December,	Year ended 31st December,	Year ended 31st December,	Six months ended 30thJune,	Six months ended 30thJune,	Six months ended 30thJune,	Six months ended 30thJune,	Six months ended 30thJune,
	2000	2001		2002		2002			2003
	% 391.7 6.1 5,595.2 86.7 431.3 6.7 32.7 0.5	(Consolidated) (Non-consolidated) (NT$ millions, except percentages) % % % % 299.5 2.8 445.3 3.4 194.1 16.5 190.3 9.6 9,985.4 92.5 12,258.5 92.6 749.4 63.7 1,428.7 72.3 497.9 4.6 538.1 4.1 115.7 9.9 187.9 9.5 5.7 0.1 (12.1) (0.1) 116.9 9.0 169.5 8.6
	6,450.9 100.0	10,788.5	100.0	13,229.8	100.0	1,176.1	100.0	1,976.4		100.0

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 optical components for leading product models under key customers’ brand names. The strategy requires advanced technologies, full commitment to the customers’ products and reliability. Some of the Group’s customers such as Nikon, Ricoh, Pioneer and Philips have already established subsidiaries in some of the Group’s premises in order to work more closely with the Group.

The Revenues generated from the Group’s major customers for each type of product as a percentage of total revenues on a consolidated basis as of 31st December 2002 is as follows:

Products Areas	Customers Ricoh, Sony, Tasco, Pentax, Philip, Olympus, Nikon, Canon, Funai, Hitachi and others Kodak, Olympus, HP and others Pioneer, Funai and others Bushnell, Tasco and others Ricoh and others	Percentage of Revenue
�Optical components �Cameras �DVD pick-up heads (components and sets) �Other finished optical products �Photoconducting image sensors		32.3% 11.7% 31.7% 8.3% 16.0%
		100%

Environmental Matters

The Group’s manufacturing processes generate solid and liquid waste as well as discharge of wastewater and gaseous emissions. The Group 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. According to an order issued by the Taichung County Bureau of Environment Protection (“ Bureau of Environment Protection ”) on 8th October, 2002, the Company was fined for NT$60,000 for releasing waste water that did not reach the environmental standard. The Company has improved its water disposal system pursuant to the request of Bureau of Environment Protection by the deadline set in such order.

The Group has adopted comprehensive environmental compliance and abatement programs for all of its industrial processes. Under the Group’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

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have been certified by the applicable environment authorities in the handling of the relevant materials. Wastewater from industrial processes is treated before being discharged. Gaseous emissions are filtered before being discharged.

The Company’s headquarters and the An-he Plant have been recommended for ISO14001 certification.

Except for the violation disclosed above, the Company believes that each member of the Group is in substantial compliance with all material environmental regulations. In addition, except for the penalties disclosed above, the Group 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

In February 2000, Asia Optical was involved in a litigation filed by Laser Technology, Inc., a Delaware company (“ Laser Technology ”). Laser Technology commenced a patent infringement action against Nikon, Inc. and Asia Optical in the U.S. District Court for the District of Colorado for its patents utilized by laser range finders manufactured by Asia Optical International Ltd. and sold under the brand name of Nikon, Inc. On April17, 2003, the jury found for Laser Technology in a special verdict form and the Court entered a permanent injunction against the Company and Nikon, Inc. to enjoin sale of the product in dispute.

On July 7, 2003, Laser Technology, Inc., Nikon Inc. and Asia Optical entered into settlement agreements and jointly motioned to dismiss the action with prejudice. The Court granted the motion and the action is now dismissed. According to the settlement agreements, Laser Technology, Inc. will be paid a lump-sum amount of U.S.$2.4 million, and ongoing royalty payments of US$11 per unit for any future sales in connection with products utilizing the patents owned by Laser Technology. As Asia Optical International Ltd. was not owned by the Company when the claimed event occurred and, therefore, a third party has agreed to be responsible for the U.S.$2.4 million damage on behalf of the Company and on a complementary basis. The Company does not believe its business or financial conditions will be materially adversely affected by the outcome of the settlement agreements and/or any costs and fees associated with the action and motion.

Except as disclosed above, neither the Company, nor any member of the Group, is or has been involved in legal or arbitration proceedings which may have, a material adverse effect on the financial position of the Company or the Group, nor are any such proceedings pending or threatened of which the Company is aware.

Insurance

The Group 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 Group. Insurance coverage on property, plant and equipment amounted to approximately NT$547.0 million, NT$1,662.2 million and NT$1,855.5 million (U.S.$53.4 million) as of 31st December, 2000, 2001 and 2002, respectively. The Company purchased directors and officers’ liability insurance effective from March 1, 2003 to March 1, 2004. The coverage includes directors and officers liability, reimbursement liability, securities claims and employment liability claims up to an amount of US$10,000,000. Subject to the terms and conditions of the policy, subsidiaries of the Company and certain outside directors may also be covered.

Principal Subsidiaries and Affiliates

The Company incorporated three subsidiaries, namely Asia Optical International Ltd., Powerlink Electronic International Ltd., and Richman International Group Co., Ltd., as holding companies to diversify production in mainland China and the Philippines. Dongguan Sintai Optical Co. Ltd. and Scopro Optical Co., Ltd. are the Group’s major manufacturing bases outside of Taiwan. In addition, the Company also established Dongguan Tailien Optical Co., Ltd. as a joint venture with Ricoh for manufacturing of a number of Ricoh branded camera components and OA equipment.

Through Asia Optical International Ltd., the Company has formed Hangzhou Nikon Camera Co., Ltd. as a joint venture with Nikon and Zhejiang University to produce camera components exclusively for Nikon. Asia Photonics Technology, Co., Ltd. and Match Lab, Inc. are affiliates of the Company that conduct opto-electronic development and color photocopier development, respectively, for the Company. See “— History and

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Organization of the Group” and “— Principal Production Facilities”. Details of the Company’s transactions with its subsidiaries and affiliates, and all account balances between the Company and its subsidiaries and affiliates on a non-consolidated basis as of 31st December, 2000, 2001 and 2002 are set out in Note 21 to the non-consolidated financial statements of Asia Optical Co., Inc. and Note 20 to the non-consolidated financial statements of Asia Optical, Co., Ltd. as of 30th June, 2002 and 2003.

The Company plans to establish new manufacturing facilities in Shenzhen City, the PRC and Yangon, Burma to leverage lower labor costs and to spread manufacturing risks. The Company plans to move the production of laser devices to Shenzhen and to move some of the labor-intensive production processes, such as lens cutting, coating, polishing and assembly, to Yangon. As of the date of this Offering Circular, the Company has not entered into any agreements to lease or purchase the equipments or lands in connection with the said expansion plan.

The information set forth below reflects the Company’s direct and indirect equity interests in these subsidiaries and affiliates as of 30th June, 2003.

Company Principal Investment Holding Subsidiaries Asia Optical International Ltd. Powerlink Electronic International Ltd. Richman International Group Co., Ltd. Principal Operating Subsidiaries Dongguan Sintai Optical Co. Ltd. Scopro Optical Co., Inc. Affiliates Dongguan Tailien Optical Co., Ltd. Hangzhou Nikon Camera Co., Ltd.	Main business Investment holding Investment holding Investment holding Manufacture of optical components and finished products Manufacture of riflescopes Manufacture of cameras and photographic spare parts Manufacture of camera components	Registered office	Total paid-in capital U.S.$5,000,000 U.S.$50,000 U.S.$700,000 U.S.$7,900,000 PHP$4,000,000 U.S.$2,260,000 U.S.$500,000	The Company’s direct and indirect equity interest
		P.O. Box 3151, Roadtown, British Virgin Islands P.O. Box 3151, Roadtown, British Virgin Islands Tropic Isle Building, P.O. Box 438, Roadtown, British Virgin Islands Xiao-bian The Second Industry Zone, Chang-an Town, Dongguan City, Guangdong Province, PRC 3/F Boncraft Building, Mayon cer. Finatubo St. Mandaluyong City, The Philippines Xiao-bian The Second Industry Zone, Chang-an Town, Dongguan City, GuangdongProvince, PRC No. 560 Xi-xi Road, Hangzhou City, Zhejiang Province, PRC		100.0% 100.0% 100.0% 100.0% 55.0% 40.0% 35.0%

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Company Asia Photonics Technology Co., Ltd. Match Lab, Inc. Pioneer Technology (Dongguan) Co., Ltd. Dongguan Nikon Surveying Instruments Co., Ltd. Winton International Industries Ltd.	Main business Research and development of photonic products Research and development of color photocopies Manufacturing and sales of DVD player and DVD pick-up heads Development, manufacturing and sales of electronic equipment Development, manufacturing and sales of precision equipment	Registered office	Total paid-in capital NT$60,000,000 U.S.$5,058,600 U.S.$29,137,023 U.S.$2,000,000 HK$1,000,000	The Company’s direct and indirect equity interest
		1/F, No. 32 Lu-shun Road, Sec. 2, Taichung, Taiwan, ROC 30 Corporate Park, Suite 301, Irvine, California 92606, U.S.A. Baiyeh Industrial Town, Liaobu Township, Dongguan City, Guangdong Province, the PRC Xiao-bian The Second Industry Zone, Chang-an Town, Dongguan City, Guangdong Province, PRC Xiao-bian The Second Industry Zone, Chang-an Town, Dongguan City, Guangdong Province, PRC		33.3% 19.5% 14% 40% 60%

* Financial results consolidated in Consolidated Financial Statements.

Asia Optical International Ltd. (“Asia Optical BVI”) and Dongguan Sintai Optical Co., Ltd. (“Dongguan Sintai”)

The Company established Asia Optical BVI in 1995 with Shuwa Co., Ltd., a Japanese company, as a holding company solely for the operation of Dongguan Sintai. At present, Dongguan Sintai has the most complete product lines among the members of the Group. It manufactures optical components, cameras, DVD pick-up heads, laser range finders and OA equipment components on an OEM/ODM basis. According to the Group’s manufacturing and sales policy, high-resolution and high-tech optical components for the production of high-end optical and opto-electronic products are supplied by the Company to Asia Optical BVI. Asia Optical BVI then provides these optical components to Dongguan Sintai, together with other parts or components supplied by third party vendors, for production. Dongguan Sintai manufactures final products under Asia Optical BVI’s orders in consideration of a processing fee. The sales of optical components from the Company to Asia Optical BVI are booked as intra-Group sales whereas all sales of finished products manufactured by Dongguan Sintai are supplied to the customers by Asia Optical BVI or the Company, depending on the customers’ request.

The Company increased its interest in Asia Optical BVI from 70% to 95% in 2002. The Company further increased its interest to 100% in Asia Optical BVI in February 2003. As of and for the year ended 31st December, 2002, Asia Optical BVI had audited net assets, operating revenues and net profits of U.S.$102.1 million, U.S.$320.3 million and U.S.$28.6 million, respectively. As of 31st December, 2002, Asia Optical BVI had paid-in capital of U.S.$5,000,000.

As of and for the year ended 31st December, 2002, Dongguan Sintai had audited net assets, operating revenues and net income after tax of U.S.$12.1 million, U.S.$28.8 million and U.S.$1.3 million, respectively. As of 31st December, 2002, Dongguan Sintai had paid-in capital of U.S.$ 7,900,000.

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Powerlink Electronic International Ltd. (“Powerlink”) and Scopro Optical Co., Inc. (“Scopro”)

Powerlink’s main business is selling riflescopes on an OEM/ODM basis. Powerlink has entrusted the processing and making of riflescopes products to Scopro. According to the Group’s manufacturing and sales policy, optical components for the production of riflescopes are supplied by other members of the Group or manufactured by Scopro in-house. Powerlink then provides the optical components manufactured by the other members of the Group to Scopro, together with other parts or components supplied by third party vendors, for assembling the final products. Scopro manufactures riflescopes under Powerlink’s orders in consideration of a processing fee. The sales of optical components from the members of the Group to Powerlink are booked as intra-Group sales whereas all sales of final products manufactured by Scopro are supplied to the customers by Powerlink, Asia Optical BVI or the Company, depending on the customer’s request.

As of and for the year ended 31st December, 2002, Powerlink had audited net assets, operating revenues and net profits of U.S.$14.1 million, U.S.$9.7 million and U.S.$2.6 million, respectively. As of 31st December, 2002, Powerlink had paid-in capital of U.S.$50,000.

As of and for the year ended 31st December, 2002, Scopro had audited net assets, operating revenues and net income after tax of U.S.$0.3 million, U.S.$ 1.5 million and U.S.$0.2 million, respectively. As of 31st December, 2002, Scopro had paid-in capital of 4,000,000 Peso.

Match Lab, Inc. (“Match Lab”)

In 2001, the Company indirectly invested through Powerlink to form Match Lab. The Company indirectly owns 19.5% of the equity interest with a value of U.S.$3.5 million in Match Lab. All of the shares of Match Lab held by Powerlink are fully-paid. The core business of Match Lab is research and development of an advanced color photocopier system, which the Company believes is closely related to its current business lines as well as to its future potential business scope. As of 30th June, 2003, there were no outstanding loans or amounts payable between the Company and Match Lab.

Richman International Group Co., Ltd. (“Richman”) and Dongguan Tailien Optical Co., Ltd. (“Dongguan Tailien”)

The Company, through its 100% owned subsidiary Richman, incorporated Dongguan Tailien as a joint venture with Ricoh. The Company indirectly owns 40% of the equity interest with the value of U.S.$2.0 million in Dongguan Tailien. Dongguan Tailien manufactures cameras and spare parts for cameras under the Ricoh brand name.

As of and for the year ended 31st December, 2002, Richman had audited net assets, operating revenues and net income (loss) after tax of U.S.$0.8 million, U.S.$0 and U.S.$(17,439), respectively. As of 31st December, 2002, Richman had paid-in capital of U.S.$0.7 million.

As of and for the year ended 31st December, 2002, Dongguan Tailien had audited net assets, operating revenues and net income after tax of U.S.$5.2 million, U.S.$34.6 million and U.S.$0.2 million, respectively. Dongguan Tailien recorded U.S.$0.2 million of after-tax profit in 2002. As of 31st December, 2002, Dongguan Tailien had paid-in capital and reserves of U.S.$2.3 million and U.S.$2.9 million, respectively. As of 30th June 2003, there were no outstanding loans or amounts payable between the Company and Dongguan Tailien.

Hangzhou Nikon Camera Co., Limited (“Hangzhou Nikon”)

Hangzhou Nikon was jointly established by the Company through Asia Optical BVI and Nikon in 1999 as a manufacturing base for Nikon’s camera components. The Company indirectly owns approximately 35.0% of the equity interest in Hangzhou Nikon.

As of and for the year ended 31st December, 2002, Hangzhou Nikon had audited net assets, operating revenues and net income after tax of U.S.$594,694, U.S.$463,395 and U.S.$82,608, respectively. As of 31st December, 2002, Hangzhou Nikon had paid-in capital of U.S.$500,000.

Asia Photonics Technology Co., Ltd. (“Asia Photonics”)

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, the Company outsources development tasks of part of its

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fiber-optic communications and laser measurement devices to Asia Photonics. Asia Photonics specializes in research and development of opto-electronics technologies and conducts research and development for the Company on an exclusive basis. Asia Photonics employs more than 40 full-time professional engineers. The Company’s research and development department focuses on new product research and development in the areas of precision molding, grinding and coating of optical components, and the incorporation of optical components with various properties in consumer, OA and fiber-optic communication products.

The Company owns a 33.3% interest in Asia Photonics. In addition to the Company’s ownership interest in Asia Photonics, Yuan-Tai Investment Co., Ltd., an affiliate whose Chairman is one of the Company’s directors, also owns a further 51.0% of Asia Photonics. The remainder of the Asia Photonics shares are owned by key employees of Asia Photonics.

As of and for the year ended 31st December, 2002, Asia Photonics had audited net assets, operating revenues and net income (loss) after tax of NT$(39.9) million (U.S.$(1.1) million), NT$0 (U.S.$0) and NT$(60.3) million (U.S.$(1.7) million), respectively. As of 31st December, 2002, Asia Photonics had paid-in capital of NT$60 million (U.S.$1.7 million).

Winton International Industrial, Ltd. (“Winton International”)

In 2002, the Company indirectly invested through Asia Optical BVI to form Winton International. At 30[th] June, 2003 the Company indirectly owns 60% of the equity interest in Winton International. All of the shares of Winton International held by Asia Optical BVI are fully-paid. The core business of Winton International is development, manufacturing and sales of precision equipment.

Dongguan Nikon Surveying Instruments Co., Ltd. (“Dongguan Nikon”)

In 2002, the Company indirectly invested through Asia Optical BVI to form Dongguan Nikon. At 30[th] June, 2003 the Company indirectly owns 40% of the equity interest in Dongguan Nikon. All of the shares of Dongguan Nikon held by Asia Optical BVI are fully-paid. The core business of Dongguan Nikon is development, manufacturing and sales of electronic equipment.

Pioneer Technology Dongguan Co., Ltd. (“Pioneer Dongguan”)

In 2002, the Company indirectly invested through Asia Optical BVI to form Pioneer Dongguan. The Company indirectly owns 14% of the equity interest in Pioneer Dongguan. All of the shares of Pioneer Dongguan held by Asia Optical BVI are fully-paid. The core business of Pioneer Dongguan is production of DVD pick-up heads.

Investment

The Company makes short-term and long-term investments. The Company’s short-term investments may from time to time consist of bonds and bond funds. 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, 2000, 2001 and 2002, see Note 4 to the “Non-consolidated Financial Statements as of and for the years ended 31st December, 2000, 2001 and 2002” and Note 4 to the “Consolidated Financial Statements as of and for the years ended 31st December, 2002”.

The Company makes long-term equity investment for strategic reasons. As of 30th June, 2003, the Company directly or indirectly held shares in Asia Optical International Ltd., Powerlink Electronic International Ltd., Richman International Group Co., Ltd., Dongguan Sintai Optical Co., Ltd., Scopro Optical Co., Inc., Dongguan Tailien Optical Co., Ltd., Hangzhou Nikon Camera Co., Ltd., Asia Photonics Technology Co., Ltd., Match Lab. Inc., Winton International Industries, Ltd., Dongguan Nikon Surveying Instruments Co., Ltd. and Pioneer Technology Dongguan Co., Ltd.

On 9th September, 2003, the Company executed a letter of intent with Ricoh for the Company to purchase a controlling interest in Taiwan Ricoh Co., Ltd. (“ Taiwan Ricoh ”). Ricoh is one of the world’s leading suppliers of office automation equipment, including printers, copiers, facsimile machines, data processing systems and related products. Taiwan Ricoh was established in 1966 as Ricoh’s Taiwan camera manufacturing facility. The Company has been a long-term supplier of Ricoh Taiwan for the key components. The Company has also had joint manufacturing site for camera and office equipment and components with Ricoh in China since 1990.

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Pursuant to the letter of intent, Company will acquire more than 82.5% of the shares in Taiwan Ricoh. It is expected that Taiwan Ricoh will continue to have the right to use Ricoh’s patents after the change of control contemplated by the letter of intent; the scope of use and payment terms are subject to further negotiation between the Company and Ricoh. Through the strategic alliance, the Company is expected to be permitted to use the proprietary information with respect to the optical technologies, precision mold grinding technologies and manufacturing know-how developed and owned by Ricoh or Taiwan Ricoh. Also, the acquisition will help the Company to increase its market share in the DSC lens and the handset camera modules market.

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 7 to the “Non-consolidated Financial Statements as of and for the years ended 31st December, 2000, 2001 and 2002 and for the first six months ended 30th June, 2002 and 2003”.

Related Party Transactions

The Company, its subsidiaries and certain of its affiliates, 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 21 to the “Consolidated Financial Statements as at and for the years ended 31st December, 2000, 2001 and 2002”, and Note 21 to the “Non-Consolidated Financial Statements as at and for the years ended 31st December, 2000, 2001 and 2002”

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SELECTED FINANCIAL INFORMATION

The summary income statement data for the years ended 31st December, 2000, 2001 and 2002 and the summary balance sheet data as of 31st December, 2000, 2001 and 2002 set forth below are derived from the Company’s audited consolidated financial statements included else where in this Offering Circular. The summary non-consolidated financial information for the six months ended 30th June, 2002 and 2003 have been derived from the Company’s audited non-consolidated financial statements and notes thereto that are included elsewhere in this Offering Circular. The summary financial data of the relevant periods are qualified in their entirety by reference to such financial statements, including the notes thereto, and should be read in conjunction with them and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Results for the six months ended 30th June, 2003 may not be indicative of results for the full year. Such financial statements are English translations of the auditors’ report and financial statements in Chinese prepared for and used in the ROC in accordance with ROC GAAP and are not intended to present the financial position or results of operations and cash flows in accordance with accounting principals and practices generally accepted in other countries or jurisdictions, including the United States, other than those of the ROC. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the ROC. For a discussion of certain differences between ROC GAAP and U.S. GAAP, see “Summary of Certain Differences Between ROC GAAP and U.S. GAAP”.

(non- consolidated) 1998 NT$ (audited) Statement of Income Data: ROC GAAP Operating revenue — net ............... 959,970 Cost of revenues............................. (826,224) Gross profit..................................... 133,746 Operating expenses......................... (96,062) Operating income ........................... 37,684 Non-operating income.................... 24,051 Non-operating expenses ................. (14,207) Income before income tax and minority interest.......................... 47,528 Income tax expenses....................... (7,430) Minority interest income ................ ---- Preacquisition income .................... ---- Net income...................................... 40,098 Per Share Data Dividend-Adjusted Earnings per Share (in dollars)................... 0.85(2)	Y	ear ended 31st December (consolidated)	ear ended 31st December (consolidated)		2002 U.S.$(1) re data) 380,660 (324,026) 56,634 (16,907) 39,727 5,675 (4,002) 41,400 (1,441) (1,511) (1,864) 36,584 0.30(2)	Six month ended 30th June, (non-consolidated)	Six month ended 30th June, (non-consolidated)	Six month ended 30th June, (non-consolidated)
	1999	2000	**2001 **	**2002 **		**2002 **	2003	2003
	NT$ NT$ NT$ NT$ (audited) (in thousands, except per Sha 2,695,845 6,450,889 10,788,477 13,229,843 1,755,089 (5,126,791) (8,977,089) (11,261,541) 940,756 1,324,098 1,811,388 1,968,302 (261,270) (348,345) (537,225) (587,588) 679,486 975,753 1,274,163 1,380,714 93,459 157,944 234,236 197,221 (30,698) (110,267) (101,215) (139,090) 742,247 1,023,430 1,407,184 1,438,845 (76,542) (169,714) (214,739) (50,069) (245,709) (318,898) (320,420) (52,522) (183,369) (21,254) (57,469) (64,788) 236,627 513,564 814,556 1,271,466 2.78(2) 4.74(2) 6.74(2) 10.32(2)					NT$ 1,176,111 (1,011,548) 164,563 (86,825) 79,884 379,589 (45,570) 413,903 (72,962) ---- ---- 340,941 2.27(3)	NT$ U.S.$(1) (audited) 1,976,407 57,105 (1,704,905) (49,260) 271,502 7,845 (131,823) (3,809) 135,321 3,910 728,406 21,046 (33,081) (956) 830,646 24,000 28,228 816 ---- ---- ---- ---- 858,874 24,816 5.71(3) 0.16(3)

The above summary financial data for the year ended 31st December 1998 was taken from the audited non-consolidated financial statements of the Company for the year ended 31st December, 1998, which are not included in this Offering Circular. Such non-consolidated financial statements were audited by Deloitte & Touche, chartered accountants and independent auditors.

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(non- consolidated) 1998 NT$ (audited) Balance Sheet Data: ROC GAAP Current assets ................................ 268,823 Long-term investments.................. 56,200 Property, plant and equipment....... 133,170 Intangible assets ............................ 6,323 Other assets.................................... 11,680 Total Assets.................................... 476,196 Current liabilities........................... 170,991 Long-term liabilities...................... 0 Other liabilities.............................. 41,931 Total liabilities............................... 212,922 Total stockholders’ equity.............. 263,274 Total liabilities and stockholders’ equity....................... 476,196		As of 31st December (consolidated)	As of 31st December (consolidated)
	1999	2000	2001	2002
	NT$ 1,433,003 55,104 799,778 7,892 37,863 2,333,640 495,639 0 714,619 1,210,258 1.123.382 2,333,640

---

• (1) Translated into United States Dollars using the average of buying and selling rates published by the Bank of Taiwan at December 31, 2002 of NT$34.755 = U.S.$1.00, and at June 30, 2003 of NT$34.61 = 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 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.

• (3) Earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each six-month period after adjusting retroactively for the effect of stock dividends.

The above summary financial data as of 31st December 1998, was taken from the audited non-consolidated financial statements of the Company for the year ended 31st December, 1998, which are not included in this Offering Circular. Such non-consolidated financial statements were audited by Deloitte & Touche, chartered accountants and independent auditors.

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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 Certain Differences between ROC GAAP and U.S. GAAP”. The Company has not quantified the effect of the differences that would arise in the event 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; bonus share issuance”. 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 31st December, 2000, 2001 and 2002, and the non-consolidated financial statements of the Company as of and for the periods ended 30th June, 2002 and 2003. It is not possible to make direct comparisons between information contained in the Consolidated Financial Statements and the 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 statements.

Overview

The Company is one of the Taiwan’s leading designer, developer and manufacturer of optical components, finished optical and opto-electronic products that employ advanced technologies to capture, display and process images and spatial data as well as other products such as photoconducting image sensors. The Group utilizes a suite of core technologies that it has developed or acquired in the design and manufacture of its optical and opto-electronic products. The Group supplies its products as an original equipment manufacturer (“ OEM ”) and original design manufacturer (“ ODM ”) to many of the world’s leading brandname makers of optical and opto-electronic goods, such as cameras, DVDs player, and office automation (“ OA ”) equipment.

Core technologies owned and utilized by the Company include optical system design, multi-layer coating technologies, and aspheric lens manufacturing techniques. The Company believes that its ability to combine technologies in such areas as advanced coatings and aspheric lens design, together with technical know-how applied to large-scale production gives it a competitive advantage in an industry that is capital-, technology- and labor-intensive. The Company also believes that it is one of the few companies that is able to successfully combine the fields of advanced optics, consumer electronics and engineering in the design and manufacture of new consumer products.

Principal products designed, manufactured and sold by the Group include optical components, cameras, DVD pick-up heads, other finished optical products and photo conducting image sensors.

Some of the Company’s manufacturing facilities, its principal research and development facilities and its headquarters are located in Taiwan. Through Asia Optical International Ltd. (“ Asia Optical BVI ”), its 100.0% owned-subsidiary, the Company owns and operates Dongguan Sintai Optical Co., Ltd. (“ Dongguan Sintai ”), which is the Company’s largest facility, manufacturing most of the Company’s product lines. Asia Optical BVI also owns a 35.0% interest in Hangzhou Nikon Camera Co., Ltd. (“ Hangzhou Nikon ”), a Sino-foreign joint venture company among the Company, Nikon and Hangzhou Photographic Mechanical Research Institute. Hangzhou Nikon manufactures camera components for export and PRC domestic sale for Nikon branded products. At 30[th] June, 2003, the Company also indirectly invested, through Asia Optical BVI, 60% in Winton International Industrial Ltd. (“ Winton International ”) and 40% in Dongguan Nikon Surveying Instruments Co., Ltd. (“ Dongguan Nikon ”) whereas the Company indirectly invested 14% in Pioneer Technology Dongguan Co., Ltd. (“ Pioneer Dongguan ”) in 2002 .

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Through Powerlink Electronic International Ltd. (“ Powerlink ”), its 100.0% subsidiary, the Company owns a 55.0% interest in and operates Scopro Optical Co., Inc. (“ Scopro ”), a company incorporated in the Philippines engaged in the manufacture and export sale of riflescopes. Powerlink also owns a 19.5% interest in Match Lab, Inc., a company incorporated in the State of California, U.S.A. engaged in research and development of color photocopier technology.

The Company owns a 23.9% direct interest, and, through Richman BVI Co., Ltd. (“ Richman ”), a 16.1% indirect interest, in Dongguan Tailien Co., Ltd. (“ Dongguan Tailien ”), a PRC Sino-foreign joint venture company engaged in the manufacture and sale of camera components for Ricoh branded products.

The Company owns a 33.3% interest in Asia Photonics Technology Co., Inc. (“ Asia Photonics ”), an ROC company engaged in research and development of advanced opto-electronic products. In addition to the Company’s ownership interest in Asia Photonics, Yuan-Tai Investment Co., Ltd., an affiliate whose Chairman is one of the Company’s directors, also owns a further 51.0% of Asia Photonics. Asia Photonics provides research and development services to the Company on an exclusive basis. The Company commissions Asia Photonics to develop commercial solutions and ODM opto-electronic product designs on a contract basis. Once the designs are completed, the Company puts the products into production. Intellectual property, including patents and patent applications, developed in the course of these projects belongs to the Company. The Company expects that once it achieves commercial production of products developed in this manner, it will commence paying a research and development fee to Asia Photonics based on a graduated percentage of sales of such products. To date, the Company has not made such payments to Asia Photonics, but it expects that it will make such payments in 2002.

In addition, the Company also has long-term investments in several other companies. See Note 7 to the Consolidated Financial Statements as at and for the years ended 31st December, 2000, 2001 and 2002.

The Group operating results and financial performance depend on the demand for optical components, cameras, DVD pick-up heads and other finished optical products, which in turn depends on world economic conditions generally. By diversifying its product range and customer base, the Company attempts to minimize the risk of a downturn in demand for any particular group of products. For example, while demand for some of the Group’s products, such as cameras, that are correlated to travel and tourism activities, has been affected by the terrorist attack of 11[th] September, 2001 and subsequent events, demand for other products, including DVD pick-up heads, has increased. Similarly, if sales of some products, such as riflescopes, may be affected in the long term by increasing environmental consciousness, other products relating to the strong increase in outdoor recreation, such as still and video cameras, lens units and laser range finders can be expected to increase over the long term. Likewise, the Company expects that demand for fiber-optic communications will continue to grow in the medium and long term, and that this will create demand for the optical communications products that the Company has developed.

The Group will continue to expand its product offerings when the foregoing criteria are met. The Group may also consider expanding through acquisitions or licensing arrangements in the area of consumer products or other products.

Basis of Presentation

This Offering Circular contains both consolidated financial statements of the Company and its consolidated subsidiaries and non-consolidated financial statements of the Company only as of and for the years ended 31st December, 2000, 2001 and 2002, and non-consolidated financial statements of the Company only as of and for the periods ended 30th June, 2002 and 2003.

The consolidated financial statements present the financial statements of the Company and its consolidated subsidiaries on a consolidated basis, after eliminating all significant inter-company accounts and transactions. The Company consolidates the financial statements of all of its wholly-owned and majority-owned subsidiaries, except as noted in the next paragraph. The Company’s consolidated subsidiaries are Asia Optical BVI, Dongguan Sintai, Powerlink and Scopro.

Under ROC GAAP, the Company is required to consolidate financial results of any wholly- or majority-owned subsidiary whose total assets or net sales exceed 10% of the Company’s non-consolidated total assets or net sales, as the case may be. Under these regulations, Richman’s financial statements are not consolidated with the Company’s.

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Over the past three years, the Company has gradually purchased equity interests in Asia Optical BVI from Shuwa Co., Ltd., another shareholder of ASIA Optical BVI, and equity interests in Powerlink from other shareholders. As a result of these purchases, the Company’s interest in Asia Optical BVI was 95.0% and its interest in Powerlink was 100.0% as of 31st December, 2002.

Long-term investments of less than 50.0%, and long-term investments in majority- or wholly-owned subsidiaries, such as Richman, whose total assets and net sales are less than 10.0% of the Company’s total assets and net sales, are accounted for by the equity method.

Revenues

The following table sets out the Company’s consolidated net sales for the three years 2000, 2001 and 2002, by product category:

2000 NT$’000 Optical components(1)...................................... 3,142,674 Cameras(2) ....................................................... 1,283,525 DVD pick-up heads(3)...................................... 251,468 Other finished optical products(4) .................... 753,310 Photoconducting image sensors and other products(5)................................... 1,019,912 Net sales.......................................................... 6,450,889		Year ended 31st December,	Year ended 31st December,
	2000	% 48.7 19.9 3.9 11.7 15.8 100.0	(consolidated) 2001 NT$’000 % 3,771,182 35.0 2,276,787 21.1 1,740,612 16.1 889,798 8.2 2,110,098 19.6 10,788,477 100.0	2002
			NT$’000 3,771,182 2,276,787 1,740,612 889,798 2,110,098 10,788,477	NT$’000 4,278,702 1,540,511 4,198,293 1,096,697 2,115,640 13,229,843	% 32.3 11.7 31.7 8.3 16.0
					100.0

(1) Includes single-piece lenses and lens units and modules.

(2) Includes 35 mm, APS and digital still cameras.

(3) Since August 2000, the Group has supplied DVD pick-up heads to Pioneer for use in its DVD ROMs and players.

(4) Includes laser range finders, microscopes, riflescopes and projectors.

(5) Other products include camera flash units, camera shutters and OA equipment components other than photoconducting image sensors.

The markets for the Group’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 Group’s second- and third-quarter revenues are ordinarily higher, and its first-quarter sales are ordinarily lower, than average. Sales revenues are recorded when products are shipped to customers.

Consolidated Results of Operations

The following table summarizes certain items from the consolidated results of operations of the Company for years 2000, 2001 and 2002 as a percentage of net operating revenues.

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Year ended 31st December, 2000 2001 2002 Amount Amount Amount NT$ million % NT$ million % NT$ million % Net operating revenues.................................. 6,450.9 100 10,788.5 100 13,229.8 100 Operating costs.............................................. (5,126.8) (79) (8,977.1) (83) (11,261.5) (85) Gross profit.................................................... 1,324.1 21 1,811.4 17 1,968.3 15 Operating expenses........................................ (348.3) (5) (537.2) (5) (587.6) (4) Income from operations................................. 975.8 16 1,274.2 12 1,380.7 10 Non-operating income................................... 157.9 2 234.2 2 197.2 1 Non-operating expenses ................................ (110.3) (2) (101.2) (1) (139.1) (1) Income before income taxes.......................... 1,023.4 16 1,407.2 13 1,438.8 11 Provision for income tax ............................... (169.7) (3) (214.7) (2) (50.1) (0.4) Minority interest income ............................... (318.9) (5) (320.4) (3) (52.5) (0.4) Preacquisition income ................................... (21.3) 0 (57.5) (1) (64.8) (0.5) Net income .................................................... 513.6 8 814.6 7 1,271.5 9.6	Year ended 31st December,	Year ended 31st December,	Year ended 31st December,
		2001 Amount NT$ million % 10,788.5 100 (8,977.1) (83) 1,811.4 17 (537.2) (5) 1,274.2 12 234.2 2 (101.2) (1) 1,407.2 13 (214.7) (2) (320.4) (3) (57.5) (1) 814.6 7	2002
			Amount
			NT$ million % 13,229.8 100 (11,261.5) (85) 1,968.3 15 (587.6) (4) 1,380.7 10 197.2 1 (139.1) (1) 1,438.8 11 (50.1) (0.4) (52.5) (0.4) (64.8) (0.5) 1,271.5 9.6

2002 Compared to 2001

Operating revenues. Net operating revenues in 2002 were NT$13,229.8 million (U.S.$380.7 million), representing an increase of 22.6% over 2001. The increase was primarily attributable to (i) increases in sales volume of digital still cameras and DVD pick-up heads resulting from increased ODM orders; and (ii) an increase of the average sell price of digital still cameras manufactured on an ODM basis.

Operating costs and gross profit. Operating costs consist of the following major elements:

• Direct materials costs, such as:

• raw optical glass

• aluminum

• integrated circuits

• lighted electrical diodes

• reticle

• Direct labor costs

• Manufacturing expenses, including:

• chemicals used for optical coatings

• depreciation and amortization expenses

• indirect labor

• insurance

• shipping and transport expenses

• utilities

• repairs and maintenance and others

Operating costs in 2002 rose to NT$11,261.5 million (U.S.$324.0 million), an increase of 25.4% compared to 2001. This increase was generally attributable to the significant increase in the sales volume of DVD pick-up heads, for which average manufacturing cost is higher than the Company’s other products.

Gross profit and gross margins (i.e., gross profit divided by operating revenue) in 2002 were NT$1,968.3 million (U.S.$56.6 million) and 14.9%, respectively, whereas gross profit and gross margins in 2001 were NT$1,811.4 million and 16.8%, respectively. The gross profit decreased by 1.9% from 2001 to 2002 due to the

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significant increase in the sales volume of DVD pick-up heads, which have lower margins than the Company’s other product lines. The decrease was partially offset by an increase in sales of digital still cameras on an ODM basis, which usually generates higher profit margins. The Company expects that DVD pick-up heads, which have somewhat lower margins than the Company’s other product lines, will continue to account for a significant portion of the Company’s sales.

Operating expenses and income from operations. Operating expenses are classified as selling expenses, administrative and general expenses and research and development expenses. These consist principally of:

• salaries and wages;

• depreciation;

• commission expense;

• research and development expense;

• doubtful account;

• advertising expenses; and

• other overheads.

Total operating expenses in 2002 increased to NT$587.6 million (U.S.$16.9 million), from NT$537.2 million in 2001, an increase of 9.4% over 2001. The increase was attributable to increases in:

• selling expenses of 20.0%;

• administrative and general expenses of 1.7%; and

partially offset by a 15.5% decrease of research and development expenses.

Income from operations increased to NT$1,380.7 million (U.S.$39.7 million) in 2002, an 8.4% increase compared to 2001. Operating margins were 10.4% in 2002, compared to 11.8% in 2001.

Non-operating income. Total non-operating income decreased to NT$197.2 million (U.S.$5.7 million) in 2002 compared to NT$234.2 million in 2001. The decrease was attributable to decreases in gains on foreign exchange and inventory value recoveries.

Non-operating expenses. Total non-operating expenses increased to NT$139.1 million (U.S.$4.0 million) in 2002 compared to NT$101.2 million in 2001. The increase was primarily attributable to increases of (i) NT$41.6 million (U.S.$1.2 million) in interest expenses, of which NT$36.2 million consists of a charge to income of the annualized amount of the premium that would be payable by the Company upon exercise by holders of all outstanding Zero Coupon Euro Convertible Bonds due 2007 of the bondholders’ right of redemption at the first redemption date; (ii) certain costs incurred in connection with the issue of the bonds; and (iii) NT$12.0 million in investment loss.

Accordingly the Company’s consolidated non-operating income net of non-operating expenses in 2002 was NT$58.1 million (U.S.$1.7 million), compared to non-operating income, net of non-operating expenses, of NT$133.0 million in 2001.

Net income. Income before income tax increased to NT$1,438.8 million (U.S.$41.4 million), an increase of 2.2% over 2001. Provision for income tax decreased by 76.7% to NT$50.1 million (U.S.$1.4 million). Minority interest income decreased to NT$52.5 million (U.S.$1.5 million), due principally to the acquisition by the Company of a further 25% equity interest in Asia Optical International Ltd. (in the following increments: January 2002, 5%; April 2002, 15%; November 2002, 5%), thereby raising its shareholding from 70% as of 31st December 2001 to 95% as of 31st December, 2002, and correspondingly reducing the minority interest. Preacquisition income, which represents the portion of attributable income of subsidiaries prior to the Company’s acquisition of an increased interest in the subsidiaries, increased by 12.7% to NT$64.8 million (U.S.$1.9 million), also as a result of the acquisition of 30% additional equity interests in Asia Optical International Ltd. Net income increased to NT$1,271.5 million (U.S.$36.6 million), representing an increase of 56.1% over 2001

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2001 Compared to 2000

Operating revenues. Net operating revenues in 2001 were NT$10,788.5 million, representing an increase of 67.2% over 2000. The increase was attributable to significant increases in sales of cameras, particularly digital cameras, sales of DVD pick-up heads, OA equipment components and optical components. The increase is due primarily to increases in volume, and to a lesser extent to increased sales of higher bracket digital cameras with higher unit prices.

Operating costs and gross profit. Operating costs in 2001 rose to NT$8,977.1 million, an increase of 75.1% compared to 2000. This increase was primarily attributable to the increase in total sales, and to the increased in sales of DVD pick-up heads.

Gross profit and gross margins in 2001 were NT$1,811.4 million and 16.8%, respectively, whereas gross profit and gross margins in 2000 were NT$1,324.1 million and 20.5%, respectively.

Operating expenses and income from operations. Total operating expenses in 2001 increased to NT$537.2 million, from NT$348.3 million in 2000, an increase of 54.2% over 2000. The increase was attributable to increases in:

• selling expenses of 26.8%, generally in line with the increase in net revenues;

• administrative and general expenses of 96.5%; and

• research and development expenses of 134.9%.

The reason for these increases is primarily due to the introduction and promotion of new products such as DVD pick-up heads and digital still cameras.

Income from operations increased to NT$1,274.2 million in 2001, a 30.6% increase compared to 2000. Operating margins were 11.8% in 2001, compared to 15.1% in 2000.

Non-operating income. Total non-operating income increased to NT$234.2 million in 2001 compared to NT$157.9 million in 2000. The increase was attributable to increases in gains on disposal of investments, other income, inventory value recoveries, rental income and interest income. In addition, the Company experienced an increase in gains on foreign exchange. Net exchange gains (calculated as gains on foreign exchange less loss on foreign exchange) were NT$98.2 million in 2001, compared to net exchange gains of NT$47.6 million in 2000.

Non-operating expenses. Total non-operating expenses decreased slightly to NT$101.2 million in 2001 compared to NT$110.3 million in 2000. The decrease was attributable to decreases of NT$14.8 million in losses on inventory valuation and obsolescence, which is partially offset by increases in interest expense, investment losses, losses on disposal of property, plant and equipment, losses on physical inventory and other expenses.

Accordingly the Company’s consolidated non-operating income net of non-operating expenses in 2001 was NT$133.0 million, compared to non-operating income, net of non-operating expenses, of NT$47.7 million in 2000.

Net income. Income before income tax increased to NT$1,407.2 million, an increase of 37.5% over 2000. Provision for income tax increased by 26.5% to NT$214.7 million. Minority interest income increased to NT$320.4 million, an increase of less than 1% over 2000. Preacquisition income, which represents the portion of attributable income of subsidiaries prior to the Company’s acquisition of an increased interest in the subsidiaries, increased by 170.4% to NT$57.5 million. Net income increased to NT$814.6 million, representing an increase of 58.6% over 2000.

Non-Consolidated Semi-Annual Results of Operations

Results for the six months ended 30th June, 2003 may not be indicative of results for the entire year.

The following table summarizes certain items from the non-consolidated semi-annual results of operations of the Company for years 2002 and 2003 as a percentage of net operating revenues.

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			Six month ended 30th June,	Six month ended 30th June,
		2003			2002
	Amount			Amount
	NT$ million		%	NT$ million		%
Net operating revenues ................................	1,976.4		100	1,176.1		100
Operating costs ............................................	(1,704.9)		(86)	(1,011.5)		(86)
Gross profit..................................................	271.5		14	164.6		14
Operating expenses......................................	(131.8)		(7)	(86.8)		(7)
Income from operations...............................	135.3		7	79.9		7
Non-operating income .................................	728.4		37	379.6		32
Non-operating expenses...............................	(33.1)		(2)	(45.6)		(4)
Income before income taxes ........................	830.6		42	413.9		35
Income tax credit (provision).......................	28.2		1	(73.0)		(6)
Net income ..................................................	858.9		43	340.9		29

Six months ended 30th June, 2003 Compared to six months ended 30th June, 2002

Operating revenues. Net operating revenues in the first six months of 2003 were NT$1,976.4 million (U.S.$57.1 million), representing an increase of 68.0% over the same periods of 2002. The increase was attributable to increases of sales volume of optical components as well as average selling prices of certain optical components, e.g. the lens modules used in projectors.

Operating costs and gross profit. Operating costs in the first six months of 2003 rose to NT$1,704.9 million (U.S.$49.3 million), an increase of 68.6% compared to the first six months of 2002. This increase was generally in line with the increase in total sales.

Gross profit and gross margins in the first six months of 2003 were NT$271.5 million (U.S.$7.8 million) and 13.7%, respectively, whereas gross profit and gross margins in the same period of 2002 were NT$164.6 million and 14.0%, respectively. The gross profit increased by 64.9% from the first six months of 2002 to the same period of 2003 due to increases of sales volume of optical components.

Operating expenses and income from operations. Total operating expenses in the first six months of 2003 increased to NT$131.8 million (U.S.$3.8 million), from NT$86.8 million in the first six months of 2002, represents an increase of 51.8%. The increase was attributable to increases in:

• selling expenses of 13.5%;

• administrative and general expenses of 2.9%; and

• research and development expenses of 174.4%.

Income from operations increased to NT$135.3 million (U.S.$3.9 million) in the first six months of 2003, a 69.3% increase compared to the same period of 2002. Operating margins in the first six months of 2002 and 2003 were both 6.8%.

Non-operating income. Total non-operating income increased to NT$728.4 million (U.S.$21.0 million) in the first six months of 2003 compared to NT$379.6 million in the first six months of 2002. The increase was mainly attributable to increases in investment gains and gains in disposal of investment.

Non-operating expenses. Total non-operating expenses decreased to NT$33.1 million (U.S.$1.0 million) in the first six months of 2003 compared to NT$45.6 million in the same period in 2002. The decrease was primarily attributable to decreases in short-term investment loss and the loss of inventory depreciation.

Accordingly the Company's non-consolidated non-operating income net of non-operating expenses in the first six months of 2003 was NT$695.3 million (U.S.$20.1 million), compared to non-operating income, net of non-operating expenses, of NT$334.0 million in the same period of 2002.

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Net income. Income before income tax increased to NT$830.6 million (U.S.$24.0 million), an increase of 100.7% over the first six months of 2002. Income tax credit was NT$28.2 million (U.S.$0.9 million), compared to the income tax provision of NT$73.0 million in the first six months of 2002. Net income for the first six months of 2003 increased to NT$858.9 million (U.S.$24.8 million), representing an increase of 152.0% over the same period of 2002.

Inventories and Receivables

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

The following tables summarize the Group’s receivables and inventories positions for the years ended 31st December, 2000, 2001 and 2002:

Receivables

Notes receivable, non-related parties....................................................... Accounts receivable, non-related parties..... Less: allowance for doubtful accounts............................ Accounts receivable, net ............................. Accounts receivable, related parties....................................................... Average receivables turnover (days) ......................................... Inventories Raw materials .................................. Work in process................................ Finished goods................................. Merchandise inventories .................. Materials in transit ........................... Subtotal............................................ Less: allowance for inventory valuation and obsolescence losses...................................... Inventories, net................................. Average inventory turnover (days) ..............................	2000		2001 2002 NT$’000 NT$’000 U.S.$’000 (thousands) 19,172 25,984 748 2,498,234 2,787,982 80,218 (49,602) (85,980) (2,474) 2,448,632 2,702,002 77,744 246,742 382,413 11,003 76 80 2001 2002 NT$’000 NT$’000 U.S.$’000 (thousands) 536,492 448,971 12,918 27,362 22,808 656 32,647 15,938 459 221 2,630 76 6,898 13,710 394 603,620 504,057 14,503 (35,510) (49,378) (1,421) 568,110 454,679 13,082 25 17
	NT$’000 32,166
	1,556,507 (7,000)
	1,549,507
	224,256
	68 2000 NT$’000 567,929 29,684 13,349 2,127 71,042 684,131 (39,941) 644,190 36

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As of 31st December, 2002, net receivables represented 23.5% of consolidated net sales and net inventories represented 3.4% of consolidated net sales. The corresponding figures for 31st December, 2001 were 25.2% and 5.3%, respectively. Inventories decreased by 20.0% from 2001 to 2002 mainly due to the implementation of just-in-time material supply system.

The Group invoices customers when goods are shipped. Credit terms are generally 30 days and up to 180 days, in the case of customers that make volume purchases.

Liquidity and Capital Resources

The Group’s principal sources of working capital and financing for capital expenditures have been cash flow from operations, the proceeds of offerings of Shares and the zero coupon euro convertible bonds due 2007, and, to a limited extent, short- and long-term borrowings. At 31st December, 2002, the Group had cash and cash equivalents of NT$1,612.1 million (U.S.$46.4 million) and short-term investments, consisting of bond investment funds and bond investments (net of allowances) of NT$760.3 million (U.S.$21.9 million). In addition, at that date the Group had total of NT$1,198.0 million (U.S.$34.5 million) in unused bank credit facilities available. The Company believes that its current sources of short-term liquidity are sufficient to finance its working capital needs, including the increasing amount of the Group’s sales, for the foreseeable future.

Consolidated net cash provided by operating activities for the years ended 31st December, 2002, 2001 and 2000 was NT$1,666.0 million (U.S.$47.9 million), NT$1,289.9 million and NT$910.7 million, respectively. During each of the three years through 31st December, 2002, the Group has expended significant cash in investing activities, principally the acquisition of fixed assets relating to the purchase, construction and equipment of the An-he Plant and production facilities in Taichung and production facilities in the PRC, as set out in the table of capital expenditures below. In addition, the Group has invested cash in both long- and short-term investments. Net cash used in investing activities in 2002 was NT$1,355.3 million (US$39.0 million), compared to NT$2,279.8 million in 2001.

In March 2002, the Company received the proceeds of the sale of US$60 million principal amount of Zero Coupon Euro Convertible Bonds due 2007 in the amount of long-term borrowings at 31st December, 2002 were NT$104.8 million (U.S.$3.0 million), a decrease of NT$489.3 million compared to 31st December, 2001. After taking into account cash dividends paid, decrease in minority interest, decrease in related party payables and increase in negative good will, net cash provided by financing activities in 2002 was NT$618.2 million (U.S.$17.8 million).

In addition to working capital for operations, the Group’s funding requirements include capital expenditures for acquisition of property, plant and equipment and acquisition of land use rights in Taiwan and the PRC. The following table sets out the Company’s consolidated capital expenditures for the acquisition of land, buildings, facilities, machinery and equipment at its headquarters in Taichung, as well as capital expenditures (consisting of acquisition of land use rights, construction of facilities and procurement of machinery and equipment) for the facilities of Dongguan Sintai in the PRC:

Capital expenditures for Taichung facilities ......................... Capital expenditures for Dongguan Sintai facilities ............. Total .....................................................................................	2000 NT$’000 212,661 469,961 682,622	2001 NT$’000 996,449 558,110 1,554,559	2002 NT$’000 509,005 183,198 692,203	2003
				NT$’000 263,950 270,068
				534,018

The Company intends to finance its capital expenditures with internally generated funds, the proceeds of the Bonds. In addition, the Company may also incur further borrowings, subject to maintaining its debt to equity ratio within the Company’s target range of 40/60. The Company believes that the Group has and will have sufficient resources available to meet its planned capital expenditure requirements.

The Company plans to construct a new production facility in the Shenzhen Special Economic Zone, Guangdong Province, PRC. The Shenzhen facility will be used for assembly of finished products. The total area of the new facility is expected to be approximately 105,000 square meters. Construction is currently expected to commence in 2003, and the facility is expected to be ready for commercial operations in 2005. The majority of capital expenditures will be incurred in 2003 and 2004. The Company intends to make its investment, which

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will be financed by means of a combination of retained earnings and long-term borrowings, through Asia Optical BVI. The Company also plans to set up a new production facility in Yangon, Burma. The Company plans to move parts of its labor intensive production processes, such as cutting, coating, polishing or assembly, to the facility in Yangon. As of the date of this Offering Circular, the Company has not entered into any agreements to lease or purchase the equipment, land or facilities in connection with this expansion plan.

Construction costs, including construction loan interest and the cost of machinery and equipment, are capitalized and depreciated over the economic lives of the various classes of fixed assets. Depreciation is recorded beginning only when the facilities are ready for their intended use.

All long-term borrowings at 31st December, 2002 are denominated in either NT Dollars or U.S. Dollars and bear interest an average interest rate of 2.4375% per annum. Such borrowings are secured by a pledge of the shares of Asia Optical BVI, and by mortgages over property, plant and equipment. See Note 22 to the Consolidated Financial Statements as at and for the years ended 31st December, 2000, 2001 and 2002. At 31st December, 2002, the Company had availability of NT$1,458.4 million (U.S.$42.0 million) under unused committed credit facilities from banks in Taiwan, and Asia Optical BVI had a bank credit line of US$30 million, of which US$27 million was unused.

At 31st December, 2002, the Company had outstanding commitments to pay a total of NT$24.2 million (U.S.$0.7 million) under equipment purchase and construction contracts, and NT$54.7 million (U.S.$1.6 million) under land use rights acquisition contracts.

Other commitments and contingencies at 31st December, 2002 include:

• NT$73.4 million (U.S.$2.1 million) under unused trade letters of credit;

• NT$672.0 million (U.S.$19.3 million) of promissory notes to financial institutions evidencing longand short-term borrowings under loan agreements; and

• estimated present value of future lease payment obligations for land leased from the Taichung Export Processing Zone through 2006 of NT$3.7 million (U.S.$0.1 million).

Quantitative and Qualitative Disclosures about Market Risk

The financial market risks to which the Company is exposed are principally risks relating to changes in exchange rates and interest rates. The Company does not enter into any financial instruments for the purpose of hedging such risks.

Foreign Currency Risk

The Company’s reporting currency is NT Dollars. However, a substantial portion of the Company’s consolidated and non-consolidated revenues and costs and expenses are denominated in currencies other than NT Dollars, including U.S. Dollars, Japanese Yen, RMB and Hong Kong Dollars. Historically, the Group entered into derivative financial instruments, including currency forward contracts and options, to hedge the currency exchange rate movements and to protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates. The Company does not have hedging contracts of any nature currently in effect.

Interest Rate Risk

The Company endeavors to manage its short- and long-term financing needs in such a way as to minimize the amount of debt on its balance sheet at any time. As a result, the Company considers that its exposure to fluctuations in interest rates historically has not been significant, and accordingly the Company has not entered into interest swaps or other hedging arrangements.

The following table shows bank loans outstanding at 31st December, 2000, 2001 and 2002 (including borrowings of subsidiaries guaranteed by the Company):

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2000 .......................................................................................... 2001 .......................................................................................... 2002 ..........................................................................................	Principal amount NT$ million 80.0 544.1 2,213.7	Interest Rate
		6.85% – 8.34% 3.1875% – 6.85% 2.4375%

At 31st December, 2002 and 2001, short-term investments were NT$760.3 million (U.S.$21.9 million) and NT$484.6 million, respectively. Short-term investments are stated at the lower of cost or market value. Valuation allowance at 31st December, 2002 and 2001 were NT$9.2 million (U.S.$0.3 million) and NT$6.3 million, respectively.

Foreign Exchange Matters

A large portion of the Company’s consolidated and non-consolidated net sales are denominated in NT Dollars, U.S. Dollars, Japanese Yen and Hong Kong Dollars while a significant portion of the Company’s consolidated and non-consolidated costs and expenses are denominated in NT Dollars, U.S. Dollars, RMB, Philippines Peso and Hong Kong Dollars. Accordingly, the Company is exposed to movements in the exchange rates between the U.S. Dollar on the one hand, and NT Dollar and Japanese Yen on the other hand. The Company recorded consolidated net exchange gains of NT$47.6 million, NT$98.2 million and NT$40.8 million (U.S.$1.2 million) in 2000, 2001 and 2002, respectively, reflecting the 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 and expenses. In addition, the Company attempts to include in its sales contracts a clause that allows a price resetting to allow for currency exchange rate movements.

Income Tax

The statutory income tax rate applicable to the Company in the ROC is 25.0% Under the ROC Statue for Upgrading Industries, several tax incentives are available for companies organized under the ROC laws. The Company has been granted certain tax incentives, including tax credits applicable against corporate income tax which range from 25.0% to 50.0% of the amount of certain research and development and employee training expenses above a certain expense threshold and 5% to 20.0% of the amount of investment in certain qualified equipment and technology. These tax incentives resulted in tax savings of approximately NT$17.8 million, NT$22.4 million and NT$39.5 million (U.S.$1.1 million) in 2000, 2001 and 2002, respectively.

In order to eliminate the effects of “double taxation” of corporate earnings, the ROC Income Tax Law of 1997 (the “ Income Tax Law ”) instituted an integrated income tax system, pursuant to which ROC resident shareholders may claim credit for a portion of income taxes paid by the ROC corporation, setting off the tax credit against individual income tax liability of the ROC resident shareholder in respect of dividend income received from the corporation. The amount of credit available is calculated by multiplying the amount of dividend income received by a credit imputation ratio. The ratio is derived as the amount of corporate income taxes paid, plus imputation credit, divided by retained earnings from operations after 1st January, 1998.

Under the Income Tax Law, retained earnings from operations after 1st January, 1998 that are not distributed to shareholders by way of dividend for the relevant operating period are subject to a ten percent 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.

The Company’s investments in the PRC are considered to be foreign-invested enterprises in the form of wholly-foreign owned enterprises. Foreign-invested enterprises are generally entitled to income tax exemption for a period of two years, followed by a 50.0% reduction in applicable enterprise income tax rates for a period of three years in Guangdong Province, beginning with the first year in which the enterprises record taxable profits. The Company’s subsidiary Dongguan Sintai Optical Co., Ltd. was entitled to these incentives.

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Recent Developments

Investment in Taiwan Ricoh

On 9th September, 2003, the Company executed a letter of intent with Ricoh for the Company to purchase a controlling interest in Taiwan Ricoh Co., Ltd. (“ Taiwan Ricoh ”). Ricoh is one of the world's leading suppliers of office automation equipment, including printers, copiers, facsimile machines, data processing systems and related products. Taiwan Ricoh was established in 1966 as Ricoh’s Taiwan camera manufacturing facility. The Company has been a long-term supplier of Ricoh Taiwan for camera lens and copier components. The Company has also had joint manufacturing site for camera and office equipment and components with Ricoh in China since 1990.

Pursuant to the letter of intent, Company will acquire more than 82.5% of the shares in Taiwan Ricoh. It is expected that Taiwan Ricoh will continue to have the right to use Ricoh’s patents after the change of control contemplated by the letter of intent; the scope of use and payment terms are subject to further negotiation between the Company and Ricoh. Through the strategic alliance, the Company will be able to access the optical technologies, precision mold grinding technologies and manufacturing know-how developed and owned by Ricoh or Taiwan Ricoh. Also, the acquisition will help the Company to increase its market share in the handset camera modules market

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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 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.

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

Name Robert Lai(2) Hsien-Tang Lai Ming-Yuan Huang He-Guei Lai Huei-Chien Chang Chen-Ming Chang Chin-Chang Liang	Position Chairman and CEO and Chief of Sales and Marketing Division Director Director and General Manager Director Director Director Director	Business Address No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 480–3–4 Chung-shan Road, Section 2, Tan-zu, Taichung, Taiwan No. 9 Twelfth Road, Taichung Industrial Park, Taichung, Taiwan No. 5, Lane 408, Chung-cheng Road, Feng-yuan, Taichung, Taiwan	Number of Shares held 24,845,783 3,897,351 3,684,622 5,415,762 30,708 11,760 16,800	Percent of Shares held(1) 16.53 2.59 2.45 3.60 0.02 0.01 0.01	Other significant positions held
					Vice Chairman of Nikon Camera (Hangzhou) Ltd. Chairman of Hanzhou Nikon Camera Co., Ltd. Chairman of Dungguan Tailien Optical Co., Ltd. Chairman of Toyo Optical Co., Ltd. Chairman of Dongguan Sintai Optical Co., Ltd. Vice Chairman of Dongguan Sintai Optical Co., Ltd. General Manager of Dongguan Sintai Optical Co., Ltd. General Manager of Dungguan Tailien Optical Co., Ltd. — Director of Tai Ping Shipping Co., Ltd. — Director of Dung Ta Photonics Co., Ltd.

(1) As of 30th September, 2003.

• (2) Mr. Robert Lai is also the Manager of the Business Division.

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Supervisors

The Company currently has three supervisors, each serving a three-year term. Supervisors are typically elected at the time that 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 or in contravention of the Company’s Articles of Incorporation. Each supervisor is elected by the Company’s shareholders and cannot concurrently serve as a director, management officer or other staff member. The ROC Company Law requires at least one supervisor to 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 or her position in the Company, his or her business address, the number of Shares held, the percentage of Shares and other significant positions held by him or her.

Name Sung-Tao Lin........... Shie-Wang Chen ..... Kao-Jen Lin.............	Position Supervisor Supervisor Supervisor	Business Address 8/F, No. 156, Fu-shing N. Road, Taipei, Taiwan No. 7, Lane 42, Ta-he Street, Taichung City, Taiwan No. 59 An-he Road, Feng-yuan, Taichung, Taiwan	Number of Shares held 1,640,973 30,708 11,760	Percent of Shares held(1) 1.09 0.02 0.01	Other significant positions held
					General Manager of Heng Mei Trading Co., Ltd. Director of Jiu Shou Enterprise Co., Ltd. Director of Penwell Metal Co., Ltd. Chairman of Yu Wei Enterprise Co., Ltd.

(1) As of 30th September, 2003.

In accordance with ROC law, each of the Company’s directors and supervisors owe fiduciary duties to all shareholders.

Executive Officers

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

Name Ming-Yuan Huang ........... Hsien-Tang Lai................. James Chen....................... Iris Wu.............................. Peter Chien .......................	Position Chief Executive Officer Director of Sales and Marketing Division Director of General Administrative Office Chief Financial Officer and Spokesperson Chief Legal Officer and Director of Research and Development Division	Business Address No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan No. 22–3 South Second Road, T.E.P.Z., Taichung, Taiwan	Years with the Company
			14 22 15 21 21

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Biographies of Directors, Supervisors and Executive Officers

Robert Lai, age 55, joined the Company in 1981 and has served as a director and the Chairman of the Company since October 1985. Mr. Lai holds a college degree in business management from Taichung College of Commerce in the ROC.

Hsien-Tang Lai, age 68, has served as a director of the Company since October 1998. Before joining the Company, he served as the warehouse and storage manager of Taiwan Power Corporation and has a total of more than thirty years of experiences in business management of which more than ten years are in the optical industry.

Ming-Yuan Huang, age 53, has served as a director and General Manager since October 1998. Before joining the Company, Mr. Huang served as the deputy manager of the production division of Canon, Taiwan and has a total of more than ten years of experience in the optical industry. He holds a bachelor’s degree in industrial management from National Cheng Kung University in the ROC.

He-Guei Lai, age 38, has served as a director of the Company since October 1998. Mr. Lai has been involved in the overseas operations of the Company and customer relationships for six years and has approximately six years of experience in the optical industry. He holds a college degree in industrial engineering from United College of Technology in the ROC.

Huei-Chien Chang, age 55, has served as a director of the Company since December 1998. Mr. Chang is also a Director of Taiping Shipping Co., Ltd. and has over 20 years of experience in business management.

Chen-Ming Cheng, age 49, has served as a director of the Company since December 2001. Mr. Cheng is a licensed constructor and the responsible person of a construction firm in the ROC. He is a graduate from the civil engineering department of Chung Yuan University in the ROC.

Chin-Chang Liang, age 54, has served as a director of the Company since December 2001. Mr. Liang is also a director of Dung Ta Photonics Co., Ltd.. He has more than ten years of experience in the photonics industry. Mr. Laing holds a college degree in mechanical engineering from Taipei College of Technology in the ROC.

Sung-Tao Lin , age 70, has served as a supervisor of the Company since December 2001. Mr. Lin is also a general manager of Heng Mai Trading Co., Ltd. Previously, he was a section head of the First Commercial Bank in the ROC. He holds a college degree in business management from Taichung College of Commerce in the ROC.

Shie-Wang Chen, age 56, has served as a supervisor of the Company since December 1998. Mr. Chen is also a director of both Jiu Shou Enterprise Co., Ltd. and Penwell Metal Co., Ltd. He has a college degree in business management from Taichung College of Commerce in the ROC.

Kao-Jen Lin, age 61, has served as a supervisor of the Company since December 1998. Mr. Lin has been the Chairman of Yu Wei Enterprise Co., Ltd. for 13 years. He has a college degree in business management from Taichung College of Commerce in the ROC.

James Chen, age 43, is a director of the general administrative office of the Company. Previously, Mr. Chen served the procurement and overseas sales and marketing department for more than 12 years. He is a graduate of the industrial engineering department of Lung Hwa College of Technology in the ROC.

Peter Chien, age 45, joined the Company as Chief Legal Officer and the Director of the Research and Development Division. Mr. Chien is also the General Manager of Asia Photonics Technology Co., Ltd. He holds a doctorate degree in optical electronics from National Chiao Tung University in the ROC. Mr. Chien has extensive research experience in opto-electronics and was both an associate professor at the National Chiao Tung University and a member of its photoelectric research department.

Iris Wu , age 40, has served as Chief Financial Officer and Spokesperson since March 1996. Ms. Wu has worked for the Company for the past 22 years and has been involved in financial management of the Company for the past 18 years.

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Compensation of Directors and Supervisors

The total aggregate of the remuneration paid and benefits in kind granted to the directors and supervisors of the Company by any member of the Group during 2002 was NT$23 million.

Neither the Company nor any member of the Group has outstanding loans or guarantees to the directors of the Company.

Employees

Overview

The Company had the following number of employees as of the period indicated:

Administrative......................................................... Research and development ...................................... Manufacturing ......................................................... Sales and marketing................................................. Total ........................................................................	As of 31st December, 2000 2001 2002 154 187 189 33 37 47 252 262 289 24 24 27 463 510 552	As of 31st December, 2000 2001 2002 154 187 189 33 37 47 252 262 289 24 24 27 463 510 552	As of 31st August,
	2000 154 33 252 24 463	2001 187 37 262 24 510	2003
			187 91 296 29
			603

As of 31st December, 2002, all of the Group’s employees worked on a full-time basis.

As of 31st December, 2002, approximately 67.5% of the Company’s employees held a college 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 manufacturing operations.

Neither the Company nor any of its subsidiaries has experienced any significant labor disputes in the past three years.

Employee remuneration

The salaries of the Company’s employees in the ROC are adjusted based on industry standards, inflation and individual performance. The Company pays a year-end bonus to the employees equivalent to an average of two to three 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 retained earnings which may be paid in cash or stock. See “Description of The Shares”. In addition, ROC law requires that the Company’s employees be given pre-emptive rights to subscribe for between 10.0% to 15.0% of any rights issues or share offerings of the Company. Currently, the Company does not have any share option schemes.

Employee retirement plan

The Company has established an employee defined-contribution retirement plan (“ Retirement Plan ”). The Retirement Plan provides for lump-sum payments to retiring employees in Taiwan based on the length of service, age and certain other factors. The Company deposits funds equal to three% of employees’ total salaries with the Central Trust of China in accordance with the requirements of the Labor Standards Law of the ROC. Actual payment of retirement benefits are 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 actuarial valuation. Pursuant to ROC Financial Accounting Standard Statement No. 18, the Company recognizes 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 and accidental insurance as well. Such insurance policy also provides additional coverage to the family members of the employees free of charge.

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PRINCIPAL SHAREHOLDERS

In so far as is known to the Company, as of July 25, 2003, there is no person other than a director who, directly or indirectly, is interested in 10% or more of the Company’s capital.

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CHANGES IN ISSUED SHARE CAPITAL

The following table shows the increases in the Company’s issued share capital since August 1999:

			Number of
		Number of	Shares
		issued	outstanding
Date of issue	Type of issue	Shares	after issue
August 1999	Capitalization of stock dividends and rights issue	18,650,000	36,900,000
September 2000	Capitalization of stock dividends, employee bonus and	17,030,687	53,930,687
	capital reserve
March 2001	Rights issue	7,500,000	61,430,687
June 2001	Capitalization of stock dividends, employee bonus and	25,495,586	86,926,273
	capital reserve
June 2002	Capitalization of stock dividends and employee bonus	36,236,708	123,162,981
July 2003	Capitalization of stock dividends	27,150,101	150,313,082

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TERMS AND CONDITIONS OF THE BONDS

The following terms and conditions (except for the sentences in italics) will be endorsed on the Global Certificate and 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 may modify the effect of the terms and conditions set out below. See “The Bonds — The Form of the Bonds”.

The issue of U.S.$75,000,000 Zero Coupon Convertible Bonds Due 2008 (the “ Firm Bonds ”) and of up to additional U.S.$8,000,000 Zero Coupon Convertible Bonds due 2008 (the “ Optional Bonds ”) (the Firm Bonds and the Optional Bonds are collectively referred to as the “ Bonds ”) of Asia Optical Co., Inc. (the “ Company ”) was authorized by a resolution of the Board of Directors of the Company adopted on August 26, 2003. The Bonds are constituted by an indenture (the “ Indenture ”) to be dated as of October 14, 2003 and 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 October 14, 2003 with the Trustee, The Bank of New York, as the registrar (“ 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 and the Paying Agent, the Conversion Agent and the Transfer Agent 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 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, NY 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 obligations of the Company and rank at least pari passu 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, 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 are not issuable in bearer form. 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, société anonyme (“ Clearstream, Luxembourg ”) .

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates (the “ Definitive Certificate ”) 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

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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 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 it, or, if any, undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as hereinafter defined) (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 (debentures for this purpose shall exclude, for the avoidance of doubts, fixed or floating charges, loan agreements or other documents creating or evidencing indebtedness which are not commonly known as securities), 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.

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 Certificate evidence that Bond duly endorsed and accomplished 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 Certificated 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).

Transfer 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 a 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

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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, premium (if any) and interest (if any) 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 Certificate 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, which shall not be unreasonably withheld. A copy of the current 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.

6. Conversion

The Company shall, within five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic 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 common 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 hereinafter defined) hereunder to convert any Bond into Shares, credited as fully paid. 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 November 14, 2003 and prior to the close of business (at the place where the Conversion Notice (as defined in Condition 6(B)) and the individual Definitive Certificate in respect of such Bond (if issued) are deposited for conversion) on September 14, 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 date seven days 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 ”);

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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 the Company shall close its shareholders register, which period includes 60 days prior to the date of the annual meeting of shareholders (“ AGM ”), 30 days prior to an extraordinary shareholders’ meeting and three Trading Days prior to a date of notification to the TSE of a record date for determination of identity of shareholders entitled to receive annual dividend, distributions or other rights or benefits to the relevant record date or such other periods determined by ROC law applicable from time to time. 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.

Under current ROC law, regulation and policy, PRC persons are not permitted to 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 individual, resident, agency or instrumentality.

Pursuant to the amendments to the Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals approved by the Execution Yuan on June 27, 2003 and September 30, 2003, the Bondholders must register with the TSE and obtain an investment ID to invest in securities in ROC prior to conversion, unless an investment approval or an investment ID has been previously obtained. An approval from the Central Bank of China may also be required if the converting Bondholder is the Non-Resident Foreign Institutional Investor without having a sub-investment account.

Upon conversion, the applicable Bondholders will be required to: (i) specify an account number with the Taiwan Securities Central Depository Co., Ltd. in the Conversion Notice, (ii) appoint a qualified agent or representative to open a securities trading account with a local brokerage firm in order to submit the application of conversion, exercise shareholders’ rights, apply for foreign exchange remittance and pay ROC taxes on their behalf, (iii) appoint a custodian bank approved by the Ministry of Finance to act as the custodian for the funds and securities upon conversion, and (iv) appoint a local securities firm or financial institution to act as an agent to open a New Taiwan dollar bank account (collectively, the “ Requirements ”). The Bondholders will not be able to receive, hold or sell or otherwise transfer the Shares if the related Bonds have been converted without the approval from the TSE and the Requirements have not been satisfied.

If the applicable Bondholder has previously opened a conversion account for overseas corporate convertible bonds, a redemption account for overseas deposit shares, or a sales account for overseas stock prior to June 30, 2003, such Bondholder shall submit the documents, as required to the TSE to transfer the assets to the general investment account.

(ii) Number of Shares 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$33.767 = U.S.$1.00) by the Conversion Price (as hereinafter defined) in effect on the Conversion Date as defined in Condition 6(B)(ii). Fractional Shares will not be issued or paid in cash, or in any other means.

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 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 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 by operation of law or otherwise occurring after October 14, 2003, the Company will upon conversion of the Bonds pay in U.S. Dollars a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share 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 U.S.$7.463 per Share, but will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E).

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(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 October 14, 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 his 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 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.

The Conversion Notice shall contain, inter alia, an appointment of an agent or representative (as required by the applicable laws and regulations) by such converting Bondholder and an irrevocable instruction to exchange for Shares issued pursuant to Condition 6(B)(iv). 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 will 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.

(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 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 on conversion of Bonds and all charges of the Conversion Agents 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, 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

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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 from the date the notification of the Conversion Notice is received by the Company or its domestic transfer agent from the Principal Agent.

(v) Delivery of Shares: Within five Trading Days from the date the notification of the Conversion Notice is received by the Company from the Principal Agent, the Company will register the converting Bondholder (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 after the date the notification of the Conversion Notice is received by the Company from the Principal Agent, there be delivered to the agent or representative appointed by the converting Bondholder (if Shares issued upon conversion of the Bonds), a certificate or certificates for the relevant Shares by electronic credit to the account established by the relevant agent or representative 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.

If any of the ROC laws or regulations changes, the conversion procedures stipulated in this Condition shall be changed accordingly if so required by such laws and regulations. The term “ Trading Day ” means a day on which the TSE is open for business.

(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 agent or representative appointed by the converting Bondholder) 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: Bondholders are not entitled to receive any stock or cash dividends prior to the conversion of their Bonds. To the extent permitted under the laws and regulations of the ROC and given the Closed Period stipulated in Condition 6(A)(i), the converting Bondholders will not be entitled to the same annual dividend distributions or other benefits for holders of Shares if the Conversion Date falls within the Closed Period.

(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 a specified office 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 manner set forth in the Indenture upon the occurrence of certain events set out in the Indenture, including:

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• (i) the making of a free distribution or bonus issue of Shares;

• (ii) subdivisions, consolidations or reclassifications of Shares;

• (iii) the declaration of a dividend in Shares;

(iv) the grant, issue or offer to the holders of Shares of rights or warrants to subscribe for or purchase Shares at less than the then Current Market Price (as defined in the Indenture) or to subscribe for or purchase any securities convertible into or exchangeable for Shares at less than the then Current Market Price;

(v) the distribution to the holders of Shares of evidences of indebtedness of the Company or of shares of common stock of the Company (other than Shares) or of assets (other than regular periodic dividends in cash) or of rights or warrants to subscribe for or purchase shares or securities (other than those mentioned in (iv) above);

(vi) the issue of securities (other than the Bonds, issued on conversion of Bonds and those mentioned in (iv) or (v) 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 (iv) or (v) 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;

(vii) the issue of Shares (other than Shares issued on conversion of convertible bonds, including the Bonds, or in any of the circumstances described above or to shareholders of any company which merges with the Company in proportion to their shareholding in such company immediately prior to such merger or upon such merger, but including Shares issued under any employee bonus or profit-sharing arrangements) at less than the then Current Market Price; and

(viii) any other event or circumstance which would have in the determination of the Company or the Trustee an analogous effect to any of the events in (i) to (vii) above including, but not limited to, issues of receipts or certificates entitling holders to receive securities,

in accordance with the formulas stipulated in the Indenture; provided that the Conversion Price will not be reduced below the par value of the Shares (at the date of the Indenture, NT$10 per share) as a result of any such adjustment and the Company has covenanted in the Indenture not to take any action which would otherwise reduce the Conversion Price below the par value of the Shares unless, under applicable law then in effect, Bonds could be converted at such reduced Conversion Price into legally issued non-assessable Shares. 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 otherwise would 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 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 no such event has occurred.

(D) Conversion Price Reset

The Conversion Price may be adjusted on each Reset Date, which may be the April 14, 2005 (the “ First Reset Date ”), April 14, 2006 (the “ Second Reset Date ”), April 14, 2007 (the “ Third Reset Date ”) and April 14, 2008 (the “ Fourth Reset Date ”) (each a “ Reset Date ”), in the event that the average closing price (as defined in Condition 8) of the Shares on the TSE translated into U.S. Dollars at the then Prevailing Rate (as defined below) for 30 consecutive Trading Days immediately prior to (and excluding) the Reset Date is less than the Conversion Prices then in effect on the relevant Reset Date converted into U.S. Dollars at the fixed exchange rate established on the Pricing Date, the Conversion Price shall be adjusted in accordance with the following formula set forth in the Indenture:

Fixed Exchange Rate Adjusted Conversion Price = x Average Closing Price Prevailing Rate

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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 (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) unless, under applicable law then in effect, the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares; 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 the Second or Third Reset Date notwithstanding that an adjustment may have been made in respect of a preceding Reset Date.

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 relevant 30 consecutive Trading Day period. 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.

Any such adjustment shall become effective as of the relevant Reset Date and the Bondholders and the Luxembourg Stock Exchange shall be notified of any adjustment to the Conversion Price as soon as practicable, after the relevant Reset Date in accordance with Condition 15.

(E) Alternative Conversion Price Reset

The Company may (but not obligated to) declare, within seven Trading Days (the “ Alternative Conversion Period ”) from the fourth Business Day immediately following September 14, 2005 and September 14, 2006 to the relevant Put Date, as defined in Condition 8(C) (each an “ Alternative Reset Date ”) an Alternative Conversion Price equal to 95.0% and 95.0% of the then market price, respectively.

The “market price” refers to the lowest among the average closing prices of the Shares on the TSE translated into U.S. dollars at the then prevailing exchange rate for 10, 15 and 20 Trading Days immediately preceding the applicable Alternative Reset Date.

The Company shall give Bondholders an Alternative Conversion Price Reset notice (“ Alternative Reset Notice ”) as soon as practicable after the applicable Alternative Reset Date is declared in accordance with Condition 15 and shall, inter alia , state:

(i) that the Alternative Conversion Price is only in effect during the Alternative Conversion Period;

(ii) the Market Price;

• (iii) the Alternative Conversion Price; and

• (iv) the Alternative Conversion Period.

The Alternative Conversion Price will only be applicable within the Alternative Conversion Period described in this Condition 6(E). For the avoidance of doubt, any conversion prior to or after (not including) such Alternative Conversion Period will apply the conversion price then in effect rather than the Alternative Conversion Price.

(F) Mergers; Disposals

The Company will not merge, amalgamate or consolidate with or into any other corporation or entity (the Company 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

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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 and succeed 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. 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 consolidations, amalgamations, mergers, sales or transfers.

(G) Conversion Undertakings

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 regulations and practices.

7. Payments

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

Payment of principal, premium (if any) 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 New York, U.S.A., mailed to the registered address of the Bondholder if it does not have a registered account. Payments of principal and premium (if any) 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 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 in Condition 7(F)) 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 is not a business day, for value the first following day which is a 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

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In this Condition 7, “business day” means a day (other than a Saturday or Sunday) on which commercial banks are open for business in New York City, U.S.A. and London, United Kingdom and, in the case of the surrender of a Definitive Certificate, 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 repurchased and cancelled as herein provided, the Company will redeem the Bonds at 98% of their principal amount in U.S. Dollars on October 14, 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

(i) On or at any time after October 14, 2005 and prior to the Maturity Date, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(H) and 15 (which notice will be irrevocable), redeem all or part of the Bonds at their principal amount if the Closing Price of the Shares, translated into U.S. Dollars at the Prevailing Rate (as defined in Condition 6(D)) 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 125% of the Conversion Price then in effect, translated into U.S. Dollars at the Fixed Exchange Rate, 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.

(ii) 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 some of the Bonds at their principal amount if 90% of the Bonds have been previously redeemed, repurchased, or converted 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. The term “Closing Price” for any Trading Day means the last reported transaction price or, if no transaction takes place on such day, 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 for the purpose.

(C) Redemption at the Option of Bondholders

The Company will, at the option of the holder of any Bond, redeem the Bonds held by that Bondholder on October 14, 2005 (the “ First Put Date ”) at 100% of their principal amount and on

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October 14, 2006 (the “ Second Put Date ”) (together with the First Put Date, each a “ relevant Put Date ”) at 99% of their principal amount.

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, not more than 60 nor less than 30 days prior to each relevant 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 each relevant Put Date. Not less than 30 nor more than 45 days’ notice of the commencement of the period for the deposit of individual Definitive Certificates for redemption (if issued) and the redemption notice pursuant to this paragraph (C) shall be given to the Bondholders by the Company in accordance with Condition 15.

(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 in accordance with Conditions 8(H) and 15 (which notice shall be irrevocable) redeem all but not some only of the Bonds at their principal amount, 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 October 14, 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 publication 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 (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), 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 25 days prior to the date fixed for redemption in accordance with Condition 7(G).

(G) Cancellation

All Bonds which are redeemed or converted or repurchased 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

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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

Payments of premium (if any) and interest (if any) payable on the Bonds to non-residents of the ROC are currently subject to a withholding tax in the ROC equal to 20% of the gross amount of such payments.

• (A) Subject to (B) and (C) below, all payments of principal, premium (if any) 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 (if any) or interest (if any) paid by it to the extent required so that the net amount of premium (if any) 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 (if any) is required, the Company will pay such additional amounts by way of principal, premium (if any) 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 (if any) 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 (or such longer time as the Trustee may consider appropriate in relation to the jurisdiction concerned) after written notice of such default shall have been given to the Company by the Trustee; or

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(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.$5,000,000 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 (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned) of having been so levied, sued out, commenced or issued, unless the Company or such Principal Subsidiary is contesting such proceedings in good faith by appropriate proceedings; 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, unless the Company or such Principal Subsidiary is contesting such proceedings in good faith by appropriate proceedings; 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, spin-off or other similar arrangements the terms of which have previously been approved by 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 or any of its Principal Subsidiaries for the winding-up or dissolution of the Company or any of its Principal Subsidiaries (except for the purpose of and followed by a solvent reconstruction, merger, consolidation, amalgamation spin-off or other similar arrangement the terms of which are approved 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; 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 any of its Principal Subsidiaries; or

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(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 (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned); 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, (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 (iii) make the Bonds and the Indenture admissible in evidence in the courts of the ROC is not taken, fulfilled or done, and such case is incapable of remedy or, if in the opinion of the Trustee is capable of remedy, 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 4.5% per annum.

For the purpose of this Condition, “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 (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 (if any) and (b) interest (if any) will become unenforceable after 10 years (in the case of principal and premium (if any)) and five (5) years (in the case of interest (if any)), 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 (if any) 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

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(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 for passing an Extraordinary Resolution will be two or more persons holding or representing over 50% 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 bank or legal or other expert. The Company shall be obligated to give such certifications and opinions and/or certificates signed by an authorized officer of the Company, as the case may be, as the Trustee may reasonably require. If necessary, the parties will execute a supplemental Indenture. Any such modification shall be binding on all 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.

(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. The Trustee’s agreement may be subject to the Trustee obtaining a certificate signed by an authorized officer of the Company or the opinion of legal counsel or other expert, at the sole expense of the Company. Any such modification, waiver or authorization will be binding on the Bondholders and, unless the Trustee agrees otherwise, any such modification will be (i) notified by the Company to the Bondholders in accordance with Condition 15; (ii) filed with the Luxembourg Stock Exchange with a supplement offering circular; and (iii) published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg Wort ).

• (D) Exercise of Trustee’s Functions

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In connection with the performance of its duty under the Conditions and Indenture (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 NT$33.767 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, and, so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourg 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. All costs and expenses incurred on such publication shall be borne by the Company.

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 further or appoint other Agents, provided that the Company will at all times maintain an Agent having a specified office in London and so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that 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, are to have 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

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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 Law Debenture Corporate Services Inc. at 767 Third Avenue, New York, New York 10017 as its authorized agent for service of process in New York in any Proceedings.

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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, and registered in the name of a nominee for, a common depositary 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 Managers. 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. None of the Company, the Trustee, the Agents (as defined in the terms and conditions of the Bonds) 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 offices of the Paying, Conversion and Transfer Agents maintained in London or such other offices as may be notified by the Trustee from time to time and the offices of the Paying, Conversion and Transfer 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”.

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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

Any drawing of Bonds 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 shall be made in accordance with the relevant rules of the clearing system. 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.

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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 Certificates 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.

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DESCRIPTION OF THE SHARES

The following is a summary of information relating to the share capital of the Company, including the material provisions of the Company’s 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

As of 31st August, 2003, the authorized share capital of the Company was NT$2,830,000,000, divided into 283,000,000 common shares (the “ Shares ”) with a par value of NT$10 per Share, of which 50,000,000 Shares have been reserved for conversion of convertible bonds, and 13,000,000 Shares have been reserved for exercise of subscription rights under employee warrant. As of 31st December, 2002, the paid-in capital was NT$1,071,669,320, all of which are issued, outstanding and fully paid in registered form.

Under the ROC Company Law, any change in the Company’s authorized share capital, including decreases in 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 and the Articles, upon terms that the board of directors may determine.

There are no material provisions in the Articles regarding changes in the Company’s authorized share capital and in the rights of the Shares.

The Company has one class of Shares. Pursuant to the ROC Company Law, a company may not issue preferred stock unless authorized by the articles of incorporation. There is no such authorization in the Articles of the Company.

Other than the Bonds offered hereby, the Company has not issued any warrants, options, convertible debt securities, exchangeable securities or debt securities with warrants attached.

Dividends and Distribution

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, be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company also shall set aside a special earning reserve in accordance with the regulations of competent authorities, if applicable. In addition, the Articles provide that the remaining portion of the earnings will be distributed in the following manner: (1) the employee bonuses shall be at least 2%, and (2) the remuneration of all directors and supervisors shall be 2% Further, as provided in the Articles, the residual earnings after employee bonuses and remuneration may be distributed to shareholders in proportion to shareholder’s holdings as approved by the shareholders. However, the amount of the dividends shall not exceed 90% of the amount equal to the residual part of the earnings after the deduction of employee bonus and remuneration plus the accumulated retained earnings of the preceding year. Dividends may be distributed in cash, in the form of shares or a combination of the two, as determined by the shareholders. However, the Articles provide that dividends distributed in cash shall be no less than 10% of the total dividends.

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. All Shares outstanding and fully paid as of the relevant record date are entitled to share equally in any dividend or other distribution so approved.

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.

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New Shares and Preemptive Rights

New Shares may only be issued with the prior approval of the board of directors. If the issuance of any new Shares will result in any change in the authorized share capital, the Company is required under ROC law to amend the Articles and obtain approval of the shareholders. The Company must also obtain the approval of, or submit a registration with, the ROC SFC and T.E.P.Z.

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. The specific terms and arrangements for such Share issuances will be determined at the time of the Share issuances. Any new Shares that remain unsubscribed at the expiration of the subscription period may be offered to the public or privately placed by the Company. The foregoing provisions regarding preemptive rights of existing shareholders and employees do not apply to Shares issued upon the conversion of the Bonds.

In addition, in accordance with the Securities and Exchange Law, when the Company intends to offer new Shares for cash, it 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.

Meetings of Shareholders

The ordinary meeting of shareholders of the Company is usually held in Taichung, Taiwan, ROC, as determined by the board of directors, within six months of the end of each fiscal 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 three per cent. of the paid-in 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 in the case that the board of directors did not or could not convene the shareholders’ meeting, or when the supervisor, for the benefit of the Company, deems necessary. Notice in writing of ordinary and extraordinary shareholders’ meetings stating the place, time and purpose thereof must be despatched to each shareholder of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting. Also, according to the regulations of the ROC SFC, the Company is required to publish notices of shareholders’ meetings in a national daily newspaper.

Voting Rights

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

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 Shares, excluding Shares without voting rights, are present. In accordance with the Company Law, 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. In all matters, except for the election of directors and supervisors, a shareholder must cast all of his votes when voting on any of these matters. The Articles do not provide other election methods. Ballots for the election of directors are casted 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. Any shareholder who has a personal interest in a matter to be discussed at the shareholders’ meeting, the outcome of which may impair the company’s interests, shall not vote or exercise voting rights on behalf of another shareholder on such matter. 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 Shares, excluding Shares without voting rights, are represented is required for major corporation actions, including:

• amendment to the Articles;

• transfer of the whole or a substantial part of the Company’s business or assets;

• execute, amend or terminate any contract that leases the Company’s whole business, mandates the Company’s operation to other persons, or operates the business frequently for the joint interest of the Company and other persons;

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• 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;

• the distribution to the Shareholders of additional Shares by capitalizing reserves;

• the waiver of the obligation of the director not to act for himself or on behalf of another person within the scope of the Company’s business;

• the dissolution or amalgamation of a company;

• the merger or spin-off; and

• the removing of directors or supervisors.

In addition, the distribution of any stock dividend by the Company shall be further subject to the approval by or registration with the ROC SFC.

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 Shares, excluding Shares without voting rights, 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.

In addition, according to the Corporate Merger and Acquisition Act, as effective on 8th February, 2002, if a company intends to transfer all or substantially all of its business or assets to its subsidiary, subject to the qualifications set forth in the said act, such transaction only needs to be approved by majority board resolution rather than super majority vote by the shareholders’ meeting as required by the ROC Company Law.

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. Except for trust enterprises or stock affair agents approved by the ROC SFC, a person who holds a proxy for one or more shareholders who together hold more than 3% of the total issued 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 set a record date and shall close the register of shareholders for a specified period immediately prior to and including the record date in order to determine the shareholders and pledgees that are entitled to rights pertaining to the Shares. The specified period required for the respective record date is as follows:

• ordinary shareholders’ meeting — sixty days;

• extraordinary shareholders’ meeting — thirty days; and

• relevant record date for distribution of dividends, bonuses or other interests — five days.

Annual Financial Statements

Under the ROC Company Law, for a period of at least 10 days before the ordinary shareholders’ meeting, the Company’s annual audited financial statements must be available at the principal office of the Company in Tan-zu, Taichung, for inspection. Such financial statements will also be made available at Luxembourg Stock Exchange if the rules of that exchange so require. According to the regulations of the ROC SFC, the Company is required to publish its annual, semi-annual and quarterly non-consolidated financial statements in a national daily newspaper, which are also available in the office of the paying and conversion agent in Luxembourg.

Transfers of Common Shares

Under the ROC Company Law, a public company, such as the Company, may issue individual share certificates, one master or no certificate at all to evidence common shares. The transfer of the 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.

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The settlement of trading of the Shares 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 previous ROC Company Law, an ROC company could not acquire its own shares except for minor exceptions. Any share acquired by an ROC company under such exceptions must be sold by the company at the current market price within six months after its acquisition. Under the current ROC Company Law, a company may purchase up to 5% of its issued common shares to transfer to employees in accordance with a resolution of its board of directors, passed by a majority vote, at a meeting with at least two-thirds of the directors present.

In addition, under the Securities and Exchange Law effective on 21st July, 2000, the Company 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 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 there after.

The total Shares so 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 pursuant to the first two items above shall be transferred to the intended transferees within three years after the purchase, otherwise the Shares shall be cancelled. For the Shares to be cancelled pursuant to the third item above, the Company shall complete an amendment registration for such cancellation within six months after the purchase.

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, 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 Share on the TSE.

In addition to the share purchase restriction, the ROC Company Law further provides that subsidiaries of the Company may not acquire the Company’s Shares or the shares of the Company’s majority-owned subsidiaries if the majority of the outstanding voting shares or paid-in capital of such subsidiary is directly or indirectly held by the Company.

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.

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 the intent to transfer any shares traded on the TSE to the ROC SFC at least three days before the intended transfer, unless the number of Shares to be transferred does not exceed 10,000.

Subject to limited exceptions, the transaction of the Company’s Shares has to execute in the TSE.

Limitation on Shareholdings in the Company and Reporting Obligations

The Securities and Exchange law requires each director, supervisor, manager or significant shareholder to report any change in that person’s shareholding to the Company before each fifth day of each month and the

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Company shall report the same to the ROC SFC before the fifteenth day of each month. Such persons are also required to report to the Company immediately the pledge of their Shares 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.

Rights to Bring Shareholders’ Suits

Under the ROC Company Law, a shareholder may bring suit against the Company in the following events:

• Within 30 days from the date on which a shareholders’ resolution is adopted, a shareholder may file a lawsuit to annul a shareholders’ resolution if the procedure for convening a shareholders’ meeting or the method of resolution violated any law or regulation or the Articles. 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 the shareholder’s claim.

• If the substance of the 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 a suit against the directors and supervisors under the following circumstances:

• Shareholders who have continuously held 3% or more of the issued Shares for a period of one year or longer may request in writing that a supervisor institute an action against a director on behalf of the Company. In case the supervisor fails to institute an action within 30 days after receiving such request, the shareholders may institute an action on behalf of the Company. In the event shareholders institute an action, a court may, upon application of the defendant, order such shareholders to furnish appropriate security.

• Shareholders who hold more than 3% or more of the total issued Shares may institute an action with a court to remove a director of the Company who has materially violated the applicable laws or the Articles or has materially damaged the interests of the Company if a resolution for removal on such ground has first been voted on but rejected by the shareholders and such suit is filed within 30 days of such shareholders vote.

• In the event that any director, supervisor, manager or significant shareholder sells Shares within six months after acquisition of such Shares, or repurchase the Shares within six months after the sale, the Company shall claim for recovery of any profits realized from the sale and purchase. If the board of directors or supervisors fail to claim for recovery, any shareholder may request the board of directors or supervisors to exercise the right of claim within 30 days. After such 30-day period, such requesting shareholder shall have the right to claim such recovery on behalf of the Company if the board of directors or supervisors still fail to claim for recovery. The directors and supervisors shall be jointly and severally liable for damages suffered by the Company as a result of their failure to exercise the right of claim.

Other Rights of Shareholders

Under the ROC Company Law, dissenting shareholders are entitled to appraisal rights in the event of a spin-off or a merger and various other major corporate actions. Dissenting shareholders may request the Company to redeem all their Shares at a fair price to be determined by mutual agreement. If no agreement can be reached, the valuation will be determined by a court. Subject to applicable law, dissenting shareholders may, among other things, exercise their appraisal rights by notifying the Company before the related shareholders’ meeting and/or by raising and registering their dissent at the shareholders’ meeting.

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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 advisers 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-Resident Individual or Non-Resident Entity that holds Bonds or Shares (each a “ Non-ROC Holder ”). As used in the preceding sentence, a “Non-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-Resident Entity” is a 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.

Withholding Tax on Payments of Premium and Interest

Premium (if any) and interest (if any) payable on the Bonds to 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.

Dividends on the Shares

Dividends (whether in cash or Shares) declared by the Company out of retained earnings and paid out to 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 Holders adopted by the tax authorities is 20% of the amount of the distribution (in the case of cash dividends) or the par value of the Shares (in the case of stock dividends). Distributions of stock dividends declared by the Company out of capital reserves are currently not subject to ROC withholding tax. In accordance with the ROC Income Tax Law, a ten percent retained earnings tax will be imposed on a company for its after-tax earnings generated after 1st January, 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce 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, a 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 Bonds and 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 and on sales of Bonds at the rate of 0.1% of the transaction price. However, according to a letter issued by the ROC MOF dated 17[th] January, 2001, sales of the Bonds outside of the ROC are exempted from such securities transaction tax. According to the amended Statute for Upgrading Industries effective as of 1st February, 2002, no securities transaction tax will be imposed on the sale of the Bonds. Such tax credit is valid from 1st February, 2002 to 31st December, 2009.

The securities transaction tax and/or gift tax may be imposed in relation to the converting Bondholder’s designation of another person to be the holder of Shares upon conversion of the Bonds.

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

Estate Tax and Gift Tax

ROC estate tax is payable on any property within the ROC of a deceased Non-Resident Individual, and ROC gift tax is payable on any taxable property within the ROC donated by a Non-Resident Individual. Estate tax is currently imposed at rates ranging from 2% of the first NT$600,000 to 50% of amounts in excess of NT$100 million. 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 million. Under ROC estate 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 Indonesia, Singapore, New Zealand, Australia, South Africa, Gambia, Swaziland, Malaysia, Macedonia, Vietnam, The Netherlands and the United Kingdom. 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.

Tax Reform

In order to increase Taiwan’s competitiveness, an amendment to the ROC Income Tax Law (“ Amendment ”) was enacted on 1st January, 1998, to integrate the corporate income tax and the shareholder dividend tax with the aim of eliminating the double taxation effect for resident shareholders of ROC companies. The Amendment will have the following effect upon Non-ROC Holders of the Shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Income Tax”.

A 10% retained earnings tax will be imposed on the Company for its after-tax earnings generated after 1st January, 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce 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 Holders of its Shares.

Preemptive Rights

Distributions of preemptive rights for the Shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of preemptive 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 Non-ROC Entity Holders, and (ii) 35% of the gains realised for Non-ROC Individual Holders. Subject to compliance with ROC law, the Company has the sole discretion to determine whether preemptive rights are evidenced by securities or not.

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UNDERWRITING

SinoPac Securities (Asia) Limited (the “ Lead Manager ”), Chinatrust Commercial Bank Ltd., Offshore Banking Branch, and KGI Securities Co., Ltd. (together with the Lead Manager, the “ Managers ”) have, pursuant to a Subscription Agreement dated as of October 3, 2003 (the “ Subscription Agreement ”), severally and not jointly agreed with the Company to subscribe and purchase the Bonds at the issue price of 101.0% of their principal amount less the combined management and underwriting commission and selling fee of 0.75% on the aggregate principal amount of the Bonds.

If the Managers sell more Bonds than the total number set forth in this Offering Circular, the Managers have an option to buy up to an additional U.S.$8,000,000 principal amount of Bonds from the Company to cover such sales. They may exercise that option for 30 days from October 14, 2003. If any Bonds are purchased pursuant to this option, the Managers will severally purchase Bonds in approximately the same proportion as set forth in the Subscription Agreement. The Managers will notify the Luxembourg Stock Exchange upon exercise of such an option.

The Company has agreed in the Subscription Agreement to indemnify the Managers against 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 or sell 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 such case without the prior written consent of the Lead Manager, other than those pursuant to employee benefits plans or distributions of dividends or employee bonuses in the form of Shares and conversion of the Bonds.

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 40[th] 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

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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 Financial Services and Markets Act 2000 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 represented 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 (i) to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent) or (ii) 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 for the purposes of issue and will not issue or have in its possession for the purposes of issue any advertisement, invitation or document relating to the Bonds, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) and any rules made thereunder.

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 and will not be registered as a prospectus with the monetary authority of Singapore. Accordingly, each Manager has represented and agreed that it has not offered or sold and will not offer or sell any Bonds nor has it circulated or distributed nor will it circulate or distribute this Offering Circular or any other offering document or material relating to the Bonds, directly or indirectly, (i) to persons in Singapore other than under circumstances in which such offer or sale does not constitute an offer or sale of the Bonds to the public in Singapore or (ii) to the public or any member of the public in Singapore other than pursuant to, and in accordance with the conditions of, an exemption invoked under Subdivision (4) of Division 1 of Part XIII of the Securities and Futures Act, Chapter 289 of Singapore and to persons to whom the Bonds may be offered or sold under such exemption.

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LEGAL MATTERS

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

INDEPENDENT AUDITORS

The consolidated and non-consolidated financial statements of the Company as of 31st December, 2000, 2001 and 2002 and with respect to the unconsolidated interim financial statements for the six months periods ended 30[th] June, 2002 and 2003 prepared in accordance with ROC GAAP included in the Offering Circular have been audited by Deloitte & Touche, chartered accountants and independent auditors as stated in their reports appearing herein.

ROC GAAP differs from generally accepted accounting principles in the United States, and from International Accounting Standard. For more information, please see “Summary of Significant Differences between ROC GAAP and U.S. GAAP”.

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GENERAL INFORMATION

Registered Office, Principal Place of Business and Business Scope

The Company was incorporated as a company limited by shares in accordance with the laws of the ROC on October 9, 1980. The Company is registered with the Taichung Export Processing Zone (T.E.P.Z.) of the ROC under a uniform registration number of 55921894. The Company’s registered office is located at No. 22-3 South Second Road, T.E.P.Z., Taichung 427, Taiwan, ROC, and the principal place of business and corporate headquarters are located at No. 98, An-he Road, Tan-zu Hsiang, Taichung, Taiwan, ROC.

Pursuant to Article Two of the Company’s Articles of Incorporation, the scope of the Company’s business shall be to manufacture, process and export certain optical components, opto-electronics and laser products.

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.

Authorization

The offering of the Bonds was authorized and approved by the Board of Directors of the Company on August 26, 2003 and by the ROC Securities and Futures Commission (“ SFC ”) on October 2, 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 deposited prior to the listing with the Trade and Companies Register (Registre de Commerce et des Sociétés) in 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 Luxembourg Stock Exchange:

• Articles of Incorporation of the Company;

• a copy of the reports of the independent accountants, the audited consolidated financial statements of the Company as at and for the years ended 31st December, 2000, 2001 and 2002 and the unaudited non-consolidated financial statements of the Company as at and for the first six months ended 30th June, 2002 and 2003;

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• 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 annual consolidated financial statements of the Company and quarterly and semi-annual non-consolidated financial statements of the Company (in each case in English), will be available at the specified office of the Paying and Conversion 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 in Luxembourg (which is expected to be the Luxembourg Wort).

Interim Consolidated Financial Statements Not Available

Pursuant to the regulations applicable to the companies those Shares are listed on the TSE or GTSM promulgated by the ROC SFC, the Company, as other listed companies, is not required to prepare and publish interim consolidated financial statements. Accordingly, no interim consolidated financial statements of the Company are available for the Bondholders as well as the general public.

Paying, Conversion and Transfer Agents

The Company will at all times maintain paying, conversion and transfer 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, the Paying, Conversion ad Transfer 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, here has been no material adverse change in the financial position of the Group since 31st December, 2002, the date of the Group’s latest audited consolidated financial statements.

Governing Law

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

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..............................................................................................................................017723952 ISIN .......................................................................................................................................XS0177239521

Litigation

Except as disclosed in this Offering Circular, neither the Company, nor any member of the Group is or has been involved in legal or arbitration proceedings which may have a material adverse effect on the financial position of the Company or the Group, nor are any such proceedings pending or threatened of which the Company is aware.

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

Financial statements prepared in accordance with “Regulations Governing Preparation of Financial Statements of Public Companies” and accounting principles generally accepted in the ROC (collectively referred herein as “ ROC GAAP ”) differ in certain respects from U.S. GAAP. The following is 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.

Subject

ROC GAAP

U.S. GAAP

Presentation of Non-Consolidated Financial Statements

Non-consolidated financial statements of a company are presented as the primary financial statements and consolidated financial statements as supplemental financial statements.

Parent- company-only non-consolidated financial statements are not allowed to be presented as the primary financial statements for any period.

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 or operating revenues which are less than 10% of the company’s non-consolidated total assets or operating revenues, 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 and total assets of all such non-consolidated subsidiaries exceed 30% of the company’s non-consolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues greater than 3% of the company’s respective non-consolidated amounts shall be consolidated. In addition, under the Company Law in the ROC, 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.

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.

A company is not required to prepare interim financial

The accounting principles and practices used by an enterprise in

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Subject

U.S. GAAP

ROC GAAP

statements on consolidated basis.	the preparation of its interim
Instead, the company is only	statements are based on those used
required to recognize investment	in its latest annual financial
income/loss in majority owned	statements unless a change of
subsidiaries under the equity	accounting practice or policy has
method.	been adopted in the current year.
	Thus, if the enterprise’s latest
	annual financial statements were
	prepared on consolidated basis;
	accordingly the interim financial
	statements shall also be prepared
	on a consolidated basis, except as
	discussed above.
When a company’s interest in a	For the purposes of application of
subsidiary changes from a	the consistency standard, a change
majority interest to a minority	in the reporting entity is not
interest, the investment in the	deemed to result from the creation,
subsidiary should be accounted for	cessation, purchase, or disposition
under the equity basis in the	of a subsidiary or other business.
consolidated financial statements	Accordingly, when a company’s
in the current year. In addition,	interest in a specific subsidiary or
ROC GAAP construes such	investee affiliate changes during
change to be a change in the	the year, that change is generally
reporting entity which requires	accounted for prospectively and
that in order to maintain	retroactive restatement is not
consistency in the application of	required.
accounting standards, the prior
year(s) comparative consolidated
financial statements should be
retroactively restated.

• Employees Stock Bonuses It is a statutory requirement that Employee bonuses and bonuses paid to employees and remuneration issued to directors remuneration paid to directors and and supervisors are charged to supervisors out of retained income as compensation expenses earnings are not regarded as in the year when related services expenses, but instead are reported are provided, irrespective of as a distribution from retained whether the bonuses are paid in earnings in the year the stock, the shares are valued using shareholders approve the the fair value or the intrinsic value distribution of earnings. Under method. certain circumstances, employee bonuses may be paid 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 the computation of earnings per share.

Stock bonus to employees is given only prospective effect in the computation of earnings per share.

Stock dividends

The issuance of stock dividends is recorded based on the par value of the shares, multiplied by the number of shares issued.

When the ratio of distribution is less than 25% of shares of the same class outstanding, stock dividends are generally recorded based on the fair value method, with the par value recorded in the capital stock accounts and the

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Subject

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ROC GAAP

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. Employees share purchase In connection with a number of Such issues would be recorded as new shares issue to shareholders, capital contribution for the cash the Company also issue shares to amount received from the employees at the same issue price, employees. In addition, which usually represented a compensation expense would be discount to the quoted market recorded, for the difference price. Such issues are recorded between the shares issue price and as capital contribution for the cash the fair market value, during the amount received from the period when such issues were employees. made. Accounting for changes in When an investee company issues When an investee company issues ownership interest in investee additional shares and the additional shares at an amount companies investor’s ownership interest over/under the carrying value of changes as a result, any resulting the shares held by the investor and difference between the investor’s the investor’s ownership interest investment balance and its decreases as a result of not fully proportionate share of the investee subscribing to the issue, the company’s net equity is adjusted resulting difference between the to its investment account with an investor’s investment balance and offsetting entry to the investor’s its proportionate share of investee capital reserve or retained earnings company’s net equity is adjusted if the related capital reserve to its investment account with an balance is insufficient. Upon offsetting entry either to (i) gain or subsequent disposition of the loss to record the deemed investment, amounts previously disposition of shares or (ii) to recorded to capital reserve or paid-in-capital. If an adjustment retained earnings relating to the has been made to paid-in-capital to respective investment will be recognize investee capital reversed and recorded as part of transactions, U.S. GAAP would the gain or loss on disposal. not permit the adjustment of such amounts on the subsequent disposition of all or a part of the investment.

Business combination Business combinations are All business combinations generally accounted for under initiated after June 30, 2001 are purchase method, but pooling of accounted for under purchase interest method is still allowed if method. The cost to the acquirer certain criteria are met. When in a purchase business business combinations are combination is the fair value of the accounted for under purchase consideration given or the fair method and the consideration value of the assets acquired, given up by the acquirer is in the whichever is more clearly evident form of shares, the cost to the and more reliably measurable. acquirer is generally determined When the consideration is the based on the fair value of the publicly traded equity securities assets acquired and liabilities issued by acquirer, fair value is assumed. When business generally based on the market combinations are accounted for price of the equity securities under pooling of interest method, issued. The market price is the acquired company’s income determined based on a reasonable and loss accounts before the period before and after the date of merger are included in the acquirer he terms of the acquisition are

106

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U.S. GAAP

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

Prepayment of fixed assets

company’s income, and then transferred to capital reserve pursuant to the Company Law and the related regulations in the ROC.

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.

A 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, and then adjusted through minority interest income/loss account for the same amount.

No specific standard 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.

Prepayment of fixed assets is

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.

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 is amortized through December 31, 2001 over its estimated useful life but not exceeding 40 years. Effective January 1, 2002 all goodwill is subject to 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.

A company’s profit and loss accounts only include the results of operations of the acquired company after acquisition.

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.

Prepayment of fixed assets should

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ROC GAAP

presented as part of fixed assets.

be presented as other assets.

Depreciation of fixed assets

Depreciation is generally provided using the guideline service lives as prescribed by the ROC Tax Authorities plus one additional year as salvage value.

Depreciation is provided over the asset’s estimated economic useful life. Salvage value, if any, is based on the estimated net realizable value of the asset at the end of its estimated economic useful life.

Equity investments of at least Equity investments where a The equity method of accounting 20% company has voting rights of at is generally required for least 20% are generally required to investments with an ownership be accounted for under the equity percentage of at least 20% but less method; however, when a than 50%, unless (i) the company has not received the investment is considered audited financial statements of the temporary or (ii) the investor does equity-method investee company not possess the ability to exercise in time to recognize its equity in significant influence over the the investee company’s income investee. There are no (loss), the company may delay the provisions, which allow the recognition of its equity in the investor company to delay investee company’s income (loss) recognition of its equity in the until the subsequent year, unless investee company’s income (loss). 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 statement 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.

108

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ROC GAAP

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

Equity investments of less than Long-term investment of less than 20% or debt 20% of a company’s shares are investments/short-term accounted for at the lower of cost investment 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.

• 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.

Convertible preferred stock and debt securities

When convertible bonds are issued, ROC GAAP does not recognize or account for any beneficial conversion feature

When the accounting treatment for a long-term 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.

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

• (i) 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.

• (ii) Debt securities classified as held to maturity are reported at amortized cost, with any premium or discount amortized over the period of the investment.

• (iii) 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.

Such beneficial conversion feature should be recognized and measured by allocating a portion of the proceeds equal to the

109

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ROC GAAP

	embedded in the securities.	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.
Accounting for derivative	There are no specific accounting	U.S. GAAP requires that all
instruments	standards under ROC GAAP	entities recognize derivative
	which address measurement for	instruments as assets and liabilities
	derivative instruments except for	in the statement of financial
	foreign currency forward	position and subsequently measure
	contracts. Such contracts are	them at fair value. If certain
	classified as hedge or speculative	conditions are met, entities may
	contracts.	elect to designate a derivative
		instruments 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 (i) a recognized
		asset or liability or (ii) 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 (i) an unrecognized firm
		commitment, (ii) an
		available-for-sale security, (iii) a
		forecasted transaction, or (iv) a net
		investment in a foreign operation.
Compensated absences	There is no specific accounting	Compensated absences must be
	practice regarding compensated	accrued based on the liability for
	absences.	employees’ rights to receive
		compensation for future absences
		when certain conditions are met.
Cost of sales	Provisions for normal inventory	Provisions for normal inventory
	scrap and obsolescence are	scrap and obsolescence are
	recorded as non-operating	generally charged to cost of sales.
	expenses.
	The unrealized gross profit	The unrealized gross profit
	generated from downstream	generated from downstream
	intercompany transactions is	transactions is generally charged
	eliminated and presented as a	against cost of sales and credited
	reconciling item of gross profit in	the investment account.
	the statement of income. A
	corresponding liability is recorded

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ROC GAAP

	for the amount of the unrealized
	gross profit in the balance sheet.
Concentration of risk	There is no specific disclosure	Disclose concentration of risk on
	requirement for concentration of	one or more parties, as
	risk.	appropriate, including such parties
		as sole/major customer, supplier,
		franchiser, distributor, general
		agent, borrower or lender is
		required.
Segment information	ROC GAAP requires disclosure of	Under U.S. GAAP, public
	segment information in the	business enterprise is required to
	footnotes information to the	present segment information based
	financial statements according to	on operating segment. Several
	industry and geographic	operating segments may, provided
	information, which need not	aggregation criteria are met, be
	necessarily be the same as the	aggregated to reportable segments
	management’s internal report to	for which the required information
	company decision-makers.	is disclosed. Disclosure is based
		on the management’s approach for
		reporting segments information to
		a company’s chief operating
		decision makers that are used –
		internally for evaluating segment
		performance and deciding
		resources allocation to segments.
Statement of cash flows	Certificates of time deposits with	Certificates of time deposits with
	original maturities of greater than	original maturities of over three
	three months are classified as	months are classified as trading
	cash.	securities.
Pension	The amortization of unrecognized	No such limitation on the
	net gain/loss can not exceed the	amortization of unrecognized net
	excess of unrecognized net	gain/loss is required.
	gain/loss and unrecognized net
	transition obligation.	With respect to the pension plan
		disclosure, under U.S. GAAP,
	With respect to the pension plan	changes in plan assets and benefit
	disclosure, under ROC GAAP,	obligations are required to be
	disclosure of changes in plan	disclosed.
	assets and benefit obligations is
	not required.
Revenue recognition	Revenue is recognized when	Revenue recognition is usually
	realized or realizable.	prescriptive and revenue is
		generally recognized when it is
	According to ROC SFAS 32	realized or realizable and earned
	issued in June 2002 in relation to	when all of the following criteria
	revenue recognition, similar	are met: (i) persuasive evidence of
	criteria for revenue recognition are	an arrangement exists, (ii) delivery
	adopted. This Statement is	has occurred or services have been
	effective for financial statement	rendered, (iii) the seller’s price to
	issued for fiscal year ending after	the buyer is fixed or determinable,
	December 31, 2003 and early	and (iv) collectibility is reasonably
	adoption is encouraged.	assured.
10% additional income tax on	Under the current tax regulations,	Under U.S. GAAP, this
undistributed earnings	current year’s earnings, on tax	10%additional income tax is

111

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ROC GAAP

basis, not distributed in the recognized in the period during following year are subject to 10% which the related income is additional income tax. This 10% generated and impact of the 10% additional income tax is tax is measured for both current recognized as a tax expense in the and deferred tax. following year when the amount is determined. In addition, the effect of the 10% tax on temporary differences is not recognized. Disclosure of new accounting Disclosure of recently issued U.S. GAAP requires disclosure of pronouncements accounting standards but not yet the impact that recently issued effective as of the balance sheet accounting standards will have on date is not required. the financial statement of the company when adopted in the future. Comprehensive income Under ROC GAAP, there is no U.S. GAAP requires that standard for accounting and comprehensive income be reporting of comprehensive displayed with the same income. 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.)

112

INDEX TO FINANCIAL STATEMENTS

Page INDEPENDENT AUDITORS’ REPORT ............................................................................................ F-1 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002, 2001 AND 2000 .................................... F-2 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 F-3 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ............................................................................................. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000............................................................................................................................................. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000..................................................................................................................................... F-9 INDEPENDENT AUDITORS’ REPORT .......................................................................................... F-35 BALANCE SHEETS DECEMBER 31, 2002, 2001 AND 2000............................................................. F-36 STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000......................... F-37 STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002 AND 2000........................................................................................................................................... F-38 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000.................. F-41 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ......... F-43 INDEPENDENT AUDITORS’ REPORT .......................................................................................... F-63 BALANCE SHEETS JUNE 30, 2003 AND 2002............................................................................... F-65 STATEMENTS OF INCOME SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002..................... F-66 STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002 ........................................................................................................................... F-67 STATEMENTS OF CASH FLOWS SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002............. F-69 NOTES TO FINANCIAL STATEMENTS SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002..... F-71

INDEPENDENT AUDITORS’ REPORT

To Asia Optical Co., Inc.:

We have audited the consolidated balance sheets of Asia Optical Co., Inc. and its subsidiaries (the “Consolidated Company”) as of December 31, 2002, 2001 and 2000 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Consolidated 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 auditing standards generally accepted in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Asia Optical Co., Inc. and its subsidiaries as of December 31, 2002, 2001 and 2000 and the consolidated results of their operations and their cash flows for the years then ended in conformity with “Regulations Governing the Preparation of Financial Statements of Public Companies” and accounting principles generally accepted in the Republic of China.

The translation of the 2002 New Taiwan dollar amounts into U.S. dollar amounts has been made in conformity with the basis stated in Note 2, and such U.S. dollar amounts are presented solely for the convenience of readers outside the Republic of China.

Deloitte & Touche Taipei, Taiwan The Republic of China

January 30, 2003

The above auditors’ report and the following financial statements are English translations of the Chinese auditors’ report and financial statements prepared for and used in the Republic of China. The accompanying financial statements were prepared using accounting principles, procedures and reporting practices generally accepted in the Republic of China 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 Republic of China. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the Republic of China.

F-1

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002, 2001 AND 2000

(Expressed in Thousand New Taiwan Dollars and United States Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 3) Short-term investments (Notes 2, 4 and 21) Notes receivable (Notes 2 and 5) Accounts receivable, net (Notes 2 and 5) Accounts receivable-related parties (Notes 2,5 and 21) Inventories, net (Notes 2 and 6) Other current assets (Notes 2,18, 21 and 22) Total current assets LONG-TERM EQUITY INVESTMENTS (Notes 2, 7 and 21) PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 8) Land Buildings Machinery and equipment Office equipment Other equipment Total cost Less accumulated depreciation Prepayment for land and business facilities Property, plant and equipment, net INTANGIBLE ASSETS (Notes 2 and 11) OTHER ASSETS (Note 2) TOTAL	2002	2002	2001 N.T. Dollars $ 683,102 484,569 19,172 2,448,632 246,742 568,110 148,046 4,598,373 333,767 199,946 495,178 2,263,356 6,974 367,727 3,333,181 (603,776) 36,371 2,765,776 6,037 74,786 $7,778,739	2000 N.T. Dollars LIABILITIES AND STOCKHOLDERS’EQUITY CURRENT LIABILITIES $ 458,305 Short-term borrowings (Note 9) 29,911 Short-term notes and bills payable (Note 10) 32,166 Notes payable 1,549,507 Notes payable-related parties (Note 21) 224,256 Accounts payable 644,190 Accounts payable-related parties (Note 21) 214,959 Income tax payable (Notes 2 and 18) 3,153,294 Accrued expenses (Note 21) 83,518 Long-term borrowings-current portion (Note 12) Other current liabilities (Note 21) 135,781 Total current liabilities 195,054 LONG-TERM LIABILITIES 1,184,636 Bonds payable (Notes 2 and 11) 7,602 Long-term borrowings (Note 12) 154,253 Total long-term liabilities 1,677,326 OTHER LIABILITIES (364,739) Accrued pension liability (Notes 2 and 13) 95,829 Due to related parties (Note 21) 1,408,416 Deferred income tax liability (Notes 2 and 18) 11,447 Credit on long-term equity investments (Notes 2 and 7) 31,437 Unamortized credit account (Note 2) Total other liabilities Total liabilities STOCKHOLDERS’ EQUITY Capital stock (Note 14) Capital surplus (Note 15) Additional paid-in capital Additional paid-in capital – common stock Gain on sale of fixed assets Retained earnings Legal reserve (Note 16) Special reserve Unappropriated retained earnings (Note 17) Equity adjustments Cumulative translation adjustment (Note 2) Minority interest (Note 2) Total stockholders’ equity $4,688,112 TOTAL	2002 U.S. Dollars N.T. Dollars $– $– – – 1,756 61,017 104 3,620 54,984 1,910,990 5,788 201,151 1,596 55,479 3,548 123,297 – – 9,700 337,122 77,476 2,692,676 60,681 2,108,963 3,014 104,760 63,695 2,213,723 1,564 54,337 – – 12,019 417,730 383 13,307 7,111 247,143 21,077 732,517 162,248 5,638,916 35,437 1,231,630 30,835 1,071,669 - – 4,797 166,731 167 5,797 51,768 1,799,164 945 32,847 5,260 182,823 129,209 4,490,661 $291,457 $10,129,577	2001	2000
	U.S. Dollars $ 46,384 21,875 748 77,744 11,003 13,082 6,334 177,170 15,465 6,893 14,584 81,954 199 13,030 116,660 (26,544) 5,026 95,142 869 2,811 $291,457	N.T. Dollars			U.S. Dollars $– – 1,756 104 54,984 5,788 1,596 3,548 – 9,700 77,476 60,681 3,014 63,695 1,564 – 12,019 383 7,111 21,077 162,248 35,437 30,835 - 4,797 167 51,768 945 5,260 129,209 $291,457	N.T. Dollars	N.T. Dollars
		$ 1,612,067 760,257 25,984 2,702,002 382,413 454,679 220,146				$– – 69,615 1,095 1,970,265 94,230 24,317 79,222 50,000 146,344	$ 133,339 9,731 105,927 3,394 1,444,964 34,361 39,698 69,722 – 200,484
		6,157,548
		537,476
		239,566 506,851 2,848,308 6,916 452,869
						2,435,088	2,041,620
						– 544,130	– 80,000
						544,130	80,000
		4,054,510 (922,529) 174,673				26,508 221,729 409,874 – 237,182	23,363 256,929 200,786 – 215,944
		3,306,654
		30,216
		97,683
						895,293	697,022
						3,874,511	2,818,642
						869,263 1,071,669 4,685 84,809 5,797 1,068,890 28,784 770,331	539,307 113,100 4,662 33,514 5,797 569,841 11,236 592,013
						3,904,228	1,869,470
		$10,129,577				$7,778,739	$4,688,112

See notes to consolidated financial statements

F-2

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Expressed in Thousand New Taiwan Dollars and United States Dollars, Except Earnings Per Share)

OPERATING REVENUES - NET (Note 21) OPERATING COSTS (Note 21) GROSS PROFIT OPERATING EXPENSES (Note 21) INCOME FROM OPERATIONS NON-OPERATING INCOME Interest income Investment income (Notes 2 and 7) Gains on disposal of property, plant and equipment Gains on disposal of investments Gains on physical inventory Gains on foreign exchange (Note 2) Rental income (Note 21) Gains on inventory value recoveries Others (Note 21) Total non-operating income NON-OPERATING EXPENSES Interest expense Investment losses (Notes 2 and 7) Losses on disposal of property, plant and equipment Losses on physical inventory Losses on foreign exchange (Note 2) Losses on inventory devaluation and obsolescence (Note 2) Others Total non-operating expenses INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX (NOTES 2 and 18) MINORITY INTEREST INCOME PREACQUISITION INCOME CONSOLIDATED NET INCOME Consolidated Basic EPS before tax (in dollars) (Note 19) Consolidated Basic EPS after tax (in dollars) (Note 19) Consolidated Diluted EPS before tax (in dollars) (Note 19) Consolidated Diluted EPS after tax (in dollars) (Note 19)	2002 U.S. Dollars N.T. Dollars $ 380,660 $ 13,229,843 (324,026) (11,261,541) 56,634 1,968,302 (16,907) (587,588) 39,727 1,380,714 566 19,673 – – 35 1,207 1,182 41,069 – – 1,175 40,827 1,122 39,009 – – 1,595 55,436 5,675 197,221 (1,879) (65,322) (640) (22,248) (11) (394) (1,066) (37,032) – – (400) (13,891) (6) (203) (4,002) (139,090) 41,400 1,438,845 (1,441) (50,069) (1,511) (52,522) (1,864) (64,788) $ 36,584 $ 1,271,466 $ 0.31 $ 10.60 $ 0.30 $ 10.32 $ 0.30 $ 10.28 $ 0.29 $ 9.98	2001 N.T. Dollars $ 10,788,477 (8,977,089) 1,811,388 (537,225) 1,274,163 12,064 – 63 24,715 – 100,197 34,128 16,576 46,493 234,236 (23,654) (10,237) (3,135) (29,167) (1,998) (11,918) (21,106) (101,215) 1,407,184 (214,739) (320,420) (57,469) $ 814,556 $ 8.56 $ 6.74 $ 8.56 $ 6.74	2000
	U.S. Dollars $ 380,660 (324,026) 56,634 (16,907) 39,727 566 – 35 1,182 – 1,175 1,122 – 1,595 5,675 (1,879) (640) (11) (1,066) – (400) (6) (4,002) 41,400 (1,441) (1,511) (1,864) $ 36,584 $ 0.31 $ 0.30 $ 0.30 $ 0.29		N.T. Dollars
			$ 6,450,889 (5,126,791)
			1,324,098 (348,345)
			975,753
			7,335 123 817 2,868 3,380 83,326 27,435 5,200 27,460
			157,944
			(6,536) (500) (2,943) (28,957) (35,707) (26,728) (8,896)
			(110,267)
			1,023,430 (169,714) (318,898) (21,254)
			$ 513,564
			$ 6.16
			$ 4.74
			$ 6.16
			$ 4.74

See notes to consolidated financial statements.

F-3

ASIA OPTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars)

BALANCE, JANUARY 1, 2000 Appropriations of prior year’s earnings Legal reserve Bonuses to employees transferred to capital stock Bonuses to directors and supervisors Earnings transferred to capital stock Cash dividends Gain on sale of property, plant and equipment, after income taxes, transferred to capital surplus Capital surplus transferred to capital stock Net income for the year ended December 31, 2000 Cumulative translation adjustment Minority interest BALANCE, DECEMBER 31, 2000 Appropriations of prior year’s earnings: Legal reserve Cash dividends Stock dividends Bonuses to employees Bonuses to directors and supervisors Capital surplus transferred to capital stock Gain on sale of property, plant and equipment, after income taxes, transferred to capital surplus Issuance of common stock Cumulative translation adjustment Net income for the year ended December 31, 2001 Minority interest BALANCE, DECEMBER 31, 2001 Capital surplus from gain on sale of fixed assets transferred to retained earnings	Capital stock $ 369,000 4,257 129,150 36,900 539,307 184,292 9,233 61,431 75,000 869,263	Capitalsurplus Additional paid-in capital Gain on sale of fixed assets $ 154,049 $ – (4,049) 4,662 (36,900) 113,100 4,662 (61,431) 23 1,020,000 1,071,669 4,685 (4,685)	Retained earnings Legal reserve Special reserve Unappropriated earnings $ 9,865 $ 5,797 $255,103 23,649 (23,649) (4,257) (4,257) (129,150) (36,900) (613) 513,564 33,514 5,797 569,841 51,295 (51,295) (61,431) (184,292) (9,233) (9,233) (23) 814,556 84,809 5,797 1,068,890 4,685	Equity adjustments Cumulative translation adjustment $ 1,683 9,553 11,236 17,548 28,784	Minority Interest $ 327,885 264,128 592,013 178,318 770,331	Total
		Additional paid-in capital $ 154,049 (4,049) (36,900) 113,100 (61,431) 1,020,000 1,071,669	Legal reserve $ 9,865 23,649 33,514 51,295 84,809
						$ 1,123,382 – – (4,257) – (36,900) – – 513,564 9,553 264,128
						1,869,470 – (61,431) – – (9,233) – – 1,095,000 17,548 814,556 178,318
						3,904,228 –

F-4

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars)

Legal reserve appropriated from retained earnings transferred from capital surplus from gain on sale of fixed assets Appropriations of prior year’s earnings: Legal reserve Cash dividends Stock dividends Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net income for the year ended December 31, 2002 Minority interest BALANCE, DECEMBER 31, 2002	Capital stock 347,705 14,662 $1,231,630	Capitalsurplus Additional paid-in capital Gain on sale of fixed assets $1,071,669 $–	Retained earnings Legal reserve Special reserve Unappropriated earnings 466 (466) 81,456 (81,456) (86,926) (347,705) (14,662) (14,662) 1,271,466 $166,731 $ 5,797 $1,799,164	Equity adjustments Cumulative translation adjustment 4,063 $ 32,847	Minority Interest (587,508) $182,823	Total
		Additional paid-in capital $1,071,669	Legal reserve 466 81,456 $166,731
						– – (86,926) – – (14,662) 4,063 1,271,466 (587,508)
						$4,490,661

See notes to consolidated financial statements.

F-5

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEAR ENDED DECEMBER 31, 2002

(Expressed in Thousand United States Dollars)

BALANCE, JANUARY 1, 2002 Capital surplus from gain on sale of fixed assets transferred to retained earnings Legal reserve appropriated from retained earnings transferred from capital surplus from gain on sale of fixed assets Appropriations of prior year’s earnings: Legal reserve Cash dividends Stock dividends Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net income for the year ended December 31, 2002 Minority interest BALANCE, DECEMBER 31, 2002	Capital stock $ 25,011 10,004 422 $ 35,437	Capitalsurplus Additional paid-in capital Gain on sale of fixed assets $ 30,835 $135 (135) $ 30,835 $-	Retained earnings Legal reserve Special reserve Unappropr iated earnings $ 2,440 $ 167 $ 30,755 135 13 (13) 2,344 (2,344) (2,501) (10,004) (422) (422) 36,584 $4,797 $167 $ 51,768	Retained earnings Legal reserve Special reserve Unappropr iated earnings $ 2,440 $ 167 $ 30,755 135 13 (13) 2,344 (2,344) (2,501) (10,004) (422) (422) 36,584 $4,797 $167 $ 51,768	Equity adjustments Cumulative translation adjustment $ 828 117 $ 945	Minority interest $22,164 (16,904) $5,260	Total
		Additional paid-in capital $ 30,835 $ 30,835	Legal reserve $ 2,440 13 2,344 $4,797	Special reserve $ 167 $167
							$ 112,335 – – – (2,501) – – (422) 117 36,584 (16,904)
							$129,209

See notes to consolidated financial statements.

F-6

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

OPERATING ACTIVITIES Net income Minority interest income Preacquisition income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of issue costs of convertible bonds Gain on disposal of investments Loss on short-term investments valuation loss Bad debt Investment loss (gain) on equity-method investees Gain on disposal of other assets Loss (recovery) on inventory devaluation and obsolescence (Gain) loss on disposal of property, plant and equipment Changes in assets and liabilities provided (used) cash: Notes receivable Accounts receivable Inventories Other current assets Deferred tax (assets) liabilities Accounts payable Notes payable Accrued expenses Income tax payable Other current liabilities Accrued pension liability Bonds payable – reserve for put premium Total adjustments Net cash provided by operating activities INVESTING ACTIVITIES: Increase in short-term investments for non-trading purpose Proceeds from sale of investments for non-trading purpose Increase in long-term equity investments Decrease in other assets Proceeds from disposal of assets Additions to property, plant and equipment Increase in deferred charges Increase in intangible assets Decrease (increase) in guarantee deposits paid Net cash used in investing activities FINANCING ACTIVITIES: Increase in restricted time deposits Issuance of common stock (Decrease) increase in short-term borrowings (Decrease) increase in short-term notes and bill payable (Decrease) increase in long-term borrowings Decrease in due to related parties Issuance of bonds payable Cash dividends Bonuses to directors and supervisors Unamortized credit accounts Decrease in minority interest Cumulative translation adjustment Net cash provided by (used in) financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR	2002 U.S. Dollars N.T. Dollars $ 36,584 $ 1,271,466 1,511 52,522 1,864 64,788 9,877 343,282 360 12,524 (1,182) (41,069) 81 2,826 1,104 38,372 597 20,756 (15) (508) 400 13,891 (23) (814) (196) (6,812) (12,240) (425,418) 2,858 99,344 (903) (31,391) (219) (7,627) 1,593 55,350 (174) (6,037) 1,270 44,138 898 31,210 2,951 102,561 259 9,010 681 23,663 7,977 277,251 47,936 1,666,027 (97,326) (3,382,557) 90,494 3,145,112 (6,090) (211,668) – – 376 13,079 (23,474) (815,839) (2,735) (95,066) (245) (8,519) 5 177 (38,995) (1,355,281) – (7) – – – – – – (14,081) (489,370) (6,380) (221,729) 60,000 2,085,300 (2,501) (86,926) (422) (14,662) 1,259 43,756 (20,083) (697,985) (4) (158) 17,788 618,219 26,729 928,965 19,655 683,102 $46,384 $1,612,067	2001 N.T. Dollars $ 814,556 320,420 57,469 221,630 – (24,715) 5,842 42,602 4,395 (718) (4,658) 3,071 12,994 (964,213) 82,560 92,031 195,542 540,053 (34,138) 4,583 (17,139) (71,252) 8,946 – 97,416 1,289,861 (3,221,045) 2,785,260 (249,932) 48 3,662 (1,556,992) (38,878) (2,135) 196 (2,279,816) (2,172) 1,095,000 (133,339) (9,731) 514,130 (35,200) – (61,431) (9,233) 49,664 (203,916) 10,980 1,214,752 224,797 458,305 $ 683,102	2000
	U.S. Dollars $ 36,584 1,511 1,864 9,877 360 (1,182) 81 1,104 597 (15) 400 (23) (196) (12,240) 2,858 (903) (219) 1,593 (174) 1,270 898 2,951 259 681 7,977 47,936 (97,326) 90,494 (6,090) – 376 (23,474) (2,735) (245) 5 (38,995) – – – – (14,081) (6,380) 60,000 (2,501) (422) 1,259 (20,083) (4) 17,788 26,729 19,655 $46,384		N.T. Dollars
			$ 513,564 318,898 21,254
			125,836 – (2,868) 500 6,186 (123) – 21,528 2,126 (25,308) (1,189,365) (298,759) (84,770) 134,202 1,221,285 35,237 (6,410) 25,836 84,455 7,417 –
			57,005
			910,721
			(30,411) 72,864 (25,386) – 15,458 (690,653) (40,702) (2,153) (1,029)
			(702,012)
			3,000 – 133,339 9,731 80,000 (152,152) – (36,900) (4,978) 10,352 (81,130) 14,670
			(24,068)
			184,641 273,664
			$458,305

F-7

ASIA OPTICAL CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) Income tax SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid for acquisitions of property, plant and equipment: Total acquisition price of property, plant and equipment Add payable at beginning of year Less payable at end of year Cash paid for acquisition of property, plant and equipment Cumulative translation adjustment Earnings, employee bonuses and capital surplus transferred to capital stock	2002 U.S. Dollars N.T. Dollars $753 $ 26,158 $770 $26,768 $ 26,037 $ 904,917 789 27,436 (3,352) (116,514) $ 23,474 $ 815,839 $117 $4,063 $ 10,426 $ 362,367	2001 N.T. Dollars $ 13,529 $24,149 $ 1,540,670 43,758 (27,436) $ 1,556,992 $17,548 $ 254,956	2000
	U.S. Dollars $753 $770 $ 26,037 789 (3,352) $ 23,474 $117 $ 10,426		N.T. Dollars
			$ 3,480
			$10,667
			$ 715,649 18,762 (43,758)
			$ 690,653
			$ 9,553
			$ 170,307

See notes to consolidated financial statements.

F-8

ASIA OPTICAL CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Amounts are Expressed in Thousand New Taiwan Dollars and United States Dollars or Other Specified Currency, Except Per Share Data)

1. ORGANIZATION AND OPERATIONS

Asia Optical Co., Inc. (the “Parent Company”) was established on October 9, 1980 according to the Company Law of the Republic of China (ROC). The Parent Company’s principal business scope is manufacturing, processing and exporting of camera, range finder, video camera, telescope, copy machine, facsimile machine, optical lens, lens unit and modules for DVD player.

On August 16, 2001, the common shares of the Parent Company have been listed on the Over-The-Counter Securities Exchange in the ROC. On July 31, 2002, the Securities and Futures Commission approved the listing of the common shares of the Parent Company on the Taiwan Stock Exchange.

Asia Optical International Ltd. (Asia (B.V.I.)) was established on July 7, 1995 in the Territory of British Virgin Islands. Asia (B.V.I.) principal business scope is sales of riflescopes, lenses and optical components. Asia (B.V.I.) entrusted its subsidiaryDong-Guan Sintai Optical Co., Ltd., which was established in Mainland China, to manufacture and process its products. The Parent Company owns 95% of Asia (B.V.I.) as of December 31, 2002.

Powerlink Electronic International Ltd. (Powerlink (B.V.I.)) was established on September 28, 1995 in the Territory of British Virgin Islands. Powerlink (B.V.I.) principal business scope is sales of riflescopes, lenses and optical components. Powerlink (B.V.I.) entrusted its subsidiary-Scopro Optical Co., Inc., which was established in the Philippines, to manufacture and process its products. The Parent Company owns 100% of Powerlink (B.V.I.) as of December 31, 2002.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis for the Consolidated Financial Statements

The companies included in these consolidated financial statements include Asia Optical Co., Inc., Asia Optical International Ltd. and Powerlink Electronic International Ltd. (the “ Consolidated Company”). The transactions and balance of assets and liabilities between the Consolidated Company are eliminated when making up the consolidated financial statements. Richman International Group Co., Ltd. whose assets and sales are separately less than 10% of that of the Parent Company was not consolidated as permitted under R.O.C. generally accepted accounting principles. Minority interest represents that portion of net assets of consolidated subsidiaries not owned by the Parent Company. Preacquisition income represents the income of the acquired Company from the beginning of the accounting period through the date of acquisition.

F-9

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, cash in banks, and negotiable certificates of deposit, and commercial paper with original maturities of 90 days or less.

Short-Term Investments

Short-term investments are stated at the lower of aggregate cost or market value. Stock dividends received are not recognized as income but are reflected as increase in the number of shares held. The cost of short-term investments sold is determined on the weighted-average method.

Allowance for Doubtful Accounts

The adequacy of the allowance for doubtful accounts is determined by management based upon the evaluation of the collectibility, prior loss experience, and aging of notes and accounts receivable.

Inventories

Inventories are stated at the lower of cost or market value (“LCM”). Cost is determined by using the weighted-average method. Market value for raw materials and merchandise inventories is based on replacement cost, while finished goods and work in process are based on the respective net realizable values. The LCM method is applied to each inventory category. Loss on inventory devaluation and obsolescence is charged against income.

- Long Term Equity Investments

Investments in companies in which the Consolidated Company’s ownership interest is 20% or more but do not qualify for consolidation are accounted for by use of the equity method of accounting; the variance of the invested cost and the net worth of the investee will be amortized over 5 to 10 years. Investments in companies in which the Consolidated Company’s ownership interest is less than 20% are carried at cost.

According to Statement of Financial Accounting Standards No.5 “Accounting for Long-Term Investment in Equity Securities”, if the investee company’s stockholders’ equity is negative the investor company could continue to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment shall be treated as a liability on the balance sheet.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Interest incurred in connection with the purchase or construction of property, plant and equipment is capitalized. Major renewals and betterments are capitalized, while maintenance and repairs are expensed in the period incurred. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited to or charged against income. Gain on disposal of property, plant and equipment, net of related income tax, is transferred to capital surplus in the same year. According to the amended ROC Corporation Law, since 2001 the gain on disposal of property, plant and equipment is no longer transferred to capital surplus.

F-10

Depreciation is provided on a straight-line method over periods as prescribed by tax regulations which are considered to approximate the estimated useful lives of the assets plus one additional year for salvage value.

Computer Software Cost

Computer software cost is stated at cost less amortization. Amortization is provided on a straight-line method over the estimated useful lives of three years.

Deferred Charges

Deferred charges include issue costs of convertible bonds and molding expense which are stated at cost at acquisition. The issue costs of convertible bonds are amortized from the date of debt issuance to the put date using straight-line method. Molding expense is provided on a straight-line method over the estimated useful lives of two years.

Bonds Payable

Overseas convertible notes were issued at par with a “put premium” allowing the note holders to redeem the notes for cash at a multiple of the bond’s par value at a date prior to maturity. The direct cost of the issuance is amortized as interest expense from the date of debt issuance to the put date using straight-line method. The Parent Company accrues a liability for the put premium over the period from the date of debt issuance to the put date using the interest method.

Convertible notes with put options are classified as current or long-term liabilities depending on the agreed-upon put date. The accrued put premium is presented as addition to the convertible bonds.

Retirement Fund

The Parent Company adopted its accounting method for employee benefit plan based on the Statement of Financial Accounting Standards No. 18 (“SFAS 18”), and recognized net periodic pension cost, related assets and liabilities based on actuarial assumptions as required by SFAS 18.

Unamortized Credit Account

The increase in the fair value of the assets acquired from the date of purchase contract through the date of share transfer is accounted for as unamortized credit account and amortized over 5 to 10 years.

Income Tax

The Parent Company adopted its accounting method for income tax based on the Statement of Financial Accounting Standard No. 22. Deferred income tax assets and liabilities are computed at balance sheet dates for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

F-11

Adjustments to prior year’s income tax are included in the current year’s income tax provision.

Under the Amended Income Tax Law of the ROC, the 25% regular corporate income tax and the 20% separate income tax on interest income from short-term investment remain and a 10% additional income tax is levied on distributable earnings that remain undistributed in the following year.

Asia (B.V.I.) and Powerlink (B.V.I.) were established in the Territory of British Virgin Islands. There is no income tax based on the regulation of Tax Law of the British Virgin Islands.

Transactions in Foreign Currencies and Translation Adjustment

Transactions in foreign currencies are recorded in local currency at the effective exchange rates when the transactions occur. Gains or losses caused by different foreign exchange rates applied when cash in foreign currency is actually converted into local currency, or when the foreign-currency receivables or payables are settled, are credited or charged to income in the period of actual conversion or settlement. At each balance sheet date, assets and liabilities denominated in foreign currencies are restated at the balance sheet date exchange rates, and the resulting exchange gains or losses are recognized currently.

Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustment is reported as a separate component of stockholders’ equity.

Translation of Foreign Subsidiary Financial Statements

The financial statements of foreign subsidiaries are translated to New Taiwan dollars as follows:

• all assets and liabilities at the current exchange rates at the end of the accounting period;

• income statement items at average exchange rates in the accounting period; and

• stockholders’ investment at the historical exchange rates.

The resulting translation adjustment is recorded as a separate component of stockholders’ equity.

Derivative Financial Instruments

Premium on currency option contract is included as part of interest revenue.

Other Non-derivative Financial Instruments

The recognition and subsequent valuation of financial assets or liabilities; and measurement of related revenue, expense, gain or loss are recorded according to accounting policies described herein and Generally Accepted Accounting Principles in the ROC.

F-12

Translation of New Taiwan Dollar Statements to United States Dollar Statements

The financial statements are stated in New Taiwan dollars, the currency of the country in which the Parent Company is incorporated and operates. The translation of New Taiwan dollar amounts into United States dollar amounts are included solely for the convenience of readers outside the Republic of China and have been made at the rate of NT$34.755 to US$ 1, the average of the buying and selling rates of Taiwan Bank at December 31, 2002. Such translation should not be construed as representations that the New Taiwan dollar amounts could be converted into United States dollars at the above or any other rate.

3. CASH AND CASH EQUIVALENTS

Cash on hand Checking account Savings account Time deposits Cash equivalents Total cash and cash equivalents	2002	N.T. Dollars $ 1,574 30,939 1,161,039 106,039 312,476 $1,612,067	2001 N.T. Dollars $ 2,086 59,457 619,060 2,499 – $ 683,102	2000
	U.S. Dollars $ 45 890 33,407 3,051 8,991 $ 46,384			N.T. Dollars
				$ 1,709 21,659 434,887 50 –
				$ 458,305

4. SHORT TERM INVESTMENTS

Bonds Bond investment fund Stock Commercial paper Less valuation allowance Short-term investments, net Bonds Bond investment fund Less valuation allowance Short-term investments, net	2002
	U.S. Dollars Cost Market Value $ 2,816 $ 2,585 14,638 14,606 1,747 6,790 2,938 2,992 (264) – $ 21,875 $ 26,973 2001 N.T. Dollars Cost Market Value $ 64,916 $ 58,574 425,995 425,995 (6,342) – $484,569 $484,569	N.T Dollars
		Cost Market Value $ 97,854 $ 89,838 508,727 507,635 60,724 235,993 102,120 103,970 (9,168) – $760,257 $ 937,436 2000	Market Value
			$ 89,838 507,635 235,993 103,970 –
			$ 937,436
		N.T Dollars
	Cost $ 64,916 425,995 (6,342) $484,569	Cost $ 30,411 – (500) $ 29,911	Market Value
			$ 29,911 – –
			$ 29,911

5. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable, non-related parties Account receivable, non-related parties Less allowance for doubtful accounts Accounts receivable, net Accounts receivable, related parties	2002	N.T. Dollars $ 25,984 $ 2,787,982 (85,980) $2,702,002 $ 382,413	2001 N.T. Dollars $ 19,172 $ 2,498,234 (49,602) $2,448,632 $ 246,742	2000
	U.S. Dollars $ 748 $ 80,218 (2,474) $ 77,744 $ 11,003			N.T. Dollars
				$ 32,166
				$ 1,556,507 (7,000)
				$1,549,507
				$ 224,256

F-13

6. INVENTORIES

INVENTORIES
Raw materials Work in process Finished goods Merchandise inventories Materials in transit Subtotal Less allowance for inventory devaluation and obsolescence Inventories, net	2002	N.T. Dollars $ 448,971 22,808 15,938 2,630 13,710 $ 504,057 (49,378) $ 454,679	2001 N.T. Dollars $ 536,492 27,362 32,647 221 6,898 $ 603,620 (35,510) $ 568,110	2000
	U.S. Dollars $ 12,918 656 459 76 394 $ 14,503 (1,421) $ 13,082			N.T. Dollars
				$ 567,929 29,684 13,349 2,127 71,042
				$ 684,131 (39,941)
				$ 644,190

As of December 31, 2002, 2001 and 2000, insurance coverage for inventories amounted to NT$689,382, NT$713,672 and NT$286,980, respectively.

7. LONG-TERM EQUITY INVESTMENTS

Equity method investees: Dong-Guan Tailien Optical co., Ltd. Richman International Group Co., Ltd. Asia Photonics Technology Co., Inc. Hang-Zhou Nikon Camera Co., Ltd. Cost method investees: Common stock: Optorun Co., Ltd. Tecom Technologies, Inc. Pioneer Technology Dongguan Co., Ltd. Preferred stock: LightCross, Inc. Match Lab, Inc. Prepayments for Long-term Investments in Stocks: Dong-Guan Nikon Surveying Instruments Co., Ltd. Winton International Industries Ltd. Total		2002	2002
	U.S. Dollars Carrying Value $ 1,164 792 – 227 1,702 29 4,191 1,986 3,477 399 1,498 $15,465	N.T. Dollars
		Carrying Value $ 40,447 27,535 – 7,894 59,136 1,016 145,656 69,041 120,855 13,844 52,052 $ 537,476	Ownership Percentage
			23.90 100.00 33.33 33.25 3.13 0.08 13.70 0.87 19.50 – –

Equity method investees: Dong-Guan Tailien Optical co., Ltd. Richman International Group Co., Ltd. Asia Photonics Technology Co., Inc. Hang-Zhou Nikon Camera Co., Ltd. Cost method investees: Common stock: Optorun Co., Ltd. Tecom Technologies, Inc. Preferred stock: LightCross, Inc. Match Lab, Inc. Total	2001 N.T. Dollars Carrying Value Ownership Percentage $ 41,451 23.90 28,324 100.00 6,779 33.33 7,281 35.00 59,136 3.13 900 0.08 69,041 0.87 120,855 19.50 $ 333,767	2000	2000
		N.T. Dollars
	Carrying Value $ 41,451 28,324 6,779 7,281 59,136 900 69,041 120,855 $ 333,767	Carrying Value $ 36,052 24,870 17,259 5,337 – – – – $ 83,518	Ownership Percentage
			23.09 100.00 33.33 35.00 – – – –

The Consolidated Company’s investment income (loss) from the equity method investees and initial investment cost are summarized as follows:

F-14

Investees Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Photonics Technology Co., Inc. Hang-Zhou Nikon Camera Co., Ltd. Total	U.S. Dollars 2002 $ (21) (17) (578) 29 $ (587)	Investmentincome (loss)	Investmentincome (loss)	Investmentincome (loss)
			N.T. Dollars
		2002 $ (732) (606) (20,086) 1,002 $ (20,422)	2001 $ 2,852 1,737 (10,480) 1,496 $ (4,395)	2000
				$ 2,038 1,210 (2,741) (384)
				$123

Investees Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Photonics Technology Co., Inc. Hang-Zhou Nikon Camera Co., Ltd. Total		Investment cost
		N.T. Dollars
	2002 $ 1,163 22,614 20,000 5,386 $ 59,163	2001 $ 11,163 22,614 20,000 5,386 $ 59,163	2000
			$ 11,163 22,614 20,000 5,386
			$ 59,163

The recognized equity method investment income or loss has been determined based on the respective entities audited financial statements.

The Company owned a 23.90% interest of Dong-Guan Tailien Optical Co., Ltd., which is managed by Richman International Group Co., Ltd. with the initial investment amounted to US$420 (translated into NT$11,163). The accounting period of Dong-Guan Tailien Optical Co., Ltd. is from April 1 to March 31. The cumulative translation adjustment arising from the investment in Dong-Guan Tailien Optical Co., Ltd. amounted to NT$(272) at December 31, 2002.

The Consolidated Company had invested an amount of NT$22,614 in Richman International Group Co., Ltd., which is a 100% owned subsidiary. The cumulative translation adjustment arising from the investment in Richman International Group Co., Ltd. amounted to NT$(183) at December 31, 2002.

The Consolidated Company acquired a 33.33% ownership interest in Asia Photonics Technology Co., Inc. for a cost of NT$20,000, using the valuation of equity method. The book value of stockholders’ equity of Asia Photonics Technology Co., Inc. is negative. Asia Photonics Technology Co., Inc. is in the process of research and development and expect to make profit in the future after finishing research and development. The Consolidated Company continues to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment amounted to NT$13,307 at December 31, 2002 is treated as other liabilities - credit on long-term equity investments on the balance sheet.

The Consolidated Company acquired a 33.25% ownership interest in Hang-Zhou Nikon Camera Co., Ltd. for a cost of NT$5,386 which was established in Mainland China.

The Consolidated Company acquired a 13.70% ownership interest in Pioneer Technology Dong-Guan Co., Ltd. for a cost of NT$145,656 in May, 2002, using the valuation of cost method.

F-15

The Consolidated Company had invested an amount of NT$52,052 in Winton International Industries Ltd. which has not been registered yet. Such amount is treated as prepayments for long-term investments in stocks.

The Consolidated Company had invested an amount of NT$13,844 in Dong-Guan Nikon Surveying Instruments Co., Ltd. which has not been registered yet. Such amount is treated as prepayments for long-term investments in stocks.

8. PROPERTY, PLANT AND EQUIPMENT

Land Buildings Machinery and equipment Office equipment Other equipment Prepayment for land and business facilities Total		2002
		U.S. Dollars
	Cost $ 6,893 14,584 81,954 199 13,030 5,026 $121,686	Accumulated Depreciation $ – 2,658 19,084 144 4,658 – $26,544	Carrying Value
			$ 6,893 11,926 62,870 55 8,372 5,026
			$ 95,142

Land Buildings Machinery and equipment Office equipment Other equipment Prepayment for business facilities Total		2002	Carrying Value $ 239,566 414,485 2,185,032 1,916 290,982 174,673 $ 3,306,654	2001 N.T. Dollars Carrying Value $ 199,946 432,869 1,820,129 2,724 273,737 36,371 $ 2,765,776	2000
		N.T. Dollars			N.T. Dollars
	Cost $ 239,566 506,851 2,848,308 6,916 452,869 174,673 $4,229,183	Accumulated Depreciation $ – 92,366 663,276 5,000 161,887 – $ 922,529			Carrying Value
					$ 135,781 152,664 920,304 3,268 100,570 95,829
					$ 1,408,416

At December 31, 2002, 2001 and 2000 the insurance coverage for property, plant and equipment amounted to NT$1,855,479, NT$1,662,158 and NT$546,956, respectively. Please refer to Note 22 for summary of property, plant and equipment pledged as collateral at December 31, 2002, 2001 and 2000.

9. SHORT TERM BORROWINGS

Unsecured Loan Secured Loan Total	2000
	N.T. Dollars
	$ 123,339 10,000
	$ 133,339

Interest rates per annum on short-term borrowings ranged from 6.45% to 7.92% at December 31, 2000. The Consolidated Company had no short-term borrowings at December 31, 2002 and 2001.

At December 31, 2002, 2001 and 2000, the Consolidated Company had NT$260,000, NT$957,190 and NT$212,886, respectively, of its unused short-term bank credit facilities available for borrowing. Please refer to Note 22 for summary of collaterals.

F-16

10. SHORT-TERM NOTES AND BILLS PAYABLE

Short-term notes and bills payable Less discount on short-term notes and bills payable Short-term notes and bills payable, net	2000
	N.T. Dollars
	$ 10,000 (269)
	$ 9,731

The Consolidated Company had no short-term notes and bills payable at December 31, 2002 and 2001.

The interest rate per annum on short-term notes and bills payable was 6.30% at December 31, 2000.

The Consolidated Company had NT$2,000, NT$100,000 and NT$40,000, respectively, of its unused commercial paper credit facilities available for borrowing at December 31, 2002, 2001 and 2000.

11. BONDS PAYABLE

BONDS PAYABLE
Unsecured convertible bonds Add reserve for put premium Less gains on foreign exchange Total convertible bonds	2002
	U.S. Dollars $ 60,505 681 $ (505) $ 60,681	N.T. Dollars
		$ 2,102,840 23,663 (17,540)
		$ 2,108,963

Terms of the convertible bonds are summarized as follows:

Issue date: March 28, 2002 Maturity date: March 27, 2007 Aggregate principal amount: Par US$60,000 (in thousand) Coupon interest rate: 0% Due payment:

The bond holders may ask to put or to convert into shares in accordance with laws and regulations, or the Parent Company may call the bonds according to the Parent Company’s rules; otherwise, principal are paid by cash at one time upon maturity.

Put option for bond holders: The face value of bonds with reserve for put premium At March 28, 2004 at 104.04%; At March 28, 2005 at 104.59%

Call right of bond issuer: The Parent Company has the right to call and retire all or part of the bonds if after one year of issuance, the closing price of the Parent Company’s common stock in the stock exchange exceed 50% of the then prevailing conversion price continuously for 30 trading days.

F-17

The Parent Company may also call and retire all or part of the bonds by par value at any time if the total outstanding bonds is less than US$6,000 (in thousand) (which is 10% of total issued amount).

Conversion price: NT$238.55 (in dollars) per share. Conversion period:

The bond holders may request the Parent Company to convert their bonds into the Parent Company’s common stock during the period from 30 days after the date of issuance to 30 days before the maturity date except for the period prohibited by laws to transfer the shares.

12. LONG-TERM BORROWINGS

First Commercial Bank Mizuho Corporate Bank (Note) First Commercial Bank and Chiao-Tung Bank " Syndicated China Trust Bank and others Total Less current portion Long-term borrowings	MaturityDate August 24, 2015 December 27, 2002 July 5, 2008 July 5, 2008 September, 2004	2002 Outstanding Balance Outstanding Balance U.S. Dollars N.T. Dollars $ – $ – – – – – – – 3,014 104,760 3,014 104,760 – – $ 3,014 $ 104,760	2001 Outstanding Balance N.T. Dollars $ – 50,000 180,000 260,000 104,130 594,130 (50,000) $ 544,130	2000
		Outstanding Balance U.S. Dollars $ – – – – 3,014 3,014 – $ 3,014		Outstanding Balance
				N.T. Dollars
				$ 30,000 50,000 – – –
				80,000 –
				$ 80,000

(Note) The original name is Dai-ichi Kangyo Bank, Ltd.

The Parent Company paid back such borrowings from First Commercial Bank and Chino-Tung Bank before maturity date in 2002.

Interest rates per annum for such borrowing is 2.4375%, ranged from 3.1875% to 6.85% and 6.85% to 8.34% at December 31, 2002, 2001 and 2000, respectively. Please refer to Note 22 for a summary of collateral on such borrowings at December 31, 2002, 2001 and 2000.

At December 31, 2002, 2001 and 2000 the Consolidated Company had NT$1,198,385, NT$1,304,460 and NT$83,000, respectively, of its unused long-term bank credit facilities available for borrowing.

The Parent Company, should also maintain the following financial ratios during the term of the syndicated long-term borrowing from China Trust Bank and others (tested semi-annually on unconsolidated basis at mid-year and year-end):

• Current ratio (current assets / current liabilities) above 1.0

• Debt ratio (total liabilities / equities) below 1.2

F-18

• Interest coverage [(income before tax + interest expense + depreciation and amortization) / interest expense] above 4.0

• Net tangible assets at least above NT $3,000 million

Asia Optical International Ltd. should maintain the following financial ratios during the term of the long-term borrowing (tested semi-annually on unconsolidated basis at mid-year and year-end):

• Current ratio (current assets / current liabilities) above 1.0

• Debt ratio (total liabilities / equities) below 1.2

• Interest coverage [(income before tax + interest expense + depreciation and amortization) / interest expense] above 4.0

• Net tangible assets at least above NT $1,500 million

13. PENSION

According to the Parent Company’s “Employee Retirement and Pension Plan”, employees’ pension payments are determined by the years of employment and the average monthly compensation for the last six months prior to retirement. The annual contribution for the retirement plan was provided at 3% of employee salaries. The funds are deposited with the Central Trust of China, a government-designated custodian of pension funds, and are managed by the Pension Fund Administration Committee. At December 31, 2002, 2001 and 2000, the pension funds deposited with the Central Trust of China amounted to NT$62,449, NT$55,071 and NT$50,098, respectively.

Net periodic pension cost for the years ended December 31, 2002, 2001 and 2000 included the following components:

Service cost Interest cost Expected return on plan assets Amortization of net unrecognized transition obligation Net periodic pension cost	2002 U.S. Dollars N.T. Dollars $ 265 $ 9,223 178 6,191 (80) (2,773) 86 2,973 $ 449 $ 15,614	2001 N.T. Dollars $ 7,799 6,565 (2,955) 2,952 $ 14,361	2000
	U.S. Dollars $ 265 178 (80) 86 $ 449		N.T. Dollars
			$ 7,071 5,575 (2,909) 2,321
			$ 12,058

F-19

Funded status of pension plan as of December 31, 2002, 2001 and 2000:

Vested benefit obligations Nonvested benefit obligations Accumulated benefit obligations Additional benefits at future salaries Projected benefit obligations Plan assets at fair value Projected benefit obligations in excess of plan assets Unrecognized net transition obligations Unrecognized net pension loss Additional pension liability Accrued pension liability Vested benefit of pension plan		2002 N.T. Dollars $ 14,879 101,907 116,786 44,050 160,836 (62,449) 98,387 (25,532) (40,545) 22,027 $ 54,337 $ 16,675	2001 N.T. Dollars $ 7,339 74,240 81,579 48,764 130,343 (55,071) 75,272 (27,853) (24,120) 3,209 $ 26,508 $ 8,091	2000
	U.S. Dollars $ 42 8 2,932 3,360 1,268 4,628 (1,797) 2,831 (735) (1,166) 634 $ 1,564 $ 480			N.T. Dollars
				$ 9,968 63,493
				73,461 42,195
				115,656 (50,098)
				65,558 (30,173) (21,031) 9,009
				$ 23,363
				$ 11,464

The actuarial assumptions related to the pension plan are as follows:

Discount rate Average increase in compensation level Expected return rate on plan assets Appropriation of pension assets (including group life insurance) Payment from pension assets	2002 U.S. Dollars N.T. Dollars 3.75% 3.00% 3.75% $ 190 $ 6,603 $16 $ 547	2001 N.T. Dollars 4.75% 3.75% 4.75% $ 5,416 $2,509	2000
	U.S. Dollars $ 190 $16		N.T. Dollars
			5.75% 4.25% 5.75% $ 4,641
			$4,221

14. CAPITAL STOCK

As of December 31, 2002, 2001 and 2000, the Parent Company’s authorized capital stock amounted to NT$2,830,000, NT$1,690,000 and NT$700,000, respectively, and issued capital stock amounted to NT$1,231,630, NT$869,263 and NT$539,307, respectively, divided into 123,162,981, 86,926,273 and 53,930,687 shares at NT$10 par value per share, and are summarized as follows:

Original cash subscriptions Subsequent cash subscriptions Earnings transferred to capital stock Bonuses to employees transferred to capital stock Transfer of capital surplus to capital stock Total	Amount	Amount
	U.S. Dollars $ 460 10,574 20,764 810 2,829 $ 35,437	N.T. Dollars
		$ 16,000 367,500 721,647 28,152 98,331
		$1,231,630

In their meetings on June 14 and August 7, 2000, the stockholders decided to increase the Parent Company’s capital stock by NT$170,307 from appropriated retained earnings NT$(129,150), transfer of capital surplus to capital stock NT$(36,900), and bonuses to employees NT$(4,257). The application for these increases in capital stock has been filed with the Securities and Futures Commission (SFC) and has been approved by the SFC thru 2000 Tai-Tsai-Zeng 70526 letter dated August 17, 2000. The registration of increase in capital was effective at September 13, 2000.

F-20

The board of directors of the Parent Company decided to issue 7,500,000 shares of common stock, with NT$146 premium on each par value at September 16, 2000. The application for this increase in capital stock has been filed with the SFC and has been approved by the SFC thru 2001 Tai-Tsai-Zeng 97069 letter dated January 18, 2001. The registration of this increase in capital was effective at April 3, 2001. The increase on capital was set and made on March 28, 2001.

In their meeting on May 4, 2001, the stockholders decided to increase the Parent Company’s capital stock by NT$254,956 from appropriated retained earnings NT$(184,292), transfer of capital surplus to capital stock NT$(61,431), and bonuses to employees NT$(9,233), respectively. The application for these increases in capital stock has been filed with the SFC and has been approved by the SFC thru 2001 TaiTsai-Zeng 129942 letter dated May 16, 2001. The registration of increase in capital was effective at June 20, 2001.

On April 30, 2002, the stockholders decided to increase the Parent Company’s capital stock by NT$362,367 from appropriated retained earnings NT$347,705 and bonuses to employees NT$14,662, respectively. The application for these increases in capital stock has been filed with the SFC and has been approved by the SFC thru 2002 TaiTsai-Zeng 126116 letter dated May 15, 2002.

As of December 31, 2002, Asia (B.V.1.) authorized and issued capital stock is $5,000 in the currency of the United States of America (U.S.), divided into 5,000,000 shares at US$1 par value per share.

As of December 31, 2002, Powerlink (B.V.1.) authorized and issued capital stock is $50 in the currency of the U.S., divided into 50,000 shares at US$1 par value per share.

15. CAPITAL SURPLUS

According to the Company Law of the Republic of China and the Parent Company’s Articles of Incorporation, a capital surplus could only be used as to provide additional capital or offset any prior years’ deficit and cannot be used otherwise.

Transfers of additional paid-in capital to capital shall be done only once a year and must be made only from previous year’s additional paid-in capital at an amount not to exceed the limit set by the competent authority.

16. LEGAL RESERVE

According to the Company Law of the Republic of China, the Parent Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, until it equals to issued capital stock. Such legal reserve could only be used to provide additional capital or offset any prior years’ deficit and cannot be used otherwise. Additions to capital are possible on condition that the legal reserve amounts to over half of issued capital stock and such addition is within a limit of half of the legal reserve.

F-21

17. RETAINED EARNINGS AND STOCK DIVIDEND POLICY

According to the Parent Company’s Articles of Incorporation, the Parent Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, and the Parent Company shall appropriate for special reserve according to the regulations. Any remaining balance shall be appropriated as follows:

• (1) At least 2% as bonuses to employees,

• (2) 2% as bonuses to directors and supervisors, and

• (3) any remaining balance can then be used for declaring dividends to stockholders.

According to the Company Law of the Republic of China and the Parent Company’s Articles of Incorporation, in deciding its stock dividend policy, the Parent Company had considered that the Parent Company is currently in expanding capacity stage and has a great demand for capital. Thus, during such period, the dividend policy has considered the results of operations and capital planning. The principle of dividend policy is stable and balanced. The board of directors must consider the results of operations, financial positions and capital demand of the Parent Company when deciding the type of dividends (cash dividend or stock dividend), and total dividends paid shall be less than 90% of retained earnings available for appropriation, and the cash dividends must be more than 10% of total dividends paid. The related information of bonuses to employees and bonuses to directors and supervisors is available from Market Observation Post System.

The rate of retained earnings available for appropriation and cash dividends can be adjusted by the board of directors and stockholders depending on the results of operations and capital plan of the year.

The distribution of retained earnings of prior year as bonuses to employees and bonuses to directors and supervisors which was decided by the board of directors at March 19, 2002 and approved by the meeting of stockholders at April 30, 2002 was appropriated as follows:

1. Stock dividend as bonuses to employees amounted to NT$14,662.

2. Bonuses to directors and supervisors amounted to NT$14,662.

3. Stock dividend as bonuses to employees is 1,466 shares (in thousand) which is 1.19% of total outstanding shares.

4. Earnings Per Share after distributing bonuses to employees and bonuses to directors and supervisors in 2001 is NT$6.59 per share.

F-22

18. INCOME TAX

Provision for income taxes are described as follows:

The Consolidated Company Parent Company Asia (B.V.I.) Powerlink (B.V.I.) Total	2002 U.S. Dollars N.T. Dollars $ 990 $ 34,413 456 15,832 (5) (176) $ 1,441 $ 50,069	2001 N.T. Dollars $ 220,397 (5,828) 170 $ 214,739	2000
	U.S. Dollars $ 990 456 (5) $ 1,441		N.T. Dollars
			$ 154,046 15,428 240
			$ 169,714

The Parent Company’s provision for income tax for the years ended December 31, 2002, 2001 and 2000 were computed as follows:

Income before income tax Permanent differences Timing differences Taxable income Tax rate Progressive tax rate difference Subtotal Investment tax credit Separate taxes on income withheld at sources Estimated income tax payable Deferred tax expense Prior period tax adjustment Separate taxes on income withheld at sources Provision for income tax	2002 U.S. Dollars N.T. Dollars $ 37,574 $ 1,305,879 (1,046) (36,338) (27,436) (953,541) 9,092 316,000 25% 25% – (10) 2,273 78,990 (1,137) (39,495) – – 1,136 39,495 (219) (7,627) 73 2,545 – – $ 990 $ 34,413	2001 N.T. Dollars $ 1,034,953 (24,416) (831,688) 178,849 25% (10) 44,702 (22,351) (4,419) 17,932 195,542 2,504 4,419 $ 220,397	2000
	U.S. Dollars $ 37,574 (1,046) (27,436) 9,092 25% – 2,273 (1,137) – 1,136 (219) 73 – $ 990		N.T. Dollars
			$ 667,610 (2,313) (522,873) 142,424 25% (10) 35,596 (17,798) – 17,798 134,202 2,046 –
			$ 154,046

Asia (B.V.I.) and Powerlink (B.V.I.) were established in the Territory of British Virgin Islands, there is no income tax in 2002, 2001 and 2000 based on the regulation of the Tax Law of the British Virgin Islands. However, Asia (B.V.I.) and Powerlink (B.V.I.) recognized income tax expense (benefit) of NT$15,832 and NT$(176) in 2002, NT$(5,828) and NT$170 in 2001 and NT$15,428 and NT$240 in 2000, respectively, that resulted from consolidating its subsidiaries. Additionally income tax payable was NT$15,972 and NT$12 in 2002, NT$6,180 and NT$205 in 2001 and NT$26,741 and NT$201 in 2000, respectively.

The Parent Company’s deferred tax assets (liabilities) - current as of December 31, 2002, 2001 and 2000 are as follows:

Assets: Allowance for loss on inventory devaluation and obsolescence Unused investment tax credit Others Subtotal Liabilities: Unrealized exchange gain Net	2002 U.S. Dollars N.T. Dollars $ 69 $ 2,387 1,064 37,000 182 6,310 1,315 45,697 (149) (5,171) $ 1,166 $ 40,526	2001 N.T. Dollars $ 1,914 18,894 6,334 27,142 (2,099) $ 25,043	2000
	U.S. Dollars $ 69 1,064 182 1,315 (149) $ 1,166		N.T. Dollars
			$ 6,058 1,412 5,033
			12,503 (1,006)
			$ 11,497

F-23

The Parent Company’s deferred tax assets (liabilities) - non-current as of December 31, 2002, 2001 and 2000 are as follows:

Assets: Excess of pension appropriation Investment loss on equity method Reserve for put premium Less valuation allowance Subtotal Liabilities: Investment income on equity method Net	2002 U.S. Dollars N.T. Dollars $ 232 $ 8,081 240 8,327 170 5,916 (472) (16,408) 170 5,916 (12,189) (423,646) $ (12,019) $ (417,730)	2001 N.T. Dollars $ 5,852 3,305 – (9,157) – (409,874) $ (409,874)	2000
	U.S. Dollars $ 232 240 170 (472) 170 (12,189) $ (12,019)		N.T. Dollars
			$ 3,480 685 – (4,165)
			–
			(200,786)
			$ (200,786)

The Parent Company’s income tax returns through 2000 have been examined and approved by the tax authority.

At December 31, 2002, 2001 and 2000, the Parent Company’s imputation credit account for shareholders is as follows:

Outstanding balance of imputation credit account for shareholders Current year tax credit percentage on distributed earnings Undistributed earnings for 1997 and years before Undistributed earnings for 1998 and subsequent years Total	2002 U.S. Dollars N.T. Dollars $ 529 $ 18,391 2.94% $ 536 $ 18,609 51,232 1,780,555 $ 51,768 $ 1,799,164	2002 U.S. Dollars N.T. Dollars $ 529 $ 18,391 2.94% $ 536 $ 18,609 51,232 1,780,555 $ 51,768 $ 1,799,164	2001 N.T. Dollars	2000
	U.S. Dollars $ 529 $ 536 51,232 $ 51,768			N.T. Dollars
		$ 18,391 2.94% $ 18,609 1,780,555 $ 1,799,164	$ 13,841 4.00% $ 18,609 1,050,281 $ 1,068,890	$ 22,041
				4.54%
				$ 18,609 551,232
				$ 569,841

At December 31, 2002, the unused investment tax credit is as follows:

MaturityYear 2005 2006 Total	Investment taxcredit	Investment taxcredit
	U.S. Dollars $ 27 1,037 $ 1,064	N.T. Dollars $ 946 36,054 $ 37,000

Details are as follows:

Year Ended 2005 2006	Item Machinery “	Unused tax credit (N.T Dollars) $ 946 36,054	Tax credit available (N.T Dollars)
			$ 55,270 36,054

F-24

19. EARNINGS PER SHARE

Net Income Basic EPS: Common stockholders’ net income Full-diluted convertible securities Diluted EPS: Common stockholders’ net income plus the effect of potential common shares		2002	2002	2002
		Amount Before tax(NoteA) Aftertax U.S. Dollars N.T. Dollars U.S. Dollars N.T. Dollars 37,574 $1,305,879 $36,584 $1,271,466 37,574 $1,305,879 $36,584 $1,271,466 605 21,034 454 15,776 38,179 $1,326,913 $37,038 $1,287,242		Shares (‘000) 123,163 5,877 129,040	EPS
		Before tax(NoteA) U.S. Dollars N.T. Dollars 37,574 $1,305,879 37,574 $1,305,879 605 21,034 38,179 $1,326,913			Before tax U.S. Dollars N.T. Dollars $0.31 $10.60 $0.30 $10.28	Aftertax
		U.S. Dollars 37,574 37,574 605 38,179	U.S. Dollars $36,584 $36,584 454 $37,038		U.S. Dollars $0.31 $0.30	U.S. Dollars $0.30 $0.29	N.T. Dollars
	$						$10.32
	$
							$9.98

Net Income Basic EPS: Common stockholders’ net income Diluted EPS: Common stockholders’ net income plus the effect of potential common shares Net Income Basic EPS: Common stockholders’ net income Diluted EPS: Common stockholders’ net income plus the effect of potential common shares			2001	EPS Before tax Aftertax N.T. Dollars N.T. Dollars $ 8.56 $ 6.74 $ 8.56 $ 6.74	EPS Before tax Aftertax N.T. Dollars N.T. Dollars $ 8.56 $ 6.74 $ 8.56 $ 6.74
	Amount Before tax(NoteA) Aftertax N.T. Dollars N.T. Dollars $1,034,953 $ 814,556 $1,034,953 $ 814,556 $1,034,953 $ 814,556		Shares (‘000) (Note B) 120,862 (Note B) 120,862 2000
	Before tax(NoteA) N.T. Dollars $1,034,953 $1,034,953 $1,034,953			Before tax N.T. Dollars $ 8.56 $ 8.56
	Amount Before tax(NoteA) Aftertax N.T. Dollars N.T. Dollars $ 667,610 $ 513,564 $ 667,610 $ 513,564 $ 667,610 $ 513,564		Shares (‘000) (Note C) 108,363 (Note C) 108,363	EPS Before tax Aftertax N.T. Dollars N.T. Dollars $ 6.16 $4.74 $ 6.16 $ 4.74
	Before tax(NoteA) N.T. Dollars $ 667,610 $ 667,610 $ 667,610
					N.T. Dollars
					$4.74
					$ 4.74

(A) The calculating of EPS before tax is based on income before tax of the Parent Company.

(B) The calculating of EPS has been adjusted retroactively to reflect the shares of stock dividend distributed in 2002

• (C) The calculating EPS has been adjusted retroactively to reflect the shares of stock dividend distributed in 2002 and 2001

F-25

20. FINANCIAL INSTRUMENTS

Disclosures based on “Financial report disclosures for Public Companies’ investment in derivative financial instrument” prescribed in 1996 Tai-Tsai-Zeng No.00263 Letter published by Securities and Futures Commission and “Disclosure on Financial Instrument” of Statement of Financial Accounting Standards No. 27 (“SFAS 27”) are as follows:

As of December 31, 2002, the option contract of the Consolidated Company had been expired and no new contracts of currency option were made.

As of December 31, 2001, the Consolidated Company has made a Dual Currency Deposit of US$1 million which is attached to a USD/JPY European Style currency option. Under the option contract, the bank has the right to repay the principal amount in either the deposit currency or the alternate currency (JPY) at the maturity date. However, interest will always be settled in the deposit currency. Details of the option are as follows:

DCD Amount: US$ 1,000 Alternate Currency: JPY Interest Rate per annum : 6.2% (Including premium receivable :US$3.7) Value Date: December 10, 2001 Expiration Date: January 8, 2002 Maturity Date: January 10, 2002

Market Price Risk

Since the Consolidated Company entered into option contracts for the purpose of hedging, gain or loss that arose from exchange rate fluctuation would be offset by gain (loss) on hedging accounts. Thus, market price risk is at minimum.

Liquidity Risk, Cash Flow Risk and the Amount, Period, Uncertainty of the Future Cash Flow

The Consolidated Company has sufficient capital to satisfy the operating needs, thus, there is no capital generating risks. Exchange rates had been set and there would be no cash flow risk. In addition, the chance of the Consolidated Company selling its option contract would be slim, thus, liquidity risk would not be considered.

Financial Statement Presentation

This DCD was reported as part of other current assets because no part of this deposit may be withdrawn prior to the maturity date.

Gains (losses) arising from currency option - DCD amounted to NT$744, NT$(720) and NT$(1,581), reported as interest income, interest expenses, and losses on exchange.

F-26

The estimated fair value of non-derivative financial instrument is as follows:

Assets: Cash and Cash equivalents Short-term investments Notes and accounts receivable Other current financial assets Long-term equity investments Liabilities: Notes and accounts payable Income Tax Payable Accrued expenses Other current financial liabilities Long-term borrowings (Note A) Bonds Payable Accrued pension liability Assets: Cash and Cash equivalents Short-term investments Notes and accounts receivable Other current financial assets Long-term equity investments Liabilities: Short-term borrowings Short-term notes and bills payable Notes and accounts payable Income Tax payable Accrued expenses Other current financial liabilities Long-term borrowings (Note A) Accrued pension liability Due to related parties		2002	2002		Fair Value U.S. Dollars N.T. Dollars $ 46,384 $ 1,612,067 26,973 937,436 89,495 3,110,399 3,388 117,733 15,465 537,476 62,632 2,176,778 1,596 55,479 3,548 123,297 3,352 116,514 3,014 104,760 60,681 2,108,963 1,564 54,337 2000	Fair Value U.S. Dollars N.T. Dollars $ 46,384 $ 1,612,067 26,973 937,436 89,495 3,110,399 3,388 117,733 15,465 537,476 62,632 2,176,778 1,596 55,479 3,548 123,297 3,352 116,514 3,014 104,760 60,681 2,108,963 1,564 54,337 2000	Fair Value U.S. Dollars N.T. Dollars $ 46,384 $ 1,612,067 26,973 937,436 89,495 3,110,399 3,388 117,733 15,465 537,476 62,632 2,176,778 1,596 55,479 3,548 123,297 3,352 116,514 3,014 104,760 60,681 2,108,963 1,564 54,337 2000
		CarryingValue U.S. Dollars N.T. Dollars $ 46,384 $ 1,612,067 21,875 760,257 89,495 3,110,399 3,388 117,733 15,465 537,476 62,632 2,176,778 1,596 55,479 3,548 123,297 3,352 116,514 3,014 104,760 60,681 2,108,963 1,564 54,337 2001 CarryingValue Fair Value N.T. Dollars N.T. Dollars $ 683,102 $ 683,102 484,569 484,569 2,714,546 2,714,546 85,597 85,597 333,767 333,767 - - - - 2,135,205 2,135,205 24,317 24,317 79,222 79,222 27,436 27,436 594,130 594,130 26,508 26,508 221,729 221,729
		U.S. Dollars $ 46,384 21,875 89,495 3,388 15,465 62,632 1,596 3,548 3,352 3,014 60,681 1,564 2001			U.S. Dollars $ 46,384 26,973 89,495 3,388 15,465 62,632 1,596 3,548 3,352 3,014 60,681 1,564
		CarryingValue N.T. Dollars $ 683,102 484,569 2,714,546 85,597 333,767 - - 2,135,205 24,317 79,222 27,436 594,130 26,508 221,729			CarryingValue		Fair Value
					N.T. Dollars		N.T. Dollars
					$ 458,305 29,911 1,805,929 128,710 83,518 133,339 9,731 1,588,646 39,698 69,722 43,758 80,000 23,363 256,929		$ 458,305 29,911 1,805,929 128,710 83,518 133,339 9,731 1,588,646 39,698 69,722 43,758 80,000 23,363 256,929

• (A) including current portion

Assumptions used for estimating fair values of financial instrument are as follows:

Fair values of short-term financial instruments are derived from book values on the balance sheet. The carrying amounts of these items are a reasonable estimate of their fair value due to their short-term nature. This valuation applies to cash and cash equivalent, notes receivable, accounts receivable, short-term borrowings, short-term notes and bills payable, notes payable, accounts payable, income tax payable, accrued expenses and other current financial instrument. The short-term financial instrument’s fair values above are the same with the book values.

The Consolidated Company uses market value as fair value of short-term investments. If there is no market value, the Consolidated Company estimates the fair value according to financial or other information.

The Consolidated Company uses market value as fair value of long-term equity investments. If there is no market value, the Consolidated Company estimates the fair value according to financial or other information.

F-27

Book value of long-term borrowings is the present value of future cash flow based on bank’s floating rate.

The Consolidated Company uses market value as fair value of bonds payable. Book value of bonds payable is the present value of future cash flow based on bank’s floating interest rate.

The fair value of accrued pension liability is funded status of pension plan which equals to projected benefit obligations in excess of plan assets.

21. RELATED PARTY TRANSACTIONS

Names and relationships of the Consolidated Company related parties are outlined as follows:

Name Dong-Guan Tailien Optical Co., Ltd. Robert Lai Lai Hsien Tang Asia Promotion Optical Inc. Panwell Optical Machinery Co., Ltd. (Note 1) Tai-ping Customs Broker Company Guang Dong Nikon Camera Co., Ltd. Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Shuwa Co., Ltd. (Note 2) Hang-Zhou Nikon Camera Co., Ltd. Dong-Guan Dong Yang Optical Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Yuan-Tai Investment Co., Ltd.

Relationship

An equity investee of the Parent Company The Parent Company’s chairman The Parent Company’s director The principal owner is a member of the immediate families of the Parent Company’s chairman The director is the Parent Company’s supervisor The principal owner is the Parent Company’s director The vice-chairman is the Parent Company’s chairman Same chairman as the Parent Company An investor of Asia (B.V.I) Same chairman as the Parent Company Same chairman as the Parent Company Same chairman as the Parent Company The Chairman is the Parent Company’s director

Note 1: The original name is Panwell Metal Co., Ltd.

Note 2: The Parent Company acquired 5%, 15% and 5% interest in Asia (B.V.I.) from Shuwa Co., Ltd. In January, April and November 2002. Then Shuwa Co., Ltd. Owned 5% interest of Asia (B.V.I) and had no significant influence on Asia (B.V.I) therefore changed the valuation method to cost method.

F-28

Account Balances

Account balances of related party transactions at or for the years ended December 31, 2002, 2001 and 2000 are summarized as follows:

AccountTitle RelatedParty Sales revenue Dong-Guan Tailien Optical Co., Ltd Shuwa Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Total Accounts receivable Dong-Guan Tailien Optical Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Shuwa Co., Ltd. Total Purchases Panwell Optical Machinery Co., Ltd. Asia Promotion Optical Inc. Dong-Guan Dong Yang Optical Co.,Ltd. Dong-Guan Tailien Optical Co., Ltd. Shuwa Co., Ltd. Hang-Zhou Nikon Camera Co., Ltd. Dong-Guan Xinfung Sintai Optical Co., Ltd. Total Notes Payable Panwell Optical Machinery Co. Ltd. Tai-ping Customs Broker Company Total Accounts payable Panwell Optical Machinery Co., Ltd. Asia Promotion Optical Inc. Shuwa Co. Ltd. Hang-Zhou Nikon Camera Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Dong-Guan Dong Yang Optical Co., Ltd. Total Rental Expense Robert Lai	2002 U.S. Dollars N.T. Dollars $ 5,452 $ 189,479 22,576 784,634 38 1,313 $28,066 $ 975,426 $ 4,578 $ 159,102 - - - - 6,425 223,311 $11,003 $ 382,413 $ 505 $ 17,550 23 787 4,916 170,843 1,765 61,327 $ 7,024 $ 244,128 10 364 17,282 600,656 $ 31, 525 $1,095,655 $ 91 $ 3,147 13 473 $104 $ 3,620 $ 33 $ 1,152 - - 405 14,059 - - 1,812 62,990 3,538 122,950 $ 5,788 $201,151 $4 $150	2001 N.T. Dollars $ 97,371 811,864 7,162 $ 916,397 $ 62,638 - - 184,104 $246,742 $ 21,308 2,029 496,347 45,313 $ 344,993 5,048 542,871 $1,457,909 $ 1,095 - $1,095 $ 861 - 18,005 - 2,397 72,967 $ 94,230 $ 600	2000
	U.S. Dollars $ 5,452 22,576 38 $28,066 $ 4,578 - - 6,425 $11,003 $ 505 23 4,916 1,765 $ 7,024 10 17,282 $ 31, 525 $ 91 13 $104 $ 33 - 405 - 1,812 3,538 $ 5,788 $4		N.T. Dollars
			$ 74,593 440,628 5,563
			$ 520,784
			$ 35,237 74,004 3 115,012
			$224,256
			$ 22,404 2,841 - 17,153 $ 248,197 1,421 -
			$292,016
			$ 3,394 -
			$ 3,394
			$ 2,384 24 31,265 688 - -
			$ 34,361
			$ 600

F-29

AccountTitle RelatedParty Export Expense Tai-ping Customs Broker Company Service Income Guang-Dong Nikon Camera Co., Ltd. (See Note A below) Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Total Accrued Expenses Tai-Ping Customs Broker Company Other current assets- Prepayment to suppliers Hang-Zhou Nikon Camera Co., Ltd, Other current assets- Other receivables Dong –Guan Tailien Optical Co., Ltd Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Guan Dong Nikon Camera Co., Ltd. Dong-Guan Dong Yang Optical Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Hang-Zhou Nikon Camera Co., Ltd. Total Other current liabilities Dong-Guan Dong Yang Optical Co. Ltd. Dong-Guan Tailien Optical Co., Ltd. Shuwa Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Total Rental Income Dong-Guan Dong Yang Optical Co., Ltd. Dong-Guan Tailien Optical Co., Ltd. Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Guang Dong Nikon Camera Co., Ltd. Dong – Guan Xingfung Sintai Optical Co., Ltd. Total	2002 U.S. Dollars N.T. Dollars $136 $4,723 $ 315 $ 10,942 802 27,894 $1,117 $ 38,836 $ 6 $215 $ 162 $ 5,622 $ 61 $ 2,127 58 2,016 28 978 8 282 26 904 - - $181 $ 6,307 $ - $ - $19 658 218 7,581 - - $237 $ 8,239 $ 59 $ 2,065 299 10,385 336 11,661 152 5,290 141 4,910 $ 987 $ 34,311	2001 N.T. Dollars $ 6,421 $ 19,271 25,891 $45,162 $ 874 $ 1,495 $ 2,073 1,243 653 1,095 653 - $ 5,717 $ - 198 $ 13,315 236 $13,749 $ 2,850 9,537 11,178 4,799 4,191 $ 32,555	2000
	U.S. Dollars $136 $ 315 802 $1,117 $ 6 $ 162 $ 61 58 28 8 26 - $181 $ - $19 218 - $237 $ 59 299 336 152 141 $ 987		N.T. Dollars
			$ 6,851
			$ 9,989 22,797
			$ 32,786
			$1,158
			$ -
			$ 3,542 1,612 992 37,037 - 1,788
			$44,971
			$ 11,322 - $ - -
			$11,322
			$ 2,422 8,705 10,410 4,681 -
			$26,218

(A) Service income that represents revenue for management services has been offset by the related service cost and reported as non-operating income in the income statement.

The Consolidated Company purchased raw materials and various machineries in 2002, 2001 and 2000 on behalf of Dong-Guar Dong Yang Optical Co., Ltd. and Dong-Guan Xingfung Sintai Co., Ltd. as follows:

F-30

Dong-Guan Dong Yang Optical Co., Ltd. Dong-Guan Xingfung Sintai Optical Co., Ltd. Total	2002 U.S. Dollars N.T. Dollars $ 3,471 $ 120,623 14,595 507,265 $18,066 $ 627,888	2001 N.T. Dollars $ 315,252 432,892 $748,144	2000
	U.S. Dollars $ 3,471 14,595 $18,066		N.T. Dollars
			$ - 68,441
			$ 68,441

The receivable listed above is offset by the amount payable to Dong-Guan Dong Yang Optical Co., Ltd. and Dong-Guan Xingfung Sintai Optical Co., Ltd. and the difference is treated as accounts payable - related parties or accounts receivable - related parties.

Property Transactions

The Parent Company acquired a 9% interest in Asia (B.V.I.) from Shuwa Co., Ltd. in July, 2000, at a price of NT$70,778 representing 9% of the net assets of Asia (B.V.I.) as of December 31, 1999.

The Parent Company acquired a 10% interest in Asia (B.V.I.) from Shuwa Co., Ltd. in July, 2001, at a price of the net assets of Asia (B.V.I.) as of January 31, 2001.

The Parent Company acquired 5%, 15% and 5% interests in Asia (B.V.I.) from Shuwa Co., Ltd. in January, April, and November, 2002, at prices of the net assets of Asia (B.V.I.) as of June, December, 2001 and June, 2002.

In 2002, the Parent Company acquired 2 million shares in the amount of NT$60,000 at NT$30 dollars each share of Altek Corporation (short-term investment) which was valued by security analyst’s stock price report from Yuan-Tai Investment Co., Ltd.

Sales and Purchases

In the ordinary course of business, the Consolidated Company and its related parties enter into sales and purchases transactions with each other on arm’s-length basis. The collection of receivables and payment of payables between the Consolidated Company and Dong-Guar Tailien Optical Co., Ltd., Dong-Guar Xingfung Sintai Optical Co., Ltd., Dong-Guar Dong Yang Optical Co., Ltd. and Hang-Zhou Nikon Camera Co., Ltd. are offset and payment of the balance is made on a monthly basis. For non-related customers, collection and payment range from one to six months.

Due to Related Parties

No interest is charged between the Consolidated Company and related parties.

RelatedParty Shuwa Co., Ltd. Lai Hsien Tang Total		2002	2002
	Highest Balance N.T. Dollars $ 23,720 198,009	Balance
		U.S. Dollars $ - $- $-	N.T. Dollars
			$ - $-
			$-

F-31

Related Party Shuwa Co., Ltd. Lai Hsien Tang Total	2001 Highest Balance Balance $ 58,920 $ 23,720 198,009 $198,009 $221,729	2000	2000
	Highest Balance $ 58,920 198,009	Highest Balance $ 409,080 213,307	Balance
			$ 58,092 $198,009
			$256,929

22. PLEDGED ASSETS

At December 31, 2002, 2001 and 2000 the following assets are pledged as collateral under the terms of various credit agreements and in accordance with terms of hiring foreign labor:

foreign labor:
Pledged Assets Item Other current assets Time Deposit Common Stock Asia (B.V.I.) Property, plant and equipment Land Property, plant and equipment Buildings Property, plant and equipment Machinery and Equipment Total	2002 U.S Dollars N.T Dollars $ 104 $ 3,620 57,546 2,000,030 3,907 135,781 8,693 302,117 6,833 237,471 $77,083 $2,679,019	2001 N.T Dollars $ 38,593 1,375,202 135,781 304,095 270,666 $2,124,337	2000
	U.S Dollars $ 104 57,546 3,907 8,693 6,833 $77,083		N.T Dollars
			$ 1,441 - 135,781 22,133 -
			$159,355

23. COMMITMENTS AND CONTINGENCIES

At December 31, 2002, 2001 and 2000, the Consolidated Company’s unused letters of credit for the purpose of importing raw materials and equipment are NT$73,401, NT$29,859 and NT$7,006, respectively.

At December 31, 2002, 2001 and 2000, the Consolidated Company had commitments to pay NT$24,222, NT$21,018 and NT$102,698, respectively under various machinery purchase contracts.

At December 31, 2002 and 2001, the Consolidated Company contracts for acquiring the right to use land and plant under construction at the amount of NT$54,672 and NT$18,588 unpaid, respectively.

At December 31, 2002, 2001 and 2000, the Consolidated Company had executed promissory notes of NT$672,000, NT$850,000 and NT$49,000, respectively to financial institutions evidencing short-term and long-term borrowings under loan agreement.

The Asia (B.V.I.) has a credit line with a bank for US$30 million from September 2002 to September 2004. If the Company’s actual borrowing does not exceed 75% of US$30 million after one year from the contract date, the Company should pay a commitment fee calculated at 0.30% of the difference between US$30 million and the amount borrowed, payable quarterly.

F-32

The Consolidated Company had rented land from the Economic Bureau Taichung Export Processing Zone (TEPZ) and the lease periods are from 2002 to 2010. The present value of estimated rental expense for future years are as follows:

Period 2003 2004 2005 2006 2007 2008 and after Total	Rent	Payable
	U.S. Dollars $ 53 29 11 3 3 7 $ 106	N.T. Dollars
		$ 1,832 991 395 107 107 265
		$ 3,697

24. DISCLOSURE OF DEPARTMENTAL FINANCIAL INFORMATION

The Consolidated Company’s principal business is within the scope of lenses and optical instrument manufacturing and processing.

For the years ended December 31, 2002, 2001 and 2000, summary of foreign and domestic revenues, income (loss) and identified assets are as follows:

2002 N.T Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ - $10,517,404 $ 2,712,439 Revenue from the Consolidated Company 1,050,557 951,302 342,031 Total $1,050,557 $11,468,706 $ 3,054,470 Departmental income $ 38,063 $1,054,003 $236,700 Departmental non- operation income Departmental non- operation expense Continuing operations’ income before tax Identified Assets $1,324,652 $120,741 $1,861,261 Long-Term equity investment Other assets Total assets 2001 N. T. Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ – $ 8,980,802 $ 1,807,675 Revenue from the Consolidated Company 736,559 627,708 373,405 Total $ 736,559 $ 9,608,510 $2,181,080 Departmental income (loss) $ (89,635) $1,171,212 $162,319 Departmental non-operation income Departmental non-operation expense Continuing operations’ income before tax Identified assets $ 1,334,065 $ – $1,431,711 Long-term equity investments Other assets Total assets	2002 N.T Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ - $10,517,404 $ 2,712,439 Revenue from the Consolidated Company 1,050,557 951,302 342,031 Total $1,050,557 $11,468,706 $ 3,054,470 Departmental income $ 38,063 $1,054,003 $236,700 Departmental non- operation income Departmental non- operation expense Continuing operations’ income before tax Identified Assets $1,324,652 $120,741 $1,861,261 Long-Term equity investment Other assets Total assets 2001 N. T. Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ – $ 8,980,802 $ 1,807,675 Revenue from the Consolidated Company 736,559 627,708 373,405 Total $ 736,559 $ 9,608,510 $2,181,080 Departmental income (loss) $ (89,635) $1,171,212 $162,319 Departmental non-operation income Departmental non-operation expense Continuing operations’ income before tax Identified assets $ 1,334,065 $ – $1,431,711 Long-term equity investments Other assets Total assets	2002 N.T Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ - $10,517,404 $ 2,712,439 Revenue from the Consolidated Company 1,050,557 951,302 342,031 Total $1,050,557 $11,468,706 $ 3,054,470 Departmental income $ 38,063 $1,054,003 $236,700 Departmental non- operation income Departmental non- operation expense Continuing operations’ income before tax Identified Assets $1,324,652 $120,741 $1,861,261 Long-Term equity investment Other assets Total assets 2001 N. T. Dollars Asia Europe Domestic Revenue except from the Consolidated Company $ – $ 8,980,802 $ 1,807,675 Revenue from the Consolidated Company 736,559 627,708 373,405 Total $ 736,559 $ 9,608,510 $2,181,080 Departmental income (loss) $ (89,635) $1,171,212 $162,319 Departmental non-operation income Departmental non-operation expense Continuing operations’ income before tax Identified assets $ 1,334,065 $ – $1,431,711 Long-term equity investments Other assets Total assets						2002				Total $13,229,843 - $13,229,843 $ 1,380,714 197,221 (139,090) $1,438845 $ 3,306,654 537,475 6,285,448 $10,129,577	Total $13,229,843 - $13,229,843 $ 1,380,714 197,221 (139,090) $1,438845 $ 3,306,654 537,475 6,285,448 $10,129,577	Total $13,229,843 - $13,229,843 $ 1,380,714 197,221 (139,090) $1,438845 $ 3,306,654 537,475 6,285,448 $10,129,577	Total $13,229,843 - $13,229,843 $ 1,380,714 197,221 (139,090) $1,438845 $ 3,306,654 537,475 6,285,448 $10,129,577
								N.T Dollars
				Asia $ - 1,050,557 $1,050,557 $ 38,063 $1,324,652		Europe $10,517,404 951,302 $11,468,706 $1,054,003 $120,741		Domestic			Adjustment and Elimination $ - (2,343,890) $ (2,343,890) $ 51,948 $-
								$ 2,712,439 342,031
								$ 3,054,470
								$236,700
								$1,861,261
								2001
								N. T. Dollars
		Asia			Europe $ 8,980,802 627,708 $ 9,608,510 $1,171,212 $ –		Domestic $ 1,807,675 373,405 $2,181,080 $162,319 $1,431,711				Adjustment and Elimination			Total
									$ $		– (1,737,672)			$ 10,788,477 –
											(1,737,672)			__ ____ $10,788,477
									$		30,267		$ 1,274,163 234,236 ____(101,215) $1,407,184
									$		–
															1,407,184
													$		2,765,776 4,679,196
													$		7,778,739

F-33

Revenue except from the Consolidated Company Revenue except from the Consolidated Company Total Departmental income Departmental non-operation income Departmental non-operation expense Continuing operations’ income before tax Identified assets Long-term equity investments Other assets Total assets				2000
				N. T. Dollars
	Asia $ – 570,417 $ 570,417 $ 23,777 $ 871,603			Domestic $ 750,628 587,824 $ 1,338,452 $102,836 $ 536,813	Adjustment and Elimination $ – (1,730,577) $ (1,730,577) $ 53,210 $ –	Total
						$ 6,450,889 _ – $ 6,450,889
						$ 975,753 157,944 (110,267) $ 1,023,430 $ 1,408,416 83,518 3,196,178
						$4,688,112

European department includes Asia (B.V.I.) and Powerlink (B.V.I.). Asia department includes Dong-Guan Sintai Optical Co., Ltd. and Scopro Optical Co., Inc. which are both grandson companies of the Parent Company. Domestic department means the Parent Company.

For the years ended December 31, 2002, 2001 and 2000, summary of export sales are as follows:

as follows:
Area Europe Asia America Total		2002 U.S. Dollars N.T. Dollars $ (347) $ (12,052) 352,711 12,258,464 15,484 538,140 $ 367,848 $ 12,784,552			2001 N.T. Dollars $ 5,735 9,985,389 497,915 $ 10,489,039		2000
		U.S. Dollars $ (347) 352,711 15,484 $ 367,848					N.T. Dollars
							$ 32,685 5,595,155 431,296 $ 6,059,136

For the years ended December 31, 2002, 2001 and 2000, sales to a particular buyers which is more than 10% of net sales are as follows:

Name Canon Components Inc. Nittoh Kogaku K.K. Total		2002	2002	N.T. Dollars $ 1,287,462 3,848.842 $ 5,136,304		2001 N.T. Dollars $ 1,507,665 888,697 $ 2,396,362		2000
		U.S. Dollars $ 37,044 110,627 $ 147,671						N.T. Dollars
								$ – 819,063 $ 819,063

25. RECLASSIFICATIONS

Certain reclassification have been made in the 2001 and 2000 financial statements to conform to the 2002 method of presentation.

F-34

INDEPENDENT AUDITORS’ REPORT

To Asia Optical Co., Inc.:

We have audited the balance sheets of Asia Optical Co., Inc. (the “Company”) as of December 31, 2002, 2001 and 2000 the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. 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.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of China. Those 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 financial statements referred to above present fairly, in all material respects, the financial position of Asia Optical Co., Inc. as of December 31, 2002, 2001 and 2000 and the results of its operations and its cash flows for the years then ended in conformity with “Regulations Governing the Preparation of Financial Statements of Public Companies” and accounting principles generally accepted in the Republic of China.

We have also audited the consolidated financial statements of Asia Optical Co., Inc. and subsidiaries for the years ended December 31, 2002, 2001 and 2000 (not accompanied herein) on which we have issued our report thereon expressing an unqualified opinion.

The translation of the December 31, 2002 New Taiwan dollar amounts into U.S. dollar amounts has been made in conformity with the basis stated in Note 2, and such U.S. dollar amounts are presented solely for the convenience of readers outside the Republic of China.

Deloitte & Touche Taipei, Taiwan The Republic of China

January 27, 2003

The above auditors’ report and the following financial statements are English translations of the Chinese auditors’ report and financial statements prepared for and used in the Republic of China. The accompanying financial statements were prepared using accounting principles, procedures and reporting practices generally accepted in the Republic of China 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 Republic of China. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the Republic of China.

F-35

ASIA OPTICAL CO., INC. BALANCE SHEETS DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 3) Short-term investments (Notes 2, 4 and 21) Notes receivable (Notes 2 and 5) Accounts receivable, net (Notes 2 and 5) Accounts receivable - related parties (Notes 2,5 and 21) Inventories, net (Notes 2 and 6) Other current assets (Notes 2,18 and 22) Total current assets LONG-TERM EQUITY INVESTMENTS (Notes 2 and 7) PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 8) Land Buildings Machinery and equipment Office equipment Other equipment Total cost Less accumulated depreciation Unfinished construction Prepayment for business facilities Property, plant and equipment, net INTANGIBLE ASSETS (Notes 2 and 13) OTHER ASSETS (Note 2) TOTAL	2002 U.S. Dollars N.T. Dollars $ 24,414 $ 848,509 20,272 704,554 748 25,984 14,079 489,323 92 3,178 2,448 85,091 3,705 128,782 65,758 2,285,421 106,019 3,684,690 6,893 239,566 9,616 334,195 42,364 1,472,358 145 5,044 2,912 101,218 61,930 2,152,381 (9,928) (345,052) 23 789 1,529 53,143 53,554 1,861,261 870 30,216 2,064 71,736 $228,265 $7,933,324	2001 N.T. Dollars $ 113,200 425,995 19,172 427,664 2,357 105,886 41,625 1,135,899 2,033,429 199,946 321,404 1,011,615 5,044 68,003 1,606,012 (209,871) 6,082 29,488 1,431,711 6,037 23,757 $4,630,833	2000 N.T. Dollars $ 46,747 – 32,166 138,511 35,587 108,439 25,849 387,299 1,034,855 135,781 36,731 359,491 6,024 43,566 581,593 (136,202) 87,611 3,811 536,813 11,447 6,312 $1,976,726	LIABILITIES AND STOCKHOLDER’S EQUITY CURRENT LIABILITIES Short-term borrowings (Note 9) Short-term notes and bills payable (Note 10) Notes payable Notes payable-related parties (Note 21) Accounts payable Accounts payable-related parties (Note 21) Income tax payable (Notes 2 and 18) Accrued expenses (Note 21) Long-term borrowings-current portion (Note 12) Other current liabilities (Note 21) Total current liabilities LONG-TERM LIABILITIES Bonds payable (Notes 2 and 11) Long-term borrowings (Note 12) Total long-term liabilities OTHER LIABILITIES Accrued pension liability (Notes 2 and 13) Deferred income tax liability (Notes 2 and 18) Credit on long-term equity investments (Notes 2 and 7) Total other liabilities Total liabilities STOCKHOLDER’S EQUITY Capital stock (Note 14) Capital surplus (Note 15) Additional paid-in capital Additional paid-in-capital – common stock Gain on sale of fixed assets Retained earnings Legal reserve (Note 16) Special reserve Unappropriated retained earnings (Note 17) Equity adjustments Cumulative translation adjustment (Note 2) Total stockholders’ equity TOTAL	2002 U.S. Dollars N.T. Dollars $ – $ – – – 1,727 60,006 104 3,620 6,475 225,023 12,509 434,762 1,136 39,495 3,725 129,454 – – 3,993 138,789 29,669 1,031,149 60,681 2,108,963 – – 60,681 2,108,963 1,564 54,337 12,019 417,730 383 13,307 13,966 485,374 104,316 3,625,486 35,437 1,231,630 30,835 1,071,669 – – 4,797 166,731 167 5,797 51,768 1,799,164 945 32,847 123,949 4,307,838 $228,265 $7,933,324	2001 N.T. Dollars $ – – 68,631 1,095 81,637 279,188 17,932 83,733 50,000 38,338 620,554 – 440,000 440,000 26,508 409,874 – 436,382 1,496,936 869,263 1,071,669 4,685 84,809 5,797 1,068,890 28,784 3,133,897 $4,630,833	2000
	U.S. Dollars $ 24,414 20,272 748 14,079 92 2,448 3,705 65,758 106,019 6,893 9,616 42,364 145 2,912 61,930 (9,928) 23 1,529 53,554 870 2,064 $228,265				U.S. Dollars $ – – 1,727 104 6,475 12,509 1,136 3,725 – 3,993 29,669 60,681 – 60,681 1,564 12,019 383 13,966 104,316 35,437 30,835 – 4,797 167 51,768 945 123,949 $228,265		N.T. Dollars
							$ 25,000 9,731 105,524 3,394 51,114 52,498 12,756 73,052 – 62,051
							395,120
							– 80,000
							80,000
							23,363 200,786 –
							224,149
							699,269
							539,307 113,100 4,662 33,514 5,797 569,841 11,236
							1,277,457
							$1,976,726

See notes to financial statements

F-36

ASIA OPTICAL CO., INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars Except Earnings Per Share)

OPERATING REVENUES - NET (Note 21) OPERATING COSTS (Note 21) GROSS PROFIT UNREALIZED GAIN ON INTER - AFFILIATE ACCOUNTS (Note 2) REALIZED GAIN ON INTER - AFFILIATE ACCOUNTS (Note 2) OPERATING EXPENSES (Note 21) INCOME FROM OPERATIONS NON-OPERATING INCOME Interest income Investment income (Notes 2 and 7) Gains on disposal of property, plant and equipment Gains on disposal of investments Gains on foreign exchange (Note 2) Gains on inventory value recoveries Others (Note 21) Total non-operating income NON-OPERATING EXPENSES Interest expense Losses on disposal of property, plant and equipment Losses on physical inventory Losses on inventory devaluation and obsolescence (Note 2) Others Total non-operating expenses INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX (NOTES 2 AND 18) NET INCOME Basic EPS before tax (in dollars) (Note 19) Basic EPS after tax (in dollars) (Note 19) Diluted EPS before tax (in dollars) (Note 19) Diluted EPS after tax (in dollars) (Note 19)	2002 U.S. Dollars N.T. Dollars $ 87,886 $ 3,054,470 (75,530) (2,625,032) 12,356 429,438 (102) (3,548) 217 7,541 (5,660) (196,731) 6,811 236,700 264 9,170 28,213 980,546 35 1,207 1,182 41,069 837 29,100 – – 2,064 71,755 32,595 1,132,847 (1,759) (61,145) (11) (383) (6) (215) (55) (1,891) (1) (34) (1,832) (63,668) 37,574 1,305,879 (990) (34,413) $ 36,584 $ 1,271,466 $ 0.31 $ 10.60 $ 0.30 $ 10.32 $ 0.30 $ 10.28 $ 0.29 $ 9.98	2001 N.T. Dollars $ 2,181,080 (1,861,981) 319,099 (7,541) 11,946 (161,185) 162,319 1,906 825,873 31 24,715 6,610 16,576 30,378 906,089 (14,729) (988) (932) – (16,806) (33,455) 1,034,953 (220,397) $ 814,556 $ 8.56 $ 6.74 $ 8.56 $ 6.74	2000
	U.S. Dollars $ 87,886 (75,530) 12,356 (102) 217 (5,660) 6,811 264 28,213 35 1,182 837 – 2,064 32,595 (1,759) (11) (6) (55) (1) (1,832) 37,574 (990) $ 36,584 $ 0.31 $ 0.30 $ 0.30 $ 0.29		N.T. Dollars
			$ 1,338,452 (1,120,597)
			217,855 (11,946) 9,324 (112,397)
			102,836
			1,397 555,235 817 2,868 13,167 19,214
			592,698
			(3,480) (1,378) (138) (22,928) –
			(27,924)
			667,610 (154,046)
			$ 513,564
			$ 6.16
			$ 4.74
			$ 6.16
			$ 4.74

See notes to financial statements

F-37

ASIA OPTICAL CO., INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars)

BALANCE, JANUARY 1, 2000 Appropriations of prior year’s earnings: Legal reserve Bonuses to employees transferred to capital stock, Bonuses to directors and supervisors Earnings transferred to capital stock Cash dividends Gain on sale of property, plant and equipment, after income taxes, transferred to capital surplus Capital surplus transferred to capital stock Net income for the year ended December 31, 2000 Cumulative translation adjustment BALANCE, DECEMBER 31, 2000 Appropriations of prior year’s earnings: Legal reserve Cash dividends Earnings transferred to capital stock Bonuses to directors and supervisors Bonuses to employees transferred to capital stock Capital surplus transferred to capital stock	Capital stock $369,000 4,257 129,150 36,900 539,307 184,292 9,233 61,431	Capital Surplus Additional paid-in capital Gain on sale of fixed assets $ 150,000 $ 4,049 613 (36,900) 113,100 4,662 (61,431)		Retained earnings	Unappropriated earnings $ 255,103 (23,649) (4,257) (4,257) (129,150) (36,900) (613) 513,564 569,841 (51,295) (61,431) (184,292) (9,233) (9,233)	Equity adjustments Cumulative translation adjustment $ 1,683 9,553 11,236	Total
		Additional paid-in capital $ 150,000 (36,900) 113,100 (61,431)	Legal reserve $ 9,865 23,649 33,514 51,295	Special reserve $ 5,797 5,797
							$ 795,497 – – (4,257) – (36,900) – – 513,564 9,553
							1,277,457 – (61,431) – (9,233) – –

F-38

ASIA OPTICAL CO., INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars)

Gain on sale of property, plant and equipment, after income taxes, transferred to capital surplus Issuance of common stock Cumulative translation adjustment Net income for the year ended December 31, 2001 BALANCE, DECEMBER 31, 2001 Capital surplus from gain on sale of fixed assets transferred to retained earnings Legal reserve appropriated from retained earnings transferred from capital surplus from gain on sale of fixed assets Appropriations of prior year’s earnings: Legal reserve Cash dividends Stock dividends Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net Income for the year ended December 31, 2002 BALANCE, DECEMBER 31, 2002	Capital stock 75,000 869,263 347,705 14,662 $1,231,630	Capital Additional paid-in capital 1,020,000 1,071,669 $1,071,669	Surplus Gain on sale of fixed assets 4,685 (4,685) $–		Retained earnings	Unappropriated earnings (23) 814,556 1,068,890 4,685 (466) (81,456) (86,926) (347,705) (14,662) (14,662) 1,271,466 $1,799,164	Equity adjustments Cumulative translation adjustment 17,548 28,784 4,063 $ 32,847	Total – 1,095,000 17,548 814,556
				Legal reserve 23 84,809 466 81,456 $166,731	Special reserve 5,797 $ 5,797
								3,133,897 – – – (86,926) – – (14,662) 4,063 1,271,466
								$4,307,838

F-39

ASIA OPTICAL CO., INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2002

(Expressed in Thousand United States Dollars)

BALANCE, JANUARY 1, 2002 Capital surplus from gain on sale of fixed assets transferred to retained earnings Legal reserve appropriated from retained earnings transferred from capital surplus from gain on sale of fixed assets Appropriations of prior year’s earnings: Legal reserve Cash dividends Stock dividends Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net income for the year ended December 31, 2002 BALANCE, DECEMBER 31, 2002	Capital stock $25,011 10,004 422 $ 35,437	Capital Surplus Additional paid-in capital Gain on sale of fixed assets $ 30,835 $ 135 (135) $ 30,835 $–		Retained earnings	Unappropri ated earnings $ 30,755 135 (13) (2,344) (2,501) (10,004) (422) (422) 36,584 $ 51,768	Equity adjustments Cumulative translation adjustment $ 828 117 $ 945	Total
		Additional paid-in capital $ 30,835 $ 30,835	Legal reserve $ 2,440 13 2,344 $4,797	Special reserve $ 167 $167
							$ 90,171 – – – (2,501) – – (422) 117 36,584
							$123,949

See notes to financial statements.

F-40

ASIA OPTICAL CO., INC.

STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of issue costs of convertible bonds (Realized) unrealized gain on inter- affiliate accounts Gain on disposal of investments Bad debt Investment gain on equity-method investees Provision (recovery) for inventory devaluation and obsolesence Loss on inventory valuation and obsolescence (Gain) loss on disposal of property, plant and equipment Gain on disposal of other assets Changes in assets and liabilities provided (used) cash: Notes receivable Accounts receivable Accounts receivable - related parties Inventories Other current assets Deferred tax (assets) liabilities Accounts payable Accounts payable - related parties Notes payable Notes payable - related parties Accrued expenses Income tax payable Other current liabilities Bonds payable - reserve for put premium Accrued pension liability Total adjustments Net cash provided by operating activities INVESTING ACTIVITIES: Increase in short-term investments for non-trading purpose Proceeds from sale of investments for non-trading purpose Increase in long-term equity investments Proceeds from disposal of assets Additions to property, plant and equipment Increase in deferred charges Increase in intangible assets Decrease (increase) in guarantee deposits paid Net cash used in investing activities	2002 U.S. Dollars N.T. Dollars $36,584 $1,271,466 5,332 185,319 360 12,524 (115) (3,993) (1,182) (41,069) 385 13,372 (28,184) (979,546) 55 1,891 – – (24) (824) (15) (508) (196) (6,812) (2,102) (73,037) (24) (821) 544 18,904 (2,119) (73,661) (219) (7,627) 4,126 143,386 4,476 155,574 (248) (8,625) 73 2,525 1,316 45,721 620 21,563 442 15,366 681 23,663 259 9,010 (15,759) (547,705) 20,825 723,761 (97,326) (3,382,557) 90,493 3,145,067 (18,827) (654,345) 376 13,079 (14,646) (509,005) (2,475) (86,009) (245) (8,519) 4 132 (42,646) (1,482,157)	2001 N.T. Dollars $814,556 93,342 – (4,405) (24,715) 7,242 (825,873) (16,576) – 957 (718) 12,994 (296,395) 33,230 19,129 (58) 195,542 30,523 226,690 (68,263) (2,299) 42,051 5,176 (2,986) – 8,946 (566,466) 248,090 (3,186,540) 2,785,260 (155,153) 3,387 (996,449) (27,757) (2,135) 317 (1,579,070)	2000
	U.S. Dollars $36,584 5,332 360 (115) (1,182) 385 (28,184) 55 – (24) (15) (196) (2,102) (24) 544 (2,119) (219) 4,126 4,476 (248) 73 1,316 620 442 681 259 (15,759) 20,825 (97,326) 90,493 (18,827) 376 (14,646) (2,475) (245) 4 (42,646)		N.T. Dollars
			$513,564
			40,428 – 2,622 (2,868) 1,686 (555,235) – 22,928 561 – (25,308) (58,474) (1,089) (28,638) (7,338) 134,202 (4,516) 28,224 39,789 (5,315) (725) 9,263 953 – 7,417
			(401,433)
			112,131
			– 72,864 (90,778) 15,113 (212,661) (8,485) (2,153) (262)
			(226,362)

F-41

ASIA OPTICAL CO., INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

FINANCING ACTIVITIES: (Increase) decrease in restricted time deposits Issuance of common stock (Decrease) increase in short-term borrowings (Decrease) increase in short-term notes and bills payable (Decrease) increase in long-tern borrowings Issuance of bonds payable Cash dividends Bonuses to directors and supervisors Net cash provided by financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) Income tax SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Cash paid for acquisitions of property, plant and equipment: Total acquisition price of property, plant and equipment Add payable at beginning of year Less payable at end of year Cash paid for acquisition of property, plant and equipment Cumulative translation adjustment Earnings, employee bonuses and capital surplus transferred to capital stock	2002 U.S. Dollars N.T. Dollars – (7) – – – – – – (14,099) (490,000) 60,000 2,085,300 (2,501) (86,926) (422) (14,662) 42,978 1,493,705 21,157 735,309 3,257 113,200 $24,414 $ 848,509 $753 $26,158 $ 596 $20,723 $ 17,209 $ 598,083 789 27,436 (3,352) (116,514) $14,646 1,509,005 $117 $4,063 $10,426 $ 362,367	2001 N.T. Dollars (2,172) 1,095,000 (25,000) (9,731) 410,000 – (61,431) (9,233) 1,397,433 66,453 46,747 $113,200 $13,529 $19,680 $ 980,127 43,758 (27,436) $ 996,449 $17,548 $254,956	2000
	U.S. Dollars – – – – (14,099) 60,000 (2,501) (422) 42,978 21,157 3,257 $24,414 $753 $ 596 $ 17,209 789 (3,352) $14,646 $117 $10,426		N.T. Dollars
			3,000 – 25,000 9,731 80,000 – (36,900) (4,978)
			75,853
			(38,378) 85,125
			$46,747
			$ 3,480
			$ 10,581
			$ 237,657 18,762 (43,758)
			$212,661
			$ 9,553
			$170,307

See notes to financial statements.

F-42

ASIA OPTICAL CO., INC.

NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Amounts are Expressed in Thousand New Taiwan Dollars and United States Dollars or Other Specified Currency, Except Per Share Data)

1. ORGANIZATION AND OPERATIONS

Asia Optical Co., Inc. (the “Company”) was established on October 9, 1980 according to the Company Law of the Republic of China. On August 16, 2000, the Securities and Future Commission approved the listing of the common shares of the Company on the Over-The-Counter Securities Exchange in the ROC. On July 31, 2002, the Securities and Futures Commission approved the listing of the common shares of the Company on the Taiwan Stock Exchange.

The Company’s principal business scope is manufacturing, processing and exporting of camera, range finder, video camera, telescope, copy machine, facsimile machine, optical lens, lens unit and modules for DVD player.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements are prepared according to “Regulations Governing the Preparation of Financial Statements of Public Companies” and Generally Accepted Accounting Principles in the ROC. Reasonable estimates of provision for inventory devaluation and obsolescence, depreciation, and retirement funds were made when preparing financial statements. But there is always uncertainty in the actual result due to some differences in judgment. Summary of significant accounting policies and measurement basis are described as follows:

Classification of Current and Non - Current

Current assets are assets that are expected to be converted to cash, sold, or consumed during the next 12 months or within the business’s normal operating cycle if longer than a year. Current liabilities are debts that are due to be paid within one year or within the entity’s operating cycle if the cycle is longer than a year or be created in operations and expected to be liquidated within the entity’s operating cycle. Noncurrent assets (liabilities) are all assets (liabilities) other than current assets (liabilities).

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, cash in banks, and negotiable certificates of deposit, and commercial paper with original maturities of 90 days or less.

Short-Term Investments

Short-term investments are stated at the lower of aggregate cost or market value. Stock dividends received are not recognized as income but are reflected as increase in the number of shares held. The cost of short-term investments sold is determined on the weighted-average method.

F-43

Allowance for Doubtful Accounts

The adequacy of the allowance for doubtful accounts is determined by management based upon the evaluation of the collectibility, prior loss experience, and aging of notes and accounts receivable.

Inventories

Inventories are stated at the lower of cost or market value (“LCM”). Cost is determined by using the weighted-average method. Market value for raw materials and merchandise inventories is based on replacement cost, while finished goods and work in process are based on the respective net realizable values. The LCM method is applied to each inventory category. Loss on inventory valuation and obsolescence is charged against income.

- Long Term Equity Investments

Investments are consolidated when the Company’s ownership interest is 51 % or more and both amounts of the subsidiary’s total assets and sales are individually greater than 30% of those of the Company. Investments in companies in which the Company’s ownership interest is 20% or more but do not qualify for consolidation are accounted for by use of the equity method of accounting; the variance of the invested cost and the net worth of the investee will be amortized over 5 to 10 years. Investments in companies in which the Company’s ownership interest is less than 20% are carried at cost.

According to Statement of Financial Accounting Standards No. 5 “Accounting for Long-Term Investment in Equity Securities”, if the investee company’s stockholders’ equity is negative the investor company could continue to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment shall be treated as a liability on the balance sheet.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Interest incurred in connection with the purchase or construction of property, plant and equipment is capitalized. Major renewals and betterments are capitalized, while maintenance and repairs are expensed in the period incurred. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited to or charged against income. Gain on disposal of property, plant and equipment, net of related income tax, is transferred to capital surplus in the same year. According to the amended Corporation Law, since 2001 the gain on disposal of property, plant and equipment is no longer transferred to capital surplus.

Depreciation is provided on a straight-line method over periods as prescribed by tax regulations which are considered to approximate the estimated useful lives of the assets plus one additional year for salvage value.

Computer Software Cost

Computer software cost is stated at cost less amortization. Amortization is provided on a straight-line method over the estimated useful lives of three years.

F-44

Deferred Charges

Deferred charges include issue costs of convertible bonds and molding expense which are stated at cost at acquisition. The issue costs of convertible bonds are amortized from the date of debt issuance to the put date using straight-line method. Molding expense is provided on a straight-line method over the estimated useful lives of two years.

Bonds Payable

Overseas convertible notes were issued at par with a “put premium” allowing the note holders to redeem the notes for cash at a multiple of the bond’s par value at a date prior to maturity. The direct cost of the issuance is amortized as interest expense from the date of debt issuance to the put date using straight-line method. The Company accrues a liability for the put premium over the period from the date of debt issuance to the put date using the interest method.

Convertible notes with put options are classified as current or long-term liabilities depending on the agreed-upon put date. The accrued put premium is presented as addition to the convertible bonds.

Retirement Fund

The Company adopted its accounting method for employee benefit plan based on the Statement of Financial Accounting Standards No. 18 (“SFAS 18”), and recognized net periodic pension cost, related assets and liabilities based on actuarial assumptions as required by SFAS 18.

Unrealized Inter-Affiliate Gain or Loss

Unrealized gain or loss arising from down-stream transactions between the company and long-term equity investee is fully deferred; unrealized gain or loss from up-stream transactions is deferred based on percentage of ownership interest. Deferred unrealized gain or loss arising from down-stream transactions is realized upon final transaction with third party and deferred unrealized gain or loss arising from upstream transactions is realized toward the adjustment of equity investment.

Income Tax

The Company adopted its accounting method for income tax based on the Statement of Financial Accounting Standard No. 22. Deferred income tax assets and liabilities are computed at balance sheet dates for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior year’s income tax are included in the current year’s income tax provision.

Under the Amended Income Tax Law of the ROC, the 25% regular corporate income tax and the 20% separate income tax on interest income from short-term investment

F-45

remain and a 10% additional income tax is levied on distributable earnings that remain undistributed in the following year.

Sales Recognition

Sales are recognizd when ownership and risks of products are transferred to customers.

Transactions in Foreign Currencies and Translation Adjustment

Transactions in foreign currencies are recorded in New Taiwan dollars at the effective exchange rates when the transactions occur. Gains or losses caused by different foreign exchange rates applied when cash in foreign currency is actually converted into New Taiwan dollars, or when the foreign-currency receivables or payables are settled, are credited or charged to income in the period of actual conversion or settlement. At each balance sheet date, assets and liabilities denominated in foreign currencies are restated at the balance sheet date exchange rates, and the resulting exchange gains or losses are recognized currently.

Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustment is reported as a separate component of stockholders’ equity.

Other Non-derivative Financial Instruments

The recognition and subsequent valuation of financial assets or liabilities; and measurement of related revenue, expense, gain or loss are recorded according to accounting policies described herein and Generally Accepted Accounting Principles in the ROC.

Translation of New Taiwan Dollar Statements to United States Dollar Statements

The financial statements are stated in New Taiwan dollars, the currency of the country in which the Company is incorporated and operates. The translation of New Taiwan dollar amounts into United States dollar amounts are included solely for the convenience of readers outside the Republic of China and have been made at the rate of NT$34.755 to US$1, the average of buying and selling rates of Taiwan Bank at December 31, 2002. Such translation should not be construed as representations that the New Taiwan dollar amounts could be converted into United States dollars at the above or any other rate.

3. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts Savings accounts Time deposits Cash equivalents Total cash and cash equivalents	2002 U.S. Dollars N.T. Dollars $ 13 $ 453 890 30,939 12,521 435,182 3,002 104,315 7,988 277,620 $24,414 $ 848,509	2001 N.T Dollars $ 761 14,035 98,354 50 – $113,200	2000
	U.S. Dollars $ 13 890 12,521 3,002 7,988 $24,414		N.T. Dollars
			$ 328 15,405 30,964 50 –
			$46,747

F-46

4. SHORT TERM INVESTMENTS

2002 U.S. Dollars N.T. Dollars Cost Market Value Cost Market Value Bond investment fund $ 14,638 $ 14,606 $ 508,727 $ 507,635 Stock 1,747 6,790 60,724 235,993 Bonds 1,940 1,974 67,443 68,595 Commercial paper 1,947 2,000 67,660 69,510 Total $ 20,272 $ 25,370 $ 704,554 $ 881,733 2001 N.T Dollars Cost Market Value Bond investment fund $ 425,995 $ 425,995	2002	2002	2002	2002
					N.T. Dollars
					Cost $ 508,727 60,724 67,443 67,660 $ 704,554	Market Value
						$ 507,635 235,993 68,595 69,510
						$ 881,733
			N.T Dollars
			Cost 425,995	Market Value
		$

5. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable, non-related parties Accounts receivable, non-related parties Less: allowance for doubtful accounts Accounts receivable, net Accounts receivable, related parties	2002 U.S. Dollars N.T. Dollars $ 748 $25,984 $ 14,687 $ 510,443 (608) (21,120) $14,079 $489,323 $ 92 $ 3,178	2001 N.T Dollars $19,172 $ 437,406 (9,742) $427,664 $2,357	2000
	U.S. Dollars $ 748 $ 14,687 (608) $14,079 $ 92		N.T Dollars
			$ 32,166
			$ 141,011 (2,500)
			$ 138,511
			$ 35,587

6. INVENTORIES

Raw materials Work in process Finished goods Merchandise inventories Materials in transit Subtotal Less allowance for inventory devaluation and obsolescence losses Inventories, net	2002 U.S. Dollars N.T. Dollars $ 1,200 $ 41,700 656 22,808 397 13,791 76 2,630 394 13,710 2,723 94,639 (275) (9,548) $2,448 $ 85,091	2001 N.T. Dollars $ 50,586 27,362 28,476 221 6,898 113,543 (7,657) $105,886	2000
	U.S. Dollars $ 1,200 656 397 76 394 2,723 (275) $2,448		N.T. Dollars
			$ 75,367 29,684 12,219 2,127 13,275
			132,672 (24,233)
			$ 108,439

As of December 31, 2002, 2001 and 2000, insurance coverage for inventories amounted to NT$119,400, NT$140,000 and NT$90,000, respectively.

F-47

7. LONG–TERM EQUITY INVESTMENTS

Equity method investees: Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Cost method investees: Tecom Technologies, Inc. Total		2002	2002
	U.S.Dollars Carrying Value $ 1,164 792 91,116 12,918 - 29 $ 106,019	N.T Dollars
		Carrying Value $ 40,447 27,535 3,166,714 448,978 - 1,016 $ 3,684,690	Ownership Percentage
			23.90 100.00 95.00 100.00 33.33 0.08

Equity method investees: Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Cost method investees: Tecom Technologies, Inc. Total	2001 N.T. Dollars Carrying Value Ownership Percentage $ 41,451 23.90 28,324 100.00 1,604,402 70.00 351,573 100.00 6,779 33.33 900 0.08 $ 2,033,429	2000	2000
		N.T. Dollars
	Carrying Value $ 41,451 28,324 1,604,402 351,573 6,779 900 $ 2,033,429	Carrying Value $ 36,052 24,870 725,994 230,680 17,259 - $ 1,034,855	Ownership Percentage
			23.90 100.00 60.00 100.00 33.33 -

The Company's investment income (loss) from the equity method investees and investment cost are summarized as follows:

Investees		Investmentincome (loss)	Investmentincome (loss)	Investmentincome (loss)	2000 $ 2,038 1,210 475,777 78,951 (2,741) $ 555,235	Investment cost	Investment cost	Investment cost	Investment cost
	U.S. Dollars 2002 $ (21) (18) 26,001 2,800 (578) $ 28,184			N.T. Dollars				N.T. Dollars
		2002				2002		2001		2000
Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Total		$ (732) (606) 903,654 97,316 (20,086)				$ 11,163 22,614 964,103 14,000 20,000		$ 11,163 22,614 309,874 14,000 20,000		$ 11,163 22,614 155,623 14,000 20,000
		$ 979,546				$ 1,031,880		$ 377,651		$ 223,400

The recognized equity method investment income or loss has been determined based on the respective entities audited financial statements.

The Company owned a 23.90% interest of Dong-Guan Tailien Optical Co., Ltd., which is managed by Richman International Group Co., Ltd.. The accounting period of Dong-Guan Tailien Optical Co., Ltd. is from April 1 to March 31. The cumulative translation adjustment arising from the investment in Dong-Guan Tailien Optical Co., Ltd. amounted to NT$(272) at December 31, 2002.

The Company had invested an amount of NT$22,614 in Richman International Group Co., Ltd., which is a 100% owned subsidiary. The cumulative translation adjustment

F-48

arising from the investment in Richman International Group Co., Ltd. amounted to NT$(183) at December 31, 2002.

The Company increased investment in Asia Optical International Ltd. in 2002 and 2001 by NT$654,229 and NT$154,252, respectively, which is approved by the Investment Commission, Ministry of Economic Affairs, and the ownership interest increased from 70% to 95% and 60% to 70% in 2002 and 2001. The cumulative translation adjustment arising from the investment in Asia Optical International Ltd. amounted to NT$4,429 at December 31, 2002.

The Company owned 50,000 shares of Powerlink Electronic International Ltd., using equity method, which is 100% owned subsidiary. The cumulative translation adjustment arising from investment in Powerlink Electronic International Ltd. amounted to NT$89 at December 31, 2002.

The Company acquired a 33.33% ownership interest in Asia Photonics Technology Co., Inc. for a cost of NT$20,000, using the valuation of equity method. The book value of stockholders’ equity of Asia Photonics Technology Co., Inc. is negative. Asia Photonics Technology Co., Inc. is in the process of research and development and expect to make profit in the future after finishing research and development. The Company continues to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment amounted to NT$13,307 at December 31, 2002 is treated as other liabilities - credit on long-term equity investments on the balance sheet.

In 2002, 2001 and 2000, the Company holds more than 50% of common shares of Asia Optical International Ltd. and Powerlink Electronic International Ltd. which were consolidated. Richman International Group Co., Ltd., which assets and sales are separately less than 10% of that of the Company was not consolidated.

Please refer to Note 22 for summary of long-term equity investment pledged as collateral for the subsidiary at December 31, 2002 and 2001.

8. PROPERTY, PLANT AND EQUIPMENT

Land Buildings Machinery and equipment Office equipment Other equipment Unfinished construction Prepayment for business facilities Total		2002
		U.S. Dollars
	Cost $ 6,893 9,616 42,364 145 2,912 23 1,529 $ 63,482	Accumulated Depreciation $ - 923 7,837 106 1,062 - - $ 9,928	Carrying Value
			$ 6,893 8,693 34,527 39 1,850 23 1,529
			$ 53,554

F-49

Land Buildings Machinery and equipment Office equipment Other equipment Unfinished construction Prepayment for business facilities Total		2002	Carrying Value $ 239,566 302,117 1,199,964 1,364 64,318 789 53,143 $ 1,861,261	2001 N.T. Dollars Carrying Value $ 199,946 304,095 845,697 1,900 44,503 6,082 29,488 $ 1,431,711	2000
		N.T. Dollars			N.T. Dollars
	Cost $ 239,566 334,195 1,472,358 5,044 101,218 789 53,143 $ 2,206,313	Accumulated Depreciation $ - 32,078 272,394 3,680 36,900 - - $ 345,052			Carrying Value
					$ 135,781 22,133 260,970 2,492 24,015 87,611 3,811
					$ 536,813

At December 31, 2002, 2001 and 2000 the insurance coverage for property, plant and equipment amounted to NT$1,148,747, NT$956,660 and NT$217,671, respectively. Please refer to Note 22 for summary of property, plant and equipment pledged as collateral at December 31, 2002, 2001 and 2000.

Interest cost capitalized to property, plant and equipment at December 31, 2001 amounted to NT$4,477. No interest was capitalized in 2002 and 2000.

9. SHORT TERM BORROWINGS

Unsecured loan Secured loan Total	2000
	N.T.Dollars
	$ 15,000 10,000
	$ 25,000

Interest rates per annum on short-term borrowings ranged from 6.45% to 6.95% at December 31, 2000. The Company had no short-term borrowings at December 31, 2002 and 2001.

At December 31, 2002, 2001 and 2000, the Company had NT$260,000, NT$554,920 and NT$107,830, respectively, of its unused short-term bank credit facilities available for borrowing. Please refer to Note 22 for summary of collaterals.

10. SHORT TERM NOTES AND BILLS PAYABLE

Short-term notes and bills payable Less discount on short-term notes and bills payable Short-term notes and bills payable, net	2000
	N.T.Dollars
	$ 10,000 (269)
	$ 9,731

The Company had no short-term notes and bills payable at December 31, 2002 and 2001. The interest rate per annum on short-term notes and bills payable was 6.30% at December 31, 2000.

F-50

The Company had NT$2,000, NT$100,000 and NT$40,000, respectively, of its unused commercial paper credit facilities available for borrowing at December 31, 2002, 2001 and 2000.

11. BONDS PAYABLE

BONDS PAYABLE
Unsecured convertible bonds Add reserve for put premium Less gains on foreign exchange Total convertible bonds	2002
	U.S. Dollars $ 60,505 681 (505) $ 60,681	N.T. Dollars
		$ 2,102,840 23,663 (17,540)
		$ 2,108,963

Terms of the convertible bonds are summarized as follows:

Issue date:	March 28, 2002
Maturity date:	March 27, 2007
Aggregate principal amount:	Par US$60,000 (in thousand)
Coupon interest rate:	0%
Due payment:	The bond holders may ask to put or to convert into
	shares in accordance with laws and regulations, or the
	Company may call the bonds according to the
	Company's rules; otherwise, principal are paid by
	cash at one time upon maturity.
Put option for bond holders:	The face value of bonds with reserve for put premium
	At March 28, 2004 at 104.04%;
	At March 28, 2005 at 104.59%
Call right of bond issuer:	The Company has the right to call and retire all or
	part of the bonds if after one year of issuance, the
	closing price of the Company's common stock in the
	stock exchange exceed 50% of the then prevailing
	conversion price continuously for 30 trading days.
	The Company may also call and retire all or part of
	the bonds by par value at any time if the total
	outstanding bonds is less than US$6,000 (in
	thousand) (which is 10% of total issued amount).
Conversion price:	NT$238.55 (in dollars) per share.
Conversion period:	The bond holders may request the Company to
	convert their bonds into the Company's common
	stock during the period from 30 days after the date of
	issuance to 30 days before the maturity date except
	for the period prohibited by laws to transfer the
	shares.

F-51

12. LONG-TERM BORROWINGS

First Commercial Bank First Commercial Bank and Chiao-Tung Bank " Mizuho Corporate Bank (Note) Total Less current portion Long-term borrowings	MaturityDate August 24, 2015 July 5, 2008 July 5, 2008 December 27, 2002	OutstandingBalance	OutstandingBalance
		2001 N.T.Dollars $ - 180,000 260,000 50,000 490,000 (50,000) $ 440,000	2000
			N.T.Dollars
			$ 30,000 - - 50,000
			80,000 -
			$ 80,000

The Company paid back such borrowings from First Commercial Bank and ChiaoTung Bank before maturity date in 2002.

Interest rates per annum for such borrowings ranged from 5.60% to 6.85% and 6.85% to 8.34% at December 31, 2001 and 2000, respectively. Please refer to Note 22 for a summary of collateral on such borrowings at December 31, 2002, 2001 and 2000.

At December 31, 2002, 2001 and 2000, the Company had NT$260,000, NT$360,000 and NT$83,000, respectively, of its unused long-term bank credit facilities available for borrowing.

(Note) The original name is Dai-ichi Kangyo Bank, Ltd.

13. PENSION

According to the Company's “Employee Retirement and Pension Plan”, employees’ pension payments are determined by the years of employment and the average monthly compensation for the last six months prior to retirement. The annual contribution for the retirement plan was provided at 3% of employee salaries. The funds are deposited with the Central Trust of China, a government-designated custodian of pension funds, and are managed by the Pension Fund Administration Committee. At December 31, 2002, 2001 and 2000, the pension funds deposited with the Central Trust of China amounted to NT$62,449, NT$55,071 and NT$50,098, respectively.

Net periodic pension cost for the years ended December 31, 2002, 2001 and 2000 included the following components:

Service cost Interest cost Expected return on plan assets Amortization of net unrecognized transition obligation Net periodic pension cost	2002 U.S. Dollars N.T Dollars $265 $ 9,223 178 6,191 (80) (2,773) 86 2,973 $449 $ 15,614	2001 N.T Dollars $ 7,799 6,565 (2,955) 2,952 $ 14,361	2000
	U.S. Dollars $265 178 (80) 86 $449		N.T Dollars
			$ 7,071 5,575 (2,909) 2,321
			$ 12,058

F-52

Funded status of pension plan as of December 31, 2002, 2001 and 2000:

Vested benefit obligations Nonvested benefit obligations Accumulated benefit obligations Additional benefits at future salaries Projected benefit obligations Plan assets at fair value Projected benefit obligations in excess of plan assets Unrecognized net transition obligations Unrecognized net pension loss Additional pension liability Accrued pension liability Vested benefit of pension plan	2002 U.S. Dollars N.T. Dollars $ 428 $ 14,879 2,932 101,907 3,360 116,786 1,267 44,050 4,627 160,836 (1,796) (62,449) 2,831 98,387 (735) (25,532) (1,166) (40,545) 634 22,027 $1,564 $ 54,337 $480 $16,675	2001 N.T. Dollars $ 7,339 74,240 81,579 48,764 130,343 (55,071) 75,272 (27,853) (24,120) 3,209 $26,508 $ 8,091	2000
	U.S. Dollars $ 428 2,932 3,360 1,267 4,627 (1,796) 2,831 (735) (1,166) 634 $1,564 $480		N.T. Dollars
			$ 9,968 63,493
			73,461 42,195
			115,656 (50,098)
			65,558 (30,173) (21,031) 9,009
			$23,363
			$11,464

The actuarial assumptions related to the pension plan are as follows:

Discount rate Average increase in compensation level Expected return rate on plan assets Appropriation of pension assets (including group life insurance) Payment from pension assets	2002 U.S.Dollars N.T.Dollars 3.75% 3.00% 3.75% $ 190 $ 6,603 $ 16 $ 547	2001 N.T.Dollars 4.75% 3.75% 4.75% $ 5,416 $ 2,509	2000
	U.S.Dollars $ 190 $ 16		N.T.Dollars
			5.75% 4.25% 5.75% $ 4,641
			$ 4,221

14. CAPITAL STOCK

As of December 31, 2002, 2001 and 2000, the Company issued capital stock amounted to NT$1,231,630, NT$869,263 and NT$539,307, respectively, divided into 123,162,981, 86,926,273 and 53,930,687 shares at NT$10 par value per share, and are summarized as follows:

Original cash subscriptions Subsequent cash subscriptions Earnings transferred to capital stock Bonuses to employees transferred to capital stock Transfer of capital surplus to capital stock Total		Amount	Amount
		U.S.Dollars $ 460 10,574 20,764 810 2,829 $ 35,437	N.T.Dollars
			$ 16,000 367,500 721,647 28,152 98,331
			$1,231,630

In their meetings on June 14 and August 7, 2000, the stockholders decided to increase the Company’s capital stock by NT$170,307 transferred from appropriated retained earnings NT$(129,150), capital surplus to capital stock NT$(36,900), and bonuses to employees NT$(4,257). The application for these increases in capital stock has been filed with the Securities and Futures Commission (SFC) and has been approved by the SFC thru 2000 Tai-Tsai-Zeng 70526 letter dated August 17, 2000. The registration of increase in capital was effective at September 13, 2000.

F-53

The board of directors decided to issue 7,500,000 shares of common stock with $146 premium on each par value at September 16, 2000. The application for this increase in capital stock has been filed with the SFC and has been approved by the SFC thru 2001 Tai-Tsai-Zeng 97069 letter dated January 18, 2001. The registration of this increase in capital was effective at April 3, 2001. The increase on capital was set and made on March 28, 2001.

On April 30, 2002, the stockholders decided to increase the Company’s capital stock by NT$362,367 from appropriation of retained earnings NT$347,705, and bonuses to employees NT$14,662, respectively. The application for these increases in capital stock has been filed with the SFC and has been approved by the SFC thru 2002 TaiTsai-Zeng 126116 letter dated May 15, 2002.

15. CAPITAL SURPLUS

According to the Company Law of the Republic of China and the Company’s Articles of Incorporation, a capital surplus could only be used to provide additional capital or offset any prior years’ deficit and cannot be used otherwise.

Transfer of additional paid-in-capital to capital shall be done only once a year and must be made only from previous year’s additional paid-in-capital at an amount not to exceed the limit set by the competent authority.

16. LEGAL RESERVE

According to the Company Law of the Republic of China the Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, until it equals to issued capital stock. Such legal reserve could only be used as to provide additional capital or offset any prior years’ deficit and cannot be used otherwise. Additions to capital are possible on condition that the legal reserve amounts to over half of issued capital stock and such addition is within a limit of half of legal reserve.

17. RETAINED EARNINGS AND STOCK DIVIDEND POLICY

According to the Company’s Articles of Incorporation, the Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, and the Company shall appropriate for special reserve according to the regulations. Any remaining balance shall be appropriated as follows:

• (1) At least 2% as bonuses to employees,

• (2) 2% as bonuses to directors and supervisors, and

• (3) any remaining balance can then be used for declaring dividends to stockholders.

F-54

According to the Company Law of the Republic of China and the Company’s Articles of Incorporation, in deciding its stock dividend policy, the Company had considered that the Company is currently in expanding capacity stage and has a great demand for capital. Thus, during such period, the dividend policy has considered the results of operations and capital planning. The principle of dividend policy is stable and balanced. The board of directors must consider the results of operations, financial positions and capital demand of the Company when deciding the type of dividends (cash dividend or stock dividend), and total dividends paid shall be less than 90% of retained earnings available for appropriation, and the cash dividends must be more than 10% of total dividends paid. The distribution of retained earnings of 2002 will be resolved by the board of directors after they have received the Company’s audited financial statements. Related information of bonuses to employees and bonuses to directors and supervisors is available from Market Observation Post System.

The rate of retained earnings available for appropriation and cash dividends can be adjusted by the board of directors and stockholders depending on the results of operations and capital plan of the year.

The distribution of retained earnings of prior year (2001) as bonuses to employees and bonuses to directors and supervisors which was decided by the board of directors at March 19, 2002 and approved by the meeting of stockholders at April 30, 2002 was appropriated as follows:

1. Stock dividend as bonuses to employees amounted to NT$14,662.

2. Bonuses to directors and supervisors amounted to NT$14,662.

3. Stock dividend as bonuses to employees is 1,466 shares (in thousand) which is 1.19% of total outstanding shares.

4. Earnings Per Share after distributing bonuses to employees and bonuses to directors and supervisors in 2001 is NT$6.59 per share.

18. INCOME TAX

Provision for income tax for the years ended December 31, 2002, 2001 and 2000 were computed as follows:

computed as follows:
Income before income tax Permanent differences Timing differences Taxable income Tax rate Progressive tax rate difference Subtotal Investment tax credit Separate taxes on income withheld at sources Estimated income tax payable Deferred tax expense Prior period tax adjustment Separate taxes on income withheld at sources Provision for income tax	2002 U.S. Dollars N.T. Dollars $ 37,574 $ 1,305,879 (1,046) (36,338) (27,436) (953,541) 9,092 316,000 25% 25% – (10) 2,273 78,990 (1,137) (39,495) – – 1,136 39,495 (219) (7,627) 73 2,545 – – $ 990 $ 34,413	2001 N.T. Dollars $ 1,034,953 (24,416) (831,688) 178,849 25% (10) 44,702 (22,351) (4,419) 17,932 195,542 2,504 4,419 $ 220,397	2000
	U.S. Dollars $ 37,574 (1,046) (27,436) 9,092 25% – 2,273 (1,137) – 1,136 (219) 73 – $ 990		N.T. Dollars
			$ 667,610 (2,313) (522,873)
			142,424 25% (10)
			35,596 (17,798) –
			17,798 134,202 2,046 –
			$ 154,046

F-55

Deferred tax assets (liabilities) – current as of December 31, 2002, 2001 and 2000 are as follows:

Assets: Unused investment tax credit Allowance for loss on inventory devaluation and obsolescence Others Subtotal Liabilities: Unrealized exchange gain Net	2002 U.S. Dollars N.T. Dollars $ 1,065 $ 37,000 69 2,387 181 6,310 1,315 45,697 (149) (5,171) $1,166 $40,526	2001 N.T.Dollars $ 18,894 1,914 6,334 27,142 (2,099) $25,043	2000
			N.T. Dollars
			$ 1,412 6,058 5,033
			12,503 (1,006)
			$11,497

Deferred tax assets (liabilities) - non-current as of December 31, 2002, 2001 and 2000 are as follows:

Assets: Excess of pension appropriation Investment loss on equity method Reserve for put premium Less valuation allowance Subtotal Liabilities: Investment income on equity method Net	2002 U.S. Dollars N.T. Dollars $ 232 $ 8,081 240 8,327 170 5,916 (472) (16,408) 170 5,916 (12,189) (423,646) $ (12,019) $ (417,730)	2001 N.T. Dollars $ 5,852 3,305 – (9,157) – (409,874) $ (409,874)	2000
	U.S. Dollars $ 232 240 170 (472) 170 (12,189) $ (12,019)		N.T. Dollars
			$ 3,480 685 – (4,165)
			–
			(200,786)
			$ (200,786)

The Company’s income tax returns through 2000 have been examined and approved by the tax authority.

At December 31, 2002, 2001 and 2000, imputation credit account for shareholders are as follows:

Outstanding balance of imputation credit account for shareholders Current year tax credit percentage on distributed earnings Undistributed earnings for 1997 and years before Undistributed earnings for 1998 and subsequent years Total	2002 U.S. Dollars N.T. Dollars $ 529 $ 18,391 2.94% $ 536 $ 18,609 51,232 1,780,555 $ 51,768 $ 1,799,164	2001 N.T. Dollars $ 13,841 4.00% $ 18,609 1,050,281 $ 1,068,890	2000
	U.S. Dollars $ 529 $ 536 51,232 $ 51,768		N.T. Dollars
			$ 22,041
			4.54%
			$ 18,609 551,232
			$ 569,841

At December 31, 2002, the unused investment tax credit is as follows:

Maturity Year 2005 2006 Total	Investment taxcredit	Investment taxcredit
	U.S.Dollars $ 27 1,037 $ 1,064	N.T.Dollars
		$ 946 36,054
		$ 37,000

F-56

Details are as follows:

Year Ended 2005 2006	Item Machinery "	Unused tax credit (N.T Dollars) $ 946 36,054	Tax credit available (N.T Dollars)
			$ 55,270 36,054

19. EARNINGS PER SHARE

19.	EARNINGS PER SHARE	EARNINGS PER SHARE	EARNINGS PER SHARE
Net Income Basic EPS Common Stockholders’ net ncome Full-diluted convertible securities Diluted EPS: Common tockholders’ net ncome plus the ffect of potential ommon shares	2002
	Amount Before tax After tax U.S. Dollars N.T. Dollars U.S. Dollars N.T. Dollars $37,574 $1,305,879 $36,584 $1,271,466 $37,574 $1,305,879 $36,584 $1,271,466 605 21,034 454 15,776 $38,179 $1,326,913 $37,038 $1,287,242		Shares (‘000) 123,163 5,877 129,040	EPS
	Before tax U.S. Dollars N.T. Dollars $37,574 $1,305,879 $37,574 $1,305,879 605 21,034 $38,179 $1,326,913			Before tax U.S. Dollars N.T. Dollars $0.30 $10.60 $0.30 $10.28	After tax
	U.S. Dollars $37,574 $37,574 605 $38,179	U.S. Dollars $36,584 $36,584 454 $37,038		U.S. Dollars $0.30 $0.30	U.S . Dollars $0.30 $0.29	N.T. Dollars
						$10.32
						$9.98

Net Income Basic EPS: Common stockholders’ net income Diluted EPS: Common stockholders’ net income plus the effect of potential common shares		2001		After tax
	Amount Before tax After tax N.T.Dollars N.T. Dollars $ 1,034,953 $ 814,556 $ 1,034,953 $ 814,556 $ 1,034,953 $ 814,556	Shares (‘000) (Note A) 120,862 (Note A) 120,862	EPS
	Before tax N.T.Dollars $ 1,034,953 $ 1,034,953 $ 1,034,953		Before tax N.T.Dollars $ 8.56 $ 8.56
				N.T.Dollars
				$ 6.74
				$ 6.74

(A) The calculating of EPS has been adjusted retroactively to reflect the shares of stock dividend distributed in 2002.

Net Income Basic EPS: Common stockholders’ net income Diluted EPS: Common stockholders’ net income plus the effect of potential common shares		2001
	Amount Before tax Aftertax N.T.Dollars N.T. Dollars $ 667,610 $ 513,564 $ 667,610 $ 513,564 $ 667,610 $ 513,564	Shares (‘000) (Note B) 108,363 (Note B) 108,363	EPS
	Before tax N.T.Dollars $ 667,610 $ 667,610 $ 667,610		Before tax N.T.Dollars $ 6.16 $ 6.16	Aftertax
				N.T.Dollars
				$4.74
				$ 4.74

(B) The calculating EPS has been adjusted retroactively to reflect the shares of stock dividend distributed in 2002 and 2001.

F-57

20. FINANCIAL INSTRUMENTS

The Company did not have derivative financial instrument transactions in the years 2002, 2001 and 2000.

According to “Disclosure on Financial Instrument” of Statement of Financial Accounting Standards No. 27 (“SFAS 27”), the estimating fair value of non-derivative financial instrument is as follows:

Assets: Cash and cash equivalents Short-term Investments Notes and accounts receivable Other current financial assets Long-term equity investments Liabilities: Short-term borrowings Short-term notes and bills payable Notes and accounts payable Income tax payable Accrued expenses Other current financial liabilities Long-term borrowings(Note A) Bonds Payable Accrued pension liability	2002 CarryingValue Fair Value U.S. Dollars N.T. Dollars U.S. Dollars N.T Dollars $ 24,414 $ 848,509 $ 24,414 $ 848,509 20,272 704,554 25,370 881,733 14,919 518,485 14,919 518,485 1,345 46,737 1,345 46,737 106,019 3,684,690 106,019 3,684,690 – – – – – – – – 20,815 723,411 20,815 723,411 1,136 39,495 1,136 39,495 3,725 129,454 3,725 129,454 3,352 116,514 3,352 116,514 – – – – 60,681 2,108,963 60,681 2,108,963 1,564 54,337 1,564 54,337	2002 CarryingValue Fair Value U.S. Dollars N.T. Dollars U.S. Dollars N.T Dollars $ 24,414 $ 848,509 $ 24,414 $ 848,509 20,272 704,554 25,370 881,733 14,919 518,485 14,919 518,485 1,345 46,737 1,345 46,737 106,019 3,684,690 106,019 3,684,690 – – – – – – – – 20,815 723,411 20,815 723,411 1,136 39,495 1,136 39,495 3,725 129,454 3,725 129,454 3,352 116,514 3,352 116,514 – – – – 60,681 2,108,963 60,681 2,108,963 1,564 54,337 1,564 54,337	2001 Carrying Value Fair Value N.T. Dollars N.T. Dollars $ 113,200 $ 113,200 425,995 425,995 449,193 449,193 8,024 8,024 2,033,42 9 2,033,429 – – – – 430,551 430,551 17,932 17,932 83,733 83,733 27,436 27,436 490,000 490,000 – – 26,508 26,508	2000	2000
	CarryingValue U.S. Dollars N.T. Dollars $ 24,414 $ 848,509 20,272 704,554 14,919 518,485 1,345 46,737 106,019 3,684,690 – – – – 20,815 723,411 1,136 39,495 3,725 129,454 3,352 116,514 – – 60,681 2,108,963 1,564 54,337		Carrying Value N.T. Dollars $ 113,200 425,995 449,193 8,024 2,033,42 9 – – 430,551 17,932 83,733 27,436 490,000 – 26,508	Carrying Value N.T. Dollars $ 46,747 – 206,264 3,445 1,034,855 25,000 9,731 212,530 12,756 73,052 46,394 80,000 – 23,363	Fair Value
	U.S. Dollars $ 24,414 20,272 14,919 1,345 106,019 – – 20,815 1,136 3,725 3,352 – 60,681 1,564	U.S. Dollars $ 24,414 25,370 14,919 1,345 106,019 – – 20,815 1,136 3,725 3,352 – 60,681 1,564			N.T. Dollars
					$ 46,747 – 206,264 3,445 1,034,855 25,000 9,731 212,530 12,756 73,052 46,394 80,000 – 23,363

(A) including current portion

The following method and assumptions were used for estimating fair values of each class of financial instrument:

Fair values of short-term financial instrument are derived from book values on balance sheet. The carrying amounts of these items are a reasonable estimate of their fair value due to their short-term nature. This valuation applies to cash and cash equivalent, notes receivable, accounts receivable, short-term borrowings, short-term notes and bills payable, notes payable, accounts payable, income tax payable, accrued expenses and other current financial instrument. The short-term financial instrument’s fair values above are the same with the book values.

The Company uses market value as fair value of short-term investments. If there is no market value, the Company estimates the fair value according to financial or other information.

F-58

The Company uses market value as fair value of long-term equity investments. If there is no market value, the Company estimates the fair value according to financial or other information.

Book value of long-term borrowings is the present value of future cash flow based on bank’s floating interest rate.

The Company uses market value as fair value of bonds payable. Book value of bonds payable is the present value of future cash flow based on bank’s floating interest rate.

The fair value of accrued pension liability is funded status of pension plan which equals to projected benefit obligations in excess of plan assets.

21. RELATED PARTY TRANSACTIONS

Names and relationships of the company related parties are outlined as follows:

Name Relationship Asia Optical International Ltd. An equity-method investee Powerlink Electronic International Ltd. An equity-method investee Robert Lai The Company’s chairman Asia Promotion Optical Inc. The principal owner is a member of the immediate families of the Company’s chairman Panwell Optical Machinery Co., Ltd. The director is the Company’s supervisor (Note) Tai-ping Customs Broker Company The principal owner is the Company’s director Guang Dong Nikon Camera Co., Ltd. The vice-chairman is the Company’s chairman Yuan-Tai Investment Co., Ltd. The chairman is the Company’s director Dong-Guan Ricoh Eleme Office Same chairman as the Company Machine Co., Ltd. Dong-Guan Sintai Optical Co., Ltd. The Company’s grandson company Scopro Optical Co., Inc. The Company’s grandson company

Note: The original name is Panwell Metal Co., Ltd.

Account Balances

Account balances of related party transactions at or for the years ended December 31, 2002, 2001, and 2000 are summarized as follows:

Account Title Sales revenue	Related Party Asia Optical International Ltd. Powerlink Electronic International Ltd. Total	2002 U.S. Dollars N.T. Dollars $ 6,644 $ 230,929 3,197 111,102 $ 9,841 $ 342,031	2001 N.T. Dollars $ 264,474 108,931 $ 373,405	2000
		U.S. Dollars $ 6,644 3,197 $ 9,841		N.T. Dollars
				$ 485,028 102,796
				$ 587,824

F-59

Account Title Accounts receivable Purchases Notes payable Accounts payable Accrued expenses Other current liabilities Advance from customer Rental expense Export expense Service income (See Note A below)	Related Party Asia Optical International Ltd. Powerlink Electronic International Ltd. Total Asia Optical International Ltd. Powerlink Electronic International Ltd. Panwell Optical Machinery Co., Ltd Asia Promotion Optical Inc. Total Tai-ping Customs Broker Company Panwell Optical Machinery Co., Ltd. Total Asia Optical International Ltd. Powerlink Electronic International Ltd. Panwell Optical Machinery Co., Ltd. Asia Promotion Optical Inc. Total Tai-ping Customs Broker Company Asia Optical International Ltd. Total Powerlink Electronic International Ltd. Asia Optical International Ltd. Total Robert Lai Tai-ping Customs Broker Company Guang Dong Nikon Camera Co., Ltd. Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Total	2002 U.S. Dollars N.T. Dollars $ – $ – 92 3,178 $ 92 $ 3,178 $ 18,331 $ 637,098 143 4,956 505 17,550 22 787 $19,001 $ 660,391 $ 13 $ 473 91 3,147 $104 $ 3,620 $ 12,417 $ 431,575 59 2,035 33 1,152 – – $12,509 $434,762 $ 6 $ 215 241 8,372 $247 $ 8,587 $ – $ – 333 11,558 $ 333 $11,558 $4 $150 $ 136 $ 4,723 $ 315 $ 10,942 802 27,894 2,463 85,593 1,246 43,308 $4,826 $167,737	2001 N.T. Dollars $ – 2,357 $2,357 $ 320,641 13,382 21,308 2,029 $ 357,360 $ – 1,095 $1,095 $ 273,388 4,939 861 – $279,188 $ 874 6,625 $7,499 $ – 2,581 $2,581 $ 600 $ 6,421 $ 19,271 25,891 45,074 38,404 $128,640	2000
		U.S. Dollars $ – 92 $ 92 $ 18,331 143 505 22 $19,001 $ 13 91 $104 $ 12,417 59 33 – $12,509 $ 6 241 $247 $ – 333 $ 333 $4 $ 136 $ 315 802 2,463 1,246 $4,826		N.T. Dollars
				$ 35,587 –
				$ 35,587
				$ 305,191 20,521 22,404 2,841
				$ 350,957
				$ – 3,394
				$ 3,394
				$ 47,794 2,296 2,384 24
				$ 52,498
				$ 1,158 153
				$1,311
				$ 2,714 –
				$2,714
				$ 600
				$ 6,851
				$ 9,989 22,797 39,237 35,437
				$107,460

(A) Service income that represents revenue for management services has been offset by the related service cost and reported as non-operating income in the income statement.

In 2002, the Company acquired 2 million shares in the amount of NT$60,000 at NT$30 dollars each share of Altek Corporation (short-term investment) which was valued by security analyst’s stock price report from Yuan-Tai Investment Co., Ltd..

F-60

For the year ended December 31, 2002 and 2001, Asia Optical International Ltd. purchased raw materials of NT$604,045 and NT$561,633, respectively, on behalf of the Company. The Company’s payable to Asia Optical International Ltd. for such purchases amounted to NT$163,258 and NT$172,780 at December 31, 2002 and 2001, respectively, and included in accounts payable.

Sales and Accounts Receivable

Collection period and sales prices for related and non-related parties are the same.

Purchases and Accounts Payable

Payment period and purchase prices for related and non-related parties are the same.

Transactions of sales and purchases between the Company and subsidiaries (Asia Optical International Ltd. and Powerlink Electronic International Ltd.) are that subsidiaries purchase materials from the Company and process, then sell finished goods to the Company. For avoiding double computation of sales revenues, the Company eliminated the double portion of sales revenues of material trading with subsidiaries. Therefore, the above transactions are excluded from presentation of account balances of related party transactions.

22. PLEDGED ASSETS.

At December 31, 2002, 2001 and 2000 and the following assets are pledged as collateral under the terms of various credit agreements and in accordance with terms of hiring foreign labor:

PledgedAssets Other current assets Long-term equity investment Property, plant and equipment " " Total	Item Time deposit Common stock Land Buildings Machinery and equipment	2002 U.S. Dollars N.T. Dollars $ 104 $ 3,620 57,547 2,000,030 3,907 135,781 8,693 302,117 6,832 237,471 $77,083 $2,679,019	2001 N.T. Dollars $ 3,613 1,375,202 135,781 304,095 270,666 $2,089,357	2000
		U.S. Dollars $ 104 57,547 3,907 8,693 6,832 $77,083		N.T. Dollars
				$ 1,441 – 135,781 22,133 –
				$159,355

23. COMMITMENTS AND CONTINGENCIES

At December 31, 2002, 2001 and 2000 the Company’s unused letters of credit for the purpose of importing raw materials and equipment are NT$35,294, NT$29,859 and NT$7,006, respectively.

At December 31, 2002, 2001 and 2000 the Company had commitments to pay NT$23,748, NT$20,540 and NT$100,541, respectively under various machinery purchase contracts.

At December 31, 2002, 2001 and 2000 the Company had executed promissory notes of NT$672,000, NT$850,000 and NT$49,000, respectively, to financial institutions evidencing short-term and long-term borrowings under loan agreements.

The Company had rented land from the Economic Bureau Taichung Export Processing Zone (TEPZ) and from individual for parking lot which lease periods are from 2002 to 2010

F-61

and from 2002 to 2005, respectively. The present value of estimated rental expense for future years are as follows:

Period 2003 2004 2005 2006 2007 the year after 2008 Total	RentPayable	RentPayable
	U.S.Dollars $ 11 11 11 3 3 9 $48	N.T.Dollars
		$ 395 395 395 107 107 265
		$1,664

At December 31, 2002, the Company had endorsed its 3 million shares in Asia Optical International Ltd. costing at NT$2,000,030 for Asia Optical International Ltd.’s credit line with a bank for USD30,000 from which Asia Optical International Ltd. borrowed USD3,000 at December 31, 2002.

24. DISCLOSURE OF DEPARTMENTAL FINANCIAL INFORMATION

The Company principal business is within the scope of lenses and optical instrument manufacturing and processing.

The Company owns no foreign operating department.

For the years ended December 31, 2002, 2001 and 2000, summary of export sales are as follows:

Area Europe Asia America Total	2002 U.S.Dollars N.T.Dollars $ 9,846 $ 342,197 54,954 1,909,927 10,273 357,055 $75,073 $2,609,179	2001 N.T.Dollars $ 375,642 1,175,256 330,743 $1,881,641	2000
	U.S.Dollars $ 9,846 54,954 10,273 $75,073		N.T Dollars
			$ 587,828 187,043 171,828
			$ 946,699

For the years ended December 31, 2002, 2001, and 2000 sales to a particular buyers which is more than 10% of net sales are as follows:

Area Asia Optical International Ltd. Pioneer Electronics (H.K.) Ltd. Tochigi Nikon Corporation Bushnell Corporation Nittoh Kogaku K.K. Total	2002 U.S.Dollars N.T.Dollars $ – $ – 18,595 646,259 13,329 463,243 10,273 357,055 9,743 338,609 $51,940 $1,805,166	2001 N.T.Dollars $ 264,474 – 389,755 306,852 256,880 $1,217,961	2000
	U.S.Dollars $ – 18,595 13,329 10,273 9,743 $51,940		N.T Dollars
			$ 485,028 – – – –
			$485,028

25. RECLASSIFICATIONS

Certain reclassifications have been made in the financial statements for the year ended December 31, 2001 and 2000 to conform to the year ended December 31, 2002 method of presentation.

F-62

INDEPENDENT AUDITORS’ REPORT

To Asia Optical Co., Inc.

We have audited the balance sheets of Asia Optical Co., Inc. (the “Company”) as of June 30, 2003 and 2002 and the related statements of income, changes in stockholders’ equity, and cash flows for the six-month periods then ended (all 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.

Except as described in the following paragraph, we conducted our audits in accordance with auditing standards generally accepted in the Republic of China. Those 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.

As discussed in Note 7 to the financial statements, the carrying values of long-term equity investments as of June 30, 2003 and 2002 accounted for under the equity method, which amounted to NT$70,782 and NT$68,489, respectively, and the carrying values of other liabilities - others as of June 30, 2003 and 2002 amounted to NT$25,962 and NT$2,627, respectively, were based on financial statements not audited by independent auditors. The cumulative translation adjustment of equity method investees for the six-month periods ended June 30, 2003 and 2002 recognized based on financial statements not audited by independent auditors amounted to NT$(291) and NT$(2,868), respectively, and the equity in loss of equity method investees for the six-month periods ended June 30, 2003 and 2002 recognized based on financial statements not audited by independent auditors amounted to NT$9,564 and NT$7,824, respectively.

In our opinion, except for the effects of such adjustments, if any, as might have been necessary had the carrying values of long-term equity investments as of June 30, 2003 and 2002, the carrying values of other liabilities - others as of June 30, 2003 and 2002, the cumulative translation adjustment of equity method investees for the six-month periods ended June 30, 2003 and 2002, and the equity in loss of such investees for the six-month periods ended June 30, 2003 and 2002 been based on financial statements audited by independent auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Asia Optical Co., Inc. as of June 30, 2003 and 2002, and the results of its operations and its cash flows for the sixmonth periods then ended in conformity with “Regulations Governing the Preparation of Financial Statements of Public Companies” and accounting principles generally accepted in the Republic of China.

The translation of the June 30, 2003 New Taiwan dollar amounts into U.S. dollar amounts has been made in conformity with the basis stated in Note 2, and such U.S. dollar amounts are presented solely for the convenience of readers outside the Republic of China.

F-63

Deloitte & Touche (T N Soong & Co and Deloitte & Touche (Taiwan) Established Deloitte & Touche Effective June 1, 2003) Taipei, Taiwan The Republic of China

July 25, 2003

The above auditors’ report and the following financial statements are English translations of the Chinese auditors’ report and financial statements prepared for and used in the Republic of China. The accompanying financial statements were prepared using accounting principles, procedures and reporting practices generally accepted in the Republic of China 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 Republic of China. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in the Republic of China.

F-64

ASIA OPTICAL CO., INC. BALANCE SHEETS JUNE 30, 2003 AND 2002

(Expressed in Thousand New Taiwan Dollars and United States Dollars, Except Per Par Value)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 3) Short-term investments (Notes 2 and 4) Notes receivable (Notes 2 and 5) Accounts receivable, net (Notes 2 and 5) Accounts receivable - related parties (Notes 2,5 and 20) Other financial assets - current (Note 2) Inventories (Notes 2 and 6) Other current assets (Notes 2 and 17) Total current assets LONG-TERM EQUITY INVESTMENTS (Notes 2, 6, 7 and 20) OTHER FINANCIAL ASSETS - NON-CURRENT PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 8) Land Buildings Machinery and equipment Office equipment Other equipment Total cost Less accumulated depreciation Unfinished construction and prepayment for business facilities Property, plant and equipment, net INTANGIBLE ASSETS (Note 2) OTHER ASSETS (Note 2) Issue costs of convertible bonds Deferred charges Total other assets TOTAL	2003 U.S. Dollars N.T. Dollars $ 25,370 $ 878,050 48,822 1,689,721 - 21,215 734,258 889 30,760 1,472 50,958 3,827 132,445 2,606 90,203 104,201 3,606,395 126,464 4,376,909 62 2,149 6,922 239,566 10,185 352,486 48,464 1,677,351 146 5,044 3,048 105,508 68,765 2,379,955 (12,842) (444,451) 984 34,042 56,907 1,969,546 975 33,745 934 32,328 978 33,875 1,912 66,203 $290,521 $10,054,947	2002 N.T. Dollars $ 1,007,679 849,307 22,683 394,878 8,380 115,937 139,463 31,457 2,569,784 2,876,610 35 239,566 332,515 1,138,351 5,044 92,026 1,807,502 (283,130) 23,231 1,547,603 7,162 45,655 27,498 73,153 $7,074,347	LIABILITIES AND STOCKHOLDE’S’EQUITY CURRENT LIABILITIES Short-term borrowings (Note 9) Notes payable Notes payable-related parties (Note 20) Accounts payable Accounts payable-related parties (Note 20) Income tax payable (Notes 2 and 17) Accrued expenses (Note 20) Long-term borrowings-current portion (Notes 2 and 10) Other current liabilities (Notes 2, 17 and 20) Total current liabilities LONG-TERM LIABILITIES Bonds payable (Notes 2 and 10) Long-term borrowings (Note 11) Total long-term liabilities OTHER LIABILITIES Accrued pension liability (Note 2) Deferred income tax liability (Notes 2 and 17) Other liabilities-others (Notes 2 and 7) Total other liabilities Total liabilities STOCKHOLDERS’ EQUITY Capital stock (Note 12) $10 par value, authorized 283,000 thousand shares; issued 123,163 thousand shares Stock dividends to be distributed (Note 12) Additional paid-in capital (Note 13) Paid-in capital in excess of par Retained earnings Legal reserve (Note 14) Special reserve Unappropriated retained earnings (Note 15) Total retained earnings Cumulative translation adjustment (Note 2) Total stockholders’ equity TOTAL	2003 U.S. Dollars N.T. Dollars $ – $ – 2,464 85,295 126 4,367 12,511 433,006 12,276 424,870 791 27,371 3,026 104,715 61,141 2,116,088 12,552 434,436 104,887 3,630,148 34,744 1,202,498 - - 34,744 1,202,498 1,761 60,931 10,458 361,951 750 25,962 12,969 448,844 152,600 5,281,490 35,586 1,231,630 7,845 271,501 30,964 1,071,669 8,491 293,878 167 5,797 53,944 1,867,015 62,602 2,166,690 924 31,967 137,921 4,773,457 $290,521 $10,054,947	2002
	U.S. Dollars $ 25,370 48,822 21,215 889 1,472 3,827 2,606 104,201 126,464 62 6,922 10,185 48,464 146 3,048 68,765 (12,842) 984 56,907 975 934 978 1,912 $290,521			U.S. Dollars $ – 2,464 126 12,511 12,276 791 3,026 61,141 12,552 104,887 34,744 - 34,744 1,761 10,458 750 12,969 152,600 35,586 7,845 30,964 8,491 167 53,944 62,602 924 137,921 $290,521	N.T. Dollars
					$ 60,000 60,116 3,960 203,436 290,779 11,783 69,389 50,000 136,927
					886,390
					2,021,187 330,000
					2,351,187
					28,881 442,501 2,627
					474,009
					3,711,586
					1,231,630
					-
					1,071,669
					166,731 5,797 868,639
					1,041,167
					18,295
					3,362,761
					$7,074,347

See notes to financial statements

F-65

ASIA OPTICAL CO., INC. STATEMENTS OF INCOME SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

(Expressed in Thousand New Taiwan Dollars and United States Dollars, Except Earnings Per Share)

OPERATING SALES SALES RETURN AND ALLOWANCES OPERATING SALES -NET (Notes 2 and 20) OPERATING COSTS (Note 21) GROSS PROFIT UNREALIZED GAIN ON INTER -AFFILIATE ACCOUNTS (Note 2) REALIZED GAIN ON INTER -AFFILIATE ACCOUNTS (Note 2) REALIZED GROSS PROFIT OPERATING EXPENSES (Note 20) Selling expenses General and administrative expenses Research and development expenses Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME Interest income Investment income (Notes 2 and 7) Gains on disposal of property, plant and equipment Gains on disposal of investments Gains on physical inventory Gains on foreign exchange (Note 2) Others (Note 20) Total non-operating income NON-OPERATING EXPENSES Interest expense Loss on decline in value of short - term investments (Note 2) Losses on disposal of property, plant and equipment Losses on physical inventory Losses on inventory devaluation and obsolescence (Note 2) Others Total non-operating expenses INCOME BEFORE INCOME TAX CREDIT (PROVISION) FOR INCOME TAX (Notes 2 and 17) NET INCOME Basic EPS before tax (Note 18) Basic EPS after tax (Note 18) Diluted EPS before tax (Note 18) Diluted EPS after tax (Note 18)	2003 U.S.Dollars N.T.Dollars $ 57,543 $ 1,991,558 (438) (15,151) 57,105 1,976,407 (49,260) (1,704,905) 7,845 271,502 (228) (7,906) 102 3,548 7,719 267,144 (509) (17,623) (1,414) (48,927) (1,886) (65,273) (3,809) (131,823) 3,910 135,321 179 6,181 15,424 533,812 55 1,884 3,434 118,864 12 428 530 18,353 1,412 48,884 21,046 728,406 (776) (26,858) - - (2) (51) - - - - (178) (6,172) (956) (33,081) 24,000 830,646 816 28,228 $24,816 $ 858,874 $0.16 $5.53 $0.16 $5.71 $0.15 $5.17 $0.15 $5.32	2002
	U.S.Dollars $ 57,543 (438) 57,105 (49,260) 7,845 (228) 102 7,719 (509) (1,414) (1,886) (3,809) 3,910 179 15,424 55 3,434 12 530 1,412 21,046 (776) - (2) - - (178) (956) 24,000 816 $24,816 $0.16 $0.16 $0.15 $0.15	N.T.Dollars
		$ 1,241,746 (65,635)
		1,176,111 (1,011,548)
		164,563 (5,395) 7,541
		166,709
		(15,546) (47,477) (23,802)
		(86,825)
		79,884
		3,994 269,373 - 6,023 - 66,382 33,817
		379,589
		(27,553) (15,916) - (176) (1,891) (34)
		(45,570)
		413,903 (72,962)
		$ 340,941
		$2.75
		$2.27
		$2.71
		$2.23

See notes to financial statements.

F-66

ASIA OPTICAL CO., INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002 (Expressed in Thousand New Taiwan Dollars)

BALANCE, JANUARY 1, 2002 Capital surplus from gain on sale of fixed assets transferred to retained earnings Legal reserve appropriated from retained earnings transferred from capital surplus from gain on sale of fixed assets Appropriations of prior year’s earnings: Legal reserve Cash dividends-10% Stock dividends-40% Bonuses to directors and supervisors Bonuses to employees Cumulative translation adjustment Net income for the six-month period ended June 30, 2002 BALANCE, JUNE 30, 2002 BALANCE, JANUARY 1, 2003 Appropriations of prior year’s earnings: Legal reserve Cash dividends-30% Stock dividends-20% Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net income for the six-month period ended June 30, 2003 BALANCE, JUNE 30, 2003	Capital stock Issued and outstanding Shares (Thousand) Amount 86,926 $ 869,263 34,771 347,705 1,466 14,662 123,163 $1,231,630 123,163 $ 1,231,630 123,163 $1,231,630	Stock dividends to be distributed $ - $- $ - 246,326 25,175 $271,501	Additional paid-incapital Paid-in capital in excess of par $ 1,076,354 (4,685) $1,071,669 $ 1,071,669 $1,071,669		Retained earnings	Retained earnings	Total $ 1,159,496 4,685 - - (86,926) (347,705) (14,662) (14,662) 340,941 $1,041,167 $1,971,692 - (369,489) (246,326) (25,175) (22,886) 858,874 $2,166,690	Cumulative translation adjustment $ 28,784 (10,489) $ 18,295 $ 32,847 (880) $ 31,967	Total stockholders’ equity
				Legal reserve $ 84,809 466 81,456 $166,731 $ 166,731 127,147 $293,878	Special reserve $5,797 $ 5,797 $ 5,797 $ 5,797	Unappropriat ed retained earnings $ 1,068,890 4,685 (466) (81,456) (86,926) (347,705) (14,662) (14,662) 340,941 $ 868,639 $ 1,799,164 (127,147) (369,489) (246,326) (25,175) (22,886) 858,874 $1,867,015
	Shares (Thousand) 86,926 34,771 1,466 123,163 123,163 123,163
									$ 3,133,897 - - - (86,926) - (14,662) - (10,489) 340,941
									$ 3,362,761
									$ 4,307,838 - (369,489) - - (22,886) (880) 858,874
									$4,773,457

See notes to financial statements.

F-67

ASIA OPTICAL CO., INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY SIX-MONTH PERIOD ENDED JUNE 30, 2003 (Expressed in Thousand United States Dollars)

	Capital stock	Stock dividends to be distributed $ - 7,117 728 $7,845	Additional paid- incapital Paid-in capital in excess of par $ 30,964 $ 30,964		Retained earnings	Retained earnings		Cumulative translation adjustment $ 949 (25) $ 924	Total stockholders’ equity
	Issued and outstanding Amount			Legal reserve	Special reserve $ 167 $167	Unappropriated retained earnings $ 51,984 (3,673) (10,676) (7,117) (728) (662) 24,816 $ 53,944	Total
BALANCE, JANUARY 1, 2003 Appropriations of prior year’s earnings: Legal reserve Cash dividends-30% Stock dividends-20% Bonuses to employees Bonuses to directors and supervisors Cumulative translation adjustment Net income for the six-month period ended June 30, 2003 BALANCE, JUNE 30, 2003	$ 35,586			$ 4,818 3,673			$ 56,969 - (10,676) (7,117) (728) (662) 24,816		$ 124,468 - (10,676) - - (662) (25) 24,816
	$ 35,586			$ 8,491			$ 62,602		$ 137,921

See notes to financial statements

F-68

ASIA OPTICAL CO., INC.

STATEMENTS OF CASH FLOWS SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

OPERATING ACTIVITIES: Net income Depreciation Amortization Amortization of issue costs of convertible bonds Unrealized gain (loss) on inter-affiliate accounts Investment gain on equity-method investees Loss on decline in value of short-term investments Gain on disposal of investments Provision for inventory devaluation and obsolescence Bad debt Gain on. disposal of property, plant and equipment Gain on disposal of other assets Unrealized foreign exchange gain on convertible bonds Changes in assets and liabilities provided (used) cash Notes receivable Accounts receivable Accounts receivable - related parties Inventories Other financial asset - current Other current assets Deferred tax asset and liability Notes payable Notes payable - related parties Accounts payable Accounts payable - related parties Accrued expenses Income tax payable Other current liabilities Bonds payable - reserve for put premium Accrued pension liability Net cash provided by operating activities INVESTING ACTIVITIES: Increase in short-term investments Proceeds from disposal of property, plant and equipment Additions to property, plant and equipment Increase in deferred charges Increase in intangible assets Increase in long-term equity investment (Increase)decrease in other financial assets - non-current Net cash used in investing activities FINANCING ACTIVITIES: Increase in restricted time deposits Increase in short-term borrowings Decrease in long-term borrowings Issuance of bonds payable Net cash provided by financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD	2003 U.S. Dollars N.T. Dollars $ 24,816 $ 858,874 3,026 104,731 550 19,055 247 8,535 126 4,358 (15,424) (533,812) - - (3,434) (118,864) - - - - (53) (1,833) (5) (176) (251) (8,700) 751 25,984 (7,077) (244,935) (797) (27,582) (1,368) (47,354) (122) (4,221) (293) (10,138) (1,555) (53,799) (573) (19,823) 22 747 6,009 207,983 (286) (9,892) (715) (24,739) (350) (12,124) (475) (16,424) 530 18,323 151 5,217 3,450 119,391 (25,030) (866,303) 441 15,271 (7,626) (263,950) (622) (21,542) (134) (4,648) (4,237) (146,632) (60) (2,046) (37,268) (1,289,850) $ - $ - - - - - 34,672 1,200,000 34,672 1,200,000 854 29,541 24,516 848,509 $ 25,370 $ 878,050	2002
	U.S. Dollars $ 24,816 3,026 550 247 126 (15,424) - (3,434) - - (53) (5) (251) 751 (7,077) (797) (1,368) (122) (293) (1,555) (573) 22 6,009 (286) (715) (350) (475) 530 151 3,450 (25,030) 441 (7,626) (622) (134) (4,237) (60) (37,268) $ - - - 34,672 34,672 854 24,516 $ 25,370	N.T. Dollars
		$ 340,941 73,259 11,404 4,151 (2,146) (269,373) 15,916 (6,023) 1,891 2,738 - (508) (89,240) (3,511) 30,048 (6,023) (35,468) (107,913) 81,665 62,032 27,340 2,865 121,799 11,591 (50,199) (6,149) (591) 7,587 4,704
		222,787
		(537,762) 1,345 (193,775) (64,752) (4,727) (581,670) 200
		(1,381,141)
		$ (7) 60,000 (110,000) 2,102,840
		2,052,833
		894,479 113,200
		$ 1,007,679

(Continued)

F-69

ASIA OPTICAL CO., INC. STATEMENTS OF CASH FLOWS SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002 (Expressed in Thousand New Taiwan Dollars and United States Dollars)

SUPPLEMENTAL INFORMATION: Cash paid for: Interest (net of amount capitalized) Income tax Cash paid for acquisition of property, plant and equipment: Total acquisition price of property, plant and equipment Add payable at beginning of period Less payable at end of period notes payable at end of period Cash paid for acquisition of property, plant and equipment Non-cash investing and financing activities: Dividends and employee bonuses payable Compensation due to directors and supervisors Cumulative translation adjustment Earnings and employee bonuses transferred to capital stock	2003 U.S. Dollars N.T. Dollars $ - $- $ 1,070 $ 37,020 $ 6,484 $ 224,400 3,366 116,514 (920) (31,852) (1,304) (45,112) $ 7,626 $263,950 $ 10,676 $ 369,489 $ 662 $22,886 $ (25) $ (880) $ 7,845 $271,501	2002
	U.S. Dollars $ - $ 1,070 $ 6,484 3,366 (920) (1,304) $ 7,626 $ 10,676 $ 662 $ (25) $ 7,845	N.T. Dollars
		$ 16,004
		$ 17,324
		189,151 27,436 (22,812) -
		$ 193,775
		$ 86,926
		$ 74,662
		$ (10,489)
		$ 362,367

See notes to financial statements.

(Concluded)

F-70

ASIA OPTICAL CO., INC.

NOTES TO FINANCIAL STATEMENTS SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

(Amounts are Expressed in Thousand New Taiwan Dollars and United States Dollars or Other Specified Currency, Except Per Share Data)

1. ORGANIZATION AND OPERATIONS

Asia Optical Co., Inc. (the “Company”) was established on October 9, 1980 according to the Company Law of the Republic of China. On August 16, 2000, the Securities and Future Commission approved the listing of the common shares of the Company on the Over-The-Counter Securities Exchange in the ROC. On July 31, 2002, the Securities and Futures Commission approved the listing of the common shares of the Company on the Taiwan Stock Exchange.

The Company’s principal business scope is manufacturing, processing and exporting of camera, range finder, video camera, telescope, copy machine, facsimile machine, optical lens, lens unit and modules for DVD player.

There are 720 and 553 employee in the Company at June 30, 2003 and 2002, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements are prepared according to “Regulations Governing the Preparation of Financial Statements of Public Companies” and Generally Accepted Accounting Principles in the ROC. Reasonable estimates of provision for inventory devaluation and obsolescence, depreciation, and retirement funds were made when preparing financial statements. But there is always uncertainty in the actual result due to some differences in judgment. Summary of significant accounting policies and measurement basis are described as follows:

Classification of Current and Non - Current

Current assets are assets that are expected to be converted to cash, sold, or consumed during the next 12 months or within the business’s normal operating cycle if longer than a year. Current liabilities are debts that are due to be paid within one year or within the entity’s operating cycle if the cycle is longer than a year or be created in operations and expected to be liquidated within the entity’s operating cycle. Noncurrent assets (liabilities) are all assets (liabilities) other than current assets (liabilities).

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hands, cash in banks, and negotiable certificates of deposit, and commercial paper with original maturities of 90 days or less.

Short-Term Investments

Short-term investments are stated at the lower of aggregate cost or market value. Stock dividends received are not recognized as income but are reflected as increase in the number of shares held. The cost of short-term investments sold is determined on the weighted-average method.

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Allowance for Doubtful Accounts

The adequacy of the allowance for doubtful accounts is determined by management based upon the evaluation of the collectibility, prior loss experience, and aging of notes and accounts receivable.

Inventories

Inventories are stated at the lower of cost or market value (“LCM”). Cost is determined by using the weighted-average method. Market value for raw materials and merchandise inventories is based on replacement cost, while finished goods and work in process are based on the respective net realizable values. The LCM method is applied to each inventory category. Loss on inventory valuation and obsolescence is charged against income.

- Long Term Equity Investments

Investments in companies in which the Company’s ownership interest is 20% or more but do not qualify for consolidation are accounted for by use of the equity method of accounting; the variance of the invested cost and the net worth of the investee will be amortized over 5 to 10 years. Investments in companies in which the Company’s ownership interest is less than 20% are carried at cost.

According to Statement of Financial Accounting Standards No. 5 “Accounting for Long-Term Investment in Equity Securities”, if the investee company’s stockholders’ equity is negative the investor company could continue to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment shall be treated as a liability on the balance sheet.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Interest incurred in connection with the purchase or construction of property, plant and equipment is capitalized. Major renewals and betterments are capitalized, while maintenance and repairs are expensed in the period incurred. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited to or charged against income.

Depreciation is provided on a straight-line method over periods as prescribed by tax regulations which are considered to approximate the estimated useful lives of the assets plus one additional year for salvage value.

Computer Software Cost

Computer software cost is stated at cost less amortization. Amortization is provided on a straight-line method over the estimated useful lives of three years.

Deferred Charges

Deferred charges include issue costs of convertible bonds and molding expense which are stated at cost at acquisition. The issue costs of convertible bonds are amortized from the date of debt issuance to the put date using straight-line method. Molding expense is amortized on a straight-line method over the estimated useful lives of two years.

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Bonds Payable

Convertible notes were issued at par with a “put premium” allowing the note holders to redeem the notes for cash at a multiple of the bond’s par value at a date prior to maturity. The direct cost of the issuance is amortized as interest expense from the date of debt issuance to the put date using straight-line method. The Company accrues a liability for the put premium over the period from the date of debt issuance to the put date using the interest method.

Convertible notes with put options are classified as current or long-term liabilities depending on the agreed-upon put date. The accrued put premium is presented as addition to the convertible bonds.

Retirement Fund

The Company adopted its accounting method for employee benefit plan based on the Statement of Financial Accounting Standards No.18 (“SFAS 18”), and recognized net periodic pension cost, related assets and liabilities based on actuarial assumptions as required by SFAS 18.

The accrued pension liability from prior year is adjusted by pension cost and contribution of assets to the pension fund when interim financial statements is prepared.

Unrealized Inter-Affiliate Gain or Loss

Unrealized gain or loss arising from down-stream transactions between the company and long-term equity investee is fully deferred; unrealized gain or loss from up-stream transactions is deferred based on percentage of ownership interest. Deferred unrealized gain or loss arising from down-stream transactions is realized upon final transaction with third party and deferred unrealized gain or loss arising from upstream transactions is realized toward the adjustment of equity investment.

Sales Recognition

Sales are recognized when ownership and risks of products are transferred to customers.

Income Tax

The Company adopted its accounting method for income tax based on the Statement of Financial Accounting Standards No. 22. Deferred income tax assets and liabilities are computed at balance sheet dates for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior year’s income tax are included in the current year’s income tax provision.

The 25% regular corporate income tax and the 20% separate income tax on interest income from short-term investment remain and a 10% additional income tax is levied

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on distributable earnings that remain undistributed in the following year under Tax Law of ROC.

Transactions in Foreign Currencies and Translation Adjustment

Transactions in foreign currencies are recorded in New Taiwan dollars at the effective exchange rates when the transactions occur. Gains or losses caused by different foreign exchange rates applied when cash in foreign currency is actually converted into New Taiwan dollars, or when the foreign-currency receivables or payables are settled, are credited or charged to income in the period of actual conversion or settlement. At each balance sheet date, assets and liabilities denominated in foreign currencies are restated at the balance sheet date exchange rates, and the resulting exchange gains or losses are recognized currently.

Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustment is reported as a separate component of stockholders’ equity

Other Non-derivative Financial Instruments

The recognition and subsequent valuation of financial assets or liabilities; and measurement of related revenue, expense, gain or loss are recorded according to accounting policies described herein and Generally Accepted Accounting Principles in the ROC.

Translation of New Taiwan Dollar Statements to United States Dollar Statements

The financial statements are stated in New Taiwan dollars, the currency of the country in which the Company is incorporated and operates. The translation of New Taiwan dollar amounts into United States dollar amounts are included solely for the convenience of readers outside the Republic of China and have been made at the rate of NT$34.61 to US$1, the average of buying and selling rates of Taiwan Bank at June 30, 2003. Such translation should not be construed as representations that the New Taiwan dollar amounts could be converted into United States dollars at the above or any other rate.

Reclassifications

Certain reclassifications have been made in the financial statements for the six-month period ended June 30, 2002 to conform to the six-month period ended June 30, 2003 method of presentation.

3. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts Savings accounts Time Deposits Cash Equivalents Total Cash and cash equivalents	2003 U.S. Dollars N.T. Dollars $ 13 $ 455 688 23,809 16,718 578,601 1 50 7,950 275,135 $25,370 $ 878,050	2002
	U.S. Dollars $ 13 688 16,718 1 7,950 $25,370	N.T. Dollars
		$ 303 26,555 578,051 402,770 –
		$1,007,679

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4. SHORT TERM INVESTMENTS

Bond investment fund Stocks Bonds Less allowance for valuation loss Total	2003	2003	2003
	U.S. Dollars Cost MarketValue $ 44,612 $ 44,555 709 2,400 3,501 3,500 – $48,822	N.T. Dollars
	Cost $ 44,612 709 3,501 – $48,822	Cost $ 1,544,010 24,541 121,170 – $1,689,721	MarketValue $ 1,542,037 83,075 121,135

Bond investment fund Bonds Less allowance for decline in value	2002	2002
	N.T. Dollars
	Cost $ 831,120 34,103 (15,916) $ 849,307	MarketValue
		$ 815,763 33,544

5. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable, non-related parties Accounts receivable, non-related parties Less allowance for doubtful accounts Accounts receivable, net Accounts receivable, related parties	2003 U.S. Dollars N.T. Dollars $ – $ – $ 21,467 $ 742,970 (252) (8,712) $ 21,215 $734,258 $ 889 $ 30,760	2002
	U.S. Dollars $ – $ 21,467 (252) $ 21,215 $ 889	N.T. Dollars
		$22,683
		$ 407,358 (12,480)
		$ 394,878
		$ 8,380

6. INVENTORIES

Raw Materials Work in process Finished goods Merchandise inventories Materials in transit Subtotal Less allowance for inventory devaluation and obsolescence losses	2003 U.S. Dollars N.T. Dollars $ 2,328 $ 80,577 835 28,907 565 19,541 58 2,007 317 10,961 4,103 141,993 (276) (9,548) $ 3,827 $132,445	2002
	U.S. Dollars $ 2,328 835 565 58 317 4,103 (276) $ 3,827	N.T. Dollars
		$ 82,464 30,172 27,103 36 9,236
		149,011 (9,548)
		$ 139,463

As of June 30, 2003 and 2002, insurance coverage for inventories amounted to NT$119,400 and NT$130,000, respectively.

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7. LONG-TERM EQUITY INVESTMENTS

Equity Method investees: Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Cost method investees: Tecom Technologies, Inc. Total		2003	2003
	U.S. Dollars Carrying Value $ 1,218 827 110,619 13,770 – 30 $126,464	N.T. Dollars
		Carrying Value $ 42,163 28,619 3,828,536 476,575 – 1,016 $4,376,909	Ownership Percentage
			24 100 100 100 33 –

Equity method investees: Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Cost Method investees: Tecom Technologies, Inc. Altek Corporation Total	2002	2002
	N.T. Dollars
	Carrying Value $ 40,665 27,824 2,359,608 374,623 – 1,016 72,874 $2,876,610	Ownership Percentage
		24 100 90 100 33 – 3

The Company’s investment income (loss) from the equity method investees and investment cost are summarized as follows:

Investees Dong-Guan Tailien Optical Co., Ltd. Richman International Group Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Asia Photonics Technology Co., Inc. Total	Investment income (loss) U.S. Dollars N.T. Dollars 2003 2003 2002 $ 55 $ 1,890 $ 927 35 1,201 655 14,902 515,754 254,100 798 27,622 23,097 (366) (12,655) (9,406) $15,424 $ 533,812 $269,373	Investment income (loss) U.S. Dollars N.T. Dollars 2003 2003 2002 $ 55 $ 1,890 $ 927 35 1,201 655 14,902 515,754 254,100 798 27,622 23,097 (366) (12,655) (9,406) $15,424 $ 533,812 $269,373	Investment income (loss) U.S. Dollars N.T. Dollars 2003 2003 2002 $ 55 $ 1,890 $ 927 35 1,201 655 14,902 515,754 254,100 798 27,622 23,097 (366) (12,655) (9,406) $15,424 $ 533,812 $269,373	Investment cost	Investment cost
	U.S. Dollars 2003 $ 55 35 14,902 798 (366) $15,424			N.T. Dollars
			2003 $ 1,890 1,201 515,754 27,622 (12,655) $ 533,812	2003 $ 11,163 22,614 1,110,735 14,000 20,000 $1,178,512	2002
					$ 11,163 22,614 818,554 14,000 20,000
					$ 886,331

The recognized equity method investment income or loss (except for Asia Optical International Ltd. and Powerlink Electronic International Ltd. which has been determined based on their audited financial statements) has been determined based on the invested companies’ unaudited financial statements of the corresponding period.

The Company owned a 24% interest of Dong-Guan Tailien Optical Co., Ltd, which is managed by Richman International Group Co., Ltd. with the initial investment

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amounted to US$420,000 (translated into NT$11,163). The accounting period of Dong-Guan Tailien Optical Co., Ltd. is from April 1 to March 31. The cumulative translation adjustment arising from the investment in Dong-Guan Tailien Optical Co., Ltd. amounted to NT$(174) at June 30, 2003.

The Company had invested an amount of NT$22,614 in Richman International Group Co., Ltd, using equity method, which is a 100% owned subsidiary. The cumulative translation adjustment arising from the investment in Richman International Group Co., Ltd. amounted to NT$(117) at June 30, 2003.

The Company increased investment in Asia Optical International Ltd. in 2003 by NT$146,632, and the ownership interest increased to 100% at June 30, 2003. The cumulative translation adjustment arising from the investment in Asia Optical International Ltd. amounted to NT$(564) at June 30, 2003.

The Company owned 50,000 shares of Powerlink Electronic International Ltd., which is 100% owned subsidiary. The cumulative translation adjustment arising from investment in Powerlink Electronic International Ltd. amounted to NT$(25) at June 30, 2003.

The Company acquired a 33% ownership interest in Asia Photonics Technology Co., Inc. for a cost of NT$20,000, using the valuation of equity method. The book value of stockholders’ equity of Asia Photonics Technology Co., Inc. is negative. Asia Photonics Technology Co., Inc. is in the process of research and development and expect to make profit in the future after finishing research and development. The Company continues to recognize investment losses in proportion to the stock ownership percentage. Such credit balance on the book value of a long-term investment amounted to NT$25,962 is treated as other liabilities - others on the balance sheet.

Please refer to Note 21 for summary of long-term equity investments pledged as collateral for the subsidiary at June 30, 2003 and 2002.

8. PROPERTY, PLANT AND EQUIPMENT

Land Buildings Machinery and equipment Office equipment Other equipment Unfinished construction and prepayment for business facilities Total		2003
		U.S. Dollars
	Cost $ 6,922 10,185 48,464 146 3,048 984 $ 69,749	Accumulated Depreciation $ – 1,159 10,283 113 1,287 – $ 12,842	Carrying Value
			$ 6,922 9,026 38,181 33 1,761 984
			$ 56,907

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Land Buildings Machinery and equipment Office equipment Other equipment Unfinished construction and prepayment for business facilities Total		2003	Carrying Value $ 239,566 312,366 1,321,473 1,142 60,957 34,042 $1,969,546	2002
		N.T. Dollars		N.T. Dollars
	Cost $ 239,566 352,486 1,677,351 5,044 105,508 34,042 $2,413,997	Accumulated Depreciation $ – 40,120 355,878 3,902 44,551 – $444,451		Carrying Value
				$ 239,566 307,935 912,809 1,618 62,444 23,231
				$ 1,547,603

At June 30, 2003 and 2002 the insurance coverage for property, plant and equipment amounted to NT$1,146,788 and NT$955,454, respectively. Please refer to Note 21 for summary of property, plant and equipment pledged as collateral at June 30, 2003 and 2002.

9. SHORT TERM BORROWINGS

Secured loan	2002
	N.T. Dollars
	$ 60,000

Interest rates per annum on short-term borrowings was 3.50% at June 30, 2002.

At June 30, 2002, the Company had NT$522,800 of its unused short-term bank credit facilities available for borrowing. Please refer to Note 21 for summary of collateral at June 30, 2002.

10. BONDS PAYABLE

Overseas convertible notes:

Unsecured convertible bonds Add reserve for put premium Less gains on foreign exchange Total convertible bonds	2003 U.S. Dollars N.T. Dollars $ 60,758 $ 2,102,840 1,141 39,488 (758) (26,240) $ 61,141 $2,116,088	2002
	U.S. Dollars $ 60,758 1,141 (758) $ 61,141	N.T. Dollars
		$ 2,102,840 7,587 (89,240)
		$2,021,187

Terms of the convertible bonds are summarized as follows:

Issue date: March 28, 2002

Maturity date: March 27, 2007

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Aggregate principal amount: Par US $60,000 (in thousand)

Coupon interest rate: 0% Due payment:

The bond holders may ask to put or to convert into shares in accordance with laws and regulations, or the Company may call the bonds according to the Company’s rules; otherwise, principal are paid by cash at one time upon maturity.

Put option for bond holders: The face value of bonds with reserve for put premium

At March 28, 2004 at 104.04%; At March 28, 2005 at 104.59%

Call right of bond issuer: The Company has the right to call and retire all or part of the bonds if after one year of issuance, the closing price of the Company’s common stock in the stock exchange exceed 50% of the then prevailing conversion price continuously for 30 trading days.

The Company may also call and retire all or part of the bonds by par value at any time if the total outstanding bonds is less than US$6,000 (in thousand).

Conversion price: NT$190.84 (in dollars) per share but become NT$156.37 (in dollars) after the appropriation for earnings in July, 2003.

Conversion period: The bond holders may request the Company to convert their bonds into the Company’s common stock during the period from 30 days after the date of issuance to 30 days before the maturity date except for the period prohibited by laws to transfer the shares.

The bondholders can ask the Company to redeem the convertible bonds at 104.04% par value on March 28, 2004 therefore the Company transfer the convertible bonds amounted NT$2,116,088 to current liability. However, the Company is not required to redeem the convertible bonds, except at the bondholders’ requisition.

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Domestic convertible notes:

Unsecured convertible bonds Add reserve for put premium Total convertible bonds	2003	2003
	U.S. Dollars $ 34,672 72 $ 34,744	N.T. Dollars
		$ 1,200,000 2,498
		$ 1,202,498

Terms of the convertible bonds are summarized as follows:

Issue date: April 28, 2003 Maturity date: April 27, 2008 Aggregate principal amount: Par NT$1,200,000 Coupon interest rate: 0% Due payment:

The bond holders may ask to put or to convert into shares in accordance with laws and regulations, or the Company may call the bonds according to the Company’s rules; otherwise, principal are paid by cash at one time upon maturity.

Put option for bond holders:

The face value of bonds with reserve for put premium

At April 28, 2006 at 103.03%;

At April 28, 2007 at 105.09%

Call right of bond issuer:

The Company has the right to call and retire all or part of the bonds during the period from three months after the date of issuance to forty days before the maturity date, the closing price of the Company’s common stock in the stock exchange exceed 50% of the then prevailing conversion price continuously for 30 trading days.

The Company may also call and retire all or part of the bonds by par value at any time if the total outstanding bonds is less than NT$120,000 (which is 10% of total issued amount).

Conversion price:

NT$171.56 (in dollars) per share but become NT$139.1 (in dollars) after the appropriation for earnings in July, 2003.

Conversion period: The bond holders may request the Company to convert their bonds into the Company’s common stock during the period from three months after

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the date of issuance to 10 days before the maturity date except for the period prohibited by laws to transfer the shares.

11. LONG-TERM BORROWINGS

First Commercial Bank and Chiao-Tong Bank Mizuho Corporate Bank Total Less current portion Long-term borrowings	MaturityDate July 5, 2008 December 27, 2002	2002
		N.T. Dollars
		$ 330,000 50,000
		380,000 (50,000)
		$ 330,000

Interest rates per annum from such borrowings was 6.35% at June 30, 2002. Please refer to Note 21 for a summary of collateral on such borrowings at June 30, 2002.

12. CAPITAL STOCK

As of June 30, 2003, the Company issued capital stock amounted to NT$1,231,630, divided into 123,162,981 shares at NT$10 par value per share, and are summarized as follows:

Original cash subscriptions Subsequent cash subscriptions Earnings transferred to capital stock Bonuses to employees transferred to capital stock Transfer of capital surplus to capital stock Total	Amount	Amount
	U.S. Dollars $ 462 10,618 20,851 814 2,841 $ 35,586	N.T. Dollars
		$ 16,000 367,500 721,647 28,152 98,331
		$ 1,231,630

On May 27, 2003, the stockholders decided to increase the Company’s capital stock by NT$271,501 from appropriation of retained earnings NT$246,326, and bonuses to employees NT$25,175, respectively. The application for these increases in capital stock has been filed with the Securities and Futures Commission (SFC) and has been approved by the SFC thru 2003 Tai-Tsai-Zeng 125980 letter dated June 13, 2003. As of June 30, 2003, the Company haven’t distributed the stock dividends, which accounted for “Stock dividends to be distributed”.

13. CAPITAL SURPLUS

According to the Company Law of the Republic of China and the Company’s Articles of Incorporation, a capital surplus could only be used to provide additional capital or offset any prior years’ deficit and cannot be used otherwise.

Transfer of additional paid-in capital to capital shall be done only once a year and must be made only from previous year’s additional paid-in capital at an amount not to exceed the limit set by the competent authority.

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14. LEGAL RESERVE

According to the Company Law of the Republic of China the Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, until it equals to issued capital stock. Such legal reserve could only be used as to provide additional capital or offset any prior years’ deficit and cannot be used otherwise. Additions to capital are possible on condition that the legal reserve amounts to over half of issued capital stock and such addition is within a limit of half of legal reserve.

15. RETAINED EARNINGS AND STOCK DIVIDEND POLICY

According to the Company’s Articles of Incorporation, the Company’s annual earnings shall first be used to pay income tax and offset any prior years’ deficit; thereafter, 10% of the remainder, if any, shall then be appropriated to legal reserve, and the Company shall appropriate for special reserve according to the regulations. Any remaining balance shall be appropriated as follows:

• (1) At least 2% as bonuses to employees,

• (2) 2% as bonuses to directors and supervisors, and

• (3) any remaining balance can then be used for declaring dividends to stockholders.

According to the Company Law of the Republic of China and the Company’s Articles of Incorporation, in deciding its stock dividend policy, the Company had considered that the Company is currently in expanding capacity stage and has a great demand for capital. Thus, during such period, the dividend policy has considered the results of operations and capital planning. The principle of dividend policy is stable and balanced. The board of directors must consider the results of operations, financial positions and capital demand of the Company when deciding the type of dividends (cash dividend or stock dividend), and total dividends paid shall be less than 90% of retained earnings available for appropriation, and the cash dividends must be more than 10% of total dividends paid.

The rate of retained earnings available for appropriation and cash dividends can be adjusted by the board of directors and stockholders depending on the results of operations and capital plan of the year.

The related information of bonuses to employees and bonuses to directors and supervisors is available from Market Observation Post System.

The distribution of retained earnings of prior year (2002) as bonuses to employees and bonuses to directors and supervisors which was decided by the board of directors at March 10, 2003 and approved by the meeting of stockholders at May 27, 2003 was appropriated as follows:

1. Stock dividend as bonuses to employees amounted to NT$25,175.

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1. Bonuses to directors and supervisors amounted to NT$22,886.

2. Stock dividend as bonuses to employees is 2,517 shares (in thousand) which is 2% of total outstanding shares.

3. Earnings Per Share after distributing bonuses to employees and bonuses to directors and supervisors in 2002 is NT$1.98 per share.

16. WAGES, DEPRECIATION, DEPLETION AND AMORTIZATION

SIX-MONTH ENDED June 30, 2003

WAGES Salary Labor and healthy insurance Pension Other wages DEPRECIATION DEPLETION AMORTIZATION	OPERATING COSTS U.S. Dollars N.T. Dollars 3,188 110,333 2,721 94,187 150 5,171 190 6,590 127 4,385 2,352 81,390 - - 192 6,649	OPERATING EXPENSES U.S. Dollars N.T. Dollars 915 31,683 775 26,812 48 1,683 70 2,414 22 774 674 23,341 - - 358 12,406	TOTAL	TOTAL
	U.S. Dollars 3,188 2,721 150 190 127 2,352 - 192	U.S. Dollars 915 775 48 70 22 674 - 358	U.S. Dollars 4,103 3,496 198 260 149 3,026 - 550	N.T. Dollars
				142,016 120,999 6,854 9,004 5,159 104,731 - 19,055

SIX-MONTH ENDED June 30 2002

WAGES Salary Labor and healthy insurance Pension Other wages DEPRECIATION DEPLETION AMORTIZATION	OPERATING COSTS N.T. Dollars 47,226 36,544 2,606 5,633 2,443 64,868 - 5,604	OPERATING EXPENSES N.T. Dollars 38,473 33,173 1,960 2,224 1,116 8,391 - 5,800	TOTAL
			N.T. Dollars
			85,699 69,717 4,566 7,857 3,559 73,259 - 11,404

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17. INCOME TAX

Provision for income tax for the six-month periods ended June 30, 2003 and 2002 were computed as follows:

Income before income tax Permanent differences Timing differences Taxable income Tax rate Progressive tax rate difference Subtotal Investment tax credit Tax withholding on interest income Estimated income tax payable Tax withholding on interest income Deferred tax (benefit) expense Prior period tax adjustment Provision (credit) for income tax	2003 U.S. Dollars N.T. Dollars $ 24,000 $ 830,646 (18,477) (639,479) 823 28,484 6,346 219,651 25% 25% - (10) 1,586 54,903 (793) (27,451) (2) (81) 791 27,371 2 81 (1,555) (53,799) (54) (1,881) $ (816) $ (28,228)	2002
	U.S. Dollars $ 24,000 (18,477) 823 6,346 25% - 1,586 (793) (2) 791 2 (1,555) (54) $ (816)	N.T. Dollars
		413,903 (283,482) (36,116)
		94,305 25% (10)
		23,566 (11,783) -
		11,783 - 62,032 (853)
		$72,962

Deferred tax assets (liabilities) - current as of June 30, 2003 and 2002 are as follows:

Assets: Unused investment tax credit Allowance for loss on inventory devaluation and obsolescence Allowance for short-term investments devaluation Others Subtotal Liabilities: Unrealized exchange gain Net	2003 U.S. Dollars N.T. Dollars $ 1,156 $ 40,000 69 2,387 - - 125 4,335 1,350 46,722 (236) (8,176) $1,114 $ 38,546	2002
	U.S. Dollars $ 1,156 69 - 125 1,350 (236) $1,114	N.T. Dollars
		$ 4,932 2,387 3,979 8,910
		20,208 (24,570)
		$ (4,362)

Deferred tax assets (liabilities) - non-current as of June 30, 2003 and 2002 are as follows:

follows:
Assets: Unused investment tax credit Excess of pension appropriation Investment loss on equity method Reserve for put premium Less valuation allowance Subtotal Liabilities: Investment income on equity method Net	2003 U.S. Dollars N.T. Dollars $ 1,479 $ 51,197 270 9,353 332 11,491 303 10,497 (601) (20,844) 1,783 61,694 (12,241) (423,645) $ (10,458) $ (361,951)	2002 N.T. Dollars $ 37,068 7,038 5,657 - (12,695) 37,068 (479,569) $ (442,501)
	U.S. Dollars $ 1,479 270 332 303 (601) 1,783 (12,241) $ (10,458)

The Company’s income tax returns through 2000 have been examined and approved by the tax authority.

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At June 30, 2003 and 2002, imputation credit account for shareholders is as follows:

Outstanding balance of imputation credit account for shareholders Current year tax credit percentage on distributed earnings	2003 U.S. Dollars N.T. Dollars $ 898 $ 31,093 2002 2001 (Actual) (Actual) 3.15% 2.94%	2003 U.S. Dollars N.T. Dollars $ 898 $ 31,093 2002 2001 (Actual) (Actual) 3.15% 2.94%	2003 U.S. Dollars N.T. Dollars $ 898 $ 31,093 2002 2001 (Actual) (Actual) 3.15% 2.94%	2002
	U.S. Dollars $ 898 2002 (Actual) 3.15%			N.T. Dollars
				$ 14,841
			(Actual)
			2.94%

Unappropriated retained earnings information is as follows:

Undistributed earnings for 1997 and years before Undistributed earnings for 1998 and subsequent years Total	2003 U.S. Dollars N.T. Dollars $ 638 $ 22,085 53,306 1,844,930 $ 53,944 $ 1,867,015	2002
	U.S. Dollars $ 638 53,306 $ 53,944	N.T. Dollars
		$ 18,609 850,030
		$ 868,639

At June 30, 2003, the unused investment tax credit is as follows:

Maturity Year			Investment tax credit	Investment tax credit
		U.S. Dollars		N.T. Dollars
2005		$	1,151	$	39,841
2006			1,206		41,729
2007			278		9,627
Total		$	2,635	$	91,197
Details are as follows:
			Unused tax credit			Tax credit earned
Year Ended	Item		(N.T. Dollars)			(N.T. Dollars)
2005	Machinery		$	39,841	$	55,270
2006	“			41,729		45,843
2007	“			9,627		33,078

F-85

18. EARNINGS PER SHARE

Net income Basic EPS: Common stockholders’ net income Full-diluted convertible securities Diluted EPS: Common stockholders’ net income plus the effect of potential common shares			2003
	Amount Before tax After tax U.S. Dollars N.T. Dollars U.S. Dollars N.T. Dollars $24,000 $830,646 $24,816 $858,874 $24,000 $830,646 $24,816 $858,874 457 15,825 343 11,869 $24,457 $846,471 $25,159 $870,743		Shares (`000) 150,313 13,448 163,761	EPS
	Before tax U.S. Dollars N.T. Dollars $24,000 $830,646 $24,000 $830,646 457 15,825 $24,457 $846,471			Before tax U.S. Dollars N.T. Dollars (in dollars) $0.16 $5.53 $0.15 $5.17	After tax
	U.S. Dollars $24,000 $24,000 457 $24,457	U.S. Dollars $24,816 $24,816 343 $25,159		U.S. Dollars $0.16 $0.15	U.S. Dollars $0.16 $0.15	N.T. Dollars (in dollars)
						$5.71
						$5.32

Net income Basic EPS: Common stockholders’ net income Full-diluted convertible securities Diluted EPS: Common stockholders’ net income plus the effect of potential common shares		2003
	Amount Before tax Aftertax N.T. Dollars N.T. Dollars $413,903 $ 340,941 $ 413,903 $ 340,941 5,058 3,794 $418,961 $ 344,735	Shares (`000) (Note A) 150,313 4,483 (Note A) 154,796	EPS
	Before tax N.T. Dollars $413,903 $ 413,903 5,058 $418,961		Before tax N.T. Dollars $ 2.75 $ 2.71	Aftertax
				N.T Dollars
				$2.27
				$2.23

(A) The calculating of EPS has been adjusted retroactively to reflect the shares of stock dividend distributed in 2003.

F-86

19. FINANCIAL INSTRUMENTS

1. Derivative financial instrument

The Company held derivative financial instrument for non-trading activity purpose to hedge foreign currency exposure interest rate of recognized assets or liabilities.

Related informations are summarized as follows:

• (1) Par value, contract amount (or nominal amount), rate and credit risk

Financial Instrument Amtran Technology Co., Ltd. Credit Linked Use Deposit Pan Jit Corp Credit Link		June 30,	2003
	Nominal Amount USD2,000,000 USD1,000,000	Rate 1.75% Plus LIBOR- BBA(Note) 4.3%	Date of Maturity June 10, 2004 Oct 17, 2003	Credit Risk
				- -

Note: LIBOR-BBA is London Inter Bank Offered Rate - British Banks Administration. Because the Company deals with Securities Corp. with good credit, credit risks are considered insignificant.

• (2) Market Risk

The Company only gathers fixed exchange rate or plus fluctuation interest rate of the derivative financial instrument so the market risk is considered insignificant.

• (3) Liquidity risk, cash flow risk and the amount timing and uncertainty of future cash requirements risk.

When engaging in derivative financial instruments, the Company had considered the cash flow at Oct. 17, 2003 and June 10, 2004. Therefore, no uncertainty of future cash requirements risk exist.

• (4) Derivative financial instrument presented in financial statement

Account under short-term investment.

F-87

The estimating fair value of non-derivative and derivative financial instrument is as follows:

Non - derivative financial instrument Assets: Cash and cash equivalents Short-term investments Notes and accounts receivable Other financial assets - current Long-term equity investments Other financial assets - non- current Liabilities: Short-term borrowings Notes and accounts payable Income tax payable Accrued expenses Other financial liabilities - current Long-term borrowings Bonds payable Accrued pension liability Derivativefinancial instrument Short-term investments-others	2003 Carrying Value Fair Value U.S. Dollars N.T. Dollars U.S. Dollars N.T. Dollars $ 25,370 $ 878,050 $ 25,370 $ 878,050 45,802 1,585,221 47,455 1,642,417 22,104 765,018 22,104 765,018 1,472 50,958 1,472 50,958 126,464 4,376,909 126,464 4,376,909 62 2,149 62 2,149 - - - - 27,377 947,538 27,377 947,538 791 27,371 791 27,371 3,026 104,715 3,026 104,715 12,257 424,227 12,257 424,227 - - - - 95,885 3,318,586 95,885 3,318,586 1,761 60,931 1,761 60,931 3,020 104,500 3,000 103,830	2003 Carrying Value Fair Value U.S. Dollars N.T. Dollars U.S. Dollars N.T. Dollars $ 25,370 $ 878,050 $ 25,370 $ 878,050 45,802 1,585,221 47,455 1,642,417 22,104 765,018 22,104 765,018 1,472 50,958 1,472 50,958 126,464 4,376,909 126,464 4,376,909 62 2,149 62 2,149 - - - - 27,377 947,538 27,377 947,538 791 27,371 791 27,371 3,026 104,715 3,026 104,715 12,257 424,227 12,257 424,227 - - - - 95,885 3,318,586 95,885 3,318,586 1,761 60,931 1,761 60,931 3,020 104,500 3,000 103,830	2002	2002
	Carrying Value U.S. Dollars N.T. Dollars $ 25,370 $ 878,050 45,802 1,585,221 22,104 765,018 1,472 50,958 126,464 4,376,909 62 2,149 - - 27,377 947,538 791 27,371 3,026 104,715 12,257 424,227 - - 95,885 3,318,586 1,761 60,931 3,020 104,500		Carrying Value N.T. Dollars $ 1,007,679 849,307 425,941 115,937 2,876,610 35 60,000 558,291 11,783 69,389 124,400 380,000 2,021,187 28,881 -	Fair Value
	U.S. Dollars $ 25,370 45,802 22,104 1,472 126,464 62 - 27,377 791 3,026 12,257 - 95,885 1,761 3,020	U.S. Dollars $ 25,370 47,455 22,104 1,472 126,464 62 - 27,377 791 3,026 12,257 - 95,885 1,761 3,000		N.T. Dollars
				$ 1,007,679 849,307 425,941 115,937 2,876,610 35 6,000 558,291 11,783 69,389 124,400 380,000 2,021,187 28,881 -

(A) Including current portion

The following method and assumptions were used for estimating fair values of each class of financial instrument:

Fair values of short-term financial instrument are derived from book values on balance sheet. The carrying amounts of these items are a reasonable estimate of their fair value due to their short-term nature. This valuation applies to cash and cash equivalent, notes receivable, accounts receivable, short-term borrowings, notes payable, accounts payable, income tax payable, accrued expenses and other current financial instrument. The short-term financial instrument’s fair values above are the same with the book values.

The Company uses market value as fair value of short-term investments. If there is no market value, the Company estimates the fair value according to financial or other information.

The Company uses market value as fair value of long-term equity investments. If there is no market value, the Company estimates the fair value according to financial or other information.

The Company uses market value as fair value of bonds payable. Book value of longterm borrowings is the present value of future cash flow based on bank’s floating interest rate.

The fair value of accrued pension liability is funded status of pension plan which equals to projected benefit obligations in excess of plan assets.

The Company uses exchanged rate on June 30, 2003 with nominal amount on contract as fair value of short-term investments - others.

F-88

20. RELATED PARTY TRANSACTIONS

Names and relationships of the company related parties are outlined as follows:

Name Relationship Asia Optical International Ltd. (Asia An equity-method investee (BVI)) Powerlink Electronic International Ltd. An equity-method investee Dong-Guan Tailien Optical Co., Ltd. An equity-method investee Asia Photonics Technology Co., Inc. An equity-method investee Robert Lai The Company’s chairman Asia Promotion Optical Inc. The principal owner is a member of the immediate families of the Company’s chairman Panwell Optical Machinery Co., Ltd. The director is the Company’s supervisor Tai-ping Customs Broker Company The principal owner is the Company’s director Guang Dong Nikon Camera Co., Ltd. The vice-chairman is the Company’s chairman Yuan-Tai Investment Co., Ltd The chairman is the Company’s director Dong-Guan Ricoh Eleme Office Same chairman as the Company Machine Co., Ltd. Dong-Guan Sintai Optical Co., Ltd. The Company’s grandson company Scopro Optical Co., Inc. The Company’s grandson company Lai Hsien Tang The Company’s director

Account balances of related party transactions at or for the six-month periods ended June 30, 2003 and 2002 are summarized as follows:

AccountTitle RelatedParty	2003 U.S. Dollars N.T. Dollars $ 2,775 $ 96,030 2,118 73,309 4 155 $ 4,897 $169,494 $ 275 $ 9,535 609 21,062 5 163 $ 889 $ 30,760 $ 7,088 $ 245,306 365 12,647 308 10,663 17 581 $ 7,778 $269,197 $ 114 $ 3,944 12 423 $ 126 $4,367 $ 12,106 $ 418,997 77 2,653 93 3,220 - - $ 12,276 $424,870 $ - $- $ 55 $1,864 $ 7 $ 251 4 126 $ 11 $ 377	2002
	U.S. Dollars $ 2,775 2,118 4 $ 4,897 $ 275 609 5 $ 889 $ 7,088 365 308 17 $ 7,778 $ 114 12 $ 126 $ 12,106 77 93 - $ 12,276 $ - $ 55 $ 7 4 $ 11	N.T. Dollars
Sales revenue Asia Optical International Ltd. Powerlink Electronic International Ltd. Lai Hsien Tang Total Accounts receivable Asia Optical International Ltd. Powerlink Electronic International Ltd. Lai Hsien Tang Total Purchases Asia Optical International Ltd. Powerlink Electronic International Ltd. Panwell Optical Machinery Co., Ltd. Asia Promotion Optical Inc. Total Notes payable Panwell Optical Machinery Co., Ltd. Tai-ping Customs Broker Company Total Accounts payable Asia Optical International Ltd. Powerlink Electronic International Ltd. Panwell Optical Machinery Co., Ltd. Asia Promotion Optical Inc. Total Rental expense Robert Lai Export expense Tai-ping Customs Broker Company Rental Revenue Asia Promotion Optical Inc. Asia Photonics Technology Co., Inc Total		$ 68,991 47,748 -
		$116,739
		$ - 8,380 -
		$ 8,380
		$ 199,516 187 9,968 379
		$210,050
		$ 3,548 412
		$ 3,960
		$ 288,043 - 2,671 65
		$290,779
		$150
		$2,839
		$ - -
		$-

F-89

AccountTitle RelatedParty	2003 U.S. Dollars N.T. Dollars $ 230 $ 7,953 419 14,494 1,699 58,805 692 23,936 $ 3,040 $105,188 $ 836 $ 28,987 - 46 $ 836 $29,033 $ - $ $ 4 $ 126 4 126 $ 8 $252 $ 7 $ 233 - - 3 89 $ 10 $ 322 $ 13,914 $481,579	2002
	U.S. Dollars $ 230 419 1,699 692 $ 3,040 $ 836 - $ 836 $ - $ 4 4 $ 8 $ 7 - 3 $ 10 $ 13,914	N.T. Dollars
Service income(See Note A below) Guang Dong Nikon Camera Co., Ltd. Dong-Guan Ricoh Eleme Office Machine Co., Ltd. Asia Optical International Ltd. Powerlink Electronic International Ltd. Total Other financial asset- current Asia Optical International Ltd. Powerlink Electronic International Ltd. Total Other current – liabilities Advance receipts Asia Optical International LTD. Other current-liabilities Asia Promotion Optical Inc. Asia Photonic Technology Co., Inc. Accrued expenses Tai-ping Customs Broker Company Asia Optical International Ltd. Panwell Optical Machinery Co., Ltd. Total Others Asia Optical International Ltd.		$ 4,235 13,714 43,187 21,848
		$ 82,984
		$ - -
		$
		$1,970
		$ -
		$-
		$ 537 910 -
		$1,447
		$203,762

• (A) Service income that represents revenue for management services has been offset by the related service cost and reported as non-operating income in the income statement

For the six month period ended June 30, 2002, the Company acquired 2 million shares in the amount of NT$60,000 at NT$30 dollars each share of Altek Corporation which was valued by security analyst’s stock price report from Yuan-Tai Investment Co., Ltd.

For the six-month periods ended June 30, 2003 and 2002, Asia Optical International Ltd. purchased raw materials of NT$259,616 and NT$119,702, respectively, accounted under accounts payable.

Sales and Accounts Receivable

Collection period and sales prices for related and non-related parties are the same.

Purchases and Accounts Payable

Payment period and purchase prices for related and non-related parties are the same.

Transactions of sales and purchases between the Company and subsidiaries (Asia Optical International Ltd. and Powerlink Electronic International Ltd.) are that subsidiaries purchase materials from the Company and process, then sell finished goods to the Company. For avoiding double computation of sales revenues, the Company eliminated the double portion of sales revenues of material trading with subsidiaries. Therefore, the above transactions are excluded from presentation of account balances of related party transactions.

F-90

21. PLEDGED ASSETS

At June 30, 2003 and 2002 the following assets are pledged as collateral under the terms of various credit agreements and in accordance with terms of hiring foreign labor:

PledgedAssets Other financial assets - current Long-term equity investment Property, plant and equipment " " Total	Item Time deposit Common stock Land Buildings Machinery and equipment	2003 U.S. Dollars N.T. Dollars $ 105 $ 3,620 66,372 2,297,122 3,923 135,781 7,977 276,085 6,412 221,918 $ 84,789 $2,934,526	2002
		U.S. Dollars $ 105 66,372 3,923 7,977 6,412 $ 84,789	N.T Dollars
			$ 3,620 1,573,072 135,781 307,935 254,040
			$2,274,448

22. COMMITMENTS AND CONTINGENCIES

At June 30, 2003 and 2002 the Company’s unused letters of credit for the purpose of importing raw materials and equipment are NT$19,193 and NT$33,005, respectively.

At June 30, 2003 and 2002 the Company had commitments to pay NT$39,263 and NT$57,318, respectively under various machinery purchase contracts.

At June 30, 2003 and 2002, the Company had executed promissory notes of NT$670,000 and NT$887,000, respectively, to financial institutions evidencing borrowings under loan agreements.

The Company had rented land from the Economic Bureau Taichung Export Processing Zone (TEPZ) and from individual for business which lease periods are from 2002 to 2010. The present value of estimated rental expense for future years are as follows:

Period	Rent Payable	Rent Payable
	U.S. Dollars $ 12 12 7 3 3 5 $42	N.T. Dollars
2003.07.01-2004.06.30 2004.07.01-2005.06.30 2005.07.01-2006.06.30 2006.07.01-2007.06.30 2007.07.01-2008.06.30 2008.07. 01 and after Total		$ 395 395 251 107 107 185
		$ 1,440

The Company had endorsed its 3 million shares in Asia Optical International Ltd. costing at NT$2,297,122 for Asia Optical International Ltd.’s credit line with a bank for USD30,000 from which Asia Optical International Ltd. borrowed USD12,000 at June 30, 2003.

---

F-91

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 or any of their respective affiliates or advisors in connection with the Offering. Please note that citizens of the People’s Republic of China and entities organized in the People’s Republic of China are subject to special ROC laws, rules and regulations, which are not discussed in this section.

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 (“ OCBs ”) issues by ROC companies listed on the TSE in offerings 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.

Under the current ROC laws and policies, OCBs can be converted by bondholders (other than PRC persons) into shares of the issuing companies or may be converted into depositary receipts issued under the sponsorship of the same ROC company or the shares of other ROC companies, in the 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, GTSM or traded on the Emerging Market. These reinvestments will need to comply with the limitations and restrictions which apply to qualified foreign institutional investors or general foreign investors discussed below.

According to the amendments to the Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals (“ Regulations ”) approved by the Execution Yuan on June 27, 2003 and September 30, 2003, prior to the exercise of conversion right, the converting Bondholder have to register with the TSE and obtain an investment ID to invest in securities in ROC, unless an investment approval or an investment ID has been previously obtained and obtain the approval from CBC if the converting Bondholder is a Non-Resident Foreign Institutional Investor without having a sub-investment account. If Bondholders request a conversion of the Bonds into the Shares, the converting bondholder will be required to specify an account number of Taiwan Securities Central Depository Co., Ltd. in the Conversion Notice. The Conversion Agent will deem any Conversion Notice that does not include an account number of Taiwan Securities Central Depository Co., Ltd. incomplete or incorrect and will reject such Conversion Notice. Under the current law of the ROC, an converting Bondholder when exercising his/her/its conversion right to convert the Bonds into the Shares is required to appoint an agent or representative with such qualifications as are set by the Regulations, to open a securities trading account with a local brokerage firm, submit application of conversion, exercise shareholders’ rights, apply for foreign exchange remittance and pay taxes of the ROC, to appoint a bank which has been approved by the Ministry of Finance to engage in custodian services to handle matters regarding funds and securities custody, make confirmation and settlement, report, and to appoint a local securities firm or financial institution to act as the agent to open a New Taiwan dollar bank account. If, prior to June 27, 2003, the Bondholders have opened a conversion account for overseas corporate convertible bonds, the redemption account for overseas deposit shares, the sale account for overseas stock, the Bondholders shall provide all the required documents to the TSE to transfer the assets to his/her general investment account. Under the existing law and regulations of the ROC, without complying procedures herein stated an investor in the Bonds would not be able to receive, hold or to sell or otherwise transfer the Shares into which the Bonds may have been converted.

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.

A-1

Foreign Investors

The Executive Yuan has approved guidelines for investment in ROC shares listed on the TSE, GTSM, Emerging Market or other approved ROC securities by the certain foreign investors registered with the TSE. According to the amended Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals approved by the Executive Yuan on September 30, 2003, the Qualified Foreign Institutional Investors (" QFII ") are abolished and the restrictions are overhauled for foreign portfolio investors. According the new rule, "Foreign Institutional Investor" (FINI) means an entity which is incorporated under the law of countries other than ROC or the branch of a foreign entity which is established within the territory of the ROC, and “Foreign Individual Investor” （ FIDI ） means oversea Chinese and foreign natural persons.

Each FINI who wishes to invest directly in the ROC securities market is also required to register with the TSE and obtain an investment ID and to apply the CBC approval if the FINI is a non-resident and has no sub-investment account in the ROC. Except for some restrictions imposed by specific laws and regulations on 1[st] January, 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 Non-Resident FINI are required to submit to the CBC and the TSE 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 gains and income on investments may be remitted out of the ROC at any time.

Each FIDI who wishes to invest directly in the ROC securities market is also required to register with the TSE and obtain an investment ID. The FIDI invested in the ROC securities is subject to the limitation investment amount jointly determined by the SFC and CBC.

Foreign Investment Approval

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. 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 businesses the Company being engaged are not 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 Ministry of Finance 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 exchanges.

A-2

ROC companies, foreign companies recognized by the ROC, resident individuals and foreigners with an alien resident certificate 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 used 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 CBC.

In addition, foreign persons, other than the persons mentioned in the preceding paragraph, may, subject to certain requirements, 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.

A-3

APPENDIX B — THE SECURITIES MARKET OF 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.

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 660 by August 29, 2003. As of August 29, 2003, the market capitalization of companies listed on the TSE was NT$11,306.

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 ROC SFC 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, including the diversification of such shareholders;

• length of time in business;

• amount of paid-in 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 August 29, 2003, 412 companies have listed equity securities on the GTSM and the total market capitalization of those companies was NT$1.059 billion.

In addition, the Emerging Market was established on 2[nd] January, 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 August 29, 2003, 264 companies have registered equity securities on the Emerging Market.

B-1

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 August 29)...................	Number of listed companies at period end	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 1,320,562	Index high 101.96 234.83 343.99 281.41 207.18 329.47 136.23 163.00 113.47	Index low 94.02 99.92 210.22 163.89 138.99 99.86 106.74 89.71 79.56	Index at period end
	41 79 114 176 264 300 333 384 412				101.96 233.09 245.05 165.80 207.18 104.93 136.23 94.38 111.24

Sources: GTSM Monthly Review; GTSM Data Base

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 August 29)........................................................	Number of listed companies at period end 199 221 56 285 313 347 375 404 437 462 474 584 638 660	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 6,462.30 5,686.85	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 3,850.04 4,139.50	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 5,650.83

Source: Status of Securities Listed on Taiwan Stock Exchange.

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

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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 1st February, 2002, no securities transaction tax will be imposed on the sale of the Bonds from 1st February, 2002 to 31st December, 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 ROC MOF since 1981. The ROC SFC has extensive regulatory authority over companies listed on the TSE and GTSM, companies whose shares are traded on the Emerging Market 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 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 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

Asia Optical Co., Inc. No. 22-3 South Second Road T.E.P.Z., Taichung 427 Taiwan, ROC

TRUSTEE REGISTRAR The Bank of New York The Bank of New York 101 Barclay Street One Canada Square 21st Floor West 48th Floor, London E14 5AL New York, NY 10286 England U.S.A.

PRINCIPAL PAYING AND CONVERSION AGENT

The Bank of New York One Canada Square 48th Floor, London E14 5AL England

AUDITOR TO THE COMPANY

Deloitte & Touche 27[th] Floor, No. 160, Sec 1 Taichung Kong Road Taichung, Taiwan, ROC

ROC LEGAL ADVISOR LEGAL ADVISOR TO THE COMPANY TO THE MANAGERS Chen & Lin Baker & McKenzie Bank Tower, 4th Floor 14/F, Hutchison House 205 Tun Hwa North Road 10 Harcourt Road Taipei, Taiwan, ROC Hong Kong

LUXEMBOURG LISTING, PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York (Luxembourg) S.A. Aerogolf Centre1A, Hoehenhof L-1736 Senningerberg Grand Duchy of Luxembourg

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