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Delta Electronics, Inc.

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

16,000,000 Global Depositary Receipts representing 80,000,000 Common Shares (par value NT$10 per share)

Goldman Sachs International and Taiwan Securities (HK) Co., Ltd (the “Purchasers”) are offering Global Depositary Receipts (“GDRs”), representing common shares of Delta Electronics, Inc., (the “Company”) inside the United States through their selling agents only to qualified institutional buyers (“QIBs”) in reliance on Rule 144A (“Rule 144A”) under the US Securities Act of 1933, as amended (the “Securities Act”). In addition to the offering inside the United States, the Purchasers are concurrently offering GDRs outside the United States in reliance on Regulation S under the Securities Act (“Regulation S”). Each GDR represents 5 of the Company’s common shares, par value NT$10 (the “Shares”). Bruce CH Cheng and E-Ying Hsieh (the “Selling Shareholders”) are offering 16,000,000 GDRs in the aggregate in this offering. The Company will not receive any of the proceeds from the sale of the GDRs in this offering.

GDRs offered in this offering inside the United States to QIBs in reliance on Rule 144A under the Securities Act (“Rule 144A GDRs”), will be evidenced by a Master Rule 144A GDR certificate (the “Master Rule 144A GDR Certificate”) deposited with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“DTC”), in New York, New York. GDRs offered in this offering outside the United States in reliance on Regulation S under the Securities Act, (the “International GDRs”), will be evidenced by a Master International GDR certificate (the “Master International GDR Certificate”, together with the Master Rule 144A GDR Certificate, the “Master GDR”) deposited with a custodian for, and registered in the name of, a nominee of DTC in New York, New York, for the accounts of Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, International”). Except as described herein, beneficial interests in the Master Rule 144A GDR Certificate and the Master International GDR Certificate will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants, including Euroclear and Clearstream, International.

Prior to this offering, there had been no market outside the ROC for the Shares, and there had been no market for the GDRs. The outstanding Shares trade on The Taiwan Stock Exchange (the “TSE”). On March 22, 2005, the closing price of the Shares on the TSE was NT$52.0 per Share.

See “Risk Factors” for a discussion of certain factors to be considered in connection with an investment in the GDRs.

Application has been made to list the GDRs on the Luxembourg Stock Exchange and to have the Rule 144A GDRs designated for trading in The PORTAL System of the US National Association of Securities Dealers Inc. (“PORTAL”).

Offering Price: US$8.4166 per GDR

The Rule 144A GDRs and the Shares represented thereby have not been and will not be registered under the Securities Act. The Rule 144A GDRs are being offered and sold in the United States only to qualified institutional buyers as defined in Rule 144A under the Securities Act. Prospective purchasers are hereby notified that the seller of the Rule 144A GDRs may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. The Rule 144A GDRs offered hereby and the underlying Shares are not transferable except in accordance with the restrictions described under “Transfer Restrictions” .

The Purchasers, through their respective selling agents, expect to deliver the Master Rule 144A GDR Certificate and the Master International GDR Certificate evidencing the Rule 144A GDRs or the International GDRs (as the case may be) in bookentry form, through the facilities of DTC, against payment on March 29, 2005.

Global Coordinator and Sole Bookrunner

Goldman Sachs International

Co-Manager

Taiwan Securities (HK) Co., Ltd

Offering Circular dated March 23, 2005

This offering circular is confidential and is being furnished by the Company in connection with an offering exempt from registration under the Securities Act, solely for the purpose of enabling a prospective investor to consider the purchase of the GDRs described herein. The information contained in this offering circular has been provided by the Company and other sources identified herein. No representation or warranty, express or implied, is made by the Purchasers as to the accuracy or completeness of such information, and nothing contained in this offering circular is, or shall be relied upon as, a promise or representation by the Purchasers. Any reproduction or distribution of this offering circular, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the GDRs offered hereby is prohibited. Each offeree of the GDRs, by accepting delivery of this offering circular, agrees to the foregoing.

The GDRs and the Shares represented thereby have not been and will not be registered under the Securities Act for offer or sale as part of their distribution and, subject to certain exceptions, may not be offered or sold within the United States. The GDRs offered hereby and the Shares represented thereby are not transferable except in accordance with the restrictions described herein. See “Underwriting”, “Terms and Conditions of the Global Depositary Receipts” and “Transfer Restrictions”.

The GDRs are being offered and sold outside the United States in reliance on Regulation S and within the United States to QIBs in reliance on Rule 144A. Prospective purchasers are hereby notified that sellers of the GDRs may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers, sales and transfers of the GDRs and the distribution of this offering circular, see “Underwriting” and “Transfer Restrictions”.

THE GDRS AND THE SHARES REPRESENTED THEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY US FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

No person has been authorized to give any information or to make any representations other than those contained in this offering circular, and, if given or made, such information or representations must not be relied upon as having been authorized. This offering circular does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities by any person in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this offering circular nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the Company’s affairs since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The distribution of this offering circular and the offering and sale of the GDRs and the Shares represented thereby in certain jurisdictions may be restricted by law. Persons into whose possession this offering circular comes are required by the Company and the Purchasers to inform themselves about and to observe any such restrictions. For a further description of certain restrictions on the offering and sale of the GDRs and the Shares represented thereby, see “Underwriting”. This offering circular does not constitute an offer of, or an invitation to purchase, any of the GDRs in any jurisdiction in which such offer or invitation would be unlawful.

There are restrictions on the offer and sale of the GDRs and the Shares represented thereby in the United Kingdom. All applicable provisions of the Financial Services and Markets Act of 2000 and the Public Offers of Securities Regulations 1995 with respect to anything done by any person in relation to the GDRs and the Shares represented thereby in, from or otherwise involving the United Kingdom must be complied with. See “Underwriting”.

Except as provided below, the Company accepts responsibility for the information contained in this offering circular. To the best of the Company’s knowledge and belief (after having taken all reasonable care to ensure that such is the case), the information contained in this offering circular is in accordance with the facts and does not omit anything that is likely to affect the import of such information. The Company further accepts responsibility for the accurate extraction of the information contained in each of the sections entitled “Appendix A—Foreign Investment and Exchange Controls in the ROC” and “Appendix B—The Securities Market in ROC” from publicly available sources and the laws and regulations of the ROC.

IN CONNECTION WITH THE OFFERING, GOLDMAN SACHS INTERNATIONAL OR ITS AFFILIATES MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE GDRs AND, SUBJECT TO APPLICABLE ROC LAWS, THE SHARES, AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. THESE TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Notwithstanding anything herein to the contrary, investors (and each employee, representative, or agent of the investors) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the offering and all materials of any kind (including opinions or other tax analyses) that are provided to the investors relating to such tax treatment and tax structure. However, any information relating to the US federal income tax treatment or tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent reasonably necessary to enable any person to comply with applicable securities laws. For this purpose, “tax treatment” means US federal or state income tax treatment, and “tax structure” means any facts relevant to the US federal income tax treatment of the offering but does not include information relating to the identity of the issuer of the securities, the issuer of any assets underlying the securities, or any of their respective affiliates that are offering the securities.

NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

NOTICE TO INVESTORS

Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the GDRs or Shares represented thereby.

Each owner of an interest in the Rule 144A GDRs will be deemed to have represented and agreed as follows (terms used herein that are defined in Rule 144A or Regulation S under the Securities Act are used herein as defined therein):

(1) You (A) (i) are a qualified institutional buyer, (ii) are aware that the sale of the GDRs to it is being made in reliance on Rule 144A and (iii) are acquiring such GDRs for your own account or for the account of a qualified institutional buyer, as the case may be, or (B) are not a US person, as such term is defined in Rule 902 under the Securities Act, and are purchasing the GDRs in accordance with Regulation S.

(2) You understand that the GDRs and the Shares represented thereby have not been and will not be registered under the Securities Act and may not be reoffered, resold, pledged or otherwise transferred except (A) (i) to a person who the purchaser reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S, or (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) or (iv) pursuant to an effective registration statement under the Securities Act and (B) in accordance with all applicable securities laws of the states of the United States.

(3) Such owner will not offer, sell, pledge or otherwise transfer any interest in the Rule 144A GDRs and underlying Shares except as permitted by the applicable legend set forth in paragraph (4) below.

(4) The Rule 144A GDRs will bear a legend to the following effect, unless the Company determines otherwise in compliance with applicable law:

THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OF PAR VALUE NT$10 PER SHARE OF DELTA ELECTRONICS, INC. REPRESENTED THEREBY (THE “SHARES”) HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (B) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATIONS CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED BY THIS CERTIFICATE OR THE SHARES REPRESENTED THEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE SHARES REPRESENTED BY THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED HEREBY MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT THEREOF ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK (INCLUDING ANY SUCH FACILITY MAINTAINED BY THE DEPOSITARY), UNLESS AND UNTIL SUCH TIME AS SUCH SHARES ARE NO LONGER RESTRICTED SECURITIES WITHIN THE MEANING OF RULE 144(a)(3) UNDER THE SECURITIES ACT. EACH HOLDER, BY ITS ACCEPTANCE OF THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.

(5) Before any beneficial interest in the Rule 144A GDRs may be sold or otherwise transferred to a person who takes delivery in the form of a beneficial interest in the International GDRs, the transferee and the transferor will be required to provide a written certification, as described below in “Transfer Restrictions—Other provisions regarding transfer of the GDRs”.

(6) Any resale or other transfer, or attempted resale or other transfer, of the Rule 144A GDRs made other than in compliance with the above-stated restrictions shall not be recognized by us in respect of the Rule 144A GDRs.

AVAILABLE INFORMATION

References to the “ROC” are to the island of Taiwan and other areas under the effective control of the Republic of China.

The Company has prepared audited consolidated financial statements as of and for the three years ended December 31, 2002, 2003 and 2004 herein. See “Index to Financial Statements”. These financial statements were prepared in conformity with generally accepted accounting principles in the ROC (“ROC GAAP”) which differ in certain material respects from generally accepted accounting principles in the United States (“US GAAP”). See “Summary of Certain Differences Between ROC GAAP and US GAAP”.

If, at any time, the Company is neither subject to Section 13 or 15(d) of the US Securities Exchange Act of 1934 (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) of the Exchange Act, the Company will furnish, upon request, to any person in whose name a GDR is registered on the books of the Depositary (as defined herein), any holder of any beneficial interest in any GDR or any prospective purchaser designated by a holder of GDRs, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

The Company is a company limited by shares and incorporated under the Company Law of the ROC. Most of the directors, executive officers and supervisors of the Company and certain of the experts named in this offering circular are residents of the ROC and substantially all of the Company’s assets and those other persons are located in the ROC. As a result, it may be difficult for investors to enforce judgments obtained outside the ROC against the Company or those other persons in the ROC, including those predicated upon the civil liability provisions of the federal securities laws of the United States. Any final judgment obtained against the Company 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 GDRs or the Shares will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that:

‰ the court rendering the judgment had jurisdiction over the subject matter according to the laws of the ROC;
‰ the judgment and the court procedure resulting in the judgment were not contrary to the public order or good morals of the ROC;
‰ if the judgment was rendered by default by the court rendering the judgment, the Company was (i) duly served within a reasonable period of time in accordance with the laws and regulations of such jurisdiction, or (ii) process was served on the Company with judicial assistance of the ROC;
‰ judgments of the courts of the ROC would be recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis; and
‰ the judgment is a final judgment for which the period for appeal has expired or from which no appeal can be taken.

A party seeking to enforce a foreign judgment in the ROC would, except under limited circumstances, be required to obtain foreign exchange approval from the Central Bank of China (“CBC”) for the remittance out of the ROC of any amounts recovered in respect of that judgment which are denominated in a currency other than NT Dollars.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements under “Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “The Delta Group”, “Business” and elsewhere in this Offering Circular constitutes “forward-looking statements”. All statements other than statements of historical facts included in this Offering Circular, including, without limitation, those regarding the financial position, business strategy, capital expenditure and investment plans of the Delta Group (as defined in “Certain Defined Terms, Conventions and Currency”) and the plans and objectives of the Delta Group’s management for its future operations (including development plans and objectives relating to the Delta Group’s products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results or performance of the Delta Group, or industry results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Delta Group’s present and future business strategies and the environment in which the Delta Group will operate in the future. Among the important factors that could cause the Delta Group’s actual results or performance to differ materially from those in the forwardlooking statements include, among others, the status of the global computer, networking products and telecommunications industries, the ability of the Delta Group to develop and introduce new products to meet the competitive requirements of the market place, and the Delta Group’s ability to earn repeat orders from its key customers. Additional factors that could cause actual results or performance to differ materially include, but are not limited to, those discussed in “Risk Factors”. These forward-looking statements speak only as of the date of this Offering Circular.

Certain Defined Terms, Conventions and Currency

The Company publishes its financial statements in NT$. All translations from New Taiwan dollars to US dollars at December 31, 2004, were made (unless otherwise indicated) at the rate of NT$31.785 = US$1.00. All amounts translated into US dollars as described above are provided solely for convenience and no representation is made that the NT dollar or US dollar amounts referred to herein could have been or could be converted into US dollars or NT dollars, as the case may be, at any particular rate or at all. See “Exchange Rates”. Any discrepancies in the tables included herein between the amounts listed and the totals thereof are due to rounding.

In this Offering Circular, the following terms have the following meanings:

A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Ampere
ABS systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Automatic backup shutdown systems
AC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Alternating current
ADSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Asynchronous digital subscriber line
ASICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Application-specific integrated circuit
ATM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Asynchronous transfer mode
AVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Audio video interleaved
Brushless DC fans . . . . . . . . . . . . . . . . . . . . . . . .	Fan driven by DC voltage with brushless structure
CCFL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Cold cathode florescent lamp
CD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Compact disc
CD-ROM drive. . . . . . . . . . . . . . . . . . . . . . . . . . . .	Disc drive of compact disc read-only-memory
CE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Certification as to compliance with the relevant
	European Union directives
CNC machines . . . . . . . . . . . . . . . . . . . . . . . . . . .	Computer numeric control machines
Coil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Wire wound component. A coil offers considerable
	opposition to the passage of AC, but very little
	opposition to DC
Common Shares or Shares . . . . . . . . . . . . . . . .	The common shares, par value NT$10 per share, of
	the Company
Cores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Soft ferrite or magnetic metal alloy which is used in
	inductors or transformers for increasing magnetic flux
	at a given magnetic field
CPU. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Central processing unit
CRT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Cathode ray tube. A device in which controlled electron
	beams are used to present data in visual form
CSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Canadian Standards Association, a testing and
	approval agency for products sold in Canada

DC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Direct current
Delta Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The Company and its subsidiaries
Delta Power Sharp. . . . . . . . . . . . . . . . . . . . . . . .	Delta Power Sharp Ltd.
Delta Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . .	Delta Electronics (Thailand) Public Company Limited
Delta US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Delta America Ltd.
DIH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Delta International Holding Ltd.
DMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Design, manufacture, service
DNI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Delta Networks, Inc. (Taiwan)
DVD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Digital versatile disk
Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A ratio of output power to input power expressed in
	percent
Electronic ballasts . . . . . . . . . . . . . . . . . . . . . . . .	Control devices to regulate power to fluorescent and
	high intensity discharge lamps
EMI filters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Electromagnetic interference filters
Ethernet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A type of LAN
FTTx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A network where an optical fiber runs from a telephone
	switch to the subscriber’s premises—business or home
Gbps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Giga bits per second
GHZ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Giga hertz
Hybrid circuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A circuit with active and passive components
ICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Integrated Circuits
IEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	International Electrotechnical Commission
Inverter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	An electronic converter used to convert DC into AC
ISDN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Integrated Service Digital Network
ISO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	International Standards Organization, an organization
	formed by delegates from member countries to
	establish international quality assurance standards for
	engineering and manufacturing processes
KVA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Unit of power capacity
Kw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Kilowatt. One thousand watts as a unit of power
LAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Local area network
Layer three switches . . . . . . . . . . . . . . . . . . . . . .	Switches that perform layer 3 functions: (i) identifying
	the addresses of the neighbouring nodes in the
	network; (ii) selecting routes, and quality of service,
	and (iii) recognising and forwarding incoming
	messages to the transport layer for local host domains
LCCS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Liquid crystal colour shutter

LCD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Liquid crystal display, a display device consisting
	basically of a liquid crystal hermetically sealed between
	two glass plates
Line interactive UPS . . . . . . . . . . . . . . . . . . . . . .	Special circuit design for UPS, using bilateral technics
	for the inverter
Lumen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The international unit of luminous flux
MEMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Micro-electromechanical systems
MIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Massachusetts Institute of Technology
MSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Multi source agreement
Mbp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Mega bits per second
New Taiwan dollars, NT dollars or NT$ . . . . .	The lawful currency of the ROC
ODM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Original design manufacturing
OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Original equipment manufacturing
Off-line UPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	UPS functioning to bypass city power to loaded
	equipment under normal conditions and to supply
	energy by converting battery DC power to AC when city
	power is interrupted
On-line UPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	UPS functioning to directly convert city power to DC
	then to AC under normal conditions and to supply
	energy by converting battery DC power to AC when city
	power is interrupted
PC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Personal computer
PC board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Printed circuit board
PCMCIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Personal Computer Memory Card International
	Association
PCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Personal communications services, a wireless phone
	service similar to cellular telephone service but
	emphasizing personal service and extended mobility
PFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Power factor correction
PLED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Plane light emitter design
POTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Plain old telephone services
PRC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	People’s Republic of China (but excluding the Special
	Administrative Region of Hong Kong and the ROC)
R&D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Research and development
RF IC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Radio frequency integrated circuit
ROC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The island of Taiwan and other areas under the
	effective control of the Republic of China
ROC SFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The ROC Securities and Futures Bureau
ROC FSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The ROC Financial Supervisory Commission,
	Executive Yuan

ROC GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Generally accepted accounting principles in the ROC
ROC MOEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The ROC Ministry of Economic Affairs
ROM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Read-only-memory. Memory that is programmed by the
	manufacturer and cannot be changed
ROSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Rotorcraft open systems avionics
rpm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	revolutions per minute
SAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Storage area network
SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Systems applications and procedures in data process
SMD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Surface mounting device
SMT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Surface mount technology
SPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Switching power supplies
TCP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Total Certification Program
TOSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SC and LC transmitter optical subassemblies
Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A day on which the TSE is open for business
Transceivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A combination of transmitter/receiver in a single
	package
Transformer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Wire-wound components used for voltage/current
	increasing/ decreasing or impedance matching
TSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	The Taiwan Stock Exchange
UL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Underwriters Laboratories Inc., an organization
	evaluating equipment submitted to them by the
	equipment manufacturer using standards which UL has
	written for the equipment category
UPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Uninterruptible power system
US GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	US generally accepted accounting principles
US dollar or US$. . . . . . . . . . . . . . . . . . . . . . . . . .	United States dollars
VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Voltage ampere
VAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Volts alternate current
VDE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Verband der Elektrotechnik
VDSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Very high speed digital subscriber line
VGA cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Video graphics array cards
xDSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	x-digital subscriber line
YDT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Yuasa Delta Technology Inc. (previously Delta Green
	Energy Co., Ltd.)

Summary

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

The Delta Group is a leading manufacturer of power-related products and electronic components. The other main products of the Delta Group are networking products and electromechanical products. Power-related products and electronic components are manufactured by the Delta Group for use in the consumer electronics, computer and telecommunications industries, and networking products and electromechanical products for use in the networking and industrial automation industries, respectively. The major customers of the Delta Group include companies such as Dell, HP, IBM, NEC and Sony.

The Delta Group produces a substantial portion of its products on a DMS basis, that is, it designs and manufactures products based on its customers’ requirements and specifications, often in consultation with its customers. The markets in which the Delta Group operates are highly competitive and its strategy is to focus on the development of innovative new products using advanced process technologies, maintaining high quality standards and improving production efficiency. Each of the Delta Group’s manufacturing plants is equipped with wholly- or partly-automated production lines and has engineering staff responsible for monitoring manufacturing automation and process improvement. The Delta Group also builds much of its automated equipment and systems in-house, which enables it to tailor the systems to its own needs to establish more effective and economical production processes.

As a result of its research and development efforts, the Delta Group has in the past successfully developed and manufactured products such as switching power supplies, telecom power systems, uninterrupted power supplies (“UPSs”), digital visual display systems, LCD flat panel displays, PDP TVs, front projectors, DLP RPTVs, radio frequency/microwave components, variable speed AC motor drives, rear projection displays, optical transceivers, broadband and wireless routers. Recently, new products developed by the Delta Group include advanced power management systems, components such as RF IC and front-end modules for telecommunications, CCFL for LCD backlighting, low noise and wide rated fans and solenoid for auto ABS systems, visual displays such as new models of light weight and high lumen front projectors, DLP optical engine for rear projection TVs and real projection systems of high resolution, networking products such as management switches utilizing higher end gigabit LAN technology, layer three switches and wireless LAN solutions and AC motor drive products for industrial applications and brushless DC and AC servo drivers for consumer applications. The Delta Group has also developed PLC (programmable logic controllers) with embedded communication interface, human machine interface (HMI), temperature controllers and a variety of encoders with an aim to provide a comprehensive automation solution.

The Delta Group owns four manufacturing facilities and leases one in the ROC to produce its products. It also operates nine production plants in the PRC. In addition, certain products are manufactured in factories owned by the Company’s affiliates located at Tianjin in the PRC, at Bangkok in Thailand and at Tijuana in Mexico. The Delta Group has substantially increased its production outside of the ROC in recent years, primarily in plants located in the PRC where average production costs are lower than in the ROC. The Delta Group and its affiliates operate a global network of sales and logistic offices in the United States, Japan, Europe, the ROC, the PRC, Thailand, Singapore and Hong Kong to provide fast and convenient distribution services to its customers throughout the world.

The Company’s operating revenues were NT$56,475.0 million (US$1,776.8 million) in 2004, compared to NT$49,541.9 million in 2003 and compared to NT$48,514.7 million in 2002. Gross profit was NT$12,263.7 million (US$385.8 million) in 2004, compared to NT$10,612.6 million in 2003 and compared to NT$9,942.9 million in 2002.

The Offering

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||||
|---|---|---|
|The following is only a summary and is qualified in its entirety by reference to “Terms and|
|Conditions of the Global Depositary Receipts.” Capitalized terms used in this summary and not defined|
|have the respective meanings given to them in “Terms and Conditions of the Global Depositary|
|Receipts.”|
|Company|. . . . . . . . . . . . . . . . . . . . . . . . .|Delta Electronics, Inc.|
|The Offering|. . . . . . . . . . . . . . . . . . . . . .|16,000,000 GDRs are being offered by the Selling|
|Shareholders (as defined herein) at a price of US$8.4166 per|
|GDR outside the United States in reliance on Regulation S|
|under the Securities Act and in the United States in reliance on|
|Rule 144A under the Securities Act.|
|Selling Shareholders|. . . . . . . . . . . . .|Bruce CH Cheng and E-Ying Hsieh (who is the spouse of|
|Bruce CH Cheng) are the selling shareholders in this offering|
|(the “Selling Shareholders”). As of December 31, 2004, the|
|Selling Shareholders owned in aggregate 14.78% of the|
|Company’s outstanding Shares. After the offering, the Selling|
|Shareholders will in aggregate own 9.74% of the Company’s|
|outstanding Shares.|
|The GDRs|. . . . . . . . . . . . . . . . . . . . . . . .|The GDRs will be issued by The Bank of New York as|
|depositary (the “Depositary”) pursuant to a deposit agreement|
|to be entered into on or about March 29, 2005 between the|
|Company and the Depositary (the “Deposit Agreement”). Each|
|GDR represents 5 Shares deposited with The International|
|Commercial Bank of China (the “Custodian”).|
|Rule 144A GDRs are “restricted securities” under the US|
|securities laws and as such are subject to limitations on their|
|issuance, transfer and cancellation. International GDRs are not|
|per se “restricted securities” under the US securities laws, but|
|the Company has imposed certain contractual restrictions on|
|the International GDRs that may be issued in future offerings in|
|an effort to prevent the transfer of International GDRs in|
|violation of the US securities laws. There will be no “restricted|
|period” in relation to the International GDRs offered in this|
|offering.|
|Additional Deposit of Shares and|
|Issuance of Additional GDRs|. . .|After the deposit of the Shares in connection with the offering,|
|for so long as ROC law requires, no GDRs may be issued|
|without specific ROC regulatory approval except in connection|
|with (i) dividends on or free distributions of Shares, or (ii) the|
|exercise by owners of existing GDRs of their pre-emptive rights|
|in connection with rights offerings, or (iii) as described in the|
|following sentence. Under current ROC law, following|
|completion of an offering of depositary receipts representing|

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shares of ROC companies and to the extent that previously
issued depositary receipts have been canceled, reissuances of
depositary receipts up to an aggregate amount of outstanding
depositary receipts equal to the total number of depositary
receipts (subject to certain adjustments for issuances and
changes in the number of shares represented by depositary
receipts) that were approved by the ROC FSC may be effected,
provided that the offering plan approved by the ROC FSC in
connection with such offering and the relevant deposit
agreement provided for such reissuance. See “Terms and
Conditions of the Global Depositary Receipts” and
“Appendix A—Foreign Investment and Exchange Controls in
the ROC—Depositary Receipts”.
Voting Rights . . . . . . . . . . . . . . . . . . . . . Owners of GDRs may exercise voting rights with respect to the
underlying Shares represented by the GDRs only as described
under “Terms and Conditions of the Global Depositary
Receipts”.
Dividends . . . . . . . . . . . . . . . . . . . . . . . . Owners of the GDRs will be entitled to receive dividends, subject
to the terms of the Deposit Agreement and relevant ROC laws
and regulations, to the same extent as holders of Shares, less
any fees and expenses payable under the Deposit Agreement
and any ROC tax applicable to those dividends. The payment
and amount of dividends on the Shares are subject to approval
by the Company’s shareholders at a meeting of shareholders.
See “Dividends” “Description of the Shares” and “Terms and
Conditions of the Global Depositary Receipts”.
ROC Tax . . . . . . . . . . . . . . . . . . . . . . . . . Any dividends (whether in cash or Shares) that the Company
declares out of retained earnings and distribute to a Non-ROC
Holder (as defined in “Taxation—ROC Taxation”) in respect of
the Shares represented by GDRs are subject to ROC
withholding tax, currently at the rate of 20% for Non-ROC
Holders on the amount of the distribution (in the case of cash
dividends) or on the par value of the Shares (in the case of
share dividends) unless reduced by an applicable treaty. The
20% withholding tax will be reduced proportionately to the
extent that a 10% retained earnings tax was previously paid on
the Company’s undistributed earnings. Under current ROC law,
capital gains on the sale of Shares represented by GDRs are
exempt from ROC income tax. Any gains derived from transfers
of GDRs are not subject to ROC income tax. An ROC securities
transaction tax will apply to the sale of Shares at the rate of
0.3% of the sale proceeds. See “Taxation—ROC Taxation”.
Markets for Shares and GDRs . . . . . The only trading market for the Shares is the TSE. Application
has been made to have the GDRs offered hereby listed on the
Luxembourg Stock Exchange. The Rule 144A GDRs offered
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hereby are expected to be designated as eligible for trading in
the PORTAL Market. The Shares represented by the GDRs
offered hereby have been listed and admitted for trading on the
TSE.
Settlement . . . . . . . . . . . . . . . . . . . . . . . The Rule 144A GDRs will be represented by beneficial
interests in the Master Rule 144A GDR Certificate, which will
be deposited with a custodian for, and registered in the name
of, Cede & Co., as nominee for DTC.
The International GDRs will be represented by beneficial
interests in the Master International GDR Certificate, which will
be deposited with a custodian for, and registered in the name
of, Cede & Co., as nominee for DTC for the respective
accounts of Euroclear and Clearstream, International.
Beneficial interests in the Master GDRs will be shown on, and
transfers thereof will only be effected through, records
maintained by DTC and its direct and indirect participants.
Except as described herein, individual Global Depositary
Receipts representing GDRs will not be issued in exchange for
beneficial interests in the Master GDRs.
Each Master GDR will bear a Securities Act legend and neither
it, nor any interest therein, may be transferred except in
compliance with the transfer restrictions set forth in such
legend. See “Transfer Restrictions”.
In addition, under ROC law, any holder of GDRs who wishes to
withdraw and hold Shares from the depositary facility under the
Deposit Agreement will be required to appoint a local agent to
open a securities trading account with a local ROC brokerage
firm and a local ROC bank account, as well as appointing a
local custodian bank. Such holder will also be required to
appoint an agent in the ROC for filing tax returns and making
tax payments.
Transfer Restrictions . . . . . . . . . . . . . The Shares and GDRs have not been registered under the
Securities Act and are subject to certain restrictions on transfer.
See “Transfer Restrictions”.
Governing Law . . . . . . . . . . . . . . . . . . . The Deposit Agreement and the GDRs will be governed by,
and construed in accordance with English law.
Use of Proceeds . . . . . . . . . . . . . . . . . . The Selling Shareholders will receive all of the net proceeds
from the sale of the GDRs, estimated to be US$131,977,600
(net of underwriting discounts and expenses). The Company
will not receive any proceeds from this offering. See “Use of
Proceeds”.
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Selected Financial Information

The following financial data have been derived from the audited consolidated financial statements for the years ended December 31, 2002, 2003 and 2004 of the Company appearing elsewhere herein. The Company’s financial statements are prepared in accordance with ROC GAAP which differs in certain material respects from US GAAP—See “Summary of Certain Differences Between ROC GAAP and US GAAP”. The following data should be read in conjunction with the financial statements, related notes and other financial information contained herein:

		(Audited) Year ended December 31,	(Audited) Year ended December 31,	(Audited) Year ended December 31,
2002 2003 2004 2004 (in millions, except per share data) NT$ 48,616.9 NT$ 49,771.8 NT$ 56,475.9 US$ 1,776.8 47,976.3 49,090.2 55,933.2 1,759.7 538.4 451.7 541.8 17.0 48,514.7 49,541.9 56,475.0 1,776.7 (38,571.8) (38,929.3) (44,211.3) (1,390.9) 9,942.9 10,612.6 12,263.7 385.8 (.8) (.8) — — 1.1 0.1 0.8 — 9,943.2 10,611.9 12,264.5 385.8 (6,147.3) (6,323.1) (6,918.2) (217.6) 3,795.9 4,288.8 5,346.3 168.2 2,012.1 1,775.5 2,103.4 66.2 (965.1) (1,144.0) (1,047.4) (33.0) 4,842.9 4,920.3 6,402.3 201.4 (370.3) 489.9 635.4 20.0 (196.9) (194.8) (376.0) (11.8) NT$ 4,275.7 NT$ 5,215.4 NT$ 6,661.7 US$ 209.6 NT$ 2.70 NT$ 3.29 NT$ 4.20 US$ 0.13 NT$ 2.70 NT$ 3.17 NT$ 3.87 US$ 0.12 (Audited) As at December 31, 2002 2003 2004 2004 (in millions) . . . NT$33,707.3 NT$44,015.2 NT$45,563.9 US$1,433.5 . . . 9,134.3 8,128.2 8,501.4 267.5 . . . 104.3 169.9 — — . . . 11,574.5 10,392.3 10,283.8 323.5 . . . 225.4 221.0 202.1 6.4 . . . 303.4 315.2 332.2 10.4 . . . NT$55,049.2 NT$63,241.8 NT$64,883.4 US$2,041.3 . . . NT$17,860.4 NT$18,093.6 NT$19,803.9 623.1 . . . 29.3 6,795.0 6,337.9 199.4 . . . 80.9 80.9 80.9 2.5 . . . 6,944.5 6,590.8 5,536.9 174.2 . . . 24,915.1 31,560.3 31,759.6 999.2 . . . 30,134.1 31,681.5 33,123.8 1,042.1 . . . NT$55,049.2 NT$63,241.8 NT$64,883.4 US$2,041.3		2003			2004
		49,541.9 (38,929.3)			1,776.7 (1,390.9)
		10,612.6 (.8) 0.1			385.8 — —
		10,611.9 (6,323.1)			385.8 (217.6)
		4,288.8 1,775.5 (1,144.0)			168.2 66.2 (33.0)
		4,920.3 489.9 (194.8)			201.4 20.0 (11.8)
		NT$ 5,215.4			US$ 209.6
		NT$ 3.29			US$ 0.13
		NT$ 3.17			US$ 0.12
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
	2002		2003	2004	2004 US$1,433.5 267.5 — 323.5 6.4 10.4 US$2,041.3 623.1 199.4 2.5 174.2 999.2 1,042.1 US$2,041.3
	NT$33,707.3 9,134.3 104.3 11,574.5 225.4 303.4
	NT$55,049.2		NT$63,241.8	NT$64,883.4
	NT$17,860.4 29.3 80.9 6,944.5		NT$18,093.6 6,795.0 80.9 6,590.8	NT$19,803.9 6,337.9 80.9 5,536.9
	24,915.1 30,134.1		31,560.3 31,681.5	31,759.6 33,123.8
	NT$55,049.2		NT$63,241.8	NT$64,883.4

Risk Factors

Prior to making any investment decision, prospective investors should carefully consider all of the information contained in this offering circular. The Delta Group is governed in the ROC by a legal and regulatory environment that, in some material respects, may be different from that prevailing in other countries. Prospective investors in the GDRs should carefully evaluate each of the following risk factors and all of the other information set forth in this offering circular before deciding to invest in the GDRs. If any of the following risk factors and uncertainties develops into actual events, the Delta Group’s business, financial condition or results of operations could be materially and adversely affected. In such case, the trading price of the Shares or the GDRs could decline. This offering circular also contains forward-looking statements that involve risks and uncertainties. The Delta Group’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks below and those described elsewhere in this offering circular.

RISKS RELATING TO THE DELTA GROUP AND ITS BUSINESS

Dependence on the global information technology (computer products and networking products) and telecommunications industries

The business of the Delta Group is dependent on continuing demand for computer products, networking products, telecommunications products and their accessories. These industries have in the past been volatile and subject to intense competition and significant shifts in demand. From time to time, the computer and telecommunications industries in particular have experienced significant downturns, characterized by diminished product demand, overcapacity and accelerated erosion of average sales prices. There can be no assurance that any future downturn in the computer, networking products or telecommunications industries will not be severe or that the Delta Group’s results of operations or financial condition will not be materially and adversely affected by such downturns or other unfavorable developments.

Sensitivity to product cycles, new products and technological changes

Many of the Delta Group’s products, including power supply products, networking products and visual display products, have relatively short product cycles due to rapidly changing technology and evolving industry standards. The Delta Group’s success is highly dependent upon its ability to develop and deliver high quality and cost effective products on a timely basis in line with the latest technology. To date, the Company believes that the Delta Group has been successful in its efforts to introduce new products to meet the competitive requirements of the market place. However, there can be no assurance that the Delta Group will be able to continue to introduce new products in a timely manner or that it will be able to keep pace with the latest technological developments in the market. Delays in introducing new products may have an adverse effect on the Delta Group’s business. Furthermore, there can be no assurance that any new products introduced by the Delta Group will gain market acceptance or will not be adversely affected by technology changes or new product developments by competitors.

The Group operates in a highly competitive market environment

The markets for the Delta Group’s products are highly competitive and the Delta Group has experienced downward pressure on its product prices and margins. For each of the Delta Group’s products, the Delta Group competes with major international companies, some of which have greater financial, technical, marketing and other resources than the Delta Group. The Delta Group competes in different product lines to various degrees on the basis of price, product quality and technical performance, product features, product system compatibility, customized design and sales and

technical support. The Delta Group’s ability to compete successfully also depends on other elements both within and outside of its control, including successful and timely introduction of new products, efficient and cost effective manufacturing of products which meet required quality standards, pricing, as well as larger industry supply and demand trends and general economic trends. If the Delta Group fails to compete successfully in the various markets in which it participates, there is likely to be a material adverse effect on the Delta Group’s results of operations and financial condition.

Reliance on key customers

The markets for the Delta Group’s products tend to be concentrated, with a large percentage of orders coming from a group of key customers. All of the Delta Group’s key customers operate in the cyclical technology businesses and have in the past, and may in the future, vary order levels significantly from period to period. In addition, there can be no assurance that such customers or any other customers will continue to place orders with the Delta Group in the future at the same levels as in prior periods. The loss of one or more of the Delta Group’s key customers or distributors, or reduced orders by any of its key customers or distributors, could adversely affect the Delta Group’s results of operations and financial condition. Furthermore, the Delta Group has in the past, and may in the future, be requested to reduce the prices of its products to limit the level of order cancellations and, in an industry downturn, order cancellations may be expected.

The Company’s chairman controls the Delta Group

The Company’s chairman Bruce CH Cheng exercises significant influence over the Delta Group. Although the day to day operations of the Company are managed by a team of experienced professionals, Bruce CH Cheng is, and is expected to remain, in a position to influence the operations and management of the Company.

Inter-relationships among the Company and its subsidiaries and affiliates

Many of the Company’s subsidiaries and affiliates have common directors and supervisors, and many of such companies engage in significant transactions (which, the Company believes, take place on terms similar to those which would prevail in transactions among unrelated parties) with other members of the Delta Group, including sharing technologies, design engineering and research and development resources and providing the Company with sales and marketing channels. While the Company believes that its operations are independent of its subsidiaries and affiliates, there can be no assurance that corporate opportunities and resources will not be allocated within such companies in certain instances and there can be no assurance that such allocation will not have an adverse effect on the Company or its Shareholders. There can be no assurance that the relationships among the Company and its subsidiaries and affiliates will not change, and any adverse change in or termination of the Company’s relationships with those other companies could have a material adverse effect on the Company.

Reliance on certain sources of key components

The Delta Group’s production depends on obtaining adequate supplies of raw materials and components on a timely basis. The Delta Group purchases its raw materials and components principally from a group of leading suppliers of high quality materials which the Company believes can satisfy the quality standards and volume requirements of the Delta Group. A number of the main components necessary for the production of certain of the Delta Group’s products are available from a limited number of suppliers. The Company believes that there are numerous potential sources of raw material supplies for the Delta Group and that it could shift to other suppliers should difficulties with any

one or more of them arise in the future. However, such shifts in suppliers could result in a temporary interruption of production which could have an adverse effect on the Delta Group’s financial position and results of operations. In addition, although the Company believes that the Delta Group would be able to pass on a portion of higher component and raw material costs to its customers, there can be no assurance that the Delta Group would be able to pass on all of the increased costs of components and raw materials to its customers.

Dependence on and ability to attract, retain and motivate qualified personnel

The Delta Group’s success depends to a significant extent upon, among other factors, its ability to continue to attract, retain and motivate qualified personnel, including key senior executives and research and development, engineering, marketing, sales, manufacturing, support and other personnel. There is intense competition for qualified executive officers, administrators, engineers and technicians in Taiwan. The loss of the services of key personnel without adequate replacements or the inability to attract new qualified personnel could have a material adverse effect on the Delta Group. In order to attract and retain its employees, the Delta Group has devoted significant resources to the training and professional development of its employees and to providing comprehensive employee benefits, including employee bonuses which customarily involve distributions in the form of Shares.

Intellectual property protection

The Delta Group owns certain patents in the United States, ROC, Japan, European Union and the PRC and elsewhere relating to certain aspects of its products and processes and has a number of additional patent applications pending. There can be no assurance that pending patent applications will be granted, or that any patent protection rights will provide the Delta Group with meaningful protection from competition. Infringement by third parties of the Delta Group’s patented products and processes could have a material adverse effect on the Delta Group’s operating results and enforcement of the Delta Group’s intellectual property rights could be difficult and costly.

As is the case with many companies in the technology industry, the Delta Group from time to time receives communications from third parties asserting patent rights to the Delta Group’s products and enters into discussions with such third parties as to their respective positions and the terms of any possible licenses in respect of such patent rights. Irrespective of the validity or the successful assertion of such claims, the Delta Group could incur significant costs with respect to the defence thereof which could have a material adverse effect on the Delta Group’s results of operations or financial condition.

Joint venture risks

The Company has, and expects to have, certain minority interests in a number of affiliates and joint venture entities established in the United States, Thailand, Europe, the PRC and elsewhere in connection with its manufacturing operations. Such investments may involve special risks associated with the possibility that the other shareholders or joint venture partners may (i) have economic or business interests or goals that are inconsistent with those of the Company; (ii) take actions contrary to the instructions or requests of the Company or contrary to the Company’s policies or objectives; (iii) be unable or unwilling to fulfill their obligations under the relevant joint venture or shareholders’ agreements; or (iv) have financial difficulties. In addition, there is no assurance that the laws and regulations in these countries relating to foreign investment will not be altered in such a manner as to result in a material adverse effect on the business and operating results of the Company. Although the Company has not to date experienced any significant problems with respect to its joint venture or investment partners, there can be no assurance that it will not experience problems in the future. The occurrence of such problems may have an adverse effect on the business and prospects of the Company.

POLITICAL AND ECONOMIC RISKS

The Delta Group’s business may be harmed, and the price of the Shares or the GDRs may be adversely affected, by changes in economic, political and business conditions resulting from outside Taiwan, such as terrorist activities, political unrest and military action

Market conditions in Taiwan, the Delta Group’s business and results of operations and the market price and liquidity of the Shares or the GDRs may be adversely affected by developments outside Taiwan, including, among others, those relating to the September 11, 2001 terrorist attacks in the United States and subsequent or any future terrorist activities, hostilities in Iraq and other areas of the Middle East and tensions involving North Korea.

Political risks associated with doing business in Taiwan

The Company is incorporated in Taiwan, ROC, and a substantial portion of the Company’s assets are located in, and a substantial portion of the Company’s revenue is derived from, its production operations in the ROC. Accordingly, the financial condition and results of operations of the Company and the market price of the Shares may be affected by changes in ROC governmental policies, taxation, inflation, interest rates, social instability and other political, economic, diplomatic or social developments in or affecting the ROC which are outside of the Company’s control. The ROC has a unique international political status. The PRC asserts sovereignty over all of China (including Taiwan, certain other islands and all of mainland China). The ROC government does not recognize the legitimacy of the PRC government and vice versa. Although significant economic and cultural relations have been established in recent years between the ROC and the PRC, from time to time, there has been significantly increased tension between the ROC and the PRC. In certain past incidents, the heightened tension between the ROC and the PRC has affected the prices of securities listed on the TSE and the Taiwan Stock Exchange Capitalization Weighted Stock Index adversely. Relations between the ROC and the PRC may also affect the Company’s financial condition and results of operations and the market price and liquidity of the GDRs and the Shares. No assurance can be given that the relations between the ROC and the PRC will improve, or that future military or economic activities may not be undertaken by either government to the detriment of the other.

Natural or man-made disasters

A significant portion of the Delta Group’s assets, customers and suppliers are located in Taiwan. As a result, the Delta Group is dependent on the infrastructure supporting Taiwan and its ability to avoid damage from earthquakes, typhoons, floods, power losses, water shortages and similar events that affect the island.

Taiwan is susceptible to earthquakes. In recent years, Taiwan experienced severe earthquakes that caused significant property damage and loss of life, particularly in the central part of Taiwan. These earthquakes caused damage to production facilities and adversely affected the operations of many companies. Although the Delta Group has not experienced any major structural damage to its facilities from earthquakes, there can be no assurance that future earthquakes will not occur and result in major damage to its facilities, which would have a material adverse effect on its results of operations.

Whilst the Delta Group maintains several insurance policies relating to its business, there is no assurance that it has sufficient insurance coverage should there occur any natural or man-made disaster which exposes the Delta Group to any substantial risks.

The trading price of the GDRs may be adversely affected by the general activities of the ROC securities market, the trading price of the Shares, increases in interest rates and the economic performance of Taiwan

The Shares are listed on the TSE. As of March 22, 2005, the aggregate market capitalization of the TSE was NT$13.8 trillion. The ROC securities market is smaller and, as a market, more volatile than the securities markets in the United States and a number of European countries. The ROC securities market has experienced substantial fluctuations in the prices and volumes of sales of listed securities, and there are currently limits on the range of daily price movements on securities listed on the TSE. The ROC securities market is particularly volatile during times of political instability including when relations between Taiwan and the PRC are strained. Moreover, the ROC securities market has experienced problems including market manipulation, insider trading and settlement defaults. The recurrence of these or similar problems could decrease the market price and liquidity of the Shares, which may have an adverse effect on the trading price of the GDRs.

Any future outbreak of severe acute respiratory syndrome (“SARS”) in Taiwan may adversely affect the Taiwan economy and, as a result, may adversely affect the Company’s results of operations

In March 2003, several countries, including Taiwan, experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as SARS. Any future outbreak of SARS could have a negative impact on the Taiwan economy and, in turn, have a material adverse effect on the Company’s operating results, financial condition, business and prospects. These adverse effects may result from several factors, including travel restrictions, reduction in economic activity and confidence in the affected regions. Although SARS appears to have abated since its initial outbreak, the Company is unable to predict the likelihood of reoccurrence and the long-term effects that these factors may have on the Delta Group’s business. Furthermore, there is no assurance that avian-flu or other contagious diseases having a similar or more adverse impact than SARS will not affect the Taiwan economy.

Holders of the GDRs may have difficulty enforcing any judgment obtained outside Taiwan against the Company or the Company’s directors, supervisors or executive officers

The Company was incorporated under ROC law. Substantially all of the Company’s directors, supervisors and executive officers reside in Taiwan. In addition, a significant proportion of the Company’s assets and a substantial portion of the assets of those persons are located in Taiwan. As a result, it may not be possible for holders of the GDRs to effect service of process upon the Company or those persons outside Taiwan. The Company has, however, irrevocably appointed an agent in England to receive service of process in any proceedings in England based on any of the GDRs. Notwithstanding the foregoing, it may be difficult to enforce in the ROC court judgments obtained against the Company and the Company’s directors, supervisors and executive officers in non-ROC courts, including those obtained against the Company in an English court. See “Enforceability of Foreign Judgments in the ROC.”

Financial reporting and accounting standards in the ROC

The Company is subject to financial reporting requirements in the ROC that differ in certain respects from those applicable to companies in certain other countries, including the United States and the United Kingdom. In addition, the Company’s financial statements are prepared in accordance with ROC GAAP which differ in certain respects from US GAAP and generally accepted accounting principles in the United Kingdom. See “Summary of Certain Differences Between ROC GAAP and US GAAP”. Potential investors should consult their own professional advisers for an understanding of such differences and how they might affect the financial information included herein.

RISKS RELATING TO THE PRC

Political and economic situation and legal developments in the PRC

The Delta Group operates a number of facilities in the PRC from which the majority of the production for the Delta Group takes place. A significant portion of the Company’s revenues are also generated from products manufactured in the PRC. Any changes in the political, social and economic environment of the PRC will have a direct impact on the growth of the PRC economy and hence the business and future prospects of the Company. There can be no assurance that the Delta Group’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.

The PRC government has pursued economic reforms with the commencement of its open door policy in 1978 and has expressed its commitment to move further towards a “socialist market 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 business in the PRC, including the Delta Group.

In addition, there are currency exchange risks associated with doing business in the PRC. Although PRC governmental policies were introduced in 1996 to allow greater convertibility of the renminbi, the currency of the PRC, significant restrictions, including those relating to the repatriation of foreign currency denominated investments, still remain. No assurances can be made that the PRC regulatory authorities will not impose greater restrictions on the convertibility of the renminbi.

PRC legal system

The Delta Group operates a number of production facilities in the PRC and a substantial portion of its manufacturing activities is conducted in the PRC. Its operations and assets (including land use rights) in the PRC are governed by the legal system of the PRC. The legal system of the PRC is based on written laws and regulations and in which prior court decisions may be cited as authority but do not have effect as binding precedent. The PRC government is in the process of establishing a comprehensive system of laws and regulations. The existing body of laws and regulations in areas such as foreign investment, corporate organization and governance, securities and taxation has significantly enhanced the protection afforded to foreign investors. However, the legal system of the PRC is relatively undeveloped and experience with respect to the implementation, interpretation and enforcement of laws and regulations is limited. Therefore, the outcome of dispute resolution is not as predictable as in more developed legal jurisdictions.

RISKS RELATED TO THE COMMON SHARES AND THE GDRs

There are limitations on the voting rights of holders of GDRs

Holders of GDRs may exercise voting rights with respect to the Shares in the manner set out in “Terms and Conditions of the Global Depositary Receipts—Voting of Shares”. Holders of GDRs will not have voting rights attaching to the Shares on an individual basis. If so instructed by holders of at least 51% of all the GDRs outstanding at the relevant record date specified by the Depositary, the Depositary will be required to instruct the chairman of the Company’s board of directors (or another person nominated by the Company’s chairman) as the representative of the Depositary (or its nominee who is registered as representative of GDR holders in respect of the Shares, the “Registered Holder”) to vote all the Shares represented by the GDRs for or against resolutions at shareholders’ meetings in accordance with the instructions of those GDR holders, subject to certain conditions. In the absence of clear instructions from at least 51% of the holders of GDRs outstanding at the relevant time to vote the

Shares represented by the GDRs in a specific manner, all the holders of GDRs will be deemed to have instructed the Depositary to authorize and appoint the Company’s chairman (or his nominee) as representative of the Depositary and the Registered Holder to vote all the Shares represented by the GDRs in any manner the chairman (or his nominee) wishes, which may not be in the interests of the holders of GDRs.

Withdrawal of Shares from, and restrictions on the ability to deposit the Shares into, the GDR facilities may adversely affect the liquidity and price of the GDRs

Under the Deposit Agreement, holders of GDRs may surrender GDRs to the Depositary and receive Shares. Unless additional GDRs are issued, the effect of these transactions will be to reduce the number of outstanding GDRs and, if a significant number of Shares are withdrawn, to reduce the liquidity of the GDRs. As a result, the prevailing market price of the GDRs may differ from the prevailing market price of the Shares on the TSE. In addition, under the Deposit Agreement, holders of Shares may deposit those Shares with the Depositary’s custodian in Taiwan and obtain GDRs. However, under current ROC law and regulations, the Depositary’s custodian may not accept deposits of Shares, and the Depositary may not issue GDRs, without specific approval of the ROC FSC, unless those Shares (1) have been issued as stock dividends, (2) were issued as a free distribution of Shares, (3) were issued upon exercise of pre-emptive rights for cash, or (4) were purchased on the TSE specifically or delivered for deposit in the GDR facilities. In the case of (4) above, the total number of GDRs outstanding after the purchase or delivery may not be higher than the number approved by the ROC FSC with the addition of those GDRs issued pursuant to (1), (2) and (3) above. Issuance of additional GDRs representing Shares pursuant to (4) above will be permitted to the extent that previously issued GDRs have been cancelled.

Holders of GDRs may not be able to participate in rights offerings

The Company may, from time to time, distribute rights to the Company’s shareholders, including rights to acquire securities. If registration is required in any jurisdiction with respect to the offer to holders of Shares of rights, or the Shares or other relevant property to which those rights relate, the Company will not effect that offer or sale to holders in that jurisdiction, unless the Company has obtained an exemption from, or effected a registration in accordance with, the requirements of that jurisdiction. The Company is not obligated to obtain any exemption or effect any registration. The Company will not offer rights to holders of GDRs unless both the rights and the securities to which those rights relate are either exempt from registration under the Securities Act, with respect to a distribution to all holders of GDRs, or are registered under the provisions of the Securities Act. However, under the Deposit Agreement, the Company is under no obligation to file a registration statement with respect to those rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of GDRs may be unable to participate in rights offerings that the Company conducts and may experience dilution of their holdings as a result.

There are restrictions on the transfer of the GDRs

The GDRs being offered in this offering have not been registered under the securities laws of the United States or elsewhere and may not be offered, sold, pledged or otherwise transferred in any jurisdiction where registration may be required. See “Transfer Restrictions”.

The Company is a ROC company and, because the rights of shareholders under ROC law differ from those under the laws of some other jurisdictions, investors may have more difficulty protecting their rights than shareholders in some other jurisdictions

The Company’s corporate affairs are governed by the Company’s articles of incorporation and by the laws governing corporations incorporated in the ROC. The rights of shareholders and the

responsibilities of management and the members of the Company’s board of directors under ROC law are different from those that apply to a corporation incorporated in some other jurisdictions. The duty of care required of ROC companies’ directors may not be the same as the fiduciary duty of directors of non-ROC companies. Therefore, public shareholders of ROC companies may have more difficulty in protecting their interests in connection with actions taken by management or members of the board of directors than they would as public shareholders in some other jurisdictions.

Holders of GDRs who withdraw Shares will be required to appoint a local agent and a tax guarantor in the ROC

Under current ROC law, if holders of the GDRs wish to withdraw and hold underlying Shares from a depositary receipt facility, they will be required to appoint an eligible agent in the ROC to open a securities trading account with a local brokerage firm and a bank account to pay ROC taxes, remit funds, exercise shareholders’ rights and perform such other functions as holders of the GDRs may designate upon that withdrawal. In addition, holders of the GDRs will be required to appoint a custodian bank to hold the securities in safekeeping, confirm and settle trades and report all relevant information. Without the opening of these accounts, the withdrawing holder would be unable to hold or subsequently sell the underlying Shares withdrawn from the depositary receipt facility on the TSE or otherwise. In addition, holders of the GDRs will be required to register with the TSE for making investments in the ROC securities market prior to withdrawing Shares. These laws may change from time to time. The Company cannot assure holders of the GDRs that withdrawing holders will be able to register with the TSE and open the requisite accounts in a timely manner or that current ROC law will remain in effect or that future changes in ROC law will not adversely affect the ability of GDR holders to withdraw the Shares from the GDR facilities.

Holders of GDRs who withdraw Shares represented by GDRs are also required under current ROC law and regulations to appoint an agent in the ROC for filing tax returns and making tax payments. That agent must meet certain qualifications set by the ROC Ministry of Finance and, upon appointment, becomes a guarantor of the withdrawing holder’s ROC tax obligations. Evidence of the appointment of that agent and the approval of that appointment by the ROC tax authorities and tax clearance certificates or evidentiary documents issued by that agent may be required as conditions to the withdrawing holder’s repatriation of the proceeds from the sale of the withdrawn Shares. There can be no assurance that a withdrawing holder will be able to appoint and obtain approval for that agent in a timely manner.

A holder of GDRs or its designee requesting the withdrawal of the Shares represented by the GDRs may be required to provide certain information to the Company or the Depositary, and failure to provide that information may result in a delay of the withdrawal

A holder of the GDRs or its designee requesting the withdrawal of the Shares represented by the GDRs may be required to provide certain information to the Company or the Depositary, including the name and nationality of the person to be registered as the shareholder, the number of Shares to be acquired by that person and the number of Shares acquired by that person in the past through the date of the withdrawal of the Shares underlying the GDRs. Under applicable ROC laws, the Company is required to report to the ROC FSC if the person to be registered as a shareholder (1) is a “related party” of the Company as defined in the ROC Statement of Financial Accounting Standard No. 6 or (2) will hold, immediately following the withdrawal, more than 10% of the total number of the Shares outstanding. Failure to provide this information may result in a delay of the withdrawal of the Shares represented by the GDRs.

Changes in exchange controls that restrict investor’s ability to convert proceeds received from their ownership of GDRs may have an adverse effect on the value of their investment

The imposition of foreign exchange controls may undermine investor’s ability to convert proceeds received from their ownership of GDRs. Under current ROC law, the Depositary, without obtaining further approval from the CBC or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies, including US dollars, for:

‰ the proceeds of the sale of Shares represented by GDRs or the proceeds of the sale of Shares received as stock dividends which have been deposited into the GDR facilities; and
‰ any cash dividends or distributions received on the Shares.

The Depositary may also convert into NT dollars incoming payments for purchases of Shares for deposit in the GDR facilities against the creation of additional GDRs. The Depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights for new Shares. Although the Company expects that the CBC will grant this approval as a routine matter, the Company cannot be certain that in the future any approval will be obtained in a timely manner, or at all.

Under current ROC law, a GDR holder, after becoming a holder of Shares, without obtaining further approval from the CBC, may convert NT dollars into other currencies, including US dollars, with respect to:

‰ the proceeds of the sale of any underlying Shares withdrawn from the GDR facilities or the proceeds of the sale of Shares received as stock dividends which have been deposited into the GDR facilities; and
‰ any cash dividends or distributions received on the Shares.

However, a holder may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights for new Shares. In addition, under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC government may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls for certain periods of time in the event of, among other things, a material change in international economic conditions. The Company cannot assure holders of GDRs that foreign exchange controls or other restrictions will not be introduced in the future.

The value of investor’s investment may be adversely affected by future sales of the Company’s Shares by the Company’s shareholders, including the Company’s controlling shareholders

While, except for the sale of GDRs by the Selling Shareholders in connection with this offering, the Company is not aware of any plans by any other major shareholders to dispose of a significant number of Shares, the Company cannot assure investors that one or more of the Company’s shareholders will not dispose of Shares in the future. The Company cannot predict the effect, if any, that future sales of Shares or GDRs, or the availability of Shares or GDRs for future sale, will have on the market price of the Shares or the GDRs prevailing from time to time. Sales of a substantial number of Shares or GDRs in the public market, or the perception that those sales may occur, could adversely affect the prevailing market price of Shares or GDRs.

Use of Proceeds

Bruce CH Cheng and E-Ying Hsieh are the Selling Shareholders in this offering and will receive all of the net proceeds from the sale of the GDRs, estimated to be US$131,977,600 (net of underwriting discounts and expenses). The Company will not receive any proceeds from this offering. See “The Selling Shareholders”.

Market Price Information

The Shares are listed on the TSE. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the TSE for the Shares and the highest and lowest of the daily closing values of the Taiwan Stock Exchange Capitalization Weighted Stock Index.

1996 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March (to March 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Price per Share(1) High Low (NT$) 10.21 7.92 15.77 9.12 17.59 13.91 23.40 17.88 37.41 21.46 56.04 36.37 79.77 48.89 65.82 35.23 65.10 38.45 52.94 38.27 56.66 38.42 48.50 33.70 44.00 31.12 76.83 37.99 85.85 61.04 74.94 58.20 88.59 70.82 89.62 68.51 84.02 66.96 77.58 57.62 80.48 67.93 73.08 48.29 56.39 25.79 52.84 27.68 53.24 40.62 51.27 36.28 47.62 38.46 44.17 35.37 40.91 30.57 44.44 33.11 47.14 40.48 43.90 40.48 43.90 38.00 44.00 37.90 48.50 40.60 56.00 48.70 55.00 51.00 54.50 51.50 53.40 50.60	Average daily trading volume in Shares(1) (in thousands) 5,979 12,963 7,066 14,054 22,437 35,617 36,325 45,340 38,355 30,789 26,577 28,616 15,162 42,873 37,429 25,862 33,253 15,127 16,777 15,229 15,089 6,944 9,721 25,470 14,840 7,369 6,820 5,924 5,599 5,981 7,165 3,624 4,441 3,125 2,447 3,584 2,496 2,986 3,767	Taiwan Weighted Index	Taiwan Weighted Index
			High 5,146.04 6,560.41 6,535.59 6,982.81 8,526.20 9,030.28 10,116.84 8,695.02 9,277.09 9,266.68 8,047.67 7,435.84 7,043.23 8,608.91 8,593.35 8,448.84 10,202.20 10,186.17 8,585.52 6,353.67 6,104.24 5,608.50 4,886.86 5,551.24 6,242.64 6,462.30 5,416.50 4,823.67 5,078.80 5,048.91 5,757.91 6,142.32 6,103.00 6,049.49 6,139.69 6,139.69 6,143.12 6,207.83 6,259.69	Low
				4,690.22 5,127.49 5,955.50 6,359.67 6,820.35 7,952.12 8,708.83 7,089.56 7,375.14 7,117.11 6,251.38 6,418.43 5,474.79 7,018.68 6,823.52 7,362.69 8,536.05 8,120.89 6,185.14 4,614.63 4,894.79 4,768.55 3,493.78 3,446.26 5,488.33 5,071.76 4,185.95 3,850.04 4,260.45 4,139.50 5,017.78 5,581.66 5,650.97 5,656.17 5,798.62 5,650.97 5,771.48 5,981.54 6,018.79

(1) Stock prices and average daily trading volumes have been retroactively adjusted for stock dividends paid by the Company.

On March 22, 2005, the reported closing price of the Shares was NT$52.0 per Share and the Taiwan Stock Exchange Capitalization Weighted Stock Index closed at 6,018.79.

Dividends

The Company has distributed cash and stock dividends on its Shares since 1989. The following table sets forth the aggregate number of outstanding Shares entitled to dividends, as well as the cash paid and stock dividends distributed during each of the years indicated. Figures represent dividends in respect of the prior fiscal year paid in the current fiscal year.

1989. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1990. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Aggregate number of Shares entitled to dividends(1) 100,000,000 125,000,000 138,600,000 152,460,000 170,620,786 203,301,496 246,360,671 298,010,250 362,522,704 457,457,125 561,908,458 748,424,552 954,615,430 1,189,460,000 1,387,879,000 1,480,273,000	Dividend paid in cashper Share (NT$) 1.00 — — — — — — 0.50 0.50 1.50 2.00 2.00 2.25 1.25 2.00 2.25	Dividend paid in stockper Share(2)
			(NT$) 2.50 1.00 1.00 1.00 1.24 2.00 2.00 2.00 2.00 2.00 2.00 2.50 2.25 1.50 0.50 0.50

(1) The number of Shares set forth in this column denotes the aggregate number of Shares issued and outstanding on the record date for the payment of the dividend in the indicated year. Holders of the issued and outstanding Shares on a dividend record date will be entitled to the full dividend declared without regard to any subsequent transfer of the Shares.
(2) Holders of Shares receive as a stock dividend the number of Shares equal to the NT dollar value per Share of the declared dividend, multiplied by the number of Shares owned, divided by the par value of NT$10 per Share. Fractions of Shares are not issued. Any differences are paid in cash.

The Company’s dividend policy is to capitalize a portion of its earnings each year in the form of a stock dividend. The Company historically has paid an annual dividend on its Shares with respect to the preceding year after approval by the Company’s stockholders at the annual stockholders’ meeting. The form, frequency and amount of future dividends on the Shares will depend upon the Company’s earnings, cash flow, financial condition and other factors.

The ROC Company Law requires that 10% of annual net income (less prior year losses), after payment of taxes and duties, be set aside as a legal reserve until the accumulated legal reserve equals the Company’s total capital. The Company’s Articles of Incorporation require that at least 3% of annual net earnings (after deducting the legal reserve and providing for losses incurred in prior years) be distributed as a bonus to employees at the time annual dividends are declared. See “Description of the Shares”. In each of 2001, 2002, 2003 and 2004, the Company paid some employee bonuses in the form of stock. The amount of Shares issued as bonus is obtained by dividing the cash value of the bonus by the par value of the Shares, which is NT$10. Because the market value of the Shares has been generally well in excess of the par value, the actual cash value of a stock bonus has also been in excess of the amount such an employee would have received had the bonus been paid exclusively in cash. See “Description of the Shares”.

Exchange Rates

Fluctuations in the exchange rate between NT dollars and US dollars will affect the US dollar equivalent of the NT dollar price of the Shares on the TSE and, as a result, are likely to affect the market price of the GDRs.

Set forth below are the period-end approximate closing rates in effect between the NT dollar and the US dollar, expressed in NT dollars per US dollar, for the periods indicated.

1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 (to March 22, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Period-end
	26.67 26.29 27.29 27.49 32.64 32.22 31.40 30.77 34.99 34.75 33.99 31.74 31.29

1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (to March 22, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Period-end

26.67
26.29
27.29
27.49
32.64
32.22
31.40
30.77
34.99
34.75
33.99
31.74
31.29

Source: Federal Reserve Bank of New York

On March 22, 2005, the noon buying rate between New Taiwan dollars and United States dollars was NT$31.29 = US$1.00.

Capitalization

The following table sets forth the audited consolidated short-term debt and capitalization of the Company as of December 31, 2004:

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt
Short-term loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Convertible bonds due 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
Common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings
Legal reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjusted items in stockholders’ equity
Unrealized loss on market value decline of long-term investments . . .
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capitalization(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31, 2004
(in millions)
NT$23,779.1
US$ 748.1
4,082.4
128.4
6,337.9
199.4
—
—
15,859.7
499.0
6,853.0
215.6
3,237.7
101.9
7,620.5
239.7
(3.0)
(0.1)
(444.1)
(14.0)
33,123.8
1,042.1
39,461.7
1,241.5

(1) There has been no material change in the capitalization of the Company since December 31, 2004 subject to the conversion of the Company’s zero coupon convertible bonds by the bondholders and the cash dividends received from overseas subsidiaries.

(2) Total capitalization is equal to the sum of long-term debt and stockholders’ equity.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in connection with “Selected Financial Information” and the Company’s audited consolidated financial statements for the years ended December 31, 2002, 2003 and 2004, including the notes thereto, included elsewhere in this Offering Circular.

Overview

The Delta Group produces a substantial portion of its products on a design, manufacture and services basis (“DMS”), that is, it designs and manufactures products based on its customers’ requirements and specifications, often in consultation with its customers. The markets in which the Delta Group operates are highly competitive and its strategy is to focus on the development of innovative new products using advanced process technologies, maintaining high quality standards and improving production efficiency. Each of the Delta Group’s manufacturing plants is equipped with wholly- or partly-automated production lines and has engineering staff responsible for monitoring manufacturing automation and process improvement. The Delta Group also builds much of its automated equipment and systems in-house, which enables it to tailor the systems to its own needs to establish more effective and economical production processes.

The Company’s operating revenues were NT$56,475.0 million (US$1,776.7 million) in 2004, compared to NT$49,541.9 million in 2003 and compared to NT$48,514.7 million in 2002. Gross profit was NT$12,263.7 million (US$385.8 million) in 2004, compared to NT$10,612.6 million in 2003 and compared to NT$9,942.9 million in 2002.

Factors Affecting Results of Operations

A number of general factors affected the Company’s financial performance during the three years ended December 31, 2002, 2003 and 2004. The principal factors are discussed below and are expected to continue to affect the financial performance of the Delta Group in the foreseeable future.

Change in Product Mix

Sales of power-related products has currently and historically contributed almost half of the Company’s operating revenues. The Company expects this trend to continue in the future. The Company has constantly tried to alter its product mix in order to try and maximize its margins and profitability. While the Company has always made efforts to sustain its margins through cost cutting measures, the margins on some of its products have, in the past, been reduced, due to strong competition. When a product’s margins are small and it is near the end of its life cycle, the Company will generally discontinue manufacturing that product and will allocate its resources in favor of products which have higher profit margins and higher growth potential.

The following table sets forth the revenues contributed by each of the Company’s product types to its operating revenues and the percentage of the Company’s total operating revenues they represent for the periods shown:

			Year ended December 31,	Year ended December 31,
2002			2003		2004
Operating revenue	Percentage of operating revenue		Operating revenue	Percentage of operating revenue	Operating revenue	Percentage of operating revenue
NT$22,363.3 7,004.3 7,105.8 9,224.9 1,362.7 1,453.7		46.1% 14.5% 14.6% 19.0% 2.8% 3.0% 100.0%	(in millions) NT$23,799.1 48.0% 10,099.7 20.4% 6,142.2 12.4% 7,289.8 14.7% 1,920.8 3.9% 290.3 0.6% NT$49,541.9 100.0%		NT$29,625.6 13,224.1 6,431.2 3,596.9 2,934.6 662.6		52.5% 23.4% 11.4% 6.4% 5.2% 1.1% 100.0%
NT$48,514.7					NT$56,475.0

In 2003, the Company made the strategic decision to discontinue production of CRT monitors and LCD monitors due to severe price competition and rapidly diminishing margins. Thus, in the second half of 2003, the Company stopped taking any additional orders for CRT monitors and LCD monitors.

In 2001, the Company made the strategic decision to discontinue production of its CD-ROM drives due to severe price competition and rapidly diminishing margins. Thus the Company discontinued sales of CD-ROM drives in 2002.

Raw Materials

The Company’s principal operating costs are the costs of raw materials for its products. If these costs increase, the Company’s margins would generally decrease. Raw material costs generally comprise the largest proportion of the total costs for the Company’s products and accounted for the vast majority of the total operating costs for the three years ended December 31, 2002, 2003 and 2004. The principal raw materials purchased by the Company include steel, plastics and copper which have comprised the majority of the Company’s raw materials cost.

Introduction of New Products

The markets for certain of the products the Company sells, such as power-related products, are not expected to grow significantly and may decline in the future. These markets are mature markets where manufacturing capacity is not constrained and there is downward pricing pressure on products sold. The Company believes that its high power power-supply products, power magnetics component products and adapters are products in mature markets. To sustain margins, the Company has focused on reducing the cost of production for existing products and sought to design and manufacture new and innovative products that can command higher sales prices and margins.

Global Economic Conditions Affecting Demand

Today’s global market is driven by demand for products with shorter lifecycles, which requires continuous innovation, cost reduction and better customer service. These challenges are shared throughout the electronics industries.

Economic downturns and declines in consumption in the Company’s major markets, may affect the levels of sales. A decline in the level of consumption caused by the worsening of general economic conditions could adversely affect the Company’s results of operations.

The Company’s operating results are also affected by the level of business activity of its major customers, which in turn is affected by the level of economic activity in the industries and markets that they serve. A decline in the level of business activity of the Company’s customers caused by the worsening of the global economy could adversely affect the Company’s results of operations.

Operating revenues

Power-related products revenues

Revenues from the sale of power-related products constituted, 46.1%, 48.0% and 52.5% for the Company’s operating revenue in 2002, 2003 and 2004. The following table sets forth the sales revenues of each of the Company’s power related products and the percentage of total operating revenue from power related products provided by each power-related product for the periods indicated:

		Year ended December 31,	Year ended December 31,
2002		2003		2004
Operating revenue	Percentage of total operating revenue from power-related products	Operating revenue	Percentage of total operating revenue from power-related products	Operating revenue	Percentage of total operating revenue from power-related products
NT$12,507.1 5,876.0 922.4 1,102.3 1,052.7 902.8						58.0% 22.3% 1.5% 6.7% 4.5% 7.0% 100.0%
NT$22,363.3				NT$29,625.6

Components revenues

Revenues from the sale of components constituted 14.5%, 20.4% and 23.4% for the Company’s operating revenue in 2002, 2003 and 2004. The following table sets forth the sales revenues of each of the Company’s components and the percentage of total operating revenue from components provided by each component for the periods indicated:

			Year ended December 31,	Year ended December 31,
2002			2003		2004
Operating revenue	Percentage of total operating revenue from components		Operating revenue	Percentage of total operating revenue from components	Operating revenue	Percentage of total operating revenue from components
NT$3,717.0 1,215.9 810.3 531.8 487.2 242.1		(in millions, except percentages) 53.1% NT$ 5,104.5 50.5% NT$ 7,418.5 17.4% 2,316.6 22.9% 2,498.6 11.5% 905.0 9.0% 1,344.5 7.6% 662.5 6.6% 713.1 7.0% 812.5 8.0% 564.0 3.4% 298.6 3.0% 685.4 100.0% NT$10,099.7 100.0% NT$13,224.1					56.0% 18.9% 10.2% 5.4% 4.3% 5.2% 100.0%
NT$7,004.3					NT$13,224.1

Networking products revenues

Revenues from the sale of networking products constituted 14.6%, 12.4% and 11.4% for the Company’s operating revenue in 2002, 2003 and 2004. The following table sets forth the sales revenues of each of the Company’s networking products and the percentage of total operating revenue from networking products provided by each networking product for the periods indicated:

			Year ended December 31,	Year ended December 31,
2002			2003		2004
Operating revenue	Percentage of total operating revenue from networking products		Operating revenue	Percentage of total operating revenue from networking products	Operating revenue	Percentage of total operating revenue from networking products
NT$3,455.5 1,067.3 1,895.2 687.8		(in 48.6% 15.0% 26.7% 9.7% 100.0%	millions, except percentages) NT$3,962.3 64.5% NT$4,728.1 619.4 10.1% 758.4 1,011.4 16.5% 573.5 549.1 8.9% 371.2 NT$6,142.2 100.0% NT$6,431.2				73.5% 11.8% 8.9% 5.8% 100.0%
NT$7,105.8					NT$6,431.2

Visual display products revenues

Revenues from the sale of visual display products constituted 19.0%, 14.7% and 6.4% for the Company’s operating revenue in 2002, 2003 and 2004. The following table sets forth the sales revenues of each of the Company’s visual display products and the percentage of total operating revenue from visual display products provided by each visual display product for the periods indicated:

			Year ended December 31,	Year ended December 31,
2002			2003		2004
Operating revenue	Percentage of total operating revenue from visual display products		Operating revenue	Percentage of total operating revenue from visual display products	Operating revenue	Percentage of total operating revenue from visual display products
NT$2,128.1 3,076.8 4,020.0		(in 23.1% 33.3% 43.6% 100.0%	millions, except percentages) NT$2,670.5 36.6% NT$3,284.4 1,052.9 14.5% 64.7 3,566.4 48.9% 247.8 NT$7,289.8 100.0% NT$3,596.9				91.3% 1.8% 6.9% 100.0%
NT$9,224.9					NT$3,596.9

Electromechanical products revenues

Revenues from the sale of electromechanical products constituted 2.8%, 3.9% and 5.2% for the Company’s operating revenue in 2002, 2003 and 2004. The following table sets forth the sales revenues of each of the Company’s electromechanical products and the percentage of total operating revenue from electromechanical products provided by each electromechanical product for the periods indicated:

			Year ended December 31,	Year ended December 31,
2002			2003		2004
Operating revenue	Percentage of total operating revenue from electromechanical products		Operating revenue	Percentage of total operating revenue from electromechanical products	Operating revenue	Percentage of total operating revenue from electromechanical products
NT$1,362.7		100.0% 100.0%	(in millions) NT$1,920.8 100.0% NT$1,920.8 100.0%		NT$2,934.6		100.0% 100.0%
NT$1,362.7					NT$2,934.6

Other products and services revenues

Other products and services revenues constituted 3.0%, 0.6% and 1.1% for the Company’s operating revenue in 2002, 2003 and 2004. The Company’s other products and services primarily include fees charged for the installation of servers and power systems.

Operating costs

Operating costs consist primarily of raw materials. In 2002, 2003 and 2004, raw material cost accounted for a substantial percentage of the Company’s total operating costs.

Gross margins

The Company’s gross margins are principally affected by the following factors:

‰ average sale prices of products, which tend to fall during the life-cycle of products as more advanced products are introduced and as price competition increases from other manufacturers of similar products;
‰ raw material costs, which are subject to market fluctuations and may not be completely passed on to the Company’s customers;
‰ manufacturing costs, which may be reduced by increasing economies of scale and shifting production to lower-cost labor markets; and
‰ changes in product mix, which is significantly influenced by the Company’s strategy to maintain a balanced portfolio of higher-margin products and lower-margin products.

Operating expenses

Operating expenses include selling expenses, general and administrative expenses and research and development expenses. Selling expenses primarily include payroll, bad debt, rent, employee benefits, travelling and promotional expenses. General and administrative operating expenses primarily include payroll, depreciation and repair expenses. Research and development operating expenses primarily include expenses incurred in developing products.

Non-operating income

Non-operating income includes primarily interest income, investment income, dividend income, gains on disposal of property, plant and equipment, gains on disposal of investments, foreign exchange gains and other income. Other income includes rental income, cancellation charges and revenue from sales of sample products.

Non-operating expenses

Non-operating expenses includes primarily interest expenses, investment losses, losses on disposal of property, plant and equipment, provision for decline in market value and obsolescence of inventories and other losses. Other losses include rental costs and extraordinary packaging expenses.

Critical Accounting Policies

Critical accounting policies are those that require application of the Company’s management’s most difficult, subjective or complex judgments, often as a need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. The Company’s significant accounting policies are more fully described under Note 2 of the financial statements included elsewhere in this Offering Circular. Such policies are based on ROC GAAP that differ in significant respects from accounting principles generally accepted in other countries, including US GAAP. See “Summary of Certain Differences Between ROC GAAP and US GAAP.”

Below is a description of the critical accounting policies that management believes are the most significant judgments and estimates used in the preparation of its financial statements.

Consolidation

The financial statements were prepared in accordance with the “Rules Governing the Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China. Summaries of significant accounting policies of the Company and its subsidiaries are as follows:

The consolidated financial statements include the accounts of the Company and the consolidated financial statements of DIH, DNH and Pyramis, after eliminating all significant intercompany accounts and transactions.

For long-term investments in which the Company owns more than 50% of the voting rights of the subsidiary, consolidated financial statements are prepared; however, if the total assets and the operating income of the subsidiary are less than 10% of the respective unconsolidated total assets and operating income of the Company, and such subsidiary also does not meet other consolidation criteria issued by the ROC SFB, the subsidiary’s financial statements are not consolidated and instead are accounted for using the equity method.

Research and development

Research and development expenditures are expensed as incurred with the exception of expenditures during the development stage which shall be recognized as intangible assets when all of the following can be demonstrated:

‰ the technical feasibility of completing the product, technique or process under development;
‰ the intention to complete the product, technique or process under development;
‰ the ability to use or sell the product, technique or process under development;
‰ the existence of a market for the product, technique or process under development or the usefulness of the product, technique or process under development if it is to be used internally;
‰ the availability of adequate technical, financial and other resources to complete the development and to use or sell the product, technique or process under development; and
‰ the ability to measure reliably the expenditure attributable to the development of the product, technique or process.

To date, no research and development expenditure has been capitalized.

Inventories

Inventories are stated at the lower of cost or market value; cost is determined by the standard cost. Variances from standard cost are allocated to ending inventories and cost of goods sold at the end of each period. When comparing with market value, current replacement price is used for materials. Net realizable value is used as market value for work in process and finished goods. Provision is made for slow-moving and obsolete inventories at balance sheet date.

Property, plant and equipment

With the exception of land, which is carried at appraised value, property, plant and equipment are carried at cost.

Prior to 2001, depreciation of the fixed assets of the Company, Pyramis and Delta Networks, Inc. (registered in Taiwan, DNIT), a subsidiary of Delta Networks, Inc. (Cayman) (registered in the Cayman Islands DNI Cayman, the subsidiary of DNH) are provided on a straight-line basis over the estimated useful lives of the assets plus one year as salvage value except for leasehold improvements which are based on the period of the contract. Salvage values of fixed assets, which are still in use after the end of their estimated useful lives, are depreciated over the newly estimated remaining useful lives of the assets.

Commencing 2001, depreciation of new assets which are purchased by the Company, Pyramis and DNIT is provided on a straight-line method over the estimated useful lives of the assets, with a nominal salvage value of NT$1.

For subsidiaries of DIH and DNH in the PRC, depreciation of assets is provided on a straight-line basis over the estimated useful lives of the assets, with a nominal salvage value of $1 (in dollar of reporting currency).

The estimated useful lives of fixed assets are 2 to 10 years, except for buildings which are 5 to 55 years.

Renewals and improvements are treated as capital expenditure and are depreciated accordingly. Maintenance and repairs are charged to expense as incurred. When an asset is sold or retired, the cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is included in current non-operating income or expense.

Income Tax

The Company, Pyramis and DNIT adopted ROC SFAS No. 22 “Accounting for Income Taxes”. Income tax is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred income tax assets or liabilities are further classified into current and non-current items based on the classifications of the related assets or liabilities or on the expected reversal date of the temporary differences and are presented on the financial statements as net balance. Valuation allowance for deferred income tax assets is recognized if it is more likely than not that the tax benefits will not be realized. Tax credits resulting from equipment purchase, technology acquisition, research and development expenditure, training expense and long-term equity investment are recognized as current income tax benefit when incurred.

The Company’s overseas subsidiaries adopted liability method which is similar to ROC SFAS No. 22 “Accounting for Income Taxes”.

Over or under provision of prior years’ income tax liabilities are included in the current year’s income tax expense.

According to the Taiwan imputation tax system, undistributed current earnings of a company derived on or after January 1, 1998 is subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional corporate income tax is recorded as income tax expense in the period when the stockholders approve a resolution to retain the earnings.

Earnings per share

In accordance with ROC SFAS No. 24 “Earnings Per Common Share”, as revised on November 1, 2002, the basic earnings and diluted earnings per share are disclosed in the income statements. The computation of earnings per share are as follows:

A. Basic earnings per share: net income is divided by the weighted average number of shares outstanding during the period.
B. Diluted earnings per share: the computation is the same as basic earnings per share, except that potential common shares are assumed to have been converted to common stock at the beginning of the period and net income is adjusted by the amount associated with the conversion.

The potential common shares consist of Euro convertible bonds. The Company adopted the “if converted method” in computing the dilutive effect of the Euro convertible bonds.

Forward currency option contracts

Premiums or discounts on option contracts are recorded as liabilities or assets at cost. Premiums and discounts on option contracts are amortized over the contract period on a straight line basis. Outstanding put options at balance sheet date are accounted for at their fair value with differences included in the current net income.

Forward exchange contracts

Forward exchange contracts entered into for hedging purposes are recorded using the spot rate on the contract date. Discounts or premiums on forward contracts are amortized over the periods of the contract. Gains or losses on forward contracts are determined by the difference between the spot rate at the balance sheet date and the spot rate at the date of inception of the contract. Exchange gains or losses are included in current net income.

Cross currency swap contracts

Cross currency swap contracts entered into for hedging purposes are recorded using the contract rate on the contract date and recorded as accrued receivable and accrued payable, respectively. Interest receivable and interest payable are accrued in accordance with the contract rate. Gains or losses on cross currency swap contracts are determined by the difference between the spot rate at the balance sheet date and the spot rate at the date of inception of the contract. Exchange gains or losses are included in current net income.

Change in Accounting Policy

Effective the quarter ended December 31, 2004, in accordance with No. 32 ruling issued by Accounting Research and Development Foundation in 2005, “The Accounting Treatment of Foreign Exchange Option Contract Before the Effectiveness of Financial Accounting Standards No. 34”, outstanding put options at balance sheet date shall be accounted for at their fair values with the differences included in the current net income. This change in accounting principles increased the consolidated net income for the year ended December 31, 2004 by NT$13.8 million.

There were certain changes in the consolidated entities in each of 2002, 2003 and 2004. Please refer to Note 1. 3) of the audited consolidated financial statements for the years ended December 31, 2002, 2003 and 2004 of the Company appearing elsewhere herein. In addition, as discussed in Note 1. 3).—Note F, the consolidated financial statements of 2003 have been restated so as to include the financial position and operation results of Pyramis as of and for the year ended December 31, 2003. This restatement had no impact on total consolidated assets as of December 31, 2003 and operating revenues of 2003.

Results of Operations

The following table sets forth for the periods indicated the Company’s results of operations as a percentage of operating revenues for the periods shown:

Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income tax and minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax benefit (expense). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,
	2002 % 100.0 79.5 20.5 4.0 3.0 5.7 12.7 7.8 4.2 2.0 10.0 (0.8) (0.4) 8.8	2003 % 100.0 78.6 21.4 3.6 2.8 6.3 12.7 8.7 3.5 2.3 9.9 1.0 (0.4) 10.5		2004
				% 100.0 78.3 21.7 3.7 2.8 5.7 12.2 9.5 3.7 1.9 11.3 1.2 (0.7) 11.8

Year Ended December 31, 2004 compared to year ended December 31, 2003

Operating revenues

Operating revenues increased 14.0% to NT$56,475.0 million (US$1,776.7 million) in 2004 from NT$49,541.9 million in 2003, primarily due to increased sales of components and power-related products despite a decrease in sales of visual display products.

Revenues attributable to the sales of power-related products increased 24.5% to NT$29,625.6 million (US$932.1 million) in 2004 from NT$23,799.1 million in 2003. This increase was primarily due to increased sales volumes of switching power supplies.

Revenues attributable to the sales of components increased 30.9% to NT$13,224.1 million (US$416.0 million) in 2004 from NT$10,099.7 million in 2003. This increase was primarily due to increased sales volumes of brushless DC fans.

Revenues attributable to the sales of electromechanical products increased 52.8% to NT$2,934.6 million (US$92.3 million) in 2004 from NT$1,920.8 million in 2003. This increase was primarily due to increased sales volumes of AC motor drives.

Revenues attributable to the sales of networking products increased 4.7% to NT$6,431.2 million (US$202.3 million) in 2004 from NT$6,142.2 million in 2003. This increase was primarily due to an increase in sales for LAN products partially offset by a decrease in the market demand for networking products.

Revenues attributable to the sales of visual display products decreased 50.7% to NT$3,596.9 million (US$113.2 million) in 2004 from NT$7,289.8 million in 2003. This decrease was primarily due to the Company’s decision to discontinue the production of LCD and CRT monitors and to stop taking any additional orders in the second half of 2003.

Revenues attributable to the sales of other products and services increased 128.2% to NT$662.6 million (US$20.8 million) in 2004 from NT$290.3 million in 2003. This increase was primarily due to increased sales of servers which increased the amount of fees charged for server installation.

Operating costs and gross profit

Operating costs increased 13.6% to NT$44,211.3 million (US$1,390.9 million) in 2004 from NT$38,929.3 million in 2003. This increase was primarily due to increased sales. Gross profit increased 15.6% to NT$12,263.7 million (US$385.8 million) in 2004 from NT$10,612.6 million in 2003.

As a result of the foregoing, gross margins increased to 21.7% in 2004 from 21.4% in 2003.

Operating expenses and operating income

Operating expenses increased 9.4% to NT$6,918.2 million (US$217.7 million) in 2004 from NT$6,323.1 million in 2003 primarily due to increased selling expenses and partially offset by effective cost cutting and streamlining measures. Selling expenses increased 17.2% to NT$2,104.1 million (US$66.2 million) in 2004 from NT$1,795.9 million in 2003 primarily due to increased sales. Operating income increased 24.7% to NT$5,346.3 million (US$168.2 million) in 2004 from NT$4,288.8 million in 2003.

As a result of the foregoing, operating margins increased to 9.5% in 2004 from 8.7% in 2003.

Non-operating income

Non-operating income increased 18.5% to NT$2,103.4 million (US$66.2 million) in 2004 from NT$1,775.5 million in 2003 primarily due to an increase in interest income and dividend income which was partially offset by a decrease in gain on disposal of investments. Interest income increased 41.5% to NT$380.4 million (US$12.0 million) in 2004 from NT$268.9 million in 2003 primarily due to increased cash and cash equivalents due to the issuance of a convertible bond in 2003. Dividend income increased 0.6% to NT$52.4 million (US$1.6 million) in 2004 from NT$52.1 million in 2003 primarily due to cash dividends paid to the Company from its investee companies.

Non-operating expenses

Non-operating expenses decreased 8.4% to NT$1,047.4 million (US$33.0 million) in 2004 from NT$1,144.0 million in 2003 primarily due to a decrease in other investment loss and a decrease in the

loss on disposal of property, plant and equipment and which were partially offset by an increase in the provision for decline in market value and obsolescence of inventories, an increase in other losses and an increase in interest expenses. Other investment loss decreased 80.6% to NT$66.1 million (US$2.1 million) in 2004 from NT$341.2 million in 2003 primarily due to the recognition of an impairment loss on several of the Company’s investee companies which were accounted for by the cost method in 2003.

Income before income tax and minority interest

As a result of the foregoing, income before income tax and minority interest increased 30.1% to NT$6,402.2 million (US$201.4 million) in 2004 from NT$4,920.3 million in 2003.

Income tax benefit

Income tax benefit increased 29.7% to NT$635.4 million (US$20.0 million) in 2004 from NT$489.9 million in 2003 primarily due to tax credits available pursuant to Article 70-1 of the SUI for establishing its headquarters for global operations in the ROC. See “—Taxation”.

Minority interest

Minority interests increased 93.0% to NT$376.0 million (US$11.8 million) in 2004 from NT$194.8 million in 2003.

Net income

As a result of the foregoing, net income increased 27.7% to NT$6,661.7 million (US$209.6 million) in 2004 from NT$5,215.4 million in 2003.

Year Ended December 31, 2003 compared to year ended December 31, 2002

Operating revenues

Operating revenues increased 2.1% to NT$49,541.9 million in 2003 from NT$48,514.7 million in 2002, primarily due to increased sales of components and power-related products despite a decrease in sales of visual display products.

Revenues attributable to the sales of power-related products increased 6.4% to NT$23,799.1 million in 2003 from NT$22,363.3 million in 2002. This increase was primarily due to increased sales volumes of ballasts, adapters and telecom power systems.

Revenues attributable to the sales of components increased 44.2% to NT$10,099.7 million in 2003 from NT$7,004.3 million in 2002. This increase was primarily due to increased sales volumes of brushless DC fans.

Revenues attributable to the sales of electromechanical products increased 41.0% to NT$1,920.8 million in 2003 from NT$1,362.7 million in 2002. This increase was primarily due to increased sales volumes of AC motor drives.

Revenues attributable to the sales of networking products decreased 13.6% to NT$6,142.2 million in 2003 from NT$7,105.8 million in the corresponding period in 2003. This decrease was primarily due to a downturn in the market for networking products.

Revenues attributable to the sales of visual display products decreased 21.0% to NT$7,289.8 million in 2003 from NT$9,224.9 million in 2002. This decrease was primarily due to the Company’s decision to discontinue the production of LCD and CRT monitors and to stop taking any additional orders in the second half of 2003.

Revenues attributable to the sales of other products and services decreased 80.0% to NT$290.3 million in 2003 from NT$1,453.7 million in 2002. This decrease was primarily due to fewer installations of servers and power supplies resulting in decreased installation fees.

Operating costs and gross profit

Operating costs increased 0.9% to NT$38,929.3 million in 2003 from NT$38,571.8 million in 2002. This slight increase was primarily due to increased sales of lower cost products and the termination of the Company’s purchase of raw materials for CRT and LCD monitors. Gross profit increased 6.7% to NT$10,612.6 million in 2003 from NT$9,942.9 million in 2002.

As a result of the foregoing, gross margins increased to 21.4% in 2003 from 20.5% in 2002.

Operating expenses and operating income

Operating expenses increased 2.9% to NT$6,323.1 million in 2003 from NT$6,147.3 million in 2002 primarily due to an increase in research and development expenses which was partially offset by decreases in selling and management and administrative expenses. Research and development expenses increased 13.6% to NT$3,139.6 million in 2003 from NT$2,764.1 million in 2002 primarily due to increased research and development for new products. Selling expenses decreased 7.2% to NT$1,795.9 million in 2003 from NT$1,936.0 million in 2002 primarily due to effective cost control measures implemented in the beginning of 2001. Management and administrative expenses decreased 4.1% to NT$1,387.7 million in 2003 from NT$1,447.2 million in 2002 primarily due to effective cost control measures implemented in the beginning of 2001.

Non-operating income

Non-operating income decreased 11.8% to NT$1,775.5 million in 2003 from NT$2,012.1 million in 2002 primarily due to higher investment income in 2002 which was partially offset by foreign exchange gain in 2003. There was a 330.8% increase in foreign exchange gain to NT$190.4 million in 2003 from NT$44.2 million primarily due to investment gains generated in 1995 to 1996, which were realized in 2002 in order to take advantage of favourable tax treatment. See “—Taxation”.

Non-operating expenses

Non-operating expenses increased 18.5% to NT$1,144.0 million in 2003 from NT$965.2 million in 2002 primarily due to the recognition of an impairment loss on several of the Company’s investee companies which were accounted for by the cost method in 2003.

Income before income tax and minority interest

As a result of the foregoing, income before income tax and minority interest increased 1.6% to NT$4,920.3 million in 2003 from NT$4,842.9 million in 2002.

Income tax expense (benefit)

The Company recorded an income tax benefit of NT$489.9 million in 2003, compared to an income tax expense of NT$370.3 million in 2002 primarily due to investment tax credits available pursuant to Article 70-1 of the SUI.

Minority interest

Minority interests decreased 1.1% to NT$194.8 million in 2003 from NT$196.9 million in 2002.

Net income

As a result of the foregoing, net income increased 22.0% to NT$5,215.4 million in 2003 from NT$4,275.7 million in 2002.

Liquidity and Capital Resources

The Company’s primary cash requirements are to fund capital expenditures including investments in acquired businesses and to finance working capital requirements. Historically, the Company has funded its operations through operating cash flows, bank borrowings and other loans. Current sources of liquidity to meet funding needs include operating cash flows, cash on hand and bank borrowings.

Cash flow

Cash flow for the years ended December 31, 2004, 2003 and 2002

In 2004, net cash flow was an inflow of NT$420.9 million (US$13.2 million), compared to an inflow of NT$10,198.1 million in 2003, compared to an outflow of NT$2,128.4 million in 2002, bringing the Company’s cash and cash equivalents position as of December 31, 2004 to NT$23,779.1 million (US$748.1 million).

Year ended December 31, 2004. Net cash provided by operating activities was NT$8,044.7 million (US$253.1 million) in 2004. This amount reflected net income of NT$6,661.7 million (US$209.6 million). The difference of NT$1,383.0 million (US$43.5 million) reflected primarily an increase in notes and accounts payable—third parties of NT$2,574.7 million (US$81.0 million) and accrued expenses, other payables and received in advance of NT$652.3 million (US$20.5 million) which was offset by an increase in notes and accounts receivable—third parties of NT$3,460.8 million (US$108.9 million) and an increase in inventories of NT$1,086.9 million (US$34.2 million). Depreciation and amortization was NT$2,112.0 million (US$66.4 million).

Net cash used in investing activities was NT$468.5 million (US$14.7 million) in 2004. This amount reflected the acquisition of property, plant and equipment and deferred charges of NT$2,266.8 million (US$71.3 million) and an increase of long-term investments of NT$1,235.3 million (US$38.9 million) which was partially offset by a decrease in net short-term investments of NT$2,500.2 million (US$78.7 million).

Net cash used in financing activities was NT$5,846.7 million (US$183.9 million) in 2004. This amount reflected the payment of cash dividends of NT$3,330.6 million (US$104.8 million), a decrease in commercial paper payable of NT$1,593.1 million (US$50.1 million) and a decrease in minority interests of NT$1,122.5 million (US$35.3 million).

Year ended December 31, 2003. Net cash provided by operating activities was NT$9,626.0 million in 2003. This amount reflected net income of NT$5,215.4 million. The difference of NT$4,410.6 million primarily reflected an increase in accounts payable—third parties of NT$1,833.4 million and cash dividends received from investee companies accounted for under the equity method of NT$605.5 million which was partially offset in a decrease in deferred income tax liabilities of NT$541.0 million and an increase in accounts receivable from third parties of NT$394.7 million. Depreciation and amortization was NT$2,117.6 million.

Net cash used in investing activities was NT$1,448.3 million in 2003. This amount reflected the proceeds from the disposal of long-term investments of NT$406.6 million and the proceeds from the investee company’s capital reduction or liquidation of NT$716.7 million. This amount was primarily offset by the acquisition of property, plant and equipment and deferred charges of NT$1,479.0 million.

Net cash provided by financing activities was NT$3,757.1 million in 2003. This amount reflected the issuance of convertible bonds of NT$6,876.9 million. This amount was partially offset by the payment of cash dividends of NT$2,775.8 million and a decrease in commercial paper payable of NT$896.4 million.

Year ended December 31, 2002. Net cash provided by operating activities was NT$5,441.8 million in 2002. This amount reflected net income of NT$4,275.7 million. The difference of NT$1,166.1 million primarily reflected, an increase in accrued expenses, other payables and received in advance of NT$1,348.4 million, an increase in notes and accounts payable—third parties of NT$1,202.2 million, cash dividends received from investee companies accounted for under the equity method of NT$660.4 million and an increase in other liabilities of NT$9.0 million. This amount was partially offset by an increase in notes and accounts receivable—third parties of NT$2,221.2 million, and an increase in inventories of NT$1,293.2 million. Depreciation and amortization was NT$2,064.5 million.

Net cash used in investing activities was NT$934.8 million in 2002. This amount reflected the acquisition of property plant and equipment and deferred charges of NT$2,250.7 million and an increase in long-term investments of NT$485.9 million. This was partially offset by a decrease in net short-term investments of NT$696.3 million and the proceeds from the disposal of long-term investments of NT$667.8 million.

Net cash used in financing activities was NT$5,103.3 million in 2002. This amount reflected a payment for the redemption of convertible bonds of NT$4,033.3 million, a decrease in commercial paper payable of NT$2,458.0 million and a payment of cash dividends of NT$1,486.8 million. This amount was partially offset by an increase in net short-term loans of NT$1,222.2 million.

Capital resources

Short-term debt

Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rates per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31,	As of December 31,
	2002 2003 2004 (in millions, except percentages) NT$3,001.4 NT$3,751.3 NT$4,082.4 448.1 — — 3,449.5 3,751.3 4,082.4 13,127.0 13,833.2 16,074.2 0.8% - 3.54% 0.79% - 1.70% 0.78% - 2.75%	2004
		4,082.4 16,074.2
		0.78% - 2.75%

Long-term debt

As of December 31, 2002, 2003 and 2004, the details of the Company’s convertible bonds were as follows:

As	of December 31,	of December 31,
2002 NT$ 6,142.4 (6,115.4) 27.0 3.6 $ 30.6 $ 30.6 $ 29.3 — $ 29.3	2003 (in millions) NT$6,876.9 — 6,876.9 (81.9) 6,795.0 $ — $ 31.8 (31.8) $ —	2004
		NT$6,876.9 (20.6)
		6,856.3 (518.4)
		6,337.9
		—
		— —
		—

Capital expenditures

The Company operates its own manufacturing facilities and research and development operations and therefore requires significant amounts of capital to build, expand, modernize and maintain its facilities and equipment. Total capital expenditures were NT$2,049.9 million, NT$1,240.8 million and NT$2,046.6 million (US$64.4 million) in 2002, 2003 and 2004, respectively. The following table sets forth capital expenditures incurred by the Company in 2002, 2003 and 2004:

Capital expenditure on production facilities and operational facilities. . . . . . . . . Investment in long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended December 31,	Year ended December 31,	Year ended December 31,
	2002	2003	2004
	(in 2,049.9 485.9

The Company plans to spend an estimated US$132.0 million in connection with the improvement of its production facilities and operational facilities in 2005.

Actual capital expenditures may vary from the projected capital expenditures for a variety or reasons, including changes in market conditions and other factors. The Company expects to meet its capital expenditure requirements through cash and cash equivalents on hand, cash generated from future operations and financing activities. In the future, the Company may consider additional debt financing or additional equity financing, including issuances of convertible securities, depending on market conditions, its financial performance and other factors.

Commitments and contingent liabilities

The Company leased the land and building in Taiwan Science-Based Industrial Park under operating leases. The leasing period was 20 years. As of December 31, 2004, the future lease

payments and the net present value discounted at 1.665%, one-year time deposit interest rate given by the Chunghwa Post Co., Ltd. at the end of 2004, are as follows:

Year 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010~2014 (the net present value is NT$12.4 million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015~2019 (the net present value is NT$11.4 million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020~2023 (the net present value is NT$8.4 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Amount (in NT$ millions)	Amount (in NT$ millions)
		NT$ 5.0 2.9 2.9 2.9 2.9 14.7 14.7 11.7 NT$57.7

For the new product line of CCFL, the Company entered into a contract for the construction of new plant with total future payments approximating NT$248.0 million.

As of December 31, 2004, unused letter of credit of the Company was NT$176.7 million.

Quantitative and qualitative disclosures about market risks

The Company’s exposure to financial market risks derives primarily from changes in interest rates and foreign exchange rates. To mitigate these risks, the Company utilizes derivative financial instruments, the application of which is primarily for hedging purposes and not for speculative purposes.

Interest rate risk

The Company engages in interest rate hedging activities in order to hedge its interest rate exposure on its dividend income.

Foreign exchange risk

The primary foreign currencies to which we are exposed are the US dollar and RMB. Delta enters into foreign-currency forwards contracts and other currency derivatives contracts to hedge exposure to foreign exchange risk. The Company believes that the vast majority of its foreign currency denominated costs are matched with its foreign currency denominated income and thus the Company enjoys a natural hedge. The Company only enters into foreign-currency forwards contracts and other currency derivatives contracts for amounts over and above its natural hedge. The purpose of entering into such hedges is to minimize the impact of foreign currency fluctuations on the results of operations. Gains and losses on foreign currency contracts and foreign currency denominated liabilities are recorded in the period in which the exchange rate changes, while gain and loss on foreign currency contracts that hedge foreign currency commitments are deferred until the commitments are realized.

Taxation

The Company is subject to a general income tax rate of 25%. Since incorporation, the Company has enjoyed preferential tax treatment in certain respects under the Statute for Upgrading Industries (the “SUI”).

Article 6 of the SUI provides tax credits of 5% to 20% of the funds used to procure automation equipment and technology and up to 35% for certain research and development and employee training

expenses (if the amount of expenses exceeds the average of such expenses for the preceding two years, an additional tax credit of 50% of the excess amount may be used). These tax credits must be utilized within five years from the year of such expense or investment was incurred. In addition, the aggregate tax reduction from the tax credits related to research and development and employee training expenses mentioned above for any year except the final year before expiration cannot, subject to certain exceptions, exceed 50% of the company’s income tax liability for that year. As of December 31, 2004, the Company had qualified unused tax credits under Article 6 of NT$1,720.5 million (US$54.1 million). The Company has also submitted additional investment tax credit applications relating to Article 6 and the applications are being reviewed by the ROC tax authorities.

Article 8 of the SUI provides tax credits of up to 20% for subscription to the registered stock issued by a company within the newly emerging, important and strategic industries, and has held such stock for a period of three years or longer. These tax credits for investment must be utilized within five years from the year such investment was incurred. As of December 31, 2004, the Company had qualified unused tax credits under Article 8 of NT$164.5 million (US$5.2 million).

Article 70-1 of the SUI provide tax benefits of entitlement for exemption of certain income to corporations which maintain their headquarters in the ROC. It states that if a company establishes its headquarters of operations in the ROC, (i) the income it receives from overseas affiliates for research and development, management services and royalties and (ii) its investment income and gains from disposal of investment in overseas affiliates can be exempted from its taxable income. Such tax benefits were available to the Company in 2003 and the Company expects to apply for such benefits for 2004.

The Delta Group

THE COMPANY

Delta Electronics, Inc. (the “Company”) was founded by the Chairman of its board of directors, Bruce CH Cheng, in the form of a limited company in 1971 to manufacture and sell television coils and other electronic components. In the 1980s, the Company expanded its production levels and broadened its product lines. The Company started commercial production of switching power supplies in 1983 and of LAN components and brushless DC fans in 1988. In the 1990s, the Company further expanded its range of products to include visual displays, networking products and optical components. The Company also expanded into the production of projection and system level products in the early 2000s. Today the Company, together with its subsidiaries (collectively, the “Delta Group”), is a leading manufacturer of switching power supplies, electronic components, visual displays and networking products for the computer, consumer and communication industries (the “3C industries”) on a DMS basis.

The Company was converted into a company limited by shares on August 20, 1975 (uniform number: 34051920) under the ROC Company Law and has been listed on the Taiwan Stock Exchange since December 19, 1988. The Company’s executive offices are currently located at 186 Ruey Kuang Road, Neihu, Taipei, Taiwan, ROC, and its telephone number is (886)(2) 8797-2088. The Company’s registered offices are located at No 31-1 Sing Bang Road, Guei Shan Industrial Zone, Taoyuan County, Taiwan, ROC.

CORPORATE CULTURE

The corporate culture of the Delta Group is based around five principles:

‰ Customer Satisfaction: Fully understand and fulfill customer needs.
‰ Quality: Do things right the first time.
‰ Innovation: Anticipate trends and develop competitive products.
‰ Teamwork: Maintain effective communication, delegation and collaboration.
‰ Agility: Act quickly in a rapidly changing environment.

Through continuous innovation, the Delta Group is committed to providing environmentally friendly and energy saving products for a better quality of life.

SERVICE AWARDS

Over the years, the Delta Group has been the recipient of various customer awards which recognise the quality of its products and the assistance rendered to its customers. Some of the more prominent awards from 2001 to 2004 are set out below:

For 2004:

Cisco Supplier of the Year, National Gold Award of Excellence, Microsoft vendor of the year award, HP vendor award, Cisco Systems appreciation award, Eaton appreciation award, Microsoft premier award and the NEC appreciation award for outstanding quality.

For 2003:

Taiwan Gold Panel Award, Samsung Appreciation Award, Intel Vendor Award, Rockwell Appreciation Award, LG Vendor Award and Black & Decker Vendor Award.

For 2002:

Microsoft Recognition Award, LG Business Award, Intel Appreciation Award, IBM Vendor Award, Fujitsu Siemens Appreciation Award, SONY Vendor Award and SONY Appreciation Award.

For 2001:

Gateway Vendor Award, Fujitsu Vendor Award, NEC Appreciation Award and Hitachi Appreciation Award.

SUBSIDIARIES OF THE COMPANY

The following chart shows the group structure of the Company and its subsidiaries as of December 31, 2004:

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The Company’s subsidiaries and affiliates as of December 31, 2004 were as follows:

Company Delta Networks Holdings Ltd. Delta Networks (Cayman) Inc. Delta Networks, Inc. (Taiwan) Delta International Holdings Ltd. Delta Optoelectronics, Inc. Pyramis Corp. Taiwan Delta (Netherlands) B.V Delta Electronics Agent Ltd.	Main business	Issued capital	Percentage ownership by the Company	Place of Incorporation	Registered Office
	Equity investment in Mainland China, Hong Kong, etc. Investment company Developing, designing, manufacturing and selling networking products Equity investment Developing, designing, manufacturing and sales of displays with PLED and CNT technologies Development and sales of electronic products Trading power- related, video- display and component products Operations management and engineering services	US$39,800,000 US$41,880,000 NT$500,000,000 US$55,000,000 NT$1,345,000,000 NT$305,800,000 EUR204,201 US$10,000	100.0% 94.0%(1) 93.2%(1) 94.0% 95.2% 99.2% 100.0% 94.0%(2)	Cayman Islands Cayman Islands ROC Cayman Islands ROC ROC Netherlands BVI	Scotia Center, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands Scotia Center 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands No. 252 Shan Ying Road, Guei Shan Town, Taoyuan County, Taiwan, ROC Scotia Center, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands 4F, No.2, R&D Road II, Science-Based Industrial Park, Hsinchu, Taiwan, ROC 18F-7, No. 268, Lian- Cheng Road, Chung- Ho City, Taipei Hsien, Taiwan, ROC Wegalaan 16, 2132JC Hoofddorp, Netherlands P.O. Box 438, Road Town, Tortola, British Virgin Island

Company Delta Electronics (HK) Ltd. Delta Electronics International Ltd. Delta Electronics Trading Ltd. Delta Power Sharp Ltd. Delta Electronics (Dong Guan) Co., Ltd. Delta Electronics Industrial (Dong Guan) Co., Ltd. Delta Electronics Components (Dong Guan) Co., Ltd. Delta Electronics Power (Dong Guan) Co., Ltd. DEI Logistics (USA) Corp.	Main business	Issued capital	Percentage ownership by the Company	Place of Incorporation	Registered Office
	Operations management and engineering services sales of electronic products Electronics product sales Operations management and engineering services Manufacturing and sales of SPS and other power- related products Manufacturing and sales of electronic ballast for energy saving lighting and interface cards Manufacturing and sales of transformers interface cards, diode, resistors, battery and its parts Manufacturing and sales of SPS, UPS, telecom power system and other power related products Warehousing and logistics services	HK$10,000,000 US$900,000 US$10,000 HK$10,000,000 US$37,000,000 US$22,400,000 US$32,000,000 US$18,000,000 US$500,000	94.0%(2) 94.0%(2) 94.0%(2) 94.0%(2) 94.0%(2) 94.0%(1) 94.0%(2) 94.0%(2) 94.0%(2)	Hong Kong BVI BVI Hong Kong China China China China USA	21F, Prosperity Centre, No. 25 Chong Yip St. Kwun Tong, Kowloon, Hong Kong P.O. Box 438, Road Town, Tortola, British Virgin Island P.O. Box 438, Road Town, Tortola, British Virgin Island 21F., Prosperity Centre, No.25 Chong Yip St. Kwun Tong, Kowloon, Hong Kong Xinan District Shijie Town, Dongguan, Guangdong, P.R.C. Xinan District Shijie Town, Dongguan, Guangdong, P.R.C. Xinan District Shijie Town, Dongguan, Guangdong, P.R.C. Xinan District Shijie Town, Dongguan, Guangdong, P.R.C. 4405 Cushing Parkway, Fremont, CA 94538, U.S.A.

Company Delta Electronics (Japan) Inc. Delta Electronics (Shanghai) Co., Ltd. DAC Holding (Cayman) Ltd. Delta Electronics (Thailand) Public Co., Ltd. Pyramis Corp. USA Delta Visual Display System (Wu Jiang) Co., Ltd. Delta Electronics (Jiang Su) Co., Ltd. Delta Electronics Components (Wu Jiang) Co., Ltd.	Main business	Issued capital	Percentage ownership by the Company	Place of Incorporation	Registered Office
	Trading and import-export of telecom components and computer system and instruments Designing of products and services Equity investment Operations management and engineering services Sales of electronic products Manufacturing and sales of electronic products Manufacturing and sales of SPS, UPS and other power related products, colour monitor, and electronic components Manufacturing and sales of electronic components	JPY190,000,000 RMB$82,800,000 US$22,200,000 THB1,188,102,115 US$108,800 US$13,000,000 US$40,000,000 US$40,000,000	94.0%(2) 94.0%(2) 59.3%(2) 20.1%(3) 99.2%(4) 51.7%(2) 51.7%(2) 51.7%(2)	Japan China Cayman Islands Thailand USA China China China	2-1-14 Shiba Daimon, Minato-Ku, Tokyo, 105-0012, Japan Second floor, 238 Minxia Road, Pudong new district, Shanghai P.O. Box 2003 George Town, Grand Cayman, Cayman Islands Bangpoo Industrial Estate KM.37, Sukhumvit Rd., Samutprakarn 10280, Thailand 2271 West 205th Street, Suite 103, Torrance, CA 90521, USA No. 18 Jiangxing East Road Yun Dong Development Zone Song Ling Town Wujiang City, Jiang Su Province, P.R.C. No.6 Wutong New Road Wujiang Economic Development Zone, Song Ling Town, Wujiang City, Jiang Su Province, P.R.C. No.6 Wutong New Road Wujiang Economic Development Zone, Song Ling Town, Wujiang City, Jiang Su Province, P.R.C.

Company Delta Electro- optics (Wu Jiang) Co., Ltd. DNI Logistics (USA) Corp. Delta Networks International Ltd. DelSolar Co., Ltd Pyramis Holding Ltd.	Main business	Issued capital	Percentage ownership by the Company	Place of Incorporation	Registered Office
	Manufacturing and selling electronic equipment and components Warehousing and logistics service Trading and import/export of networking system Designing and manufacturing solar battery and system Equity Investment	US$25,000,000 US$500,000 US$10,000 NTD$600,000,000 US$4,100,000	51.7%(2) 94.0%(1) 94.0%(1) 82.5% 99.2%(4)	China USA Hong Kong ROC Cayman Islands	No. 18 Jiangxing East Road Yun Dong Development Zone Song Ling Town Wujirang City, Jiang Su Province, P.R.C. 4425 Cushing Parkway, Fremont, CA 94538, USA P.O. Box 438, Road Town, Tortola, British Virgin Islands 3F, No. 2 R&D 2nd Road Science-Based Industrial Park Hsin-Chu, Taiwan, ROC Scotia Center, 4th Floor, P.O. Box 2804 George Town, Grand Cayman, Cayman Islands

(1) Held by Delta Networks Holding Ltd. The Company owns over 50% voting rights indirectly.

(2) Held by DIH. The Company owns over 50% voting rights indirectly.

(3) Combined percentage of shares held by DEI and DIH

(4) Held by Pyramis Corp. Taiwan. The Company owns over 50% voting rights indirectly.

Principal Subsidiaries

The principal subsidiaries of the Company as of December 31, 2004 are as follows:

Delta Networks Holding Ltd. (“DNH”)

DNH is an investment holding company. Its portfolio is made up of the shares of Delta Networks (Cayman) Inc. which is the investment holding company that holds the shares of the Delta Group’s operating subsidiaries in the ROC and a warehousing and logistics services business in the United States. As at December 31, 2004, the Company beneficially owned 100.0% of the issued share capital of DNH. As at December 31, 2004, DNH had a capital of US$39.8 million. As at December 31, 2004, DNH had net assets of US$44.4 million and accumulated losses of US$1 million. For the year ended December 31, 2004, DNH recorded a net profit of NT$192.6 million (US$6.1 million).

As at December 31, 2004, the Company held the shares of DNH at a value of NT$1.4 billion. The shares of DNH held by the Company are fully paid-up. For the year ended December 31, 2004, the Company did not receive dividends on the shares of DNH. For the year ended December 31, 2004, there were no inter-company loans between the Company and DNH.

Delta Networks (Cayman) Inc.

Delta Networks (Cayman) Inc. is an investment holding company. Its portfolio is made up of the shares of the Delta Group’s operating subsidiaries in the ROC and a warehousing and logistics services business in the United States. As at December 31, 2004, the Company beneficially owned 94.0% of the issued share capital of Delta Networks (Cayman) Inc. As at December 31, 2004, Delta Networks (Cayman) Inc. had a capital of US$41.9 million. As at December 31, 2004, Delta Networks (Cayman) Inc. had net assets of US$46.8 million and accumulated losses of US$1.7 million. For the year ended December 31, 2004, Delta Networks (Cayman) Inc. recorded a net profit of NT$204.9 million (US$6.4 million).

As at December 31, 2004, the Company indirectly held the shares of Delta Networks (Cayman) Inc. at a value of NT$1.4 billion. The shares of Delta Networks (Cayman) Inc. indirectly held by the Company are fully paid-up. For the year ended December 31, 2004, the Company did not receive dividends on the shares of Delta Networks (Cayman) Inc. For the year ended December 31, 2004, there were no inter-company loans between the Company and Delta Networks (Cayman) Inc.

Delta Networks, Inc. (Taiwan) (“DNI”)

DNI is a networking product manufacturing company. As at December 31, 2004, the Company beneficially owned 93.2% of the issued share capital of DNI. As at December 31, 2004, DNI had a capital of NT$500 million. As at December 31, 2004, DNI had net assets of NT$227 million and accumulated losses of NT$359.7 million. For the year ended December 31, 2004, DNI recorded a net profit of NT$10.6 million (US$0.33 million).

As at December 31, 2004, the Company indirectly held the shares of DNI at a value of NT$211.7 million. The shares of DNI indirectly held by the Company are fully paid-up. For the year ended December 31, 2004, the Company did not receive any dividends on the shares of DNI. For the year ended December 31, 2004 there are no inter-company loans between the Company and DNI.

Delta Electronics Industrial (Dong Guan) Co., Ltd. (“DEI—DG”)

DEI—DG is an company engaged in the manufacturing and selling of networking products. As at September 30, 2004, the Company beneficially owned 94.0% of the issued share capital of DEI—DG. As at September 30, 2004, DEI—DG had a capital of US$20.4 million. As at September 30, 2004, DEI—DG had net assets of US$21.5 million and accumulated losses of US$1.3 million. For the nine months ended September 30, 2004, DEI-DG recorded a net profit of US$3.0 million.

As at September 30, 2004, the Company indirectly held the shares of DEI—DG at a value of NT$687.1 million. The shares of DEI—DG indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DEI—DG. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DEI—DG.

Delta International Holding Ltd. (“DIH”)

DIH is an investment holding company. Its portfolio is made up of the shares of the Delta Group’s operating subsidiaries in the PRC and sales subsidiaries in British Virgin Island (“BVI”). As at December 31, 2004, the Company beneficially owned 94% of the issued share capital of DIH. As at December 31, 2004, DIH had a capital of US$55 million. As at December 31, 2004, DIH had net assets of US$483.8 million and retained earnings of US$325.2 million. For the year ended December 31, 2004, DIH recorded a net profit of US$157.8 million.

As at December 31, 2004, the Company indirectly held the shares of DIH at a value of NT$14.1 billion. The shares of DIH indirectly held by the Company are fully paid-up. For the year ended December 31, 2004, the Company did not receive any dividends on the shares of DIH. For the year ended December 31, 2004 there are no inter-company loans between the Company and DIH.

Delta Electronics (Dong Guan) Co., Ltd. (“DE—DG”)

DE—DG is an company engaged in the manufacturing and selling of switching power supplies, other power-related products and visual display products. As at September 30, 2004, the Company beneficially owned 94.0% of the issued share capital of DE—DG. As at September 30, 2004, DE—DG had a capital of US$37.0 million. As at September 30, 2004, DE—DG had net assets of US$45.5 million and retained earnings of US$7.9 million. For the nine months ended September 30, 2004, DE— DG recorded a net profit of US$4.3 million.

As at September 30, 2004, the Company indirectly held the shares of DE—DG at a value of NT$1.5 billion. The shares of DE—DG indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DE—DG. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DE—DG.

Delta Electronics Components (Dong Guan) Co., Ltd. (“DEC—DG”)

DEC—DG is an electronic component manufacturing company. As at September 30, 2004, the Company beneficially owned 94.0% of the issued share capital of DEC—DG. As at September 30, 2004, DEC—DG had a capital of US$32.0 million. As at September 30, 2003, DEC—DG had net assets of US$42.1 million and retained earnings of US$11.9 million. For the nine months ended September 30, 2004, DEC recorded a net profit of US$11.3 million.

As at September 30, 2004, the Company indirectly held the shares of DEC—DG at a value of NT$1.4 billion. The shares of DEC—DG indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive any dividends on the shares of DEC—DG. For the nine months ended September 30, 2004 there were no inter-company loans between the Company and DEC—DG.

Delta Electronics Power (Dong Guan) Co., Ltd. (“DEP—DG”)

DEP—DG is an company engaged in the manufacturing and selling switching power supplies, UPSs, telecom power systems and other power-related products. As at September 30, 2004, the Company beneficially owned 94.0% of the issued share capital of DEP—DG. As at September 30, 2004, DEP—DG had a capital of US$18.0 million. As at December 31, 2004, DEP—DG had net assets of US$51.0 million and retained earnings of US$33.6 million. For the nine months ended September 30, 2004, DE—DG recorded a net profit of US$7.1 million.

As at September 30, 2004, the Company indirectly held the shares of DEP—DG at a value of NT$1.6 billion. The shares of DEP—DG indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DEP— DG. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DEP—DG.

Delta Video Display System (Wu Jiang) Co., Ltd. (“DVDS—WJ”)

DVDS—WJ is an company engaged in the manufacturing and selling of color monitors and other visual display products. As at September 30, 2004, the Company beneficially owned 51.7% of the

issued share capital of DVDS—WJ. As at September 30, 2004, DVDS—WJ had a capital of RMB107.6 million. As at September 30, 2004, DVDS—WJ had net assets of RMB81.4 million and accumulated losses of RMB26.2 million. For the nine months ended September 30, 2004, DVDS—WJ recorded a net loss of RMB97.6 million.

As at September 30, 2004, the Company indirectly held the shares of DVDS—WJ at a value of NT$172.8 million. The shares of DVDS—WJ indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DVDS—WJ. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DVDS—WJ.

Delta Electronics (Jiang Su) Co., Ltd. (“DE—JS”)

DE—JS is an company engaged in the manufacturing and selling of switching power supplies, UPSs, other power-related products, color monitors and electronic components. As at September 30, 2004, the Company beneficially owned 51.7% of the issued share capital of DE—JS. As at September 30, 2004, DE—JS had a capital of RMB331.4 million. As at September 30, 2004, DE—JS had net assets of RMB345.4 million and retained earnings of RMB13.9 million. For the nine months ended September 30, 2004, DE—JS recorded a net profit of RMB12.8 million.

As at September 30, 2004, the Company indirectly held the shares of DE—JS at a value of NT$732.9 million. The shares of DE—JS indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DE—JS. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DE—JS.

Delta Electronics Components (Wu Jiang) Co., Ltd. (“DEC—WJ”)

DEC—WJ is an company engaged in the manufacturing and selling of electronic components. As at September 30, 2004, the Company beneficially owned 51.7% of the issued share capital of DEC— WJ. As at September 30, 2004, DEC—WJ had a capital of RMB331.2 million. As at September 30, 2004, DEC—WJ had net assets of RMB291.2 million and accumulated losses of RMB40.1 million. For the nine months ended September 30, 2004, DEC—WJ recorded a net loss of RMB34.3 million.

As at September 30, 2004, the Company indirectly held the shares of DEC—WJ at a value of NT$617.8 million. The shares of DEC—WJ indirectly held by the Company are fully paid-up. For the nine months ended September 30, 2004, the Company did not receive dividends on the shares of DEC—WJ. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DEC—WJ.

Delta ElectroOptics (Wu Jiang) Co., Ltd. (“DEO—WJ”)

DEO—WJ is an company engaged in the manufacturing and selling of electronic equipment and components. As at September 30, 2004, the Company beneficially owned 51.7% of the issued share capital of DEO—WJ. As at September 30, 2004, DEC—WJ had a capital of RMB207.0 million. As at September 30, 2004, DEO—WJ had net assets of RMB247.3 million and retained earnings of RMB40.1 million. For the year ended September 30, 2004, DEO—WJ recorded a net profit of RMB20.8 million.

As at September 30, 2004, the Company indirectly held the shares of DEO—WJ at a value of NT$524.7 million. The shares of DEO—WJ indirectly held by the Company are fully paid-up. For the

nine months ended September 30, 2004, the Company did not receive dividends on the shares of DEO—WJ. For the nine months ended September 30, 2004, there were no inter-company loans between the Company and DEO—WJ.

Delta Optoelectronics, Inc. (“DO”)

DO is an company engaged in the development, design and manufacture of displays with PLED and CNT technologies. As at December 31, 2004, the Company beneficially owned 95.21% of the issued share capital of DO. As at December 31, 2004, DO had a capital of NT$1,345.0 million. As at December 31, 2004, DO had net assets of NT$600.8 million and accumulated losses of NT$744.2 million. For the year ended December 31, 2004, DO recorded a net loss of NT$224.1 million (US$7.1 million).

As at December 31, 2004, the Company held the shares of DO at a value of NT$(575.2) million. The shares of DO held by the Company are fully paid-up. For the year ended December 31, 2004, the Company did not receive dividends on the shares of DO. For the year ended December 31, 2004, there were no inter-company loans between the Company and DO.

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of September 30, 2004, the last record date and the most recent date for which such information is available, the six largest holders of the Shares:

Name of shareholder Deico International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bruce CH Cheng(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deltron Holding Limited(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taiwan Securities Central Depository Co., Ltd.(2) . . . . . . . . . . . . . . . . . . . . . . . . . E-Ying Hsieh(1)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Stabilization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of Shares 211,421,576 170,081,307 162,631,985 74,747,621 65,557,061 46,608,617	Percentage of total outstanding Shares
		13.33% 10.73% 10.25% 4.71% 4.13% 2.93%

(1) E-Ying Hsieh is the spouse of the Company’s chairman, Bruce CH Cheng and a supervisor of the Company.
(2) Taiwan Securities Central Depository Co., Ltd. holds securities for those shareholders who trade such securities through its book-entry system (see “Description of Shares—Transfers of Common Stock”).
(3) As of December 31, 2004, Bruce CH Cheng, Deltron Holding Limited and E-Ying Hsieh each held 169,430,307 Shares representing 10.68% of total outstanding Shares, 162,631,985 Shares representing 10.25% of total outstanding Shares and 65,104,061 Shares representing 4.10% of total outstanding Shares, respectively.

RELATED PARTY TRANSACTIONS

Set forth below is a summary of the material transactions between the Company and other companies in the Delta Group.

For the year ended December 31, 2004, purchases from related parties amounted to NT$1,579.6 million (US$49.7 million) and accounted for 4.0% of total purchases for that period while sales to related parties amounted to NT$3,106.7 million (US$97.7 million) and accounted for 6.0% of total operating revenue for that year. The Company believes that such transactions are carried out on normal commercial terms.

Within the Delta Group, there also exist certain intercompany technology sharing, production, licensing and other service arrangements in connection with which commissions, design fees and service fees may be payable by one group company to another group company. The Company believes that such transactions are carried out on normal commercial terms.

For additional and more detailed information on related party transactions, see Note 5 of the “Audited financial statements of the Company as of and for the three years ended December 31, 2002, 2003 and 2004” included elsewhere in this offering circular.

Business

INTRODUCTION

In respect of quality maintenance, the Delta Group implements strict quality control programmes and undertakes substantial on-the-job training for its employees. A number of its manufacturing facilities are ISO-9001 and/or ISO-14001 certified. The Delta Group implements quality control at both the product design and commercial production stages to ensure that its products meet customers’ satisfaction. See “The Delta Group—Service Awards”.

The Company believes that continuous investment and efforts to reinforce its research and development capabilities are key to maintaining its competitiveness in the markets for its existing products whilst building its market share and customer base for its new products. To this end, the Delta Group has design groups, engineering teams and research and development laboratories in the ROC, Hong Kong, the PRC, Japan, Thailand, the United States and Europe.

COMPETITIVE STRENGTHS

Highly competitive businesses enhanced by the DMS business model

The DMS business model, which allows the Delta Group to provide a combination of design, manufacture and after-sales services to its blue-chip customer base, enhances the Delta Group’s already highly competitive businesses. The Delta Group is capable of providing solutions for both the back-end design and manufacturing and the front-end distribution and after-sales service. Taking advantage of its vertically integrated value chain, the Delta Group has been able to more effectively control its costs and supply chain management, and has increased its flexibility to customize its products to fulfill its customers’ requirements. As the Delta Group is a well-established producer of high-quality, high-volume and cost-effective products, the enhancement of its business by implementing the DMS business model has further solidified its market leadership position and strengthened its relationships with its customer base.

Established high-quality, high-volume and cost-effective manufacturer

The Company believes that the Delta Group’s expertise as a high-quality, high-volume and costeffective manufacturer is essential to the success of its businesses. The Company believes that the manufacturing capabilities of the Delta Group have provided it with a competitive advantage in securing orders from existing customers while expanding its customer base and giving the Delta Group the ability to remain competitive even as market prices for its products decline. The Company intends to continue to focus on producing high quality products and on minimizing its production costs by improving its production planning, sourcing and cost and inventory controls.

In order to provide high quality services to its customers, the Delta Group intends to continue to improve the efficiency and cost-effectiveness of its order-to-delivery process and the quality of its postsale technical support and maintenance services. The Company also believes that its use of the SAP software systems, which link its production facilities with its global network of sales offices and logistics hubs, provides it with the necessary capacity and flexibility to fulfill the demands of its global clients in an efficient manner.

Long-standing strategic partnerships with a diversified blue-chip customer base

The Delta Group has established long-standing strategic partnerships with some of the world’s leading companies in the 3C industries. The Delta Group believes that: (i) by being involved in the early stages of such industry leaders’ product development; (ii) by working with them to devise design and manufacturing solutions for their products; and (iii) by providing quick turnaround prototyping, manufacturing and mass production services, the Delta Group is able to maintain its position as a pioneer in technology development and further strengthen its business relationships with these industry leaders. Furthermore, strategic collaboration with industry leaders reinforces the Delta Group’s abilities to maintain high quality standards, engage in more complex design and further solidify the Delta Group’s market leader status.

Product innovation due to investment in research and development

The Delta Group will continue to invest substantial resources in research and development through in-house research and development activities, joint development with strategic partners, joint research and development programs with research institutes and universities and strong incentives to employees. Due to its partnerships with blue-chip customers, the Delta Group has been able to stay on the leading-edge of product innovation, being able to design and manufacture products that establish technological benchmarks in their respective industries.

The Delta Group and its affiliates have established a total of 18 engineering labs and research & development centers in Europe, the United States, the ROC, Hong Kong, Japan, Thailand and the PRC, including Delta Power Electronics Center which was established in Shanghai in 1999 to capture PRC talents and leverage on significant local research and development resources for advanced power systems and Delta’s Corporate Research and Development Center in Taipei in 2002 to focus on voice recognition systems, MEMs and optoelectronics which are important technologies for future growth of the Group.

A number of the elements of the Delta Group’s products and technological processes are proprietary in nature and the Company held a total of 1,321 patent registrations worldwide as of December 31, 2004. The Company generally seeks patent protection on any new inventions, product improvements or technologies developed by its employees. In recent years, the number of patents sought and obtained by the Company has increased, reflecting its increased investment in research and development.

To help set industry standards and to keep ahead of market developments, the Delta Group works closely with its blue-chip customers to develop products tailored to such customers’ desired specifications and features. In addition, it has for many years maintained research collaborations with leading universities such as MIT and Virginia Polytechnic University in the United States, National Tsing Hua University and National Central University in the ROC and Zhejiang University in the PRC to anticipate industry trends and stay on the leading-edge of product innovation.

Integrated and dynamic product portfolio

The Delta Group’s strong commitment to product innovation and research and development have been critical to establishing its integrated and dynamic product portfolio. The Company strives to develop and manufacture innovative and high-margin products and also continually maintains its margins on such products through effective cost controlling measures. The Company also maintains its high-margin product portfolio by continually altering its product mix to discontinue production on lowmargin products such as monitor panels and CD-ROM drives. This has historically allowed the Delta Group, on average, to continually increase its margins despite the highly volatile 3C industries.

STRATEGY

The Delta Group’s strategic objectives are (i) to maintain its position as a leading DMS partner to its major customers in the 3C industries and look to develop new partnerships, (ii) to leverage its market leading position as a DMS service provider to maximize its cross-selling opportunities, (iii) to focus on technological innovation and research and development, (iv) to enhance manufacturing capabilities and efficiency, (v) to expand its product lines related to its current businesses and (vi) to build a customer-focused global logistics and service network. The key elements of the Delta Group’s strategy are as follows:

Maintain its position as a leading DMS partner to its major customers in the 3C industries and look to develop new partnerships

The Delta Group has developed strategic partnerships with market leaders in the 3C industries. The Delta Group will continue to develop these relationships which have made it well-positioned to

anticipate future trends, allowed it to take full advantage of its vertically integrated supply chain and to maintain its position as a leading DMS service provider. Due to its vertical integration, the Delta Group has been able to cross-sell its broad range of products to existing customers who are interested in vertically integrated solutions and to increase its sales in industries such as telecommunications and data communications where markets are relatively under-developed. The Delta Group’s existing customer base includes a large number of industry leaders in the 3C industries. The Delta Group believes that the knowledge of and relationships it has with its strategic partners allow it to strengthen ties, increase switching costs and creating high barriers of entry. It intends to selectively deepen and broaden these relationships, and to seek out and develop new partnerships with other blue-chip companies and industry leaders, by continuing to provide high quality services and establishing new collaborative relationships utilizing its reputation as an industry leading DMS service provider.

Leverage its position as a leading DMS service provider to maximize its cross-selling opportunities

The Company believes that the Delta Group’s position as a leading DMS service provider of highquality, high-volume and cost effective products for key players in the 3C industries has provided it with significant competitive advantages. The Company believes that the Delta Group’s established reputation as a reliable supplier of quality products provides it with the opportunity to sell a broader range of products to its existing customers who are interested in vertically integrated solutions and to increase its sales in industries such as telecommunications and data communications where markets are still relatively undeveloped.

Focus on technological innovation and research and development

The markets in which the Delta Group competes are characterized by rapid changes in technology, resulting sometimes in the rapid obsolescence of recently introduced products. The Company believes that effective research and development and technological innovation are key to the success of the Delta Group’s businesses, with an emphasis on developing innovative and marketoriented products capable of sustaining their profit margins. While price competition is always a consideration, the Delta Group believes that the market leaders in the 3C industries are more focused on product reliability, quality, innovation and rapid speed-to-market capability. The Delta Group’s research and development efforts are principally directed toward upgrading and integrating its manufacturing technologies and processes, as well as developing new technologies for the introduction of more advanced and higher-margin products.

The Delta Group has developed a particular expertise in power supply technologies. It has also utilised its research and development capabilities to expand its product range from electronic components to system-level products such as telecom power systems and networking systems. Recently, the Delta Group has made environmentally-friendly, energy-saving technologies a priority in all of its business areas. The Company believes that this is an important area of research to pursue for the short- and long-term profitability of its business, as consumer demand for these types of products grows.

Enhance manufacturing capabilities and efficiency

The Delta Group has demonstrated itself as a cost-effective manufacturer as it possesses integrated design, engineering, manufacturing and quality control capabilities. To further enhance its production efficiency, reduce cost and mitigate pressure on margins, the Delta Group has in recent years been shifting an increasing portion of its production to the Delta Group’s facilities in the PRC and its affiliates’ facilities in Thailand and Mexico, where readily available labour supply and lower overhead costs result in lower unit manufacturing costs. The Delta Group has been relocating the production of high-volume products to those plants and, in the longer term, will gradually manufacture and even design more technologically sophisticated products in such lower cost regions.

Expand product lines related to its current businesses

A key objective of the Delta Group’s growth strategy is to focus on organic growth and expand the scope of its business by broadening its product lines and developing more advanced and higher-margin products. The Company has made a number of successful efforts to capitalise on its position as an industry leader in switching power supplies, including acting on a computer industry panel to develop standard server infrastructure models and working with a leading key technology manufacturer to develop power supply products for future generations of key technology products. The Delta Group has also capitalised on its capabilities as an efficient manufacturer of electronic components and equipment by successfully applying such expertise in expanding into the production of high-end system-level products such as networking and telecommunications equipment. Recently, the Delta Group has focused on expanding the application of its product lines to the automotive industry.

Build a customer-focused global logistics and service network

Increasingly, leading 3C vendors have required its manufacturing suppliers to provide global logistics, service and support networks so that such vendors can respond to market demand quickly and reduce their inventory risk. The Delta Group has manufacturing facilities in Europe, Thailand, the PRC, the ROC and Mexico as well as sales and service offices and research and development centers in Europe, Asia and the Americas in order to react quicker and respond more effectively to customer needs and requests.

MARKET ENVIRONMENT AND COMPETITION

The principal markets in which the Delta Group competes are those for power supply products, electronic components, networking products and electromechanical products. Each of the markets is global, with industry leaders principally in the United States and Japan, but with production sites and ultimate customers located throughout the world. The Delta Group sells a substantial portion of its products on a DMS basis, and therefore the Delta Group competes for orders not just with other DMS, ODM and OEM manufacturers but also directly with its customers, which may choose to produce a particular product internally instead of outsourcing it from external suppliers. Many of the Delta Group’s products have relatively short product cycles due to rapidly changing technology and evolving industry standards. There also tend to be consistent downward trends in product prices, as advancement in technological knowhow and sustained competition compels producers to lower prices in order to retain market shares.

The Delta Group competes for orders with major international companies, some of which have greater financial, technical, marketing and other resources than the Delta Group.

The Delta Group competes in different product lines to various degrees on the basis of price, product quality and reliability, product features, product system compatibility, customised design and sales and technical support. The Company believes that most of the Delta Group’s customers prefer to source products from a relatively small number of outside vendors, and therefore consistent high quality execution of orders received is necessary to foster customer loyalty, earn repeat orders and increase market share. The Delta Group’s ability to compete successfully is also subject to other factors both within and outside of its control, including successful and timely development of new products, design innovation, efficient manufacturing of products which meet required quality standards, pricing, as well as industry supply and demand trends and general economic conditions. The business of the Delta Group is particularly dependent on demand for computer products, telecommunications products and their respective accessories.

PRINCIPAL PRODUCTS

The Delta Group’s principal products are power-related products, electronic components, networking products, visual display products and electromechanical products. The following table sets forth the operating revenues from the Company’s principal products for the periods indicated.

			Year ended December 31	Year ended December 31	Year ended December 31
2002			2003			2004
Operating revenue	Percentage of operating revenue		Operating revenue	Percentage of operating revenue		Operating revenue	Percentage of operating revenue
(NT$ million) NT$12,507.1 5,876.0 922.4 1,102.3 1,052.7 902.8		(%) 25.8 12.1 1.9 2.3 2.2 1.8 46.1 7.7 2.5 1.7 1.1 1.0 0.5 14.5 7.1 2.2 3.9 1.4 14.6 4.4 6.3 8.3 19.0 2.8 2.8 3.0 100.0	(NT$ million) NT$12,829.1 6,642.4 227.9 1,437.2 1,278.6 1,383.9		(%) 25.9 13.4 0.5 2.9 2.6 2.7 48.0 10.3 4.7 1.8 1.3 1.6 0.7 20.4 8.0 1.3 2.0 1.1 12.4 5.4 2.1 7.2 14.7 3.9 3.9 0.6 100.0	(NT$ million) 17,172.7 6,594.6 439.0 1,980.7 1,332.0 2,106.6 29,625.6 7,418.5 2,498.6 1,344.5 713.1 564.0 685.4 13,224.1 4,728.1 758.4 573.5 371.2 6,431.2 3,284.4 64.7 247.8 3,596.9 2,934.6 2,934.6 662.6 56,475.0		(%) 30.4 11.7 0.8 3.5 2.4 3.7 52.5 13.1 4.4 2.4 1.3 1.0 1.2 23.4 8.4 1.3 1.0 0.7 11.4 5.8 0.1 0.5 6.4 5.2 5.2 1.1 100.0
22,363.3			23,799.1
3,717.0 1,215.9 810.3 531.8 487.2 242.1			5,104.5 2,316.6 905.0 662.5 812.5 298.6
7,004.3			10,099.7
3,455.5 1,067.3 1,895.2 687.8			3,962.3 619.4 1,011.4 549.1
7,105.8			6,142.2
2,128.1 3,076.8 4,020.0			2,670.5 1,052.9 3,566.4
9,224.9			7,289.8
1,362.7			1,920.8
1,362.7			1,920.8
1,453.7			290.3
48,514.7			49,541.9

The following table sets out the gross sales of the Company by geographical area of shipment destination on a consolidated basis for the years ended December 31, 2002, 2003 and 2004.

			Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31	Year ended December 31
2002			2003			2004
Sales revenue	Percentage of sales		Sales revenue	Percentage of sales		Sales revenue	Percentage of sales
(NT$ million) 15,870.7 13,247.6 11,034.5 4,128.9 3,430.4 292.6 612.2		(%) 32.6 27.2 22.7 8.5 7.1 0.6 1.3 100.0	(NT$ million) 22,106.2 1,399.9 8,683.6 9,318.4 5,321.2 1,646.3 1,296.2 49,771.8		(%) 44.4 2.8 17.4 18.7 10.8 3.3 2.6 100.0	(NT$ million) 12,281.4 4,899.0 28,758.8 6,036.0 3,280.4 652.6 567.7 56,475.9		(%) 21.7 8.7 50.9 10.7 5.8 1.2 1.0 100.0
48,616.9

The above table is not necessarily representative of the actual allocation of the Company’s marketing efforts because, for example, the Company’s Japanese customers may request the Company to ship products to North America while the Company’s North American customers may request the Company to transport products to its assembly lines in Asia.

Set out below is a more detailed description of the principal products of the Company and its subsidiaries and affiliates.

Power-related products

The Company is one of the world’s top manufacturers of switching power supplies. It is also a leading manufacturer of adapters, inverters, converters, electronic ballasts and uninterrupted power supplies. Power-related products accounted for 48.0% and 52.5% of the Company’s total operating revenue in 2003 and 2004, respectively.

The Company remains competitive by providing a comprehensive range of products (from the high-end to the middle-range) and by maintaining its large production capacity, allowing economies of scale to be brought to bear on production and overheads. The Company intends to continue providing power-related products and solutions which are both energy-saving and which can ensure stable voltage, current and power output. The Delta Group devotes substantial resources to both refining existing technology and developing new technologies in order to maintain its leading position in the market for power-related products. It also frequently works closely with its major customers to develop products customized to their needs.

The Delta Group divides its power-related products business into two business groups which are then further divided into business units to achieve production, sales and management effectiveness.

The Power System Business Group I (“PSBG-I”) is divided into the High-Power, Low-Power, Adapter and Lighting Business Units. PSBG-I products are lower-margin, higher volume products which include switching power supplies and adapters for the information technology and consumer electronics industries. PSBG-I products are the Company’s core products and have historically been

the primary contributor to the Company’s operating revenues. The PSBG-I is focused on expanding its leading market share and controlling costs in order to continue to increase operating revenues and maintain its margins.

The Power System Business Group II (“PSBG-II”) is divided into the Telecom Power, UPS and DC/DC & Networking Power Business Units. PSBG-II products are higher-margin, higher-technology products which include telecom power systems, UPSs and DC/DC converters. The PSBG-II is focused on developing higher-technology products and capturing more of the international market for such power-related products currently held by established international manufacturers.

The principal types of power-related products currently produced by the Company and its subsidiaries and affiliates are set out below.

Switching Power Supplies

The Company has over 20 years of experience in switching power supply production. Switching power supplies convert AC into DC and are used in workstations, desktop computers, servers, computer networks, computer peripherals (including printers, LCD monitors, digital cameras and game consoles), modems, fax machines, photo-copying machines, interactive televisions and satellite receivers in order to provide stable DC voltage and protection against voltage variation, unstable current, short-circuits and power line disturbance. These switching power supply products usually come with four current output levels (+12 Volts, -12 Volts, +5 Volts, -5 Volts) to support a machine’s operation and include a wide range of models. The switching power supplies produced by the Company and its subsidiaries and affiliates provide up to 56,000 watts in power range. The Company and its subsidiaries and affiliates also produce models with advanced features such as power factor correction (“PFC”), current sharing, hot swap, battery backup and green energy function. All of the switching power supplies produced by the Company and its subsidiaries and affiliates are in compliance with international safety standards. All these companies possess safety self-test and certification capabilities recognized by major international safety certification agencies.

Although the Company has traditionally focused on customized switching power supplies and adapters, it began selling standardized products in 1997, in order to capitalize on its research and development strengths and its low-cost production facilities in the PRC. The current standardized products are mainly used in desktop computers, scanners and servers.

AC/DC Adapters, DC/AC Inverters and DC/DC Converters

The Delta Group produces AC/DC adapters, DC/AC inverters and DC/DC converters for notebook computers, PDAs, battery chargers and portable printers, utilizing hybrid circuits, thin film, system monitoring circuitries and self-designed ASICs (application specific ICs) technology to increase power density and reliability at reduced cost. These products feature PFC and power management functions for energy saving. AC/DC adapters convert AC to DC, but, unlike switching power supplies, only produce one set of current output for portable electronic appliances such as notebook computers. Many models of the Delta Group’s AC/DC adapters are designed to receive full-range input from 90 volts to 270 volts, a feature which enables electronic devices to gain adequate power supplies worldwide by a simple plug-in procedure. DC/AC inverters convert DC currents to conventional AC electricity which can be used to run all kinds of household products like kitchen appliances, microwaves, televisions, radios and computers. DC/DC converters convert a DC voltage into another higher or lower voltage. They are used in the computer, networking, telecommunications, industrial, military and aerospace sectors to generate multiple outputs from one DC source. The Delta Group also produces high density converters for high-end servers. All of the Delta Group’s adapters, inverters and converters also provide stabilisation protection against voltage variations and short circuits and can produce stable voltage, current and power output to meet customer-specific applications.

On October 8, 2004, after receiving customer complaints of overheating and after consultation with the Company, Dell Inc. recalled 990,000 AC adapters used with Dell notebook computers and

produced by the Company. Because the spcific model of adapter being recalled has been used with certain of Dell’s notebook computers since 1998, the Company does not expect a high rate of customers taking up the recall offer.

Telecom Power Systems

The Delta Group’s telecom rack power systems are designed to provide output capability up to 10,000 Amps and deliver uninterrupted power for both wireline and wireless telecommunications networks and are applicable to network equipment, xDSL, wireless broadband (WLL and LMDS), cellular/PCS and fiber systems. Each module of the Delta Group’s systems utilizes high frequency switching mode rectifiers in combination with DC/DC converters and a control and supervisory unit to increase efficiency and reduce size for easy expansion. When using the Delta Group’s telecom rack power systems, a telecommunications network operator can use a remote control system to operate and monitor battery voltage, power supply and environmental conditions of the network under a window environment through a RS-232 interface. In addition, the Delta Group provides immediate on-line technical support to telecommunication network operators. The various product series offer a wide range of capacity up to 10000A to fulfill customers’ requirements. The compact, modular design with current sharing and hot-swap function allows the paralleling of Switching Mode Rectifiers (“SMR”), which leads to easy system expansion and maintenance. The Delta Group offers telecom power rectifiers with a range of up to 7,200W to satisfy market demand and can provide over 600kW power system capacity to meet different applications.

Uninterruptible Power Systems

The Delta Group produces off-line UPSs, line interactive UPSs and on-line UPSs, all of which are designed to provide emergency power supplies for information technology applications, electronic devices and telecommunications equipment that require uninterrupted and reliable power sources. Off-line UPSs provide emergency power backup for up to seven minutes in the event of power stoppages. They are cheaper and normally have lower power ratings. Line interactive UPSs supply higher performance power such as pure sinewave and maintain regulative output during power disturbances. On-line UPSs function as power filters and regulators, as well as power sources during any power conditions. On-line UPSs are generally more expensive and in greater demand in developing countries where power supply is unstable. The Delta Group’s UPSs are equipped with circuit breakers which protect the UPSs and the output wiring from extremely large current variations such as short circuits. The Delta Group’s UPS products have a wide range of output capacities, ranging from 300VA to 3-phase 200KVA. Advanced features like PFC, galvanic isolation, parallel technology, battery replacement, lightning and surge protection (RJ-45/RJ-11) for Ethernet card/ telephone line are integrated into the units. The Delta Group’s UPSs also comes with built-in CPU control, self-diagnosis and USB/RS-232C/dry contact/AS-400 communication ports.

Electronic Ballasts

The Delta Group manufactures electronic ballasts, which are used in energy saving lighting devices. The incorporation of electronic ballast permits the saving of between 20% and 75% of the energy used by standard products which do not incorporate electronic ballast and allows the useful life of such devices to be extended by up to 10 times the life of an ordinary light bulb. Electronic ballasts are used in compact fluorescent lamps, linear fluorescent lamps and metal halide lamps. These products utilize technology and manufacturing processes developed by the Company together with an unrelated third party partner. The Company anticipates an expanded demand in the retail market for products which incorporate electronic ballasts in the future.

Electronic Components

The Delta Group manufactures a range of electronic components through its Electronic Components Business Group, both for internal use and external sales and covers industries that

include computing, consumer electronics, home appliance, telecommunications, industrial equipment and automobile electronics. This business group also provides the Delta Group’s other business groups with a steady supply of electronic components for their products. Such components include power and telecom and networking components, EMI filters, brushless DC fans, crossflow fans and blowers, DC spindle and stepping motors, thermal management products, DC-AC inverters, radio frequency/microwave components, fiber optical transceivers and optical electronics components. A significant proportion of the Delta Group’s electronic component products are manufactured either at the Delta Group’s plants in the PRC or at the facilities of the Delta Group’s affiliates in Thailand. Components accounted for 20.4% and 23.4% of the Company’s operating revenue in 2003 and 2004. The Delta Group divides its Components Business Group into the following smaller business units to achieve production, sales and management efficiencies.

Magnetics & Filter

‰ EMI filters . The Delta Group offers a wide range of standard and customised EMI filters to reduce conductive noise. The Delta Group’s EMI filters help computing devices, including peripherals, and other industrial, scientific and medical equipment using digital technology to meet the applicable interference control and emission standards for Japan, US and European markets. Its present products include IEC inlet filters with a maximum capacity of 20A, chassis mounting filters with a maximum capacity of 60A and three-phase filters with a maximum capacity of 600A/520 VAC. Its mass produced three-phase filters are extensively used in AC motor drives and machine applications. The Delta Group provides components which are UL recognized, CSA certified, VDE approved and CE compliant.
‰ Power magnetics . The Company has more than 33 years of experience in the design and manufacture of standard and customer-specific magnetics. Its magnetic products include switching power transformers, line filters, inverter transformers, SMT power inductors, current sensing transformers and high voltage transformers for use in switching power supplies, PC peripherals, lighting products, televisions, monitors, videos, AC/DC adapters and office and home electrical appliances. The Delta Group’s design engineers are capable of developing products customised to specific applications of its customers.
‰ Telecom components . The Delta Group produces POTS/ISDN splitters which enable ADSL service to share a telephone line with existing POTS, ISDN, or Smart Phone services. The splitters can separate the high-frequency traffic to DSLAM and the low-frequency telephone services to a private branch exchange (PSTN/PBX) switch. These products are designed to eliminate interference to POTS equipment by blocking high frequency energy (20KHz ~10MHz). The Delta Group also produces ADSL filters for use in blocking any noise generated by other phones, fax, answering machines and analog modems. It also produces VDSL POTS splitters which allow up to 48 POTs to share the same cable.
‰ Networking components . With respect to networking components, the Delta Group produces a full range of ODM networking components, including ATM and transformer modules for 10/100 switching hubs. The Delta Group also manufactures Ethernet DC/DC converters, Ethernet (AVI) isolation transformers, PCMCIA filtered modules and space saving RJ-45 10/100 Base-TX filtered connectors. The Delta Group has also developed SMD transfer device, a new product with enhanced reliability.

Fan & Precision Motor

‰ Brushless DC fans, crossflow fans and blowers . The Delta Group produces brushless DC fans, blowers, crossflow fans and slim blowers for use in cooling down the power supply systems of personal computers, office equipment and other electronic devices. Certain models

of the Delta Group’s brushless DC fans are designed with variable speeds using thermal sensors to better preserve energy. The Delta Group’s blade shape design features extra low noise, high air flow and air pressure. Fans with hot-swap construction, fan trays and modules with strong pan and high efficiency are also produced. The Delta Group has built a number of computer integrated automated production lines in-house for the assembly and testing of its brushless DC fans.

‰ DC brushless spindle motors/stepping motors . The Delta Group produces DC brushless spindle motors of slim design and small sizes. These products are designed for high speed application (7,000 — 10,500 rpm). The Delta Group’s brushless spindle and stepping motors feature high torque and low inertia to produce quick response at low current consumption, and include low cogging torque in order to minimise running vibrations and noise. The Delta Group’s spindle motors are used for data storage equipment, stepping motors for digital cameras, printers, car meters and other products with positioning requirements and digital motor controllers for automotive and industrial products.

Thermal Management Products

‰ The Delta Group also produces thermal management products (coolers) which provide thermal solutions for desktop computers, servers, game consoles, telecommunication equipment, household appliances and VGA cards. The Delta Group’s thermal management products feature active coolers using heat pipe, copper soldering fins and other special designs. Advanced engineering equipment such as thermal evaluation software, thermal wind tunnels, thermal resistance testers, computerized CNC machines, anechoic chambers and wind tunnels are used to develop such thermal coolers.

Inverter & CCFL

‰ The Delta Group’s DC-AC inverters provide low noise and high frequency tube triggers for use in use in notebook computers, sub-notebooks, LCD monitors and LCD TVs for driving the backlight of LCD screens.
‰ The Delta Group also produces cold cathode florescent lamps (“CCFLs”) for use in LCDs.

Wireless & Optical Communication Component

‰ Radio frequency/microwave components . In 1998, the Delta Group introduced miniature radio frequency components with a frequency range up to 20GHZ for application in telecommunication products such as cellular phones, wireless local loops and base stations. These products include a high performance and small-size voltage controlled oscillator family and advanced active antenna for Global Positioning System (“GPS”). The Delta Group offers radio frequency/microwave components that include one of the world’s smallest Bluetooth modules, as well as PA modules, VCDs and TCXDs for mobile applications.
‰ Fiber optical transceivers . The Delta Group introduced optical transceivers for data communication applications in 1999. It currently designs, assembles, and manufactures a wide range of TOSA/ROSAs as well as optical transceivers and offers transceivers covering data rates of 155 Mbps, 622 Mbps, 1.25 Gbps, 2.5 Gbps and 10.0 Gbps in MSA standardized multiple form factors. The main applications of optical transceivers include telecom, datacom hubs/switches, SANs, Access and FTTxs. In particular, the Delta Group is a leading player in Japan FTTH market for bi-directional optical transceiver.

Optical Component

‰ Optical components . The Delta Group introduced optical components required for projection display applications in 2003. It currently produces optical components including most of the components required for DLP projectors such as color wheels, light tunnels, TIR prism for single panel and Philips prism for 3 panels.
‰ Fiber optics passive components . The Delta Group also introduced fiber optics passive components for telecommunication applications in 2003, including tunable devices such as tunable filters and tunable laser for used by next generation fiber optics telecommunications equipment.

Networking products

Through its subsidiary DNI, the Company produces and offers a full range of networking products including LAN products, broadband access products, wireless products and switches. DNI has introduced products which allow users to upgrade or expand their network systems at lower costs with higher value added. The objective is to establish a network infrastructure with enhanced reliability, broader bandwidth and larger capacity. The Delta Group’s networking products are mainly for DMS customers, who generally incorporate the Delta Group’s networking products into their computers and networks to promote efficiency in data sharing and transmission among multiple work stations. DNI’s networking products are tested by Microsoft and Novell’s laboratories. Delta US’s R&D laboratory for networking products at Research Triangle Park in North Carolina, U.S.A., provides technical service close to customers in the United States. Networking products accounted for 12.4% and 11.4% of the Company’s operating revenue in 2003 and 2004, respectively. The principal types of networking products produced by DNI are set out as follows:

LAN

‰ LAN switches . Switches allow different nodes (a network connection point, typically a computer) of a network to communicate directly with one another in a smooth and efficient manner. Switches that provide a separate connection for each node in a company’s internal network are called LAN switches. A LAN switch creates a series of instant networks that contain only the two devices communicating with each other at that particular moment. DNI currently produces a number of different LAN switches including managed switches, unmanaged switches, smart switches, chassis switches, stackable switches and PoE switches.

Wireless

DNI produces a variety of desktop computer and notebook computer wireless PC cards as well as wireless interfaces. Wireless interfaces transmit the wireless internet signals to computers with wireless PC cards.

Broadband

‰ Broadband Router. Routers are specialized computers that send and receive messages to and from individual internet users. Routers allow messages to flow between different networks of computers instead of within the same networks. They join networks, passing information from one to the other and, in some cases, performing translations of various protocols between networks. Routers also protect networks from one another, preventing the traffic on one from unnecessarily spilling over to the other. As the number of networks connected to each other increases, the processing power of the router also must increase.

‰ ADSL Gateway. Most homes and small business users are connected to an asymmetric DSL (“ADSL”) line. ADSL divides up the available frequencies in a line on the assumption that most Internet users look at, or download, much more information than they send, or upload. Under this assumption, if the connection speed from the Internet to the user is three to four times faster than the connection from the user back to the Internet, then the user will see the most benefit (most of the time). An ADSL Gateway is a router that connects users to an ADSL.

Server

A server is a physical computer on which the software runs. Originally server software would be located on a mainframe computer or minicomputer. These have largely been replaced by computers built using a more robust version of the microprocessor technology than is used in personal computers, and the term “server” was adopted to describe microprocessor-based machines designed for this purpose. DNI currently produces several different types of servers including server motherboards, rack mount servers and tower/desktop servers.

Portable

‰ LCD TV PC/KIOSK. The LCD TV PC provides a high speed processor, large LCD display, network/wireless capability, user-friendly touch screen and multiple I/O connections. By adding a PCMCIA 802.11b wireless LAN card, it can be used for wireless information management, a wireless point of sale (“PoS”), and a wireless mobile solution for inventory management, healthcare and insurance.
‰ Tablet PC/ Wireless PoS/ KIOSK. Tablet PCs include a CPU, LCD display, CD-ROM, HDD, FDD, and Touch Screen. With built-in IC Card R/W, Touch Screen, and semi-water-resistance design, it also offers a convenient platform for highly secure e-business.

Visual display products

The Delta Group manufactures a wide range of visual display products based on microdisplay technology. Microdisplay optical engines offer a non-flickering high-resolution picture, low energy consumption, no harmful UV light emissions and a lightweight and slim display. Recently, the Delta Group down-sized its production of CRT and LCD computer displays in light of the increasing commoditisation of, and declining profit margins for CRT and LCD products. Visual displays accounted for 14.7% and 6.4% of the Company’s operating revenue in 2003 and 2004, respectively.

Front Projectors

Focusing on all available microdisplay technologies, the Delta Group continues to develop front projectors as the key product in its visual display range. More than six new models of front projectors were introduced in the first quarter of 2003. To meet requirements from different market segments, front projectors with brightness ranging from the entry level of 1200 lumens up to 2400 lumens, and weight factors varying from 1.5kg to 3kg, are available. More economic models for the retail market are under development.

Rear Projection TVs

The Delta Group has gained a significant market position in the supply of Digital Light Processing (DLP) optical engines for rear projection TV/monitors. The Company believes that digital broadcasting will eventually replace analog broadcasting of TV programmes and that digital broadcasting will favour the larger displays made possible by rear projection technology. Pilot runs of digital broadcasting have

already taken place in the United States, Europe and Japan and digital broadcasting is expected to replace analog broadcasting progressively. The Delta Group currently offers several rear projection system solutions for 42-inch, 56-inch and over 60-inch displays, in 4:3 and 16:9 aspect ratios. Sales of front projection TV sets made an important contribution to the Company’s total consolidated operating revenue from visual displays in 2003.

Digital Visual Display Systems

For control rooms, and public information systems, the Delta Group currently provides high brightness projection cubes for large area video walls with 38-inch, 50-inch and 60-inch displays.

Large Venue Projection Systems

Delta has co-developed with a strategic technology partner a high-end product using a 3-piece DLP with ultra-high brightness of up to 5,000 lumens brightness and large scale video performance projector for use in auditoriums and exhibition halls.

CRT & LCD Monitors

In the second half of 2003, the Company stopped taking additional orders of CRT and LCD monitors in order to streamline its product mix and eliminate these low-margin products.

Electromechanical products

The Delta Group began production of motor drives (a type of inverter used to control the running speed of various machines and pieces of equipment) in 1995. By inputting programs, users of motor drives can control the running speed of their machinery and equipment to achieve the required mechanical function and optimize the use of energy. Electromechanical products accounted for 3.9% and 5.2% of the Company’s operating revenue in 2003 and 2004, respectively.

Currently, the Delta’s Group’s Electromechanical Business Group is organized based on three major product categories: Drive, Motion and Control.

Drive

‰ AC motor drives. The Delta Group’s motor drives range from 25W to 110kW with superior microprocessor based digital control, and high frequency pulse width modulation for smooth motor operation. Sensorless vector, flux vector and other technologies are employed in a broad range of products. All of the Delta Group’s motor drives offer high torque and smooth operation with low harmonic distortion. In addition to traditional factory automation applications, the Company has also developed building automation applications such as HVACs and elevators, which is the largest market segment in the PRC. The Company is also developing brushless DC motor drives for home appliance applications.

Motion

‰ Servo drives and motors. Servo drives and motors have been developed for industrial automation machines needing high-speed and high-precision positioning operations. The Delta Group’s new servo drives use optical encoders for superior resolution in machine applications where high stiffness is needed to reject high torque disturbances. The Delta Group’s servo drives employ innovative robust control technology and high resolution encoders without complicated parameters setting and tuning.

Control

‰ Temperature controllers . Temperature controllers are used to control numerous industrial processes where precise heating or cooling control is required. Controllers come in various sizes and feature auto-turning. To facilitate communications among the different protocols found in the industry, Delta has developed a series of communication converter modules.
‰ Programmable logic controllers. Programmable logic controllers (“PLCs”) are used to control automation processes. The Delta Group’s PLCs are offered in both nano- and micro-class products. The PLCs high performance and extensive I/O units represent a high-value solution for machine control and industrial automation.
‰ Human machine interface modules. The Delta Group’s new human machine interface (“HMI”) products offer fast and convenient control of manufacturing automation through a user-friendly graphical interface. Products feature rapid downloads and uploads, user-defined graphics libraries, a powerful ARM-based CPU, and flexible user-defined protocols.

CUSTOMERS

The Company sells more than 90% of its products on a DMS basis. As one of the leading manufacturers of switching power supplies and a significant supplier of visual displays, electronic components and networking equipment to the consumer, computer and communications industries, the Company has major customers located throughout the world. The Company places emphasis on customer relations and providing high quality service. A key aspect of the Company’s customer development strategy has been to procure high volume orders on a DMS basis from major global computing and electronics companies. The following table sets forth the major customers for the Company’s products in alphabetical order and the type of products purchased by each:

Customers
Alcatel. . . . . . . . . . . . . . . . . . . . . . . . .
Apple . . . . . . . . . . . . . . . . . . . . . . . . .
Asustek . . . . . . . . . . . . . . . . . . . . . . .
Black & Decker. . . . . . . . . . . . . . . . .
Belkin . . . . . . . . . . . . . . . . . . . . . . . . .
Canon. . . . . . . . . . . . . . . . . . . . . . . . .
Celestica . . . . . . . . . . . . . . . . . . . . . .
CISCO . . . . . . . . . . . . . . . . . . . . . . . .
Dell . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fujitsu. . . . . . . . . . . . . . . . . . . . . . . . .
Gateway. . . . . . . . . . . . . . . . . . . . . . .
GE. . . . . . . . . . . . . . . . . . . . . . . . . . . .
HP . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hitachi . . . . . . . . . . . . . . . . . . . . . . . .

Principalproductspurchased
Telecom magnetics, power magnetics, DC fans
DC fans, EMI filter
SPS, adapters, fans, networking components
Adapters
UPS
EMI filters, DC fans, power magnetics
DC fans, EMI filters, power magnetics
SPS, adapters, DC fans, UPS, networking components, EMI
filters, Telecom rack power systems
SPS, adapters, DC fans, networking components, power
magnetics
Monitors, DC fans, motors, fiber optical transceivers, EMI filters
DC fans, Projectors, LCD TV
Electronic ballasts
SPS, adapters, DC fans, networking products, DC/DC converters,
power magnetics, projectors, UPS
SPS, adapters, monitors, power magnetics, DC fans

Customers
IBM . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventec . . . . . . . . . . . . . . . . . . . . . . .
JVC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legend. . . . . . . . . . . . . . . . . . . . . . . .
LG . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matsushita. . . . . . . . . . . . . . . . . . . . .
Microsoft . . . . . . . . . . . . . . . . . . . . . .
Mitsubishi. . . . . . . . . . . . . . . . . . . . . .
Motorola. . . . . . . . . . . . . . . . . . . . . . .
NEC . . . . . . . . . . . . . . . . . . . . . . . . . .
Nortel Networks . . . . . . . . . . . . . . . .
Philips. . . . . . . . . . . . . . . . . . . . . . . . .
Samsung . . . . . . . . . . . . . . . . . . . . . .
Sharp . . . . . . . . . . . . . . . . . . . . . . . . .
Siemens. . . . . . . . . . . . . . . . . . . . . . .
Solectron . . . . . . . . . . . . . . . . . . . . . .
SONY . . . . . . . . . . . . . . . . . . . . . . . . .
Sun Microsystems. . . . . . . . . . . . . .
Thomson . . . . . . . . . . . . . . . . . . . . . .
Toshiba . . . . . . . . . . . . . . . . . . . . . . .
Viewsonic . . . . . . . . . . . . . . . . . . . . .

Principalproductspurchased
SPS, adapters, inverters, DC fans, EMI filters
DC fans, power magnetics, networking components
Power magnetics, monitors, EMI filters, DC fans
SPS
Adapters, EMI filters, DC fans
power magnetics, EMI filters, DC fans
SPS
Monitors, EMI filters, DC fans
SPS, adapters, DC fans, EMI filters
SPS, networking products, power magnetics, UPS, CD-ROM
drives, EMI filters, DC fans
Telecom components, DC fans
monitors, power magnetics, inverters, EMI filters, DC fans
Adapters, EMI filters, DC fans
Adapters, EMI filters, DC fans
SPS, UPS, telecom components, DC fans, EMI filters
DC fans, networking components, EMI filters, power magnetics
SPS, power magnetics, adapters, DC fans, EMI filters
DC fans
Power and telecom magnetics, networking components, DC fans
SPS, adapters, power magnetics, DC fans
Monitors, LCD monitors, projectors

Over the years, the Delta Group has received various service awards from its customers in recognition of the quality of its products and services. See “The Delta Group—Service Awards”. The top 10 customers by net sales of the Delta Group as at December 31, 2004 were DELL, HP, IBM, Sony, Gateway, Netgear, Cisco, NEC, Nortel and Intel.

SALES AND MARKETING

DMS sales accounted for a substantial portion of the Company’s consolidated net sales. The Company typically sells its products based on specific customer purchase orders rather than longerterm (2 years or more) contractual commitments, although in some cases the Company does have agreements with customers to set the customers’ estimated demand for the Company’s products for a given year or a period of time. The Company also sells its electronic component products under its own brand names, either directly to the ultimate customer or through distributors. The percentage of direct sales varies by product line and is typically small. The product lines with the highest relative percentage of direct sales are telecom power systems sold to customers in the telecommunications industry and certain networking products and electronic components.

Due to the characteristics of its business, the Delta Group’s sales and marketing efforts are very much customer-centered because knowledge of customers’ requirements and preferences is essential

for securing DMS business. This is particularly true for power supply products, where historically manufacturers have been required to modify their products to meet the specific needs of each customer. The Company believes that a large majority of the Delta Group’s customers prefer to source products from a relatively small number of outside vendors, and therefore consistent high quality execution of orders received is necessary to foster customer loyalty, earn repeat orders and increase market share. Good customer service and after sales support are also important in meeting the needs and expectations of customers.

The Delta Group and its affiliates maintain a total of 42 sales offices in the ROC, Japan, the PRC, Hong Kong, Singapore, Thailand, Europe, India, Brazil and the United States, and employ a sales and marketing staff of approximately 500 employees worldwide. To better respond to customers, every business group maintains a dedicated sales and marketing team, though in some circumstances sales and marketing resources are shared by two or more business units.

The Company also believes that its commitment to research and development is directly related to its marketing efforts. In order to compete for and secure the most desirable and profitable business of new product development and design, the Delta Group has found that it must make significant investments in research and development of current technologies so that its personnel are fully conversant with the requirements of its customers. The Company believes that its investments in research and development will enhance the ability of the Delta Group to compete for new business and attract new customers. In addition to independent investments in new technologies, the Delta Group also devotes substantial resources to cooperating with industry leaders in developing new products. These efforts are, to the extent that they become publicised to customers and other industry players, a form of passive marketing. See “Business—Strategy”.

ORDER PROCESS

The Delta Group has established long-term supply relationships with many of its major customers, which are subject to periodic review for estimated requirements and pricing. Information from such estimated requirements, as well as each production unit’s quarterly sales forecasts for all products, is factored into the relevant Delta Group company’s production plan reflecting all current and anticipated orders. Once an order is confirmed, adjustments are made to the production plan as necessary. If a customer cancels pending purchase orders or terminates or reduces purchase orders in progress, such customer is liable for cancellation charges which, depending on the timing of such cancellation, are equal to the relevant Delta Group company’s actual costs for raw materials and components or the value of the semi-finished or finished products, net of any recovery from resales of such materials, components or products.

PRODUCTION

The Delta Group currently has five production plants in Chungli, Taoyuan and Tainan in the ROC, five production plants in Dongguan, Guangdong Province in the PRC and one production zone in Wujiang Municipality in the PRC, and through its affiliates has access to one production plant in Tianjin, the PRC, three production plants in Thailand and one production plant in Mexico. In general, other than some high-cost equipment or production lines such as surface-mounting equipment, the Delta Group’s production plants operate on a two-shift basis. The Company believes that the production plants of the Delta Group have flexible capacity. However, in light of the needs of future growth, the Delta Group intends to continue to increase the production capacity of its production facilities in Wujiang, the PRC and in Mexico.

The basic production processes for the Delta Group’s products consist of surface mounting, automatic insertion, manual insertion, PC board inspection, wave soldering, final assembly, in-circuit

tests, burn-in tests and inspection, function testing, final testing and packaging. The Delta Group maintains a team of quality control staff whose duty is to monitor design and production processes in order to ensure high quality. These employees include line inspectors who work with members of the production staff to conduct examination and testing during the production process.

Each of the companies within the Delta Group has set up an engineering department to conduct quality review at the design stage. The Delta Group’s quality engineers and manufacturing engineers are highly involved during the product design stage to evaluate the quality, reliability and manufacturing feasibility of the products. Before mass production, reliability tests are conducted to ensure satisfactory performance during the designed useful life spans of such products.

Most of the Delta Group’s products are approved for self-test and certification by UL under TCP and CSA and are tested by the Delta Group’s quality testing system to ensure their effectiveness and reliability.

DISTRIBUTION

The Delta Group controls and manages its global logistics network (comprising 16 production facilities and 86 logistic hubs around the globe) through an advanced SAP business management system. The SAP systems enable the Delta Group to integrate its production, inventory, order fulfilment and warehouse facilities to respond to the needs of its global customer in a timely and cost effective manner.

The Delta Group generally distributes its DMS products directly to customers from its manufacturing facilities. The Delta Group uses third party commercial freight delivery services or other delivery methods selected in consultation with its customers. The Delta Group has not experienced difficulties in meeting its customers’ needs in the past. To better serve certain customers, the Delta Group produces particular DMS products at factories which are located near those customers’ own production facilities. The Delta Group considers its customers’ and potential customers’ requirements when selecting sites for its factories.

In recent years, the Delta Group has established “just-in-time” warehouse facilities (“hubs”) near the customers’ own production facilities. It has been the Delta Group’s practice to lease space in commercial warehouse facilities rather than to establish its own warehouses. To date, the Delta Group has established 86 logistic hubs worldwide to support the needs of its global customers.

A portion of the Delta Group’s sales consists of its own branded products. Such products are mostly sold to customers through third party distributors. A small percentage of the Delta Group’s own-branded products are also distributed to its sales and service centers throughout the world, in order to ensure immediately available supplies of certain products to better serve its customers’ needs.

INTELLECTUAL PROPERTY

A number of elements of the Delta Group’s products and technological processes are proprietary in nature, and are owned by the Delta Group or utilised under licence from third parties. As of December 31, 2004, the Company held a total of 1,321 patent registrations worldwide. Patents for various products and technologies have been approved in countries which include one or more of the ROC, Japan, the PRC, Germany and the United States. Most of the Company’s current patents expire between 2004 and 2022.

Seeking patent protection can be expensive and time consuming. There can be no assurance that patents will be issued from pending or future applications or that, if patents are issued, they will

provide meaningful protection or other commercial advantages to the Company. Moreover, there can be no assurance that any patent rights will be upheld in the future or that the Company will be able to preserve any of its other intellectual property rights. Nonetheless, the Company generally seeks patent protection on any new inventions, product improvements or technology developed by its employees. In recent years the number of patents sought and obtained by the Company has increased, reflecting its increased investment in research and development of new technology. As of December 31, 2004, the Company also had 1,501 patent applications pending in various jurisdictions, including but not limited to the ROC, Japan and the United States.

The Company has registered 11 trademarks and has one pending trademark application in the ROC. In addition, the Company has registered eight trademarks in a number of North American, European and Asian countries. The trademarks are designated for use on the Delta Group’s products, including power-related products, visual display products and electronic components.

RESEARCH AND DEVELOPMENT

The Company believes that research and development is critical to the future success of the Delta Group and it is committed to devoting increasing efforts in research and development. Aggregate annual research and development expenses by the Company and its consolidated subsidiaries increased from NT$3,139.6 million in 2003 to NT$3,221.7 million in 2004. The Company expects that its research and development expenses for 2005 will remain at similar levels as in 2004.

The Delta Group carries out its research and development activities at three levels:

Corporate Level

The Delta Group and its affiliates have 18 engineering laboratories and research and development laboratories worldwide (ten in Asia, four in the United States and four in Europe). At the corporate level, these R&D laboratories focus on long term research projects which are of strategic importance to the future growth of the Delta Group. For instance, Delta Power Electronics Center in Shanghai concentrates on research and development of advanced power systems whilst Delta Communication Laboratory in Raleigh, North Carolina focuses on research and development of wireless communications and the Corporate Research & Development Center of the Company in Taipei, Taiwan focuses on research and development of MEMs, speech technology and optoelectronics. This research capacity is augmented by the Delta Group’s participation in various campus research programmes and fellowship and scholarship endowments. The Delta Group has for many years maintained research collaborations with leading universities such as MIT and Virginia Polytechnic University in the United States, National Tsing Hua University and National Central University in the ROC and Zhejiang University in the PRC. These programmes enable the Delta Group to keep abreast of latest technology development trends and leverage on existing research resources of these research institutions.

Business Unit Level

Each of the business units within the Delta Group has its own group of engineers who focus on product development for each individual business unit of the Delta Group. Each of the business units within the Delta Group also has a special automation engineering department responsible for manufacturing automation and process improvement. Each business unit conducts a five-step development procedure for each new product before it commences commercial production. First, based on the market survey and specific requirements of customers, the research and development department conducts product planning. Second, based on the product plans, the relevant company’s

engineers develop design and manufacturing concepts and an estimated schedule for the product development. Third, the design engineers create engineering samples, which involves design and simulation, component selection, sample building and testing, design review, reliability testing and manufacturability review. Fourth, the production unit starts a pilot run of the new product, during which the products are subject to continuous review and testing. Finally, the relevant company’s production personnel complete their pre-production preparation and the product is then ready for commercial production.

Consumer Level

For those products custom-made to meet client specifications, such as telecom power systems, the Delta Group has dedicated teams of engineers located close to major customer sites who work closely with those customers in refining product specifications and developing new products.

As at December 31, 2004, the Delta Group has more than 7,000 engineers and technicians engaged in product design, automation and quality assurance.

Presently, the Delta Group focuses on developing high value-added new products, such as optical components, advanced power systems, IC, thermal control, wireless communication equipment and visual displays, as well as remodelling and upgrading existing products. Two challenging new fields are MEMs and speech technology which the Delta Group believes will complement the products which it presently offers to customers.

AUTOMATION ENGINEERING

Established in the early stages of the Company, the automation department supports process improvement and product development. The Company was the first in Taiwan to apply surface mount technology in 1985. The Company’s hardware and software engineers are highly skilled in automated manufacturing processes and are closely involved in developing new products for customers.

The Company’s automation department has contributed to its rapid business growth by developing the equipment that is used in its worldwide plants. These advancements include thin film and thick film transmission systems, material flow and warehousing systems, production systems for LAN components, switching transformers, chip inductors and others. These efforts result in more efficient, flexible and economical production systems.

The Company’s automation department continues to monitor technology trends and update technical capabilities, as well as strengthen resources by building cooperative relationships with leading universities and vendors. New development programs for the Company’s automation department include visual inspection applications, semiconductor related equipment, fiber optics processing machines and auto warehousing systems.

SUPPLY OF COMPONENTS, RAW MATERIALS AND ENERGY

Certain of the Delta Group’s products, such as power-related products, visual display products, networking products and components, AC motor drives and other electromechanical products, utilise electronic components produced by the Delta Group, such as magnetics, transformers and brushless DC fans and spindle motors. This vertical integration reduces the Delta Group’s reliance on external components and raw materials suppliers.

The Company purchases a substantial percentage of its components and raw materials from external suppliers. Principal components and raw materials include semiconductors, PC boards, cores,

ICs, capacitors, wires, metal and plastic casing and batteries. In general, the Delta Group purchases these components and raw materials from multiple suppliers pursuant to purchase orders. However, the Delta Group purchases certain specific types of semiconductors from single sources because such sources are currently the only ones available. The Delta Group is also particularly dependent on outside suppliers of LCD and other flat panel displays used in certain of its visual display products under development. The Company believes that the Delta Group’s relations with its principal suppliers are good.

The Delta Group generally keeps 7 to 15 days supply of components and raw materials in stock so that its production will not be interrupted by temporary shortages. In the event any of the single source suppliers continues to fail to provide adequate supply, the Company believes that its design engineers will at times be able to redesign the specific product, or work with other producers to assist them to produce the same components, so as to mitigate reliance on the single source suppliers involved. In addition, the Company believes that to the extent that the Delta Group continues to gain greater market share, its suppliers will desire to maintain a close business relationship with the Delta Group in order to gain their own substantial market shares in component supply. For certain components such as power semiconductors and cores, the Company believes that the Delta Group is one of the largest customers to its suppliers and therefore has certain advantages in terms of bargaining power.

EMPLOYEES

As of December 31, 2004, the Company and its subsidiaries had in aggregate approximately 40,000 employees, of whom approximately 5,000 were executive officers and administrators, approximately 7,000 were engineers and technicians and approximately 28,000 were operators of machinery and equipment.

The future success of the Delta Group will depend, in part, on its ability to continue to attract and retain highly qualified technical, marketing, engineering and management personnel. See “Risk Factors—Factors Related to the Delta Group and Its Business—Dependence on and ability to attract, retain and motivate qualified personnel”. The Company has established a development strategy to transfer the most labour intensive production lines to areas outside the ROC, such as the PRC. The Company has not experienced any strikes or significant work stoppages and believes that its relationship with its employees are very good.

The Company believes that its management policies, working environment and the employee development opportunities and benefits it extends to employees have contributed to good employee relations and employee retention. Employee benefits include subsidised meals and housing, health insurance, life insurance, safety insurance, education/training subsidies and employee bonuses, which customarily involve distributions in the form of Shares. See “Dividends”.

The Company maintains a defined benefit employee retirement plan (the “Plan”) covering all regular employees. The Company contributes to the Central Trust of China at a fixed rate equal to 2% of monthly salaries and wages. The subsidiaries of DNI Cayman, DNIT and Pyramis maintain employee retirement plans according to the Labor Law and related regulations of the country they operate. DIH and DNH do not maintain an employee retirement plan. Each DIH’s and DNH’s subsidiary located in Mainland China maintains a contributory employee retirement plan covering all employees. Under the plan, the employees of each DIH’s and DNH’s subsidiary contribute to a separate fund for an amount based on certain percentage of the monthly basic salary of employees. Each DIH’s and DNH’s subsidiary also provides pension reserve for its employees for amounts depending on employees’ positions. The subsidiaries of DIH, DNH and Pyramis located in Hong Kong and United States of America have defined contribution plan in accordance with the regulations in the country where these subsidiaries operate and contribute pension fund based on certain percentage of salaries. Except for the annual contribution referred to above, the subsidiaries have no further employee retirement benefit obligations.

PROPERTIES

The following table sets forth the location, size and primary use of the material properties of the Delta Group as of December 31, 2004 and whether such facilities are owned or leased by the Delta Group:

Group:
Location ROC Chungli, Taoyuan (Plant No.1). . . . . . . . . . . . . . . . . . Chungli, Taoyuan (Plant No.2). . . . . . . . . . . . . . . . . . Guishan, Taoyuan (Plant No.1). . . . . . . . . . . . . . . . . . Guishan, Taoyuan (Plant No.2). . . . . . . . . . . . . . . . . . Tainan . . . . . . . . . . . . . . . . . . . . . . . . Neihu, Taipei. . . . . . . . . . . . . . . . . . . PRC Shijie Town, Dongguan . . . . . . . . . Shijie Town, Dongguan (Plant No.1). . . . . . . . . . . . . . . . . . Shijie Town, Dongguan (Plant No.2). . . . . . . . . . . . . . . . . . Shijie Town, Dongguan (Plant No.3 and Plant No.4) . . . Shijie Town, Dongguan (Plant No.5). . . . . . . . . . . . . . . . . . Wujiang (Plant No.1). . . . . . . . . . . . . . . . . . Wujiang (Plant No.2). . . . . . . . . . . . . . . . . . Wujiang (Plant No.2). . . . . . . . . . . . . . . . . . Wujiang (Plant No.3). . . . . . . . . . . . . . . . . .	Floor space (in square metres) 24,804.37 22,324.80 14,600.64 69,507.06 3,775.21 16,999.75 124,122 16,750 35,550 47,850 26,550 85,042.39 19,148.19 88,016.67 86,327.69	Primary use Manufacturing of SPS, monitors and projectors Manufacturing of SPS Manufacturing of electromechanical products Manufacturing of components and networking products Manufacturing of UPSs Head executive office and research and development center Dormitories and office buildings Manufacturing of magnetic components and DC/AC inverters Manufacturing of power supplies, adapters, DC/DC converters and electronic ballasts Manufacturing of DC fans, motors and power supplies Manufacturing of networking components and ODM products Manufacturing of networking components, magnetic components, DC fans, Dormitory Manufacturing of power supplies, adapters, DC/DC, Manufacturing of electronic and projection displays	Owned or leased
			Owned(1) Owned Owned(1) Owned(1) Leased(1) Owned(1) Owned(2) Owned(2) Owned(3) Owned(4) Owned(5) Owned(6) Owned(6) Owned(6) Owned(6)

(1) The Company has full title to the five owned manufacturing facilities, except one plant in Tainan, the renewable lease for which is due to expire on October 9, 2005.

(2) The land use rights to these parcels of land owned by Delta Electronics (Dongguan) Co., Ltd. will expire in 2045.

(3) The land use rights to these parcels of land owned by Delta Electronics Component (Dongguan) Co., Ltd. will expire in 2045.

(4) The land use rights to these parcels of land owned by Delta Electronics Industrial (Dongguan) Co., Ltd. will expire in 2048.

(5) The land use rights to these parcels of land owned by Delta Electronic Power (Dongguan) Co., Ltd. will expire in 2048.

(6) The land use rights to these parcels of land owned by Delta Video Display System (Wujiang) Co., Ltd., Delta Electronics (Jiangsu) Co., Ltd., Delta Electronics Components (Wujiang) Co., Ltd., and Delta Electro-optics (Wujiang) Co., Ltd. will expire in 2050.

ENVIRONMENTAL MATTERS

All industrial waste produced by the Company is treated in compliance with local government regulations before discharge. The Company has not been subject to any, nor is it aware of any pending or threatened, material fines or action against the Company involving non-compliance with any environmental regulation of the ROC, the PRC or any other jurisdictions.

LITIGATION

As is the case with many companies in the electronic component and devices industry, the Company from time to time receives communications from third parties asserting patent rights to the Company’s products and enters into discussions with such third parties as to their respective positions and the terms of any possible licenses in respect of such patent rights. Irrespective of the validity or the successful assertion of such claims, the Company could incur significant costs with respect to the defense thereof. Neither the Company nor its Chairman is involved in any litigation, arbitration or administrative proceedings relating to claims that it believes would have a material adverse effect on its financial condition and results of operations.

INSURANCE

The Delta Group’s ROC and PRC facilities maintain property damage, business interruption and global logistics and shipping insurance policies with insurance carriers in respect of buildings, equipment, goods, and certain inventories covering losses due to any accidental destruction or damage (subject to certain specific exclusions). In 2004, the Company procured liability insurance for its directors and managerial officers. The Company considers such insurance coverage to be adequate and in accordance with customary industry practice in the relevant locations.

Board of Directors and Management

The Board of Directors has ultimate responsibility for the management of the business and affairs of the Company. Members of the Board of Directors of the Company are elected by the stockholders of the Company. As of December 31, 2004, the Company’s Board of Directors is composed of nine directors. In addition, the Company has two supervisors. The directors of the Company are serving three-year terms. Directors may serve consecutive terms and may be removed from office at any time by a resolution adopted at a general meeting of shareholders. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special meeting of shareholders will be convened to elect directors to fill the vacancies.

In accordance with ROC Company Law, supervisors are elected by the shareholders of the Company and cannot concurrently serve as directors, executive officers or other staff members of the Company. The Company currently has two supervisors, each of whom serves a three-year term. The supervisors’ duties and powers include, but are not limited to, investigation of the condition of the Company’s business, inspection of the Company’s corporate records, verification and review of financial statements presented by the Board of Directors, calling of shareholders’ meetings, representation of the Company in negotiations with its directors and giving notification, when appropriate, to the Board of Directors to cease acting in contravention of applicable law or regulation or in contravention of the Company’s Articles of Incorporation or the resolution of shareholders’ meeting.

The particulars of each director, supervisor and executive officer of the Company are as follows:

Name Directors Bruce CH Cheng(1) . . . . . . . . . . . Yancey Hai(2) . . . . . . . . . . . . . . . . Mark Ko(3) . . . . . . . . . . . . . . . . . . . James K M Ng . . . . . . . . . . . . . . . Raymond R Y Hsu . . . . . . . . . . . Ping Cheng. . . . . . . . . . . . . . . . . . Yenshan Chuang . . . . . . . . . . . . Fred Chai Yan Lee . . . . . . . . . . . Yi Chiang Lo. . . . . . . . . . . . . . . . . Supervisors E-Ying Hsieh . . . . . . . . . . . . . . . . Chung-Hsing Huang. . . . . . . . . . Total:	Position with the Company Chairman Vice Chairman and Chief Executive Officer Director and Chief Operation Officer Director Director and Vice President Director and Vice President Director Director Director Supervisor Supervisor	Date of initial appointment Age August 1975 67 May 2003 55 May 2001 56 May 2001 57 May 2001 50 May 2001 42 May 2003 69 May 2003 57 May 2003 64 December 1987 68 May 2003 49	Number of Common Shares Held Directly as of December 31, 2004 169,430,307 298,000 663,401 235,250 1,408,872 5,276,611 692,070 — 220,500 65,104,061 —	Number of Common Shares Held through Spouse and Minor Children as of December 31, 2004 65,104,061 — — — 761,652 — — — — 169,430,307 —	Percentage of Total Common Shares Issued and Outstanding as of December 31, 2004
					14.78 0.02 0.04 0.01 0.14 0.33 0.04 — 0.01 14.78 — 15.39

(1) E-Ying Hsieh is the spouse of the Company’s chairman, Bruce CH Cheng.

(2) Yancey Hai was appointed director of the Company in May 2003. He was appointed the Vice Chairman of the Company by the Board of Directors on December 11, 2003 and was appointed the Chief Executive Officer on January 1, 2004.

(3) Mark Ko was appointed the President and Chief Operations Officer on January 1, 2004.

The aggregate remuneration and benefits in kind granted to the Chairman and Executive Officer in their capacity as a director and executive officer, was NT$8,854 million and NT$10,270 million, for the years ended December 31, 2003 and 2004, respectively. The aggregate remuneration and benefits in kind granted to the remaining Directors in their capacities as directors was NT$23,320 million and

NT$30,292 million for the year ended December 31, 2003 and 2004, respectively. The aggregate remuneration and benefits in kind granted to the Supervisors in their capacities as supervisors was NT$600 million and NT$3,500 million for the year ended December 31, 2003 and 2004, respectively. The increase in remuneration for Supervisors increased due to the appointment of an independent supervisor, Chung-Hsing Huang since May, 2003.

Mr Bruce CH Cheng has been the Chairman and a director of the Company since August 1975. He also serves on the board of directors of various companies in Taiwan including DIH, DNI and DOI. Bruce CH Cheng received a Bachelor of Science degree in Electrical Engineering from National Cheng-Kung University in Taiwan.

Mr Yancey Hai joined the Company in 1999. He also acts as a supervisor of, amongst others, DNI. Mr Hai received a Bachelor of Social Science degree in Sociology from the National Taiwan University in Taiwan.

Mr Mark Ko joined the Company in December 1988. He is also a director of, amongst others, DIH. Mr Ko received a Bachelor of Science degree in Control Engineering from National Chiao-Tung University in Taiwan.

Mr James K M Ng joined the Company as President in January 2000. He has been the President of Delta Thailand since 1990. Mr Ng also serves on the board of directors of, amongst others, DIH and is the Chairman of Delta Thailand. Mr Ng received a Master of Electronics Engineering degree from the University of Southampton in the United Kingdom.

Mr Raymond R Y Hsu joined the Company in August 1972. He also serves on the board of directors of, amongst others, DIH. Mr Hsu received a Bachelor of Arts degree in Human Resources from Friends University in the United States.

Mr Ping Cheng joined the Company in 1992. He is also a director of, amongst others, DIH. Mr Cheng received a Bachelor of Business Administration degree from the California State University, Hayward in the United States.

Mr Yenshan Chuang joined the Company in 2002. He also serves on the board of directors of DOI. Mr Chuang received a Master of Science in Electrical Engineering degree from the University of Texas in the United States.

Mr Fred Chai Yan Lee serves as the independent director of the Company in 2003. Mr Lee received a Ph.D from the Duke University, Durham, North Carolina in the United States.

Mr Yi Chiang Lo serves as the independent director of the Company in 2003. Mr Lo received a Bachelor of Science degree in Physics from the National Cheng-Kung University in Taiwan.

Mrs E-Ying Hsieh has been a supervisor of the Company since December 1987. She received a Bachelor of Arts degree in Accounting & Statistics from National Chung-Hsing University in Taiwan.

Mr Chung-Hsing Huang serves as an independent supervisor of the Company in 2003. Mr Huang received a Ph.D in Management from the University of Texas, Austin, in the United States.

As of December 31, 2004, the directors, supervisor, executive officer and their families (spouses and children) held, directly or indirectly, 15.39% of the Company’s issued Shares.

Subject to proposal by the Board of Directors and approval by shareholders, the directors and supervisors are entitled to annual remuneration amounting to up to 1% of the net income allocated for distribution after offsetting accumulated net losses of prior years, any applicable income tax payments and a 10% appropriation to the legal reserve (until the accumulated legal reserve is equal to the amount of the Company’s paid-in share capital).

There have been no loans or advances made by the Company or any of its subsidiaries to, or guarantees given by the Company or its subsidiaries in relation to loans or advances received by the directors, and none of the directors, supervisors or executive officers have or have had interests in the transactions which are or were unusual in nature or conditions or significant in relation to the Company’s business or any of its subsidiaries and which were effected by the Company during the current financial year or the financial year immediately preceding the date of this offering circular, or were effected by the Company during earlier financial years and remain, in any respect, outstanding or unperformed.

Currently, the Company does not have an employee share option scheme.

The business address of all of the Company’s directors, supervisors and executive officers is 186 Ruey Kuang Road, Neihu, Taipei 114, Taiwan, ROC.

The Selling Shareholders

The selling shareholders in this offering are Bruce CH Cheng (who is the Chairman of the Board of Directors of the Company) and E-Ying Hsieh (who is the wife of Bruce CH Cheng as well as a supervisor of the Company).

The following table sets forth the information known to the Company as of December 31, 2004 with respect to the Shares held by the Selling Shareholders. The Selling Shareholders are selling up to an aggregate of 80,000,000 Shares in this offering.

Name Bruce CH Cheng . . . . . . . . . . . . . . . . E-Ying Hsieh . . . . . . . . . . . . . . . . . . . .	Shares Held Prior to the Offering Number Percent 169,430,307 10.68% 65,104,061 4.10%	Shares Being Sold in the Offering Number Percent 52,000,000 3.28% 28,000,000 1.77%	Shares Held after the Offering Number Percent 117,430,307 7.40% 37,104,061 2.34%
	Number 169,430,307 65,104,061	Number 52,000,000 28,000,000	Number 117,430,307 37,104,061

Information Relating to the Depositary

The Depositary is a state-chartered New York banking corporation and a member of the United States Federal Reserve System, subject to regulation and supervision principally by the United States Federal Reserve Board and the New York State Banking Department. The Depositary was constituted in 1784 in the State of New York. It is a wholly-owned subsidiary of The Bank of New York Company, Inc., a New York banking holding company. The principal office of the Depositary is located at One Wall Street, New York, New York 10286.

Its principal administration offices are located at 101 Barclay Street, 22 Floor West, New York, New York 10286. A copy of the Depositary’s By-laws, as amended, together with copies of The Bank of New York Company, Inc.’s most recent financial statements and annual report are available for inspection, free of charge, at the Corporate Trust Office of the Depositary located at 101 Barclay Street, New York, New York 10286 and at The Bank of New York, 48[th] Floor, One Canada Square, London E14 5AL and with the intermediary agent in Luxembourg, The Bank of New York Luxembourg S.A., Aerogolf Center 1A, Hoehenhof, L-1736 Senningerherg, Luxembourg.

Terms and Conditions of the Global Depositary Receipts

The following terms and conditions (subject to completion and amendment and excepting sentences in italics) will apply to the Global Depositary Receipts, and will be endorsed on each Global Depositary Receipt certificate:

The Global Depositary Receipts (“GDRs”) represented by this certificate are each issued in respect of 5 common shares of par value NT$10 each (the “Shares”) in Delta Electronics, Inc. (the “Company”) pursuant to and subject to a deposit agreement dated March 29, 2005 between the Company and The Bank of New York in its capacity as depositary (the “Depositary”) for the “International Facility” and for the “Rule 144A Facility” (such agreements, as amended from time to time, being hereinafter referred to as the “Deposit Agreement”). Pursuant to the provisions of the Deposit Agreement, the Depositary has appointed The International Commercial Bank of China as Custodian (the “Custodian”) to receive and hold on its behalf any relevant documentation respecting certain Shares (the “Deposited Shares”) and all rights, interests and other securities, property and cash held by the Custodian or the Depositary or their respective agents and attributable to the Deposited Shares together with any right of the Depositary or the Custodian to receive Deposited Shares or any such rights, interests and securities, property and cash as aforesaid (together with the Deposited Shares, the “Deposited Property”). The Depositary shall hold the Deposited Property for the benefit of the Holders (as defined below) as bare trustees in proportion to their holdings of GDRs. In these terms and conditions (the “Conditions”), references to the “Depositary” are to The Bank of New York and/or any other depositary which may from time to time be appointed pursuant to the Deposit Agreement, references to the “Custodian” are to The International Commercial Bank of China or any other custodian from time to time appointed pursuant to the Deposit Agreement and references to the “Main Office” mean, in relation to the relevant Custodian, its head office at 100 Chilin Road, Taipei, Taiwan, Republic of China or such other location of the head office of the Custodian in The Republic of China as may be designated by the Custodian with the approval of the Depositary (if outside the city of Taipei) or the head office of any other custodian from time to time appointed under the Deposit Agreement.

The GDRs will upon issue be represented by interests in a Master International GDR Certificate, evidencing International GDRs, and by interests in a Master Rule 144A GDR Certificate, evidencing Rule 144A GDRs (as each such term is defined in the Deposit Agreement). The GDRs are exchangeable in the circumstances set out in “Summary of Provisions relating to the GDRs while in Master Form” for a certificate in definitive registered form in respect of GDRs representing all or part of the interest of the holder in the Master GDR.

References in these Conditions to the “Holder” of any GDR means the person or persons recorded in the books of the Depositary maintained for such purpose (the “Register”) as holder for the time being. These Conditions include summaries of, and are subject to, the detailed provisions of the Deposit Agreement, which includes the forms of the certificates in respect of the GDRs. Copies of the Deposit Agreement are available for inspection at the specified office of the Depositary and each Agent (as defined in Condition 17) and at the Main Office of the Custodian. Terms used in these Conditions which are not defined herein but which are defined in the Deposit Agreement have the meanings ascribed to them in the Deposit Agreement. Holders of GDRs are not party to the Deposit Agreement and thus, under English Law, have no contractual rights against, or obligations to, the Company or the Depositary. However, the Deed Poll executed by the Company in favour of the Holders provides that, if the Company fails to perform the obligations imposed on it by certain specified provisions of the Deposit Agreement, any Holder may enforce the relevant provisions of the Deposit Agreement as if it were a party to the Deposit Agreement and was the “Depositary” in respect of that number of Deposited Shares to which the GDRs of which he is the Holder relate. The Depositary is under no duty to enforce any of the provisions of the Deposit Agreement on behalf of any Holder of a GDR or any other person.

1 Sale and withdrawal of Deposited Property and further issues of GDRs

(A) Any Holder may, subject to any applicable provisions under the Deposit Agreement, request that the Deposited Property attributable to any GDR be withdrawn or sold on such Holder’s behalf by the Depositary upon production of such evidence that such Holder is the Holder of, and entitled to, the relevant GDR as the Depositary may reasonably require at the specified office of the Depositary or any Agent accompanied by:

(i) a duly executed order (in form approved by the Depositary) requesting the Depositary to cause the Deposited Property to be sold and requesting the proceeds thereof (after deducting such fees, taxes, duties, charges, costs and expenses as may be required under the Deposit Agreement or these Conditions and not paid pursuant to paragraph (ii) below) to be credited to a specified cash account of the Holder with DTC, Clearstream, International or Euroclear (as the case may be);

(ii) payment of such fees, taxes, duties, charges and expenses as may be required under the Deposit Agreement or these Conditions;

(iii) the surrender (if appropriate) of GDR certificates in definitive registered form properly endorsed in blank or accompanied by proper instruments of transfer satisfactory to the Depositary to which the Deposited Property being withdrawn is attributable; and

(iv) the delivery to the Depositary of a duly executed and completed certificate substantially in the form set out in either (a) Schedule 3, Part B to the Deposit Agreement, if Deposited Property is to be withdrawn or delivered during the Distribution Compliance Period (such term being defined as the 40 day period beginning on the latest of the commencement of the offering of the GDRs, the original issue date of the GDRs and the issue date with respect to the additional GDRs, if any, issued to cover over-allotments), in respect of surrendered International GDRs, or (b) in Schedule 4, Part B, to the Deposit Agreement, if Deposited Property is to be withdrawn or delivered in respect of surrendered Rule 144A GDRs.

Any such sale of Deposited Property will be conducted in accordance with the applicable laws of the ROC through a licensed securities broker in the ROC on the TSE or in such other manner as may be permitted under the laws of the ROC. Any such sale will be at the risk and expense of the Holder requesting such sale. No assurance is given by the Depositary that the sale will be effected, nor as to the timing or price of any sale, particularly during periods of illiquidity or volatility with respect to the Shares. Upon receipt of any proceeds from any such sale the Depositary will, subject to the Deposit Agreement, applicable ROC laws and regulations and Condition 8, convert or cause the conversion of any such proceeds into US dollars and distribute any such proceeds to the Holder entitled thereto after deduction or payment of all fees, taxes, duties, charges, costs and expenses applicable or incurred in connection with such sale and conversion, as provided in the Deposit Agreement and these Conditions.

In the event that applicable ROC law no longer requires that the Deposited Property represented by a Holder’s GDRs be sold through the Depositary as described in the preceding paragraphs, the Depositary may, without liability to Holders, cease to provide such service. In such case, a Holder will be entitled to sell the Deposited Property represented by such Holder’s GDRs upon surrender of such GDRs at the Depositary’s specified office in New York and upon payment of any fees, expenses, taxes or governmental charges as provided in the Deposit Agreement, subject to the terms of the Deposit Agreement and the transfer restrictions applicable to the Deposited Property, if any. It is anticipated that such Holder would be required to provide to the Depositary the name of a securities company in the ROC to whom such Deposited Property shall be delivered, and upon receipt by the Depositary of a confirmation by such securities company that it would, upon receipt of such Deposited Property, sell such Deposited Property on the TSE, the Depositary would deliver such Deposited Property to such securities company for sale on the TSE.

Under current ROC law, a Holder, who has not been registered as an offshore foreign institutional investor or an offshore foreign individual investor with the TSE, wishing to withdraw and hold underlying Shares or Certificates of Payment from a Facility is required to first register with the TSE, and then appoint an eligible agent in the ROC to open a securities trading account with a local brokerage firm (registering with the TSE) and a bank account (the securities trading account and the bank account collectively, the “Accounts”), pay ROC taxes, remit funds, exercise shareholders’ rights and perform such other functions as may be designated by such withdrawing Holder. In addition, such withdrawing Holder is also required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmation and settle trades and report all relevant information. Without the opening of such Accounts, the withdrawing Holder would be unable to subsequently hold or sell the underlying Shares or Certificates of Payment withdrawn from a Facility on the TSE.

Holders withdrawing Shares or Certificates of Payment representing GDRs are also required, under current ROC law and regulations, to appoint an agent in the ROC for filing tax returns and making tax payments. Such agent must meet certain qualifications set by the ROC Ministry of Finance and, upon appointment, becomes a guarantor of such withdrawing Holder’s ROC tax obligations. There can be no assurance that such withdrawing Holder will be able to appoint and obtain approval for such agent in a timely manner.

The Depositary may refuse to deliver Deposited Property to a Holder unless such Holder presents evidence of payment of any securities transaction tax which may be imposed under ROC law unless the Company shall have provided to the Depositary evidence satisfactory to the Depositary, at the Company’s sole expense, that no such tax is assessable in connection with the withdrawal of Deposited Property.

Under current ROC law, regulation and policy, PRC persons are not allowed to withdraw and hold underlying Shares or Certificates of Payment from the depositary receipt facility or to register as shareholders 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 organised under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

(B) Any Holder may, subject to any applicable provisions in the Deposit Agreement, request withdrawal of, and the Depositary shall, subject to the prevailing ROC laws and regulations thereupon relinquish, the Deposited Property attributable to any GDR upon production of such evidence that such person is the Holder of, and entitled to, the relative GDR as the Depositary may reasonably require at the specified office of the Depositary or any Agent accompanied by:

(i) a duly executed order (in a form approved by the Depositary) requesting the Depositary to cause the Deposited Property being withdrawn to be delivered at the Main Office of the Custodian, or (at the request, risk and expense of the Holder and only if permitted by applicable law from time to time) at the specified office from time to time of the Depositary or any Agent (located in New York, London, Taipei or such other place as permitted under applicable law from time to time) to, or to the order in writing of, the person or persons designated in such order;

(ii) the payment of such fees, taxes, duties, charges and expenses as may be required under these Conditions or the Deposit Agreement;

The Shares deposited under the Deposit Agreement may be withdrawn and held by Holders upon cancellation of the corresponding GDRs pursuant to the Deposit Agreement subject to the following conditions:

(a) the appointment by the Holder of an eligible agent in the ROC to open a securities trading account with an ROC brokerage firm and a bank account, pay ROC taxes, remit funds, exercise shareholders’ rights and perform such other functions as the Holder may designate upon such withdrawal;

(b) the appointment by the Holder of a tax guarantor in the ROC for filing tax returns and making tax payments; and

(c) the appointment by the Holder of a custodian bank to hold the securities and cash proceeds for safekeeping, making confirmations, settling trades and reporting all relevant information. In addition, the Holder will be required to register with the TSE for making investment in the ROC securities market prior to cancelling GDRs and withdrawing Shares.

(C) Certificates for withdrawn Deposited Shares will contain such legends and withdrawals of Deposited Shares may be subject to such transfer restrictions or certificates, as the Company or the Depositary may from time to time determine to be necessary for compliance with applicable laws and regulations.

(D) Upon production of such documentation and the making of such payment as aforesaid in accordance with paragraph (B) of this Condition 1, the Depositary will direct the Custodian, within a reasonable time after receiving such direction from such Holder, to deliver at its Main Office to, or to the order in writing of, the person or persons designed in the accompanying order:

(i) a certificate (if any) for, or other appropriate instrument of title (if any) to, or evidence of a bookentry transfer in respect of the relevant Deposited Shares and Certificates of Payment, registered in the name of the Depositary or its nominee and accompanied by such instruments of transfer in blank or to the person or persons specified in the order for withdrawal and such other documents, if any, as are required by law for the transfer thereof; and

(ii) all other property forming part of the Deposited Property attributable to such GDR, accompanied, if required by law, by one or more duly executed endorsements or instruments of transfer in respect thereof as aforesaid; provided however that the Depositary may make delivery at its specified office in New York of any Deposited Property which is in the form of cash;

Provided further that the Depositary (at the request, risk and expense of any Holder so surrendering a GDR):

(a) will direct the Custodian to deliver the certificates for, or other instruments of title to, or bookentry transfer in respect of the relevant Deposited Shares and Certificates of Payment, and any document relative thereto and any other documents referred to in sub-paragraphs (D)(i) and (D)(ii) of this Condition 1 (together with any other property forming part of the Deposited Property which may be held by the Custodian or its agent and is attributable to such Deposited Shares); and/or

(b) will deliver any other property forming part of the Deposited Property which may be held by the Depositary and is attributable to such GDR (accompanied, if required by law, by one or more duly executed endorsements or instruments of transfer in blank in respect thereof),

in each case to the specified office located in New York or London of the Depositary (if permitted by applicable law from time to time) or at the specified office in Taipei of any Agent as designated by the surrendering Holder in the order accompanying such GDR.

(E) Delivery by the Depositary, any Agent and the Custodian of all certificates, instruments, dividends or other property forming part of the Deposited Property as specified in this Condition 1 will be made subject to any laws or regulations applicable thereto.

(F) After the initial deposit of Shares in connection with the initial offering of the GDRs, unless otherwise agreed by the Depositary and the Company and permitted by applicable law, only the following may be deposited under the Deposit Agreement:

(i) Shares issued as a dividend or free distribution in respect of Deposited Shares pursuant to Condition 5;

(ii) Shares subscribed or acquired by Holders from the Company through the exercise of rights distributed by the Company to such persons in respect of Deposited Shares pursuant to Condition 7;

(iii) Securities issued by the Company to Holders in respect of Deposited Shares as a result of any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or otherwise pursuant to Condition 10;

(iv) Deposited Shares removed from one Facility for the purpose of immediate redeposit in the other Facility; and

(v) Shares deposited as permitted by and in accordance with ROC laws and regulations in effect from time to time. In the case of a deposit of Shares requested under this paragraph (v), the Depositary will refuse to accept Shares for deposit if such deposit is not permitted under any legal or regulatory restriction notified by the Company to the Depositary from time to time, or any restrictions as may be consulted upon and agreed between the Company and the Depositary from time to time.

Under ROC laws and regulations currently in effect, the total number of GDRs outstanding after an issue described in paragraph (v) may not exceed the number of issued GDRs previously approved by the ROC FSC in connection with the initial offer of GDRs (plus any GDRs created pursuant to paragraphs (i) and (ii) above) and subject to any adjustment in the number of Shares represented by each GDR. Deposits of Shares under paragraph (v) will be permitted only to the extent that previously issued GDRs have been cancelled and the Deposited Shares have been withdrawn from the GDR facility. The Company may impose restrictions regarding future deposit of Shares upon consultation and agreement with the Depositary, or if so required by any legal or regulatory requirement.

(G) Except for additional GDRs to be issued in connection with (i) dividends in, or free distribution of Shares, (ii) the exercise by existing Holders of pre-emption rights in the event of capital increases for cash, (iii) the creation of additional GDRs pursuant to Condition (F)(v) above, the Depositary may refuse to accept Shares and/or other securities for deposit after the final closing of the initial offering unless it is notified by the Company in writing that all governmental or administrative authorisations, consents, approvals, registrations or permits required under applicable law in the ROC have been obtained or made.

References in these Conditions to “Deposited Shares” or “Shares” shall include any such securities, where the context permits.

(H) In accordance with the terms of the Deposit Agreement and these Conditions and upon delivery of a duly executed order (in a form approved by the Company and the Depositary) and a duly executed certificate substantially in the form of (a) Schedule 3, Part A of the Deposit Agreement by or on behalf of any investor who is to become the beneficial owner of the International GDRs or (b) Schedule 4, Part A of the Deposit Agreement by or on behalf of any investor who is to become the beneficial owner of Rule 144A GDRs, the Depositary may from time to time execute and deliver further GDRs having the same terms and conditions as the GDRs which are then outstanding in all respects (or the same in all respects except for the first dividend payment on the Shares or Certificates of Payment corresponding to such further GDRs) and, subject to the terms of the Deposit Agreement and these Conditions, the Depositary may accept for deposit any further Shares or Certificates of Payment in connection therewith, so that such further GDRs shall form a single series with the already outstanding GDRs. References in these Conditions to the GDRs include (unless the context requires otherwise) any further GDRs issued pursuant to this Condition and forming a single series with the already outstanding GDRs.

The certificate to be provided in the form of Schedule 3, Part A, of the Deposit Agreement certifies, among other things, that the person providing such certificate is not a US person (as defined in Regulation S under the US Securities Act of 1933, as amended (the “Securities Act”)), is located outside the United States and will comply with the restrictions on transfer set forth under “Transfer Restrictions”.

The certificate to be provided in the form of Schedule 4, Part A, of the Deposit Agreement certifies, among other things that the person providing such certificate is a qualified institutional buyer (as defined in Rule 144A under the Securities Act (“QIB”)) or is acting for the account of another person and such person is a QIB and, in either case, will comply with the restrictions on transfer set forth under “Transfer Restrictions”.

(I) Any further GDRs issued pursuant to Condition 1(H) which correspond to Shares or Certificates of Payment which have different dividend rights from the Shares or Certificates of Payment corresponding to the outstanding GDRs will correspond to a separate temporary global International GDR and/or Rule 144A GDR. Upon becoming fungible with outstanding GDRs, such further GDRs shall be evidenced by an International Master GDR and a Rule 144A Master GDR (by increasing the total number of GDRs evidenced by the relevant International Master GDR and the Rule 144A Master GDR by the number of such further GDRs, as applicable).

(J) The Depositary may issue GDRs against rights to receive Shares or Certificates of Payment from the Company (or any agent of the Company recording Share or Certificates of Payment ownership). No such issue of GDRs will be deemed a “Pre-Release” as defined in paragraph (K) of this Condition 1.

(K) To the extent it is not prohibited by applicable ROC laws and notwithstanding the provisions of paragraph (H) of this Condition 1, the Depositary may execute and deliver GDRs or issue interests in an International Master GDR or a Rule 144A Master GDR, as the case may be, prior to the receipt of Shares or Certificates of Payment (a “Pre-Release”). The Depositary may, pursuant to paragraph (B) of this Condition 1, deliver Shares or Certificates of Payment upon the receipt and cancellation of GDRs, which have been Pre-Released, whether or not such cancellation is prior to the termination of such Pre-Release or the Depositary knows that such GDR has been Pre-Released. The Depositary may receive GDRs in lieu of Shares or Certificates of Payment in satisfaction of a Pre-Release. Each PreRelease will be (a) preceded or accompanied by a written representation from the person to whom GDRs or Deposited Property are to be delivered (the “Pre-Releasee”) that such person, or its customer, (i) owns or represents the owner of the corresponding Deposited Property or GDRs to be

remitted (as the case may be), (ii) assigns all beneficial rights, title and interest in such Deposited Property or GDRs (as the case may be) to the Depositary in its capacity as such and for the benefit of the Holders, (iii) will not take any action with respect to such GDRs or Deposited Property (as the case may be) that is inconsistent with the transfer of beneficial ownership (including without the consent of the Depositary, disposing of such GDRs or Deposited Property, as the case may be), other than in satisfaction of such Pre-Release, (b) at all times fully collateralised with cash or such other collateral as the Depositary determines in good faith will provide substantially similar liquidity and security, (c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The number of GDRs which are outstanding at any time as a result of Pre-Release will not normally represent more than 30% of the total number of GDRs then outstanding, provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate and may, with the prior written consent of the Company, change such limits for the purpose of general application. The Depositary will also set dollar limits with respect to such transactions hereunder with any particular PreReleasee hereunder on a case by case basis as the Depositary deems appropriate. The collateral referred to in sub-paragraph (b) above shall be held by the Depositary as security for the performance of the Pre-Releasee’s obligations in connection herewith, including the Pre-Releasee’s obligation to deliver Shares or Certificates of Payment and/or other securities or GDRs upon termination of a transaction anticipated hereunder (and shall not, for the avoidance of doubt, constitute Deposited Property hereunder).

The Depositary may retain for its own account any compensation received by it in connection with the foregoing including, without limitation, earnings on the collateral.

The person to whom a Pre-Release of Rule 144A GDRs or Rule 144A Shares or Certificates of Payment is to be made pursuant to this paragraph (K) of Condition 1 shall be required to deliver to the Depositary a duly executed and completed certificate substantially in the form set out in Schedule 4 Part A of the Deposit Agreement. The person to whom any Pre-Release of International GDRs or International Shares or Certificates of Payment is to be made pursuant to this paragraph shall be required to deliver to the Depositary a duly executed and completed certificate substantially in the form set out in Schedule 3 Part A of the Deposit Agreement.

Pre-Release will only be permitted to the extent not prohibited under current ROC law.

(L) The Company may have certain disclosure obligations and reporting obligations under ROC law if:

(i) the person to be registered as a shareholder is a “related party” of the Company under Statements of Financial Accounting Standard No. 6 of the ROC and such person beneficially owns Shares or Certificates of Payment withdrawn from a Facility; or

(ii) the person to be registered as a shareholder owns Shares or Certificates of Payment withdrawn from a Facility and the Shares or Certificates of Payment withdrawn exceed 10% of the Shares or Certificates of Payment in a Facility. As a result, if so instructed by the Company, the Depositary may ask the withdrawing Holders to disclose the name of such person and provide proof of the identity and genuineness of any signature and other documents to the Company. The information the Holder is required to provide may include the name and nationality of such person who is to be registered as a shareholder and the total number of Shares or Certificates of Payment such person is withdrawing and has withdrawn in the past from the depositary receipt facility.

2 Suspension of issue of GDRs and of withdrawal of the Deposited Property

The Depositary shall be entitled, at its reasonable discretion, at such times as it shall determine, to suspend the issue or transfer of GDRs (and the deposit of Shares or Certificates of Payment) generally or in respect of particular Shares or Certificates of Payment. In particular, to the extent that it

is in its opinion practicable for it to do so, the Depositary will refuse to accept Shares or Certificates of Payment for deposit, to execute and deliver GDRs or to register transfers of GDRs if it has been notified by the Company in writing that the Deposited Shares or Certificates of Payment or GDRs or any depositary receipts corresponding to shares are listed on a US national securities exchange registered under Section 6 of the Exchange Act or quoted in a US automated inter dealer quotation system unless accompanied by evidence satisfactory to the Depositary that any such Shares or Certificates of Payment are eligible for resale purpose to Rule 144A. Further, the Depositary may suspend the withdrawal of the Deposited Property during any period when the Register, or the register of shareholders of the Company, is closed or, generally or in one or more localities suspend the withdrawal of the Deposited Property or deposit of Shares or Certificates of Payment, if deemed necessary or desirable or advisable by the Depositary in good faith at any time or from time to time, in order to comply with any applicable law or governmental or stock exchange regulations or any provision of the Deposit Agreement or for any other reason. The Depositary shall (unless otherwise notified by the Company) restrict the withdrawal of Deposited Shares or Certificates of Payment where the Company notifies the Depositary in writing that such withdrawal would result in ownership of Shares or Certificates of Payment exceeding any limit under any applicable law, government resolution or the Company’s Articles of Incorporation or would otherwise violate any applicable laws. At the written request and expense of the Company, the Depositary shall notify the Holders of any such suspension in accordance with Condition 23.

3 Transfer and ownership

The GDRs are in registered form, each corresponding to 5 Shares. Title to the GDRs passes by registration in the Register and accordingly, transfer of title to a GDR is effective only upon such registration. The Depositary will refuse to accept for transfer any GDRs if it reasonably believes that such transfer would result in violation of any applicable laws. The Holder of any GDR will (except as otherwise required by law) be treated by the Depositary and the Company as its beneficial owner for all purposes (whether or not any payment or other distribution in respect of such GDR is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or theft or loss of any certificate issued in respect of it) and no person will be liable for so treating the Holder.

Interests in Rule 144A GDRs corresponding to the Rule 144A Master GDR may be transferred to a person whose interest in such Rule 144A GDRs is subsequently represented by the International Master GDR only upon receipt by the Depositary of written certifications (in the forms provided in the Deposit Agreement) from the transferor and the transferee to the effect that such transfer is being made in accordance with Regulation S under the Securities Act (“Regulation S”). Prior to expiration of the Distribution Compliance Period, no owner of International GDRs may transfer International GDRs or Shares represented thereby except in accordance with Regulation S under the US Securities Act or to, or for the account of, a qualified institutional buyer as defined in Rule 144A under the US Securities Act (each a “QIB”) in a transaction meeting the requirements of Rule 144A. There shall be no transfer of International GDRs by an owner thereof to a QIB except as aforesaid and unless such owner (i) withdraws International Shares from the International Facility in accordance with Clause 3(F) of the Deposit Agreement and (ii) instructs the Depositary to deliver the Shares so withdrawn to the account of the Custodian to be deposited into the Rule 144A Facility for issuance thereunder of Rule 144A GDRs to, or for the account of, such QIB. Issuance of such Rule 144A GDRs shall be subject to the terms and conditions of the Deposit Agreement, including, with respect to the deposit of Shares and the issuance of Rule 144A GDRs, delivery of the duly executed and completed written certificate and agreement required under the Deposit Agreement by or on behalf of each person who will be the beneficial owner of such Rule 144A GDRs certifying that such person is a QIB and agreeing that it will comply with the restrictions on transfer set forth therein and to payment of the fees, charges and taxes provided therein.

During the Distribution Compliance Period, neither the Custodian nor the Depositary will make any actual delivery of International Shares to any Holder or beneficial owner at an address within the United States.

4 Cash distributions

Whenever the Depositary shall receive from the Company any cash dividend or other cash distribution on or in respect of the Deposited Shares (including any amounts received in the liquidation of the Company) or otherwise in connection with the Deposited Property, the Depositary shall, as soon as practicable, convert the same into United States dollars in accordance with Condition 8. The Depositary shall, if practicable in the opinion of the Depositary, give notice to the Holders of its receipt of such payment in accordance with Condition 23, specifying the amount per Deposited Share payable in respect of such dividend or distribution and the earliest date, determined by the Depositary, for transmission of such payment to Holders and shall as soon as practicable distribute any such amounts to the Holders in proportion to the number of Deposited Shares corresponding to the GDRs so held by them respectively, subject to and in accordance with the provisions of Conditions 9 and 11; provided that:

(a) in the event that the Depositary is aware that any Deposited Shares are not entitled, by reason of the date of issue or transfer or otherwise, to such full proportionate amount, the amount so distributed to the relative Holders shall be adjusted accordingly; and

(b) the Depositary will distribute only such amounts of cash dividends and other distributions as may be distributed without attributing to any GDR a fraction of the lowest integral unit of currency in which the distribution is made by the Depositary, and any balance remaining shall be retained by the Depositary beneficially as an additional fee under Condition 16(A)(iv).

5 Distributions of Shares

Whenever the Depositary shall receive from the Company any distribution in respect of Deposited Shares which consists of a dividend or free distribution of Shares, the Depositary shall cause to be distributed to the Holders entitled thereto, in proportion to the number of Deposited Shares corresponding to the GDRs held by them respectively, additional GDRs corresponding to an aggregate number of Shares received pursuant to such distribution. Such additional GDRs shall be distributed by an increase in the number of GDRs corresponding to the Master GDRs or by an issue of certificates in definitive registered form in respect of GDRs, according to the manner in which the Holders hold their GDRs; provided that, if and insofar as the Depositary deems any such distribution to all or any Holders not to be reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall (either by public or private sale and otherwise at its discretion, subject to all applicable laws and regulations) sell such Shares so received and distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto.

6 Distributions other than in cash or Shares

Whenever the Depositary shall receive from the Company any dividend or distribution in securities (other than Shares) or in other property (other than cash) on or in respect of the Deposited Property, the Depositary shall distribute or cause to be distributed such securities or other property to the Holders entitled thereto, in proportion to the number of Deposited Shares corresponding to the GDRs held by them respectively, in any manner that the Depositary may deem equitable and practicable for effecting such distribution; provided that, if and insofar as the Depositary deems any such distribution to all or any Holders not to be reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall deal with the securities or property so received, or any part thereof, in such way as the Depositary may determine to be equitable and practicable, and as permitted under applicable laws and regulations including, without limitation, by way of sale (either by public or private

sale and otherwise at its discretion, subject to all applicable laws and regulations) and shall (in the case of a sale) distribute the resulting net proceeds as a cash distribution pursuant to Condition 4 to the Holders entitled thereto.

7 Rights issues

If and whenever the Company announces its intention to make any offer or invitation to the holders of Shares to subscribe for or to acquire Shares, securities or other assets by way of rights, the Depositary shall as soon as practicable give notice to the Holders, in accordance with Condition 23, of such offer or invitation, specifying, if applicable, the earliest date established for acceptance thereof, the last date established for acceptance thereof and the manner by which and time during which Holders may request the Depositary to exercise such rights as provided below or, if such be the case, specifying details of how the Depositary proposes to distribute the rights or the proceeds of any sale thereof. The Depositary will deal with such rights in the manner described below:

(i) if and to the extent that the Depositary shall, at its discretion, deem it to be lawful and reasonably practicable, the Depositary shall make arrangements whereby the Holders may, upon payment of the subscription price in New Taiwan Dollars or other relevant currency together with such fees, taxes, duties, charges, costs and expenses as may be required under the Deposit Agreement and completion of such undertakings, declarations, certifications and other documents as the Depositary may reasonably require, request the Depositary to exercise such rights on their behalf with respect to the Deposited Shares and to distribute the Shares, securities or other assets so subscribed or acquired to the Holders entitled thereto by an increase in the numbers of GDRs corresponding to the Master GDRs or an issue of certificates in definitive registered form in respect of GDRs, according to the manner in which the Holders hold their GDRs; or

(ii) if and to the extent that the Depositary shall, at its discretion, deem it to be lawful and reasonably practicable, the Depositary will distribute such rights to the Holders entitled thereto in such manner as the Depositary may at its discretion determine; or

(iii) if and to the extent that the Depositary deems any such arrangement and distribution as is referred to in paragraphs (i) and (ii) above to all or any Holders not to be lawful and reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary (a) will, provided that Holders have not taken up rights through the Depositary as provided in (i) above, sell such rights (either by public or private sale and otherwise at its discretion subject to all applicable laws and regulations) or (b) may, if such rights are not transferable, in its discretion, arrange for such rights to be exercised and the resulting Shares or securities sold and, in each case, distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto; or

(iv) (a) notwithstanding the foregoing, in the event that the Depositary offers rights pursuant to Condition 7(i) (the “Primary GDR Rights Offering”), if authorised by the Company to do so, the Depositary may, in its discretion, make arrangements whereby in addition to instructions given by a Holder to the Depositary to exercise rights on its behalf pursuant to Condition 7(i), such Holder is permitted to instruct the Depositary to subscribe on its behalf for additional rights which are not attributable to the Deposited Shares represented by such Holder’s GDRs (“Additional GDR Rights”) if at the date and time specified by the Depositary for the conclusion of the Primary GDR Offering (the “Instruction Date”) instructions to exercise rights have not been received by the Depositary from the Holders in respect of all their initial entitlements. Any Holder’s instructions to subscribe for such Additional GDR Rights (“Additional GDR Rights Requests”) shall specify the maximum number of Additional GDR Rights that such Holder is prepared to accept (the “Maximum Additional Subscription”) and must be received by the Depositary by the Instruction Date. If by the Instruction Date any rights offered in the Primary GDR Rights Offering have not been subscribed by the

Holders initially entitled thereto (“Unsubscribed Rights”), subject to Condition 7(iv)(c) and receipt of the relevant subscription price in New Taiwan dollars or other relevant currency, together with such fees, taxes, duties, charges, costs and expenses as it may deem necessary, the Depositary shall make arrangements for the allocation and distribution of Additional GDR Rights in accordance with Condition 7(iv)(b).

(b) Holders submitting Additional GDR Rights Requests shall be bound to accept the Maximum Additional Subscription specified in such Additional GDR Request but the Depositary shall not be bound to arrange for a Holder to receive the Maximum Additional Subscription so specified but may make arrangements whereby the Unsubscribed Rights are allocated pro rata on the basis of the extent of the Maximum Additional Subscription specified in each Holder’s Additional GDR Rights Request.

(c) In order to proceed in the manner contemplated in this Condition 7(iv), the Depositary shall be entitled to receive such opinions from ROC counsel and US counsel as in its discretion it deems necessary which opinions shall be in a form and provided by counsel satisfactory to the Depositary and at the expense of the Company and may be requested in addition to any other opinions and/or certifications which the Depositary shall be entitled to receive under the Deposit Agreement and these Conditions. For the avoidance of doubt, save as provided in these Conditions and the Deposit Agreement, the Depositary shall have no liability to the Company or any Holder in respect of its actions or omissions to act under this Condition 7(iv) and, in particular, the Depositary will not be regarded as being negligent, acting in bad faith, or in wilful default if it elects not to make the arrangements referred to in Condition 7(iv)(a).

The Company has agreed in the Deposit Agreement that it will, unless prohibited by applicable law or regulation, give its consent to, and if requested use all reasonable endeavours (subject to the next paragraph) to facilitate, any such distribution, sale or subscription by the Depositary or the Holders, as the case may be, pursuant to Condition 4, 5, 6, 7 or 10 (including the obtaining of legal opinions from counsel reasonably satisfactory to the Depositary and at the cost of the Company concerning such matters as the Depositary may specify).

If the Company notifies the Depositary that registration is required in any jurisdiction under any applicable law of the rights, securities or other property to be distributed under Condition 4, 5, 6, 7 or 10 or the securities to which such rights relate in order for the Company to offer such rights or distribute such securities or other property to the Holders or owners of GDRs and to sell the securities corresponding to such rights, the Depositary will not offer such rights or distribute such securities or other property to the Holders or sell such securities unless and until the Company procures the receipt by the Depositary of an opinion from counsel reasonably satisfactory to the Depositary and the Company and at the cost of the Company that a registration statement is in effect or that the offering and sale of such rights or securities to such Holders or owners of GDRs are exempt from registration under the provisions of such law. Neither the Company nor the Depositary shall be liable to register such rights, securities or other property or the securities to which such rights relate and they shall not be liable for any losses, damages or expenses resulting from any failure to do so.

If at the time of the offering of any rights, at its discretion, the Depositary shall be satisfied that it is not lawful or practicable (for reasons outside its control) to dispose of the rights in any manner provided in paragraphs (i), (ii), (iii) and (iv) above, the Depositary shall permit the rights to lapse. The Depositary will not be responsible for any failure to determine that it may be lawful or feasible to make such rights available to Holders or owners of GDRs in general or to any Holder or owner of a GDR or Holders or owners of GDRs in particular.

8 Conversion of foreign currency

Whenever the Depositary shall receive any currency other than United States dollars by way of dividend or other distribution or as the net proceeds from the sale of securities, other property or rights, and if at the time of the receipt thereof the currency so received can in the judgment of the Depositary be converted on a reasonable basis into United States dollars and distributed to the Holders entitled thereto, the Depositary shall as soon as practicable itself convert or cause to be converted by another bank or other financial institution, by sale or in any other manner that it may reasonably determine, the currency so received into United States dollars. If such conversion or distribution can be effected only with the approval or licence of any government or agency thereof, the Depositary shall make reasonable efforts to apply, or procure that an application be made, for such approval or licence, if any, as it may deem desirable. If at any time the Depositary shall determine that in its judgment any currency other than United States dollars is not convertible on a reasonable basis into United States dollars and distributable to the Holders entitled thereto, or if any approval or licence of any government or agency thereof which is required for such conversion is denied or, in the opinion of the Depositary, is not obtainable, or if any such approval or licence is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute such other currency received by it (or an appropriate document evidencing the right to receive such other currency) to the Holders entitled thereto to the extent permitted under applicable law, or the Depositary may in its discretion hold such other currency for the benefit of the Holders entitled thereto. If any conversion of any such currency can be effected in whole or in part for distribution to some (but not all) Holders entitled thereto, the Depositary may at its discretion make such conversion and distribution in United States dollars to the extent possible to the Holders entitled thereto and may distribute the balance of such other currency received by the Depositary to, or hold such balance for the account of, the Holders entitled thereto, and notify the Holders accordingly.

Generally, ROC law requires certain approvals in connection with the conversion of NT dollars and other foreign currencies. See “Risk Factors”.

9 Distribution of any payments

(A) Any distribution of cash under Condition 4, 5, 6, 7 or 10 will be made by the Depositary to Holders on the record date established by the Depositary for that purpose (such date to be as close to the record date set by the Company as is reasonably practicable) and, if practicable in the opinion of the Depositary, notice shall be given promptly to Holders in accordance with Condition 23, in each case subject to any laws or regulations applicable thereto and (subject to the provisions of Condition 8) distributions will be made in United States dollars by cheque drawn upon a bank in New York City or, in the case of the Master GDRs, according to usual practice between the Depositary and Clearstream, International, Euroclear or DTC, as the case may be. The Depositary or the Agent, as the case may be, may deduct and retain from all moneys due in respect of such GDRs in accordance with the Deposit Agreement all fees, taxes, duties, charges, costs and expenses which may become or have become payable under the Deposit Agreement or under applicable law or regulation in respect of such GDRs or the relevant Deposited Property.

(B) Delivery of any securities or other property or rights other than cash shall be made as soon as practicable to the Holders on the record date established by the Depositary for that purpose (such date to be as close to the record date set by the Company as is reasonably practicable), subject to any laws or regulations applicable thereto. If any distribution made by the Company with respect to the Deposited Property and received by the Depositary shall remain unclaimed at the end of three years from the first date upon which such distribution is made available to Holders in accordance with the Deposit Agreement, all rights of the Holders to such distribution or the proceeds of the sale thereof shall be extinguished and the Depositary shall (except for any distribution upon the liquidation of the Company when the Depositary shall retain the same) return the same to the Company for its own use and benefit subject, in all cases, to the provisions of applicable law or regulation.

10 Capital reorganisation

Upon any change in the nominal or par value, sub-division, consolidation or other reclassification of Deposited Shares or any other part of the Deposited Property or upon any reduction of capital, or upon any reorganisation, merger or consolidation of the Company or to which it is a party (except where the Company is the continuing corporation), to the extent permitted by applicable laws and regulations, the Depositary shall as soon as practicable give notice of such event to the Holders and at its discretion may treat such event as a distribution and comply with the relevant provisions of Conditions 4, 5, 6 and 9 with respect thereto, or may execute and deliver additional GDRs in respect of Shares or may require the exchange of existing GDRs for new GDRs which reflect the effect of such change.

11 Withholding taxes and applicable laws

(A) Payments to Holders of dividends or other distributions on or in respect of the Deposited Shares will be subject to deduction of ROC and other withholding taxes, if any, at the applicable rates.

(B) If any governmental or administrative authorisation, consent, registration or permit or any report to any governmental or administrative authority is required under any applicable law in the ROC in order for the Depositary to receive from the Company Shares or other securities to be deposited under these Conditions, or in order for Shares, other securities or other property to be distributed under Condition 4, 5, 6 or 10 or to be subscribed under Condition 7 or to offer any rights or sell any securities corresponding to such rights relevant to any Deposited Shares, the Company will apply for such authorisation, consent, registration or permit or file such report on behalf of the Holders within the time required under such laws. In this connection, the Company has undertaken in the Deposit Agreement to the extent reasonably practicable to take such action as may be required in obtaining or filing the same. The Depositary shall not be obliged to distribute GDRs representing such Shares, other securities or other property deposited under these Conditions or make any offer of any such rights or sell any securities corresponding to any such rights with respect to which such authorisation, consent, registration or permit or such report has not been obtained or filed, as the case may be, and shall have no duties to obtain any such authorisation, consent or permit, or to file any such report.

12 Voting of Shares

(A) Holders may direct the exercise of voting rights with respect to the Shares represented by GDRs only in accordance with the relevant provisions of the Deposit Agreement as described below. The Company has agreed to notify the Depositary of any resolution to be proposed at any general meeting of the Company and the agenda therefor and at the written request of the Company the Depositary will cause the Deposited Shares to be voted in the manner set out in this Condition 12.

Each Holder shall be deemed, by acceptance of GDRs or acquisition of any beneficial interest therein, to have authorised and directed the Depositary, without liability, to appoint the Chairman of the Company or such other person as he may designate, as representative of the Depositary or its nominee who is registered as representative of the Holders in respect of the Deposited Shares (the “Registered Holder”), to vote the Deposited Shares as set forth in Clause 5 and this Condition 12 (and as such provisions may be amended). The Company shall provide to the Depositary sufficient copies, as the Depositary may reasonably request, of notices of any meetings of the shareholders of the Company (general or extraordinary) and the agenda therefor in the form the Company generally makes available to holders of Shares as well as an English language translation of such notices and communications relating to matters to be voted on by holders of Shares contained in such agenda at least 30 calendar days before any general Shareholders’ meeting or at least 15 calendar days before any extraordinary Shareholders’ meeting. The Depositary shall mail such notices, communications and

translations to Holders as soon as practicable after receipt of the same by the Depositary except that, notwithstanding anything to the contrary, where the Company fails to supply the notices of any meeting of the shareholders of the Company (general or extraordinary) containing the requisite information together with the English translation to the Depositary on a business day in Taipei that is at least 30 calendar days (in the case of a general Shareholder’s meeting) or at least 15 calendar days (in the case of an extraordinary Shareholder’s meeting) prior to the relevant Shareholders’ meeting (such period not covering the date of despatch of such notice and the due date of the Shareholders’ meeting), the Depositary is under no obligation to mail notices, communications and translations of the meeting of the shareholders of the Company to Holders, and will endeavour to cause all Deposited Shares represented by the GDRs to be represented at the relevant meeting insofar as practicable and permitted under applicable law but will not cause the Deposited Shares to be voted; provided, however, the Depositary may determine, at its sole discretion, to send such notices or communications to Holders and/or cause the Deposited Shares to be voted as it deems appropriate.

(B) The Depositary shall, at the same time as notifying Holders of the meeting, issue a voting instruction form to each Holder by which each Holder may give instructions to the Depositary to vote for or against each and any resolution specified in the agenda for the meeting. In order for such voting instruction to be valid, the voting instruction form must be completed and duly signed by the Holder and returned to the Depositary by such receipt date as the Depositary may specify. If a Holder or Holders together holding at least 51.0% of the GDRs outstanding at the relevant record date shall instruct the Depositary to vote in the same direction in respect of any particular resolution, the Depositary shall notify the instruction in respect of that resolution to the Chairman of the Board of Directors of the Company or such other person as he may designate and appoint the Chairman of the Board of Directors of the Company or that other person designated by him as the representative of the Registered Holders to attend such meeting and vote all the Deposited Shares evidenced by GDRs in the direction so instructed by such Holders in relation to such resolution or resolutions.

(C) The Depositary shall take such action as is necessary for the Deposited Shares to be counted for the purpose of satisfying applicable quorum requirements. If, for any reason (other than failure by the Company to supply the notice of a Shareholders’ meeting to the Depositary within the requisite time period provided in paragraph (A) above) the Depositary has not by the receipt date specified by it received instructions from Holders, together holding at least 51.0% of all the GDRs outstanding at the relevant record date to vote in the same direction in respect of any particular resolution then, subject to the following paragraph, the Holders shall be deemed in respect of that particular resolution to have instructed the Depositary to authorise and appoint the Chairman of the Board of Directors of the Company or such other person as he may designate as the representative of the Depositary and the Registered Holder to attend and vote at such meeting all the Deposited Shares represented by GDRs in respect of that particular resolution. In such circumstances, the Chairman of the Board of Directors of the Company or that other person designated by him shall be free to exercise the votes attaching to the Deposited Shares in any manner he wishes, which may not be in the interests of Holders.

(D) The Depositary shall not be required to take any action required by this Condition 12 unless it shall have received an opinion from the Company’s legal counsel (such counsel being reasonably acceptable to the Depositary) at the expense of the Company to the effect that under ROC law (i) the voting arrangement is valid and binding on Holders under ROC law and the statutes of the Company, (ii) the Depositary will not be deemed to be exercising voting discretion when causing the voting in accordance with this Condition 12, and (iii) the Depositary will not be subject to any potential liability under ROC law for any losses arising from such voting on the ground that the voting in accordance with this Condition 12 is in violation of ROC law or under ROC law infringes the interests of Shareholders. In the event that the Depositary does not receive such an opinion, the Depositary will not grant the authorisation and appointment and will endeavour to cause all Deposited Shares to be represented at the relevant Shareholders’ meeting insofar as practicable and permitted under

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applicable law but will not cause any such Deposited Shares to be voted, and the Company and the Depositary shall take such actions, including amendment of this Condition 12 in a manner reasonably acceptable to the Depositary, as they shall deem appropriate to endeavour to provide for the exercise of voting rights by the representative of the Registered Holder at succeeding meetings in a manner consistent with applicable ROC law. By continuing to hold GDRs, all Holders shall be deemed to have agreed to the provisions of this Condition 12, as it may be amended from time to time in accordance with applicable ROC law.

(E) The Depositary shall not, and the Depositary shall ensure that the Custodian and its nominees do not, under any circumstances, exercise any discretion as to voting and neither the Depositary nor the Custodian and its nominees shall vote or attempt to exercise the right to vote that attaches to the Deposited Shares, other than in accordance with such instructions given by Holders in accordance with this Condition 12.

Under the ROC Company Law, a holder of Shares has one vote for each Share. Deposited Shares which have been withdrawn from a Facility and transferred on the Company’s register of shareholders to a person other than the Depositary’s nominee may be voted by the Holder thereof. However, Holders may not have received sufficient advance notice of shareholders’ meetings to enable them to withdraw the Deposited Shares in order to vote in such meetings. See “Description of the Shares—Voting Rights”.

13 Documents to be furnished, recovery of taxes, duties and other charges

The Depositary shall not be liable for any taxes, duties, charges, costs or expenses which may become payable in respect of the Deposited Shares or other Deposited Property or the GDRs, whether under any present or future fiscal or other laws or regulations, and such part thereof as is proportionate or referable to a GDR shall be payable by the Holder thereof to the Depositary at any time on request or may be deducted from any amount due or becoming due on such GDR in respect of any dividend or other distribution. In default thereof, the Depositary may for the account of the Holder discharge the same out of the proceeds of sale on any stock exchange on which the Shares may from time to time be listed, and subject to all applicable laws and regulations, of any appropriate number of Deposited Shares or other Deposited Property and subsequently pay any surplus to the Holder. Any such request shall be made by giving notice pursuant to Condition 23.

14 Liability

(A) In acting hereunder the Depositary shall have only those duties, obligations and responsibilities expressly specified in the Deposit Agreement and these Conditions and, other than holding the Deposited Property for the benefit of Holders as bare trustee, does not assume any relationship of trust for or with the Holders or owners of GDRs or any other person.

(B) None of the Depositary, the Custodian, the Company, any Agent, nor any of their agents, officers, directors or employees shall incur any liability to any other of them or to any Holder or owner of a GDR or any other person with an interest in any GDRs if, by reason of any provision of any present or future law or regulation of the ROC or any other country or of any relevant governmental authority, or by reason of the interpretation or application of any such present or future law or regulation or any change therein, or by reason of any other circumstances beyond their control, or in the case of the Depositary, the Custodian, the Agent or any of their agents, officers, directors or employees, by reason of any provision, present or future, of the Articles of Incorporation of the Company, any of them shall be prevented, delayed or forbidden from doing or performing any act or thing which the terms of the Deposit Agreement or these Conditions provide shall or may be done or performed; nor shall any of them incur any liability to any Holder or owner of GDRs or any other person

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with an interest in any GDRs by reason of any exercise of, or failure to exercise, any voting rights attached to the Deposited Shares or any of them or any other discretion or power provided for in the Deposit Agreement. Any such party may rely on, and shall be protected in acting upon, any written notice, request, direction or other document believed by it to be genuine and to have been duly signed or presented (including a translation which is made by a translator believed by it to be competent or which appears to be authentic).

(C) Neither the Depositary nor any Agent shall be liable (except for its own wilful default, negligence or bad faith or that of its agents, officers, directors or employees) to the Company or any Holder or owner of GDRs or any other person, by reason of having accepted as valid or not having rejected any certificate for Shares or GDRs or any signature on any transfer or instruction purporting to be such and subsequently found to be forged or not authentic or for its failure to perform any obligations under the Deposit Agreement or these Conditions.

(D) The Depositary and its agents may engage or be interested in any financial or other business transactions with the Company or any of its subsidiaries or affiliates, or in relation to the Deposited Property (including without prejudice to the generality of the foregoing, the conversion of any part of the Deposited Property from one currency to another), may at any time hold or be interested in GDRs for its own account, and shall be entitled to charge and be paid all usual fees, commissions and other charges for business transacted and acts done by it as a bank, and not in the capacity of Depositary, in relation to matters arising under the Deposit Agreement (including, without prejudice to the generality of the foregoing, charges on the conversion of any part of the Deposited Property from one currency to another and on any sales of property) without accounting to Holders or any other person for any profit arising therefrom.

(E) The Depositary shall endeavour to effect any such sale as is referred to or contemplated in Conditions 1(A), 5, 6, 7, 10, 13 or 21 or any such conversion as is referred to in Condition 8 in accordance with the Depositary’s normal practices and procedures but shall have no liability (in the absence of its own wilful default, negligence or bad faith or that of its agents, officers, directors or employees) with respect to the terms of such sale or conversion or if such sale or conversion shall not be reasonably practicable.

(F) The Depositary shall not be required or obliged to monitor, supervise or enforce the observance and performance by the Company of its obligations under or in connection with the Deposit Agreement or these Conditions.

(G) The Depositary shall, subject to applicable laws, have no responsibility whatsoever to the Company, any Holders or any owner of GDRs or any other person as regards any deficiency which might arise because the Depositary is subject to any tax in respect of the Deposited Property or any part thereof or any income therefrom or any proceeds thereof.

(H) In connection with any proposed modification, waiver, authorisation or determination permitted by the terms of the Deposit Agreement, the Depositary shall not, except as otherwise expressly provided in Condition 22, be obliged to have regard to the consequence thereof for the Holders or the owners of GDRs or any other person.

(I) Notwithstanding anything else contained in the Deposit Agreement or these Conditions, the Depositary may refrain from doing anything which could or might, in its opinion, be contrary to any law of any jurisdiction or any directive or regulation of any agency or state or which would or might otherwise render it liable to any person and the Depositary may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation.

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(J) The Depositary may, in relation to the Deposit Agreement and these Conditions, act or take no action on the advice or opinion of, or any certificate or information obtained from, any lawyer, valuer, accountant, banker, broker, securities company or other expert whether obtained by the Company, the Depositary or otherwise but it shall not be responsible or liable for any loss or liability occasioned by so acting or refraining from acting or relying on information from persons presenting Shares for deposit or GDRs for surrender or requesting transfers thereof.

(K) Any such advice, opinion, certificate or information (as discussed in (J) above) may be sent or obtained by letter, telex, facsimile transmission, telegram or cable and the Depositary shall not be liable for acting on any advice, opinion, certificate or information purported to be conveyed by any such letter, telex or facsimile transmission although (without the Depositary’s knowledge) the same shall contain some error or shall not be authentic.

(L) The Depositary may call for and shall be at liberty to accept as sufficient evidence of any fact or matter or the expediency of any transaction or thing, a certificate, letter or other communication whether oral or written, signed or communicated on behalf of the Company by a director of the Company or by a person duly authorised by a director of the Company or such other certificate from persons specified in (J) above which the Depositary considers appropriate and the Depositary shall not be bound in any such case to call for further evidence or be responsible for any loss or liability that may be occasioned by the Depositary acting on such certificate.

(M) The Depositary shall have no obligation under the Deposit Agreement except to perform its obligations as are specifically set out therein without wilful default, negligence or bad faith.

(N) The Depositary may delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons, whether being a joint Depositary of the Deposit Agreement and not being a person to whom the Company may reasonably object, all or any of the powers, authorities and discretions vested in the Depositary by the Deposit Agreement and such delegation may be made upon such terms and subject to such conditions, including power to sub-delegate and subject to such regulations as the Depositary may in the interests of the Holders think fit, provided that no objection from the Company to any such delegation as aforesaid may be made to a person whose financial statements are consolidated with those of the Depositary’s ultimate holding company. Any delegation by the Depositary shall be on the basis that the Depositary is acting on behalf of the Holders and the Company in making such delegation. The Company shall not in any circumstances and the Depositary shall not (provided that it shall have exercised reasonable care in the selection of such delegate) be bound to supervise the proceedings or be in any way responsible for any loss, liability, cost, claim, action, demand or expense incurred by reason of any misconduct or default on the part of any such delegate or sub-delegate. However, the Depositary shall, if practicable and if so requested by the Company, pursue (at the Company’s expense and subject to receipt by the Depositary of such indemnity and security for costs as the Depositary may reasonably require) any legal action it may have against such delegate or sub-delegate arising out of any such loss caused by reason of any such misconduct or default. The Depositary shall, within a reasonable time of any such delegation or any renewal, extension or termination thereof, give notice thereof to the Company. Any delegation under this Condition which includes the power to sub-delegate shall provide that the delegate shall, within a specified time of any sub-delegation or amendment, extension or termination thereof, give notice thereof to the Company and the Depositary.

(O) The Depositary may, in the performance of its obligations hereunder, instead of acting personally, employ and pay an agent, whether a solicitor or other person, to transact or concur in transacting any business and do or concur in doing all acts required to be done by such party, including the receipt and payment of money.

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(P) The Depositary shall be at liberty to hold or to deposit the Deposit Agreement and any deed or document relating thereto in any part of the world with any banking company or companies (including itself) whose business includes undertaking the safe custody of deeds or documents or with any lawyer or firm of lawyers of good repute and the Depositary shall not (in the case of deposit with itself, in the absence of its own negligence, wilful default, or bad faith or that of its agents, directors, officers or employees) be responsible for any losses, liability or expenses incurred in connection with any such deposit.

(Q) Notwithstanding anything to the contrary contained in the Deposit Agreement or these Conditions, the Depositary shall not be liable in respect of any loss or damage which arises out of or in connection with its performance or non-performance or the exercise or attempted exercise of, or the failure to exercise any of, its powers or discretions under the Deposit Agreement or these Conditions except to the extent that such loss or damage arises from the wilful default, negligence or bad faith of the Depositary or that of its agents, officers, directors or employees.

(R) No provision of the Deposit Agreement or these Conditions shall require the Depositary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity and security against such risk of liability is not assured to it.

(S) For the avoidance of doubt, the Depositary shall be under no obligation to check, monitor or enforce compliance with any ownership restrictions in respect of GDRs or Shares under any applicable ROC law as the same may be amended from time to time. Notwithstanding the generality of Condition 3, the Depositary shall refuse to register any transfer of GDRs or any deposit of Shares against issuance of GDRs if notified by the Company, or the Depositary becomes aware of the fact, that such transfer or issuance would result in a violation of the limitations set forth above.

(T) No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement.

15 Issue and delivery of replacement GDRs and exchange of GDRs

Subject to the payment of the relevant fees, taxes, duties, charges, costs and expenses and such terms as to evidence and indemnity as the Depositary may require, replacement GDRs will be issued by the Depositary and will be delivered in exchange for or replacement of outstanding lost, stolen, mutilated, defaced or destroyed GDRs upon surrender thereof (except in the case of the destruction, loss or theft) at the specified office of the Depositary or (at the request, risk and expense of the Holder) at the specified office of any Agent.

16 Depositary’s fees, costs and expenses

(A) The Depositary shall be entitled to charge the following remuneration and receive the following remuneration and reimbursement (such remuneration and reimbursement being payable on demand) from the Holders in respect of its services under the Deposit Agreement:

(i) for the issue of GDRs or the cancellation of GDRs upon the withdrawal of Deposited Property: US$5.00 or less per 100 GDRs (or portion thereof) issued or cancelled

(ii) for issuing GDR certificates in definitive registered form in replacement for mutilated, defaced, lost, stolen or destroyed GDR certificates: a sum per GDR certificate which is determined by the Depositary to be a reasonable charge to reflect the work, costs and expenses involved;

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(iii) for issuing GDR certificates in definitive registered form (other than pursuant to (ii) above): the greater of US$1.50 per GDR certificate (plus printing costs) or such other sum per GDR certificate which is determined by the Depositary to be a reasonable charge to reflect the work plus costs (including but not limited to printing costs) and expenses involved;

(iv) for receiving and paying any cash dividend or other cash distribution on or in respect of the Deposited Shares: a fee of US$0.02 or less per GDR for each such dividend or distribution;

(v) in respect of any issue of rights or distribution of Shares (whether or not evidenced by GDRs) or other securities or other property (other than cash) upon exercise of any rights, any free distribution, stock dividend or other distribution: US$5.00 or less per 100 outstanding GDRs (or portion thereof) for each such issue of rights, dividend or distribution;

(vi) for transferring interests from and between the International Master GDR and the Rule 144A Master GDR: a fee of US$0.05 or less per GDR, together with all expenses, transfer and registration fees, taxes, duties and charges payable by the Depositary, any Agent or the Custodian in connection with any of the above;

(vii) a fee of US$0.02 or less per GDR for depositary services, which shall accrue on the last day of each calendar year and shall be payable as provided in paragraph (viii) below, provided however that the fee assessed under this provision will be reduced to the extent that a fee was charged in such calendar year pursuant to paragraph (iv) above; and

(viii) any other charge payable by the Depositary, any of the Depositary’s agents, including the Custodian, or the agents of the Depositary’s agents, in connection with the servicing of Deposited Shares or other Deposited Property (which charge shall be assessed against Holders as of the date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary by billing such Holders for such charge or deducting such charge from one or more cash dividends or other cash distributions), together with all expenses (including currency conversion expenses), transfer and registration fees, taxes, duties and charges payable by the Depositary, any Agent or the Custodian, or any of their agents, in connection with any of the above.

(B) The Depositary is entitled to receive from the Company the fees, taxes, duties, charges costs and expenses as specified in a separate agreement with the Depositary.

17 Agents

(A) The Depositary shall be entitled to appoint one or more agents (the “Agents”) for the purpose, inter alia , of making distributions to the Holders.

(B) Notice of appointment or removal of any Agent or of any change in the specified office of the Depositary or any Agent will be duly given by the Depositary to the Holders.

18 Listing

The Company has undertaken in the Deposit Agreement to use its best endeavours to maintain, so long as any GDR is outstanding, a listing for the GDRs on the Luxembourg Stock Exchange.

For that purpose the Company will pay all fees and sign and deliver all undertakings required by the Luxembourg Stock Exchange in connection with such listings. In the event that the listing on the Luxembourg Stock Exchange is not maintained, the Company has undertaken in the Deposit Agreement to use its best endeavours with the reasonable assistance of the Depositary (provided at the Company’s expense) to obtain and maintain a listing of the GDRs on any other internationally recognised stock exchange in Europe.

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19 The Custodian

The Depositary has agreed with the Custodian that the Custodian will receive and hold (or appoint agents approved by the Depositary to receive and hold) all Deposited Property for the account and to the order of the Depositary in accordance with the applicable terms of the Deposit Agreement which include a requirement to segregate the Deposited Property from the other property of, or held by, the Custodian provided that the Custodian shall not be obliged to segregate cash comprised in the Deposited Property from cash otherwise held by the Custodian. The Custodian shall be responsible solely to the Depositary provided that, if and so long as the Depositary and the Custodian are the same legal entity, references to them separately in these Conditions and the Deposit Agreement are for convenience only and that legal entity shall be responsible for discharging both functions directly to the Holders and the Company. The Custodian may resign or be removed by the Depositary by giving 90 days’ prior notice, except that if a replacement Custodian is appointed which is a branch or affiliate of the Depositary, the Custodian’s resignation or discharge may take effect immediately on the appointment of such replacement Custodian. Upon the removal of or receiving notice of the resignation of the Custodian, the Depositary shall promptly appoint a successor Custodian (approved (i) by the Company, such approval not to be unreasonably withheld or delayed, and (ii) by the relevant authority in ROC, if any), which shall, upon acceptance of such appointment, and the expiry of any applicable notice period, become the Custodian. Whenever the Depositary in its discretion determines that it is in the best interests of the Holders to do so, it may, after prior consultation with the Company, terminate the appointment of the Custodian and, in the event of any such termination, the Depositary shall promptly appoint a successor Custodian (approved (i) by the Company, such approval not to be unreasonably withheld or delayed, and (ii) by the relevant authority in the ROC, if any), which shall, upon acceptance of such appointment, become the Custodian under the Deposit Agreement on the effective date of such termination. The Depositary shall notify Holders of such change immediately upon such change taking effect in accordance with Condition 23. Notwithstanding the foregoing, the Depositary may temporarily deposit the Deposited Property in a manner or a place other than as therein specified; provided that, in the case of such temporary deposit in another place, the Company shall have consented to such deposit, and such consent of the Company shall have been delivered to the Custodian. In case of transportation of the Deposited Property under this Condition, the Depositary shall obtain appropriate insurance at the expense of the Company if and to the extent that the obtaining of such insurance is reasonably practicable and the premiums payable are of a reasonable amount.

20 Resignation and termination of appointment of the Depositary

(A) The Company may terminate the appointment of the Depositary under the Deposit Agreement by giving at least 90 days’ prior notice in writing to the Depositary and the Custodian, and the Depositary may resign as Depositary by giving at least 90 days’ prior notice in writing to the Company and the Custodian. Within 30 days after the giving of either such notice, notice thereof shall be duly given by the Depositary to the Holders in accordance with Condition 23 and to the Luxembourg Stock Exchange. The termination of the appointment or the resignation of the Depositary shall take effect on the date specified in such notice; provided that no such termination of appointment or resignation shall take effect until the appointment by the Company of a successor depositary under the Deposit Agreement approved by the competent ROC authority, (if required by relevant ROC laws and regulations) and the acceptance of such appointment to act in accordance with the terms thereof and of these Conditions, by the successor depositary. The Company has undertaken in the Deposit Agreement to use its best endeavours to procure the appointment of a successor depositary with effect from the date of termination specified in such notice as soon as reasonably possible following notice of such termination or resignation. Upon any such appointment and acceptance, notice thereof shall be duly given by the Depositary to the Holders in accordance with Condition 23 and to the Luxembourg Stock Exchange.

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(B) Upon the termination of appointment or resignation of the Depositary and against payment of all fees and expenses due to the Depositary from the Company under the Deposit Agreement, the Depositary shall deliver to its successor as depositary sufficient information and records to enable such successor efficiently to perform its obligations under the Deposit Agreement and shall deliver and pay to such successor depositary all property and cash held by it under the Deposit Agreement. The Deposit Agreement provides that, upon the date when such termination of appointment or resignation takes effect, the Custodian shall be deemed to be the Custodian thereunder for such successor depositary, and the Depositary shall thereafter have no obligation under the Deposit Agreement or the Conditions (other than liabilities accrued prior to the date of termination of appointment or resignation or any liabilities stipulated in relevant laws or regulations).

21 Termination of Deposit Agreement

(A) Either the Company or the Depositary but, in the case of the Depositary, only if the Company has failed to appoint a replacement Depositary within 90 days of the date on which the Depositary has given notice pursuant to Condition 20 that it wishes to resign, may terminate the Deposit Agreement by giving 90 days’ prior notice to the other and to the Custodian. Within 30 days after the giving of such notice, notice of such termination shall be duly given by the Depositary to Holders of all GDRs then outstanding in accordance with Condition 23.

(B) During the period beginning on the date of the giving of such notice by the Depositary to the Holders and ending on the date on which such termination takes effect, each Holder shall be entitled to obtain delivery of the Deposited Property relative to each GDR held by it, subject to the provisions of paragraph (B) of Condition 1 and upon compliance with Condition 1, payment by the Holder of the charge specified in paragraph (A)(i) of Condition 16 and clause 10(A)(i)(a) of the Deposit Agreement for such delivery and surrender, and payment by the Holder of any sums payable by the Depositary and/or any other expenses incurred by the Depositary (together with all amounts which the Depositary is obliged to pay to the Custodian) in connection with such delivery and surrender, and otherwise in accordance with the Deposit Agreement.

(C) If any GDRs remain outstanding after the date of termination, the Depositary shall as soon as reasonably practicable sell the Deposited Property then held by it under the Deposit Agreement and shall not register transfers, shall not pass on dividends or distributions or take any other action, except that it will deliver the net proceeds of any such sale, together with any other cash then held by it under the Deposit Agreement, pro rata to Holders which have not previously been so surrendered by reference to that proportion of the Deposited Property which is represented by the GDRs of which they are the Holders. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement and these Conditions, except its obligation to account to Holders for such net proceeds of sale and other cash comprising the Deposited Property without interest.

22 Amendment of Deposit Agreement and Conditions

All and any of the provisions of the Deposit Agreement and these Conditions (other than this Condition 22) may at any time and from time to time be amended by agreement between the Company and the Depositary in any respect which they may deem necessary or desirable. Notice of any amendment of these Conditions (except to correct a manifest error) shall be duly given to the Holders by the Depositary, and any amendment (except as aforesaid) which shall increase or impose fees payable by Holders or which shall otherwise, in the opinion of the Depositary, be materially prejudicial to the interests of the Holders (as a class) shall not become effective so as to impose any obligation on the Holders until the expiration of three months after such notice shall have been given. During such period of three months, each Holder shall be entitled to obtain, subject to and upon compliance with Condition 1, delivery of the Deposited Property relative to each GDR held by it upon surrender thereof,

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free of the charge specified in paragraph (A)(i) of Condition 16 for such delivery and surrender but otherwise in accordance with the Deposit Agreement and these Conditions. Each Holder at the time when such amendment so becomes effective shall be deemed, by continuing to hold a GDR, to approve such amendment and to be bound by the terms thereof in so far as they affect the rights of the Holders. In no event shall any amendment impair the right of any Holder to receive, subject to and upon compliance with Condition 1, the Deposited Property attributable to the relevant GDR.

For the purposes of this Condition 22, an amendment shall not be regarded as being materially prejudicial to the interests of Holders if its principal effect is to permit the creation of GDRs in respect of additional Shares to be held by the Depositary which are or will become fully consolidated as a single series with the other Deposited Shares provided that temporary GDRs will represent such Shares until they are so consolidated.

23 Notices

(A) Any and all notices to be given to any Holder shall be duly given if personally delivered, or sent by mail (if domestic, first class, if overseas, first class airmail) or air courier, or by telex or facsimile transmission confirmed by letter sent by mail or air courier, addressed to such Holder at the address of such Holder as it appears on the transfer books for GDRs of the Depositary, or, if such Holder shall have filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address specified in such request.

(B) Delivery of a notice sent by mail or air courier shall be effective three days (in the case of domestic mail or air courier) or seven days (in the case of overseas mail) after despatch, and any notice sent by telex transmission, as provided in this Condition, shall be effective when the sender receives the answerback from the addressee at the end of the telex and any notice sent by facsimile transmission, as provided in this Condition, shall be effective when the intended recipient has confirmed by telephone to the transmitter thereof that the recipient has received such facsimile in complete and legible form. The Depositary or the Company may, however, act upon any telex or facsimile transmission received by it from the other or from any Holder, notwithstanding that such telex or facsimile transmission shall not subsequently be confirmed as aforesaid.

(C) So long as GDRs are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, all notices to be given to Holders generally will also be published in a leading daily newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

24 Reports and information on the Company

(A) The Company has undertaken in the Deposit Agreement (so long as any GDR is outstanding) to furnish the Depositary with six copies in the English language (and to make available to the Depositary, the Custodian and each Agent as many further copies as they may reasonably require to satisfy requests from Holders), in respect of the financial year ending on December 31, 2004 and in respect of each financial year thereafter, the consolidated balance sheets as at the end of such financial year and the consolidated statements of income for such financial year in respect of the Company, prepared in conformity with generally accepted accounting principles in the ROC and reported upon by independent public accountants selected by the Company, as soon as practicable (and in any event within 180 days) after the end of such year.

(B) The Depositary shall upon receipt thereof give due notice to the Holders that such copies are available upon request at its specified office and the specified office of any Agent.

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(C) For so long as any of the GDRs or the Shares represented thereby remains outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, if at any time the Company is neither subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act nor exempt from such reporting requirements pursuant to Rule 12g3-2(b) thereunder, the Company has agreed in the Deposit Agreement to supply to the Depositary in the English language and in such quantities as the Depositary may from time to time request, such information as is required by Rule 144A(d)(4) under the Securities Act to be delivered to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, in accordance with a Deed Poll executed by the Company in favour of such persons. Subject to receipt, the Depositary will deliver such information during any period in which the Company informs the Depositary that it is subject to the information delivery requirements of Rule 144(A)(d)(4) under the Securities Act, to any such holder, beneficial owner or prospective purchaser, but in no event shall the Depositary have any liability for the contents of any such information.

25 Copies of Company notices

Except as otherwise provided herein, the Company has undertaken in the Deposit Agreement to transmit to the Custodian and the Depositary on or before the day when the Company first gives notice, by mail, publication or otherwise, to holders of any Shares or other Deposited Property, whether in relation to the taking of any action in respect thereof or in respect of any dividend or other distribution thereon or of any meeting or adjourned meeting of such holders or otherwise, such number of copies of such notice and any other material (which contains information having a material bearing on the interests of the Holders) furnished to such holders by the Company (English translations of the originals if the originals were prepared in a language other than English) in connection therewith as the Depositary may reasonably request. If such notice is not furnished to the Depositary in English, either by the Company or the Custodian, the Depositary shall, at the Company’s expense, arrange for an English translation thereof (which may be in such summarised form as the Depositary may deem adequate to provide sufficient information) to be prepared. Except as provided below, the Depositary shall, as soon as practicable after receiving notice of such transmission or (where appropriate) upon completion of translation thereof, give due notice to the Holders which notice may be given together with a notice pursuant to paragraph (A) of Condition 9, and shall make the same available to Holders in such manner as it may determine.

26 Moneys held by the Depositary

The Depositary shall be entitled to deal with moneys paid to it by the Company for the purposes of the Deposit Agreement in the same manner as other moneys paid to it as a banker by its customers and shall not be liable to account to the Company or any Holder or any other person for any interest thereon, except as otherwise agreed and shall not be obliged to segregate such moneys from other moneys belonging to the Depositary.

27 Severability

If any one or more of the provisions contained in the Deposit Agreement or in these Conditions shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained therein or herein shall in no way be affected, prejudiced or otherwise disturbed thereby.

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28 Governing law

(A) The Deposit Agreement and the GDRs are governed by and shall be construed in accordance with English law except that the certifications set forth in Schedules 3 and 4 to the Deposit Agreement and any provisions relating thereto shall be governed by and construed in accordance with the laws of the State of New York. The rights and obligations attaching to the Deposited Shares will be governed by ROC law. The Company has submitted in respect of the Deposit Agreement and the Deed Poll to the jurisdiction of the English courts and the courts of the State of New York and any United States Federal Court sitting in New York City and has appointed an agent for service of process in London and New York City. The Company has also agreed in the Deposit Agreement, and the Deed Poll to allow, respectively, the Depositary and the Holders to elect that Disputes are resolved by arbitration.

(B) The Company has irrevocably appointed Law Debenture Corporate Services Inc. as its agent in England to receive service of process in any Proceedings in England based on the Deed Poll and appointed CT Corporation System as its agent in New York to receive service of process in any Proceedings in New York. If for any reason the Company does not have such an agent in England or New York as the case may be, it will promptly appoint a substitute process agent and notify the Holders and the Depositary of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law.

(C) The courts of England are to have jurisdiction to settle any disputes (each a “Dispute”) which may arise out of or in connection with the GDRs and accordingly any legal action or proceedings arising out of or in connection with the GDRs (“Proceedings”) may be brought in such courts. Without prejudice to the foregoing, the Depositary further irrevocably agrees that any Proceedings may be brought in any New York State or United States Federal Court sitting in New York City. The Depositary irrevocably submits to the non-exclusive jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum.

(D) These submissions are made for the benefit of each of the Holders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdictions (whether concurrently or not).

(E) In the event that the Depositary is made a party to, or is otherwise required to participate in, any litigation, arbitration, or Proceeding (whether judicial or administrative) which arises from or is related to or is based upon any act or failure to act by the Company, or which contains allegations to such effect, upon notice from the Depositary, the Company has agreed to fully cooperate with the Depositary in connection with such litigation, arbitration or Proceeding.

(F) The Depositary irrevocably appoints The Bank of New York, London Branch (Attention: The Manager) of 48th Floor, One Canada Square, London, E14 5AL as its agent in England to receive service of process in any Proceedings in England based on any of the GDRs. If for any reason the Depositary does not have such an agent in England, it will promptly appoint a substitute process agent and notify the Holders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law.

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Summary of Provisions relating to the GDRs while in Master Form

Exchange

The Master International GDR Certificate and the Master Rule 144A GDR Certificate will only be exchanged for certificates in definitive registered form representing GDRs in the circumstances described in (i), (ii), (iii) and (iv) below. The Depositary will undertake in the Master International GDR Certificate and the Master Rule 144A GDR Certificate to make available certificates evidencing GDRs in definitive registered form in whole but not in part in exchange for either the Master International GDR or the Master Rule 144A GDR, as the case may be, to GDR holders within 60 days in the event that:

(i) DTC, Clearstream, International or Euroclear, or any successor, notifies the Depositary in writing that it is at any time unwilling or unable to continue as a depositary and a successor depositary is not appointed within 90 calendar days; or

(ii) DTC or any successor ceases to be a “clearing agency” registered under the Exchange Act; or

(iii) DTC, Clearstream, International or Euroclear is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so and no alternative clearing system satisfactory to the Depositary is available within 45 days; or

(iv) the Depositary has determined that, on the occasion of the next payment in respect of the GDRs, the Depositary or its agent would be required to make any deduction or withholding from any payment in respect of the GDRs which would not be required were the GDRs represented by certificates in definitive registered form.

Upon the occurrence of the relevant event (except for the event set out in item (iv) above), any such exchange shall be at the expense of the Company. Upon the occurrence of an event in (iv) above, any person appearing in the records maintained by DTC, Clearstream, International and Euroclear as entitled to any interest in the Master International GDR or the Master Rule 144A GDR shall be entitled to require the Depositary to procure the exchange of an appropriate part of the Master International GDR Certificate or the Master Rule 144A GDR Certificate, as the case may be, for GDRs in definitive registered form upon written notice to the Depositary and upon providing the necessary certifications. Any such exchange will be at the expense of such person. Upon any exchange of a part of the Master International GDR Certificate or the Master Rule 144A GDR Certificate for GDRs in registered definitive form, or any exchange of interests between the Master International GDR Certificate and the Master Rule 144A GDR Certificate pursuant to the terms of the Deposit Agreement, or any distribution of GDRs pursuant to Conditions 5, 7 or 10 or any reduction in the number of GDRs represented by the Master International GDR Certificate or the Master Rule 144A GDR Certificate following any withdrawal of Deposited Property pursuant to Condition 1, the relevant details shall be entered by the Depositary on the register maintained by the Depositary (the “Register”) (which shall be maintained at all times outside the United Kingdom and the ROC), whereupon the number of GDRs evidenced by the Master International GDR Certificate or the Master Rule 144A GDR Certificate shall be reduced or increased (as the case may be) accordingly.

Voting Rights, Payments and Distributions

Holders of GDRs will have voting rights in respect of the underlying shares as set out in Condition 12 and the Deposit Agreement. Voting rights will be exercised by the Depositary only upon receipt of written instructions in accordance with the Conditions and the Deposit Agreement and if permitted by law, which shall be subject to an opinion being given by the Company’s legal counsel, such counsel being reasonably satisfactory to the Depositary, that the Depositary can do so. In the absence of an

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opinion from legal counsel as aforesaid, the Depositary shall not exercise any voting rights and shall have no liability to the Company or any holder of GDRs for any action taken or not taken as the case may be.

Payments of cash dividends and other amounts (including cash distributions) in respect of the GDRs represented by the Master International GDR Certificate or the Master Rule 144A GDR Certificate will be made by the Depositary through DTC, Clearstream, International and Euroclear, on behalf of persons entitled thereto upon receipt of funds therefor from the Company. A free distribution or rights issue of Shares to the Depositary on behalf of GDR holders which results in an increase of the number of GDRs will result in the records of the Depositary being adjusted to reflect the enlarged number of GDRs evidenced by the Master International GDR Certificate and/or the Master Rule 144A GDR Certificate.

Surrender of GDRs

Any requirement in the Conditions relating to the surrender of a GDR to the Depositary shall be satisfied by the production by DTC, on behalf of a person entitled to an interest therein, of such evidence of entitlement of such person as the Depositary may reasonably require, which is expected to be a certificate or other documents issued by Euroclear or Clearstream, International, or DTC or, if relevant, an alternative clearing system. The delivery or production of any such evidence shall be sufficient evidence, in favour of the Depositary, any Agent and the Custodian, of the title of such person to receive (or to issue instructions for the receipt of) all moneys or other property payable or distributable and to issue voting instructions in respect of the Deposited Property evidenced by such GDRs.

Notices

For so long as the Master International GDR Certificate and the Master Rule 144A GDR Certificate is registered in the name of DTC or its nominee, notices to GDR holders may be given by the Depositary by delivery of the relevant notice to DTC (or its nominee), Euroclear or Clearstream, International for communication to persons entitled thereto in substitution for methods required by Condition 23 except that so long as the GDRs are listed on the Luxembourg Stock Exchange and that Exchange so requires, notices shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort ).

The Master International GDR Certificate and the Master Rule 144A GDR Certificate shall be governed by and construed in accordance with English law.

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Clearance and Settlement

Custodial and depositary links have been established among Clearstream, International and Euroclear and DTC to facilitate the initial issue of the GDRs and cross-market transfers of the GDRs associated with secondary market trading.

The Clearing Systems

Clearstream, International and Euroclear

Clearstream, International and Euroclear each hold securities for participating organisations and facilitate the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in accounts of such participants. Clearstream, International and Euroclear provide to their respective participants, among other things, services for safekeeping, administration, clearance and settlement of internationally-traded securities and securities lending and borrowing.

Clearstream, International and Euroclear participants are financial institutions throughout the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. Indirect access to Clearstream, International or Euroclear is also available to others, such as banks, brokers, dealers and trust companies which clear through or maintain a custodial relationship with Clearstream, International or Euroclear participants, either directly or indirectly.

Distributions of dividends and other payments with respect to book-entry interests in the GDRs held through Clearstream, International or Euroclear will be credited, to the extent received by the Depositary, to the cash accounts of Clearstream, International or Euroclear participants in accordance with the relevant system’s rules and procedures.

DTC

DTC is a limited-purpose trust company organised under the laws of the State of New York, a “banking organisation” within the meaning of New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act, as amended. DTC holds securities for DTC participants and facilitates the clearance and settlement of securities transactions between DTC participants through electronic book-entry changes in accounts of DTC participants. DTC participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organisations. Indirect access to DTC is also available to others, such as banks, brokers, dealers and trust companies which clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly (“Indirect DTC participants”).

Holders of book-entry interests in the GDRs holding through DTC will receive, to the extent received by the Depositary, all distributions of dividends and other payments with respect to book-entry interests in the GDRs from the Depositary through DTC and DTC participants. Distributions in the United States will be subject to relevant US tax laws and regulations. See “Taxation—Taxation of Distributions”.

As DTC can act on behalf of DTC participants only, who in turn act on behalf of Indirect DTC participants, the ability of beneficial owners who are Indirect DTC participants to pledge book-entry interests in the GDRs to persons or entities that do not participate in DTC, or otherwise take actions with respect to such book-entry interests in the GDRs, may be limited.

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Registration and Form

Book-entry interests in the GDRs will be evidenced by the Master International GDR Certificate and the Master Rule 144A GDR Certificate and registered in the name of Cede & Co., as nominee for DTC, and will be held by a custodian for DTC.

As necessary, the Depositary will adjust the amounts of GDRs on the Register for the accounts of DTC to reflect the amounts of GDRs held through DTC, respectively. Beneficial ownership in GDRs will be held through financial institutions as direct and indirect participants in Clearstream, International, Euroclear and DTC.

The aggregate holdings of book-entry interests in the GDRs in DTC will be reflected in its bookentry accounts. Clearstream, International, Euroclear and DTC, as the case may be, and every other intermediate holder in the chain to the beneficial owner of book-entry interests in the GDRs, will be responsible for establishing and maintaining accounts for their participants and customers having interests in the book-entry interests in the GDRs. The Depositary will be responsible for maintaining a record of the aggregate holdings of GDRs registered in the name of Cede & Co. and/or Holders in definitive registered form. The Depositary will be responsible for ensuring that payments received by it from the Company for Holders holding through DTC are received by the relevant DTC participants or, where no election has been made, by DTC.

The Company will not impose any fees in respect of the GDRs; however, holders of book-entry interests in the GDRs may incur fees normally payable in respect of the maintenance and operation of accounts in Clearstream, International, Euroclear or DTC.

Global Clearance and Settlement Procedures

Initial Settlement

On the initial offering, the GDRs will be in global form evidenced by the two global Master GDRs. The International GDRs will be represented by beneficial interests in the Master International GDR Certificate. The Rule 144A GDRs will be represented by beneficial interests in the Master Rule 144A GDR Certificate. The GDRs will be in uncertificated book-entry form. DTC participants acting on behalf of purchasers electing to hold book-entry interests in the GDRs through DTC will follow the delivery practices applicable to securities eligible for DTC’s Same-Day Funds Settlement (“SDFS”) system. DTC participant securities accounts will be credited with book-entry interests in the GDRs following confirmation of receipt of payment to the Company on the Closing Date.

Secondary Market Trading

Trading Between DTC Participants

Secondary market sales of book-entry interests in the GDRs held through DTC will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to securities eligible for DTC’s SDFS system in same-day funds, if payment is effected in US dollars, or free of payment, if payment is not effected in US dollars. Where payment is not offered in US dollars, separate payment arrangements outside DTC are required to be made between the DTC participants.

General

Although the foregoing sets out the procedures of Clearstream, International, Euroclear and DTC in order to facilitate the transfers of interests in the GDRs among participants of DTC, Euroclear and

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Clearstream, International, none of Clearstream, International, Euroclear or DTC are under any obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time.

None of the Company, the Depositary, the Custodian nor their respective agents will have any responsibility for the performance by Clearstream, International, Euroclear or DTC or their respective participants of their respective obligations under the rules and procedures governing their operations.

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Description of the Shares

The following is a summary of certain provisions of the Company’s Articles of Incorporation (the “Articles”), the ROC Securities and Exchange Law (the “Securities and Exchange Law”) and regulations promulgated thereunder, and the ROC Company Law, all as currently in effect.

GENERAL

The ROC Company’s authorized share capital is 2,000,000,000 Shares with a par value of NT$10 per Share of which 60,000,000 Shares have been reserved for exercise of warrants, preferred shares with warrants and bonds with warrants. As at December 31, 2004, the Company has an issued and paid-up capital of NT$15,859,719,520, representing 1,585,971,952 Shares in registered form. Save as disclosed in this Offering Circular, no person has been granted any preferential right to subscribe for common shares in the Company.

The ROC Company Law and the Securities and Exchange Law provide that any change in the issued share capital of a public company, such as the Company, requires approval of the Board of Directors, an amendment to its articles of incorporation (if it also involves a change in the authorized share capital of the public company which requires stockholder approval), if the original paid-in share capital plus the number of shares issuable upon the conversion of convertible securities or exercise of warrants or employee options, and the number of any new shares to be issued exceeds the number of shares authorized in its articles of incorporation, and, in general, the approvals of the ROC FSC and the ROC Ministry of Economic Affairs.

DIVIDENDS

Under the ROC Company Law, except under certain limited circumstances, a ROC company is not permitted to distribute dividends or make any other distributions to stockholders at any time other than when it is generating net profits (“Earnings”). Before distributing a dividend or making any other distribution to stockholders from Earnings, a company must first apply such Earnings to its losses suffered in previous years, if any, pay all outstanding taxes and set aside the legal reserve referred to below.

Following approval of the financial statements for the preceding fiscal year by the stockholders in an annual stockholders’ meeting, dividends are, unless otherwise stipulated under that Company’s articles of incorporation, distributed in proportion to the number of shares owned by each stockholder as listed on the register of stockholders as at the relevant record date determined by the Board of Directors (“Annual Dividends”). Annual Dividends may be distributed either in cash or in the form of common shares or a combination thereof. The ratio between any cash dividend and stock dividend is proposed by the Board of Directors and is determined by the stockholders at a stockholders’ meeting. The practice of the Company during the past years with respect to the payment of cash dividends and stock dividends is referred to above in the section headed “Dividends”

The ROC Company Law provides that a company is required to set aside a legal reserve in an amount equal to 10% of its Earnings (less losses, if any, suffered in previous years and applicable taxes) until such time as its legal reserve equals its capital. The Company’s articles of incorporation further provide that, after paying all applicable taxes in accordance with ROC law, recovering any past losses, deducting the legal reserve and special reserve, if necessary, the remaining portion of Earnings together with the undistributed retained earning of the previous fiscal years may be allocated (subject to proposal by the Board of Directors and approval by stockholders) as follows:

(i) no more than 1% for remuneration to directors and supervisors;

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(ii) at least 3% for employee bonuses; and

(iii) the balance thereof will be allocated for bonuses to stockholders. However, such bonuses distributed to stockholders shall be in the amount of at least 50% of the remaining Earnings, among which at least 5% shall be represented in the form of cash dividend.

DISTRIBUTION OF ADDITIONAL SHARES

In addition to dividends paid out of Earnings of a company, the ROC Company Law also permits a company to make distributions to stockholders in the form of additional shares from reserves (including its legal reserve referred to above, any special reserve and capital reserve). However, in the case of distributions out of its legal reserve, the amount payable is limited to 50% of the total accumulated legal reserve and only if the accumulated legal reserve exceeds 50% of the paid-in capital of the company. (For information as to ROC taxes on cash and stock dividends, see “Taxation—ROC Taxation”.)

PRE-EMPTIVE RIGHTS AND ISSUE OF ADDITIONAL COMMON STOCK

The ROC Company Law provides that between 10% and 15% of any new issue of shares of capital stock sold for cash must be offered first to the issuing company’s employees. In addition, the Securities and Exchange Law and the relevant securities regulations require that, if a public company listed on the TSE or whose shares are traded on the Gre Tai Securities Market intends to offer new shares for cash, at least 10% of such issue must be offered to the public except under certain circumstances or when exempted by the ROC FSC. This percentage can be increased by a resolution passed at a stockholders’ meeting, thereby reducing the number of new shares subject to the preemptive rights of existing stockholders. Unless the percentage of shares to be offered to the public is increased by stockholders, existing stockholders who are listed on the stockholders’ register as of the record date have a pre-emptive right to acquire the remaining 75% to 80% of the issue. The shares not subscribed for by the employees and stockholders at the expiration of the period for the exercise of their rights may be sold at the discretion of the Board of Director of the Company (subject to ROC law) to the public or specific persons. The pre-emptive rights provisions will not apply to offering of new shares through a private placement approved at a shareholders’ meeting.

MEETINGS OF STOCKHOLDERS

The ordinary meeting of stockholders of the Company is usually held in Taoyuan, Taiwan, ROC, as determined by the Board of Directors, within the six months of the end of previous fiscal years. Extraordinary meetings of stockholders may be convened by resolution of the Board of Directors whenever they consider it necessary or by stockholders under certain circumstances. Extraordinary meetings of stockholders may also be convened by Supervisor of the Company. Notice in writing of ordinary and extraordinary stockholders’ meetings stating the place, time and purpose thereof must be dispatched to each stockholder of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting.

VOTING RIGHTS

A holder of common shares has one vote for each share of common stock. Except as otherwise provided by law, a stockholders’ resolution is passed or adopted if voted in favor by the majority present at a stockholders’ meeting at which a quorum is present (being holders of more than 50% of the issued and outstanding common stock present in person or by proxy). Election of Directors and Supervisors by stockholders is carried out on a cumulative voting basis.

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When one company and another company hold more than one-third of the total outstanding shares in each other, the votes cast by one company in the shareholders’ meeting of the other company shall not exceed one-third of the total number of the voting shares (or one third of the total amount of the equity capital of the other company), in case that both companies are aware of the fact of such relationship, provided, however, that such limitation will not apply to the votes of new shares issued by way of the capitalization of the retained earnings or the reserves.

Notwithstanding the above, in order to approve certain major corporate actions, including any amendment to the articles of incorporation (which is required for, inter alia, any increase in authorized share capital), the dissolution or amalgamation of a company, the merger or spin-off the transfer of all or an important part of its business or its properties, the taking over of the whole of the business or properties of any other company which would have a significant impact on the acquiring company’s operations, execution, modification or termination of any contracts or agreements relating to the leasing of all of the company’s business, joint ventures or mandate of the company’s operations to other persons, or the removal of directors or supervisors or the distribution of any stock dividend, the ROC Company Law provides that a resolution has to be passed at a meeting of the stockholders with a quorum of holders of at least two-thirds of all issued and outstanding common stock at which the majority present vote in favor thereof. Alternatively, in the case of a public company, such as the Company, such a resolution may be approved by the holders of at least two-thirds of the common stock represented at a meeting of stockholders with a quorum of holders of at least a majority of issued and outstanding common stock.

A stockholder may be represented at an ordinary or extraordinary meeting by proxy. A valid proxy form must be delivered to the Company at least five days prior to the date fixed for the ordinary or extraordinary meeting. Except for trust enterprises or share transfer agents approved by the ROC FSC, where one person is appointed as proxy by two or more shareholders who together hold more than 3% of the Company’s total issued Shares, the votes of those shareholders in excess of 3% the Company’s total issued Shares will not be counted. Voting rights attached to the Shares that are exercised by the shareholders’ proxy shall be subject to ROC proxy regulations.

REGISTRATION OF STOCKHOLDERS AND RECORD DATES

The Company’s share registrar, Masterlink Securities Corporation, maintains the register of stockholders of the Company at its office in Taipei, Taiwan and enters transfers of Shares in the register of stockholders upon presentation of the certificates in respect of the Shares transferred accompanied by other required documents.

As mentioned above, the record date for an Annual Dividend will be determined and announced by the Company. For the purpose of determining the holders of Shares entitled to Annual Dividends and other rights pertaining to the Shares, the Company shall, by giving advance public notice, set a record date and close the register of stockholders for a specified period (sixty days, thirty days and five days immediately before the date of the ordinary stockholders’ meeting, each extraordinary stockholders’ meeting and the record date, respectively).

ANNUAL FINANCIAL STATEMENTS

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

TRANSFERS OF COMMON STOCK

Under the Company Law, the transfer of common stock (in registered form) is effected by endorsement of the transferor’s seal or chop on the back of the relevant share certificate and delivery of such share certificate to the transferee. In order to assert stockholders’ rights against the Company,

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the transferee must have his name and address registered on the Company’s register of stockholders. Stockholders are required to register their respective specimen seal or chop with the Company. The settlement of trading of the common stock is normally carried out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.

TRANSFER RESTRICTIONS

The Company’s directors, supervisors, managers and shareholders holding more than 10% of the Company’s shares are required to report any changes in their shareholding to the Company on a monthly basis. In addition, the number of shares that they can sell or transfer on the TSE on a daily basis is limited by ROC law. Further, they may sell or transfer the Company’s shares on the TSE only after reporting to the ROC FSC at least three days before the transfer, provided that such reporting is not required if the number of shares transferred does not exceed 10,000.

ACQUISITION BY THE COMPANY OF ITS OWN COMMON STOCK

With minor exceptions, the Company cannot acquire its own Shares. Under the ROC Company Law, any shares purchased by the company must be sold at the current market price within 6 months from the purchase.

Under the ROC Securities and Exchange Law, the Company may, by resolution adopted by a majority of the Company’s Board of Directors at a meeting where more than two-thirds of the directors are present, repurchase the Shares on the TSE or by a tender offer in accordance with the procedures as required by the ROC FSC for the following purposes:

‰ for delivery upon conversion of bonds with warrants, preferred shares with warrants, convertible bonds and convertible preferred shares or certificates of warrants issued by the Company into capital stock;
‰ to transfer to the Company’s employees; or
‰ if necessary, to maintain the Company’s credit and the Company shareholders’ equity, provided that the shares so repurchased shall be cancelled thereafter.

The total shares repurchased by the Company may not exceed 10% of the Company’s total issued and outstanding shares. In addition, the total cost of the purchased shares may not exceed the aggregate amount of the Company’s retained earnings, any premium from share issuance and the realized portion of its capital reserve. Shares repurchased in the first two instances mentioned above are to be transferred to the intended transferees within three years from the repurchase, failing which they will be cancelled and the Company is required to complete an amended registration for the cancellation. In the third instance mentioned above, the shares repurchased by the Company must be cancelled within six months after the repurchase. The shares repurchased by the Company may not be pledged or hypothecated. In addition, the Company may not exercise any of the shareholder’s rights attached to these shares. The Company’s affiliates, as defined in Article 369-1 of the ROC Company Law, directors, supervisors, managers and their respective spouses and minor children and nominees, are prohibited from selling the Shares until the Company’s repurchase period has lapsed.

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 preference shares, if any, will be distributed pro rata to the stockholders in accordance with the ROC Company Law.

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Changes In Issued Share Capital

The following table sets out the changes in the issued share capital of the Company since January 1,1994:

Date of issue August 14, 1994 . . . . . . . . . . . . . . . . . December 28, 1994(1). . . . . . . . . . . . . July 16, 1995 . . . . . . . . . . . . . . . . . . . . December 28, 1995(1). . . . . . . . . . . . . July 28, 1996 . . . . . . . . . . . . . . . . . . . . December 28, 1996(1). . . . . . . . . . . . . July 28, 1997 . . . . . . . . . . . . . . . . . . . . July 28, 1997(1) . . . . . . . . . . . . . . . . . . January 8, 1998(1) . . . . . . . . . . . . . . . . July 8, 1998 . . . . . . . . . . . . . . . . . . . . . July 8, 1998(1). . . . . . . . . . . . . . . . . . . . December 30, 1998(1). . . . . . . . . . . . . July 20, 1999 . . . . . . . . . . . . . . . . . . . . July 20, 1999(1) . . . . . . . . . . . . . . . . . . December 29, 1999 . . . . . . . . . . . . . . February 29, 2000 . . . . . . . . . . . . . . . July 22, 2000 . . . . . . . . . . . . . . . . . . . . July 22, 2000 . . . . . . . . . . . . . . . . . . . . December 29, 2000 . . . . . . . . . . . . . . July 9, 2001 . . . . . . . . . . . . . . . . . . . . . July 2, 2002 . . . . . . . . . . . . . . . . . . . . . June 28, 2003 . . . . . . . . . . . . . . . . . . . July 4, 2004 . . . . . . . . . . . . . . . . . . . . . December 31, 2004(2). . . . . . . . . . . . .	Number of Shares issued 42,298,504 760,671 51,439,329 210,250 63,989,750 522,704 78,477,296 5,702,490 10,754,635 100,542,875 2,685,771 1,222,687 123,391,542 49,234,144 13,065,175 825,233 204,575,448 1,446,384 169,046 234,844,570 198,419,000 92,394,000 105,287,000 411,952	Type of issue Stock dividend, employee bonus Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Issuance upon conversion of convertible bonds Issuance upon conversion of convertible bonds Stock dividend, employee bonus Issuance upon conversion of convertible bonds Issuance upon conversion of convertible bonds Stock dividend, employee bonus Stock dividend, employee bonus Stock dividend, employee bonus Stock dividend, employee bonus Issuance upon conversion of convertible bonds	Total number of issued Shares after the issue
			245,600,000 246,360,671 297,800,000 298,010,250 362,000,000 362,522,704 441,000,000 446,702,490 457,457,125 558,000,000 560,685,771 561,908,458 685,300,000 734,534,144 747,599,319 748,424,552 953,000,000 954,446,384 954,615,430 1,189,460,000 1,387,879,000 1,480,273,000 1,585,560,000 1,585,971,952

(1) Date on which Shares are issued against entitlement certificates.

(2) As of December 31, 2004, 411,952 Shares were issued upon conversion of the Company’s zero coupon convertible bonds due in 2008. On January 25, 2005, the Company registered this increase in issued share capital with the ROC Ministry of Economic Affairs.

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Taxation

ROC TAXATION

The following is the summary under present law of the principal ROC tax consequences of the ownership and disposition of GDRs and Shares to a Non-Resident Individual or a Non-Resident Entity that owns GDRs or Shares (each a “Non-ROC Holder”). As used in the preceding sentence, a “NonResident Individual” is a foreign national individual who 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 noncorporate body that 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. Prospective purchasers of the GDRs should consult their tax advisers concerning the ROC tax consequences of owning the GDRs or Shares and the laws of any other relevant taxing jurisdiction to which they are subject.

GDRs

Dividends

Dividends (whether in cash or Shares) declared by the Company out of retained earnings and distributed to a Non-ROC Holder in respect of Shares represented by GDRs are subject to ROC income tax collected by way of withholding at the time of distribution, currently at a rate of 20% on the amount of the distribution (in the case of cash dividends) or on the par value of the distributed shares (in the case of stock dividends).

A 10% retained earnings tax is imposed on a ROC company’s after-tax earning generated after January 1, 1998 that are not distributed in the following year. The retained earnings tax so paid reduces the retained earnings available for future distribution. When the company declares a dividend out of those retained earnings, a maximum amount of up to 10% of the declared dividend is credited against the 20% withholding tax imposed on the Non-ROC Holders so that the actual withholding tax imposed on the non-ROC Holders may be less than 20%.

Distributions of Shares declared by the Company out of its capital reserves will not be subject to ROC withholding tax.

Sale

Under current ROC law, transfers of GDRs are not subject to ROC securities transaction tax. Gains on the sale of GDRs are not subject to ROC income tax.

Dividends

Dividends (whether in cash or Shares) declared by the Company out of retained earnings and distributed to a Non-ROC Holder in respect of Shares are subject to ROC income tax collected by way of withholding at the time of distribution, currently at the rate of 20%, on the amount of the distribution (in the case of cash dividends) or on the par value of the Shares (in the case of share dividends).

A 10% retained earnings tax is imposed on a ROC company’s after-tax earning generated after January 1, 1998 that are not distributed in the following year. The retained earnings tax so paid reduces the retained earnings available for future distribution. When the company declares a dividend out of those retained earnings, a maximum amount of up to 10% of the declared dividend is credited against the 20% withholding tax imposed on Non-ROC Holders so that the actual withholding tax imposed on Non-ROC Holders may be less than 20%.

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Distributions of Shares declared by the Company out of its capital reserves will not be subject to ROC withholding tax.

Sale

A securities transaction tax will be withheld at the rate of 0.3% of the transaction price upon a sale of Shares.

Under current ROC law, capital gains on transactions in securities issued by ROC companies are exempt from income tax. This exemption applies to capital gains derived from the sale of Shares.

Pre-emptive Rights

Distributions of statutory subscription rights for the Shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are currently exempted from income tax but are subject to securities transactions tax, currently at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights which are not evidenced by securities are subject to capital gains tax at the rate of (1) 25% of the gains realized by a Non-Resident Entity and (2) 35% of the gains realized by a Non-Resident Individual. Subject to compliance with ROC law, the Company has the sole discretion to determine whether statutory subscription rights will be evidenced by the issuance of securities.

Tax Treaties

At present, the ROC does not have a double taxation treaty with the United States, but it does have double taxation treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Switzerland, Macedonia, Gambia, the Netherlands, the United Kingdom, Senegal and Sweden, which generally have reduced the rate of withholding tax on dividends and interests paid by ROC companies to residents of these countries. It is unclear whether a Non-ROC Holder of GDRs will be considered as owning Shares for the purposes of these treaties. Accordingly, residents of these countries should consult their tax advisers concerning their eligibility for benefits under the relevant treaty.

Estate Taxation and Gift Tax

Subject to allowable exclusions, deductions and exemptions, 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 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$100,000,000. Gift tax is imposed at rates ranging from 4% of the first NT$600,000 donated to 50% of amounts donated in excess of NT$45,000,000. Under ROC estate and gift tax laws, the Shares will be deemed to be located in the ROC without regard to the location of the owner. It is unclear whether a holder of GDRs will be considered to own Shares for this purpose.

TAX GUARANTOR

Any holder of GDRs withdrawing Shares represented by those GDRs is required under current ROC laws and regulations to appoint an agent in the ROC. The agent must meet certain qualifications set by the ROC Ministry of Finance and, upon appointment, becomes a guarantor of the withdrawing holder’s ROC tax obligations. Evidence of the appointment of the agent and the approval for that

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appointment by the ROC tax authorities may be required as conditions to the withdrawing holder’s repatriation of the profits derived from the sale of withdrawn Shares. There can be no assurance that a withdrawing holder of GDRs will be able to appoint and obtain approval for the required agent in a timely manner.

Under current ROC laws, repatriation of profits by any holder of Shares sold within the ROC is subject to the submission of evidence of the appointment of a tax guarantor to, and approval thereof by, the tax authority, or submission of tax clearance certificates or submission of evidencing documents issued by such agent to the tax authority so long as the capital gains from securities transactions are exempt from ROC income tax. Notwithstanding the above requirements for the appointment of a tax guarantor or submission of tax clearance certificates as provided in the ROC regulations, the CBC has not required submission of such evidence or tax clearance certificates as a condition to repatriation of sale proceeds of shares from sales that take place within the ROC. However, there can be no assurance that the CBC will not require submission of such evidence or tax clearance certificates in the future.

CERTAIN US FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material US federal income tax consequences of the acquisition, ownership and disposition of GDRs by a US Holder (as defined below). This summary deals only with initial purchasers of GDRs that are US Holders and that will hold the GDRs as capital assets. The discussion does not cover all aspects of US federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of GDRs by particular investors, and does not address state, local, foreign or other tax laws. In particular, this summary does not address tax considerations applicable to investors that own (directly or indirectly) 10% or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the US federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the GDRs as part of straddles, hedging transactions or conversion transactions for US federal income tax purposes or investors whose functional currency is not the US dollar).

As used herein, the term “US Holder” means a beneficial owner of GDRs that is, for US federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US federal income tax purposes.

The US federal income tax treatment of a partner in a partnership that holds GDRs will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax advisers concerning the US federal income tax consequences to their partners of the acquisition, ownership and disposition of GDRs by the partnership.

The summary assumes that the Company is not a passive foreign investment company (a “PFIC”) for US federal income tax purposes, which the Company believes to be the case. The Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for US Holders. See “Passive Foreign Investment Company Considerations” below.

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The summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, possibly with retroactive effect.

THE SUMMARY OF US FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE GDRs AND SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

US Holders of GDRs

For US federal income tax purposes, a US Holder of GDRs will be treated as the owner of the corresponding number of Shares held by the Depositary, and references herein to Shares refer also to GDRs representing the Shares.

Dividends

General . Subject to the PFIC rules discussed below, distributions paid by the Company out of current or accumulated earnings and profits (as determined for US federal income tax purposes), before reduction for any ROC withholding tax paid by the Company with respect thereto, will generally be taxable to a US Holder as foreign source dividend income, and will not be eligible either for the dividends received deduction allowed to corporations or for the reduced capital gains rate that are extended to qualifying dividends under recent US legislation. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the US Holder’s basis in the Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with US federal income tax accounting principles. US Holders should therefore assume that any distribution by the Company with respect to Shares will constitute ordinary dividend income. US Holders should consult their own tax advisors with respect to the appropriate US federal income tax treatment of any distribution received from the Company.

Foreign Currency Dividends . Dividends paid in NT dollars will be included in income in a US dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the Depositary, regardless of whether the NT dollars are converted into US dollars at that time. If dividends received in NT dollars are converted into US dollars on the day they are received by the Depositary, the US Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income.

Effect of ROC Withholding Taxes . As discussed in “ROC Taxation”, under current law payments of dividends by the Company to foreign investors are subject to a 20% ROC withholding tax (reduced by any credit against such withholding tax on account of the 10% retained earnings tax paid by the Company). For US federal income tax purposes, US Holders will be treated as having received the amount of ROC taxes withheld by the Company, and as then having paid over the withheld taxes to the ROC taxing authorities. As a result of this rule, the amount of dividend income included in gross income for US federal income tax purposes by a US Holder with respect to a payment of dividends may be greater than the amount of cash actually received (or receivable) by the US Holder from the Company with respect to the payment.

A US Holder will generally be entitled, subject to certain limitations, to a credit against its US federal income tax liability, or a deduction in computing its US federal taxable income, for ROC income

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taxes withheld by the Company. For purposes of the foreign tax credit limitation, foreign source income is classified in one of two “baskets”, and the credit for foreign taxes on income in any basket is limited to US federal income tax allocable to that income. Dividends paid by the Company generally will constitute foreign source income in the “passive income” basket. In certain circumstances, a US Holder may be unable to claim foreign tax credits (and may instead be allowed deductions) for foreign taxes imposed on a dividend if the US Holder has not held the Shares for at least 16 days in the 31-day period beginning 15 days before the ex dividend date.

For taxable years beginning before 2005, US Holders that are accrual basis taxpayers must translate ROC taxes into US dollars at a rate equal to the average exchange rate for the taxable year in which the taxes accrue, while all US Holders must translate taxable dividend income into US dollars at the spot rate on the date received. This difference in exchange rates may reduce the US dollar value of the credits for ROC taxes relative to the US Holder’s US federal income tax liability attributable to a dividend. However, for taxable years beginning after 2004, US Holders that are accrual basis taxpayers may elect to translate ROC taxes into US dollars using the exchange rate in effect on the day the taxes were paid. Any such election will apply for the taxable year in which it is made and all subsequent taxable years, unless revoked with the consent of the IRS.

Prospective purchasers should consult their tax advisers concerning the foreign tax credit implications of the payment of ROC taxes.

Exchange of GDRs for Shares

No gain or loss will be recognised upon the exchange of GDRs for the US Holder’s proportionate interest in Shares. A US Holder’s tax basis in the withdrawn Shares will be the same as the US Holder’s tax basis in the GDRs surrendered, and the holding period of the Shares will include the holding period of the GDRs.

Sale or other Disposition

Subject to the PFIC rules discussed below, upon a sale or other disposition of GDRs (other than an exchange of GDRs for Shares) or Shares, a US Holder generally will recognise capital gain or loss for US federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the US Holder’s adjusted tax basis in the GDRs or Shares. This capital gain or loss will be long-term capital gain or loss if the US Holder’s holding period in the Shares or GDRs exceeds one year.

Any gain or loss will generally be US source.

The amount realised on a sale or other disposition of Shares for an amount in foreign currency will be the US dollar value of this amount on the date of sale or disposition. On the settlement date, the US Holder will recognise US source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the US dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of Shares traded on an established securities market that are sold by a cash basis US Holder (or an accrual basis US Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time.

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Disposition of Foreign Currency

Foreign currency received on the sale or other disposition of a Share will have a tax basis equal to its US dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the US dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase Shares or upon exchange for US dollars) will be US source ordinary income or loss.

Passive Foreign Investment Company Considerations

A foreign corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. The Company does not believe that it should be treated as a PFIC for US federal income tax purposes but the Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. This determination will depend in part on the ongoing market valuation of the Company’s assets including goodwill. If the Company were to be treated as a PFIC, US Holders of GDRs and Shares would be required (i) to pay a special US addition to tax on certain distributions and gains on sale and (ii) to pay tax on any gain from the sale of GDRs and Shares at ordinary income (rather than capital gains) rates in addition to paying the special addition to tax on this gain. If the Company were to become a PFIC by reason of a decline in the market valuation of its goodwill and other business assets, US Holders selling their shares at a loss would not be adversely affected by the PFIC rules.

If the Company were to be a PFIC at a time when its Shares are “marketable”, US Holders can avoid the interest charge by making a mark to market election with respect to the Shares. Shares will be marketable if they are regularly traded on certain US stock exchanges, or on a foreign stock exchange if (i) the foreign exchange is regulated or supervised by a governmental authority of the country in which the exchange is located; (ii) the foreign exchange has trading volume, listing, financial disclosure, surveillance and other requirements designed to prevent fraudulent and manipulative acts and practices, remove impediments to, and perfect the mechanism of, a free and open, fair and orderly, market, and to protect investors; (iii) the laws of the country in which the exchange is located and the rules of the exchange ensure that these requirements are actually enforced; and (iv) the rules of the exchange ensure active trading of listed stocks. For these purposes, the Shares will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded.

A US Holder that makes a mark to market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of the Shares at the close of the taxable year over the US Holder’s adjusted basis in the Shares. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the US Holder’s adjusted basis in the Shares over the fair market value of the Shares at the close of the taxable year, but this deduction is allowable only to the extent of any net mark to market gains for prior years. Gains from an actual sale or other disposition of the Shares will be treated as ordinary income, and any losses incurred on a sale or other disposition of the Shares will be treated as an ordinary loss to the extent of any net mark to market gains for prior years. Once made, the election cannot be revoked without the consent of the IRS unless the Shares cease to be marketable. If the Company is a PFIC for any year in which the US Holder owns the Shares but before a mark to market election is made, the interest charge rules described above will apply to any mark to market gain recognised in the year the election is made.

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In some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC consequences described above by making a “qualified electing fund” (“QEF”) election to be taxed currently on its share of the PFIC’s undistributed income. The Company does not, however, expect to provide to US Holders the information regarding this income that would be necessary in order for a US Holder to make a QEF election with respect to its Shares.

If the Company is a PFIC, each US Holder will be required to make an annual return on IRS Form 8621, reporting distributions received and gains realised with respect to each PFIC in which it holds a direct or indirect interest. Prospective purchasers should consult their tax advisers regarding the potential application of the PFIC regime.

Backup Withholding and Information Reporting

Payments of dividends and other proceeds with respect to GDRs and Shares, by a US paying agent or other US intermediary will be reported to the IRS and to the US Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the US Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its US federal income tax returns. Certain US Holders (including, among others, corporations) are not subject to backup withholding. US Holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.

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Transfer Restrictions

Terms used in this discussion that are defined in Rule 144A or Regulation S are used in this discussion as defined in Rule 144A or Regulation S, as the case may be.

Except in certain limited circumstances, interests in the GDRs may only be held through holding interests in the Master GDRs. Interests in the Master GDRs will be shown on, and transfers of interests in the Master GDRs will be effected only through, records maintained by DTC and its direct and indirect participants, including Euroclear and Clearstream, International.

Transfer Restrictions on the Rule 144A GDRs

Each owner of an interest in the Rule 144A GDRs will, by its acceptance of that interest, be deemed to have acknowledged, represented and agreed that:

(1) The Rule 144A GDRs and the underlying Shares have not been, and are not expected to be, registered under the Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer.

(2) The owner is a QIB acquiring the Rule 144A GDRs for its own account, or for the accounts of one or more QIBs with respect to which account it exercises sole investment discretion, and the owner is aware that the transferor of those securities is relying on the exemption from registration under the Securities Act provided by Rule 144A for the transfer.

(3) The owner will not offer, sell, pledge or otherwise transfer any interest in the Rule 144A GDRs and underlying Shares except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB,

(b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, or

(c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if available), in each case in accordance with any applicable securities laws of any State of the United States.

(4) The Rule 144A GDRs will bear a legend to the following effect, unless the Depositary and the Company determine otherwise in compliance with applicable law, and that it will observe the restrictions set forth below:

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AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED BY THIS CERTIFICATE OR THE SHARES REPRESENTED THEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE SHARES REPRESENTED BY THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED HEREBY MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT THEREOF ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK (INCLUDING ANY SUCH FACILITY MAINTAINED BY THE DEPOSITARY), UNLESS AND UNTIL SUCH TIME AS SUCH SHARES ARE NO LONGER RESTRICTED SECURITIES WITHIN THE MEANING OF RULE 144(a)(3) UNDER THE SECURITIES ACT. EACH HOLDER, BY ITS ACCEPTANCE OF THE RULE 144A GLOBAL DEPOSITARY RECEIPTS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.

(5) Before any beneficial interest in the Rule 144A GDRs may be sold or otherwise transferred to a person who takes delivery in the form of a beneficial interest in the International GDRs, the transferee and the transferor will be required to provide a written certification, as described below in “—Other Provisions Regarding Transfer of the GDRs.”

(6) Any resale or other transfer, or attempted resale or other transfer, of the Rule 144A GDRs made other than in compliance with the above-stated restrictions will not be recognized by the Company or the Depositary in respect of the Rule 144A GDRs.

(7) The Company, the Depositary, the Registrar, the Purchasers and their affiliates, and others will rely on the truth and accuracy of the foregoing acknowledgements, representations and agreements. If it is acquiring any GDRs for the account of one or ore QIBs, 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.

Prospective purchasers are hereby notified that sellers of the GDRs may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Transfer Restrictions on the International GDRs

Each owner of an interest in the International GDRs will, by its acceptance of that interest, be deemed to have acknowledged, represented and agreed that:

(1) The International GDRs and the underlying Shares have not been, and are not expected to be, registered under the Securities Act or with any securities regulatory authority of any state of the United States.

(2) The owner is acquiring the International GDRs in an offshore transaction meeting the requirements of Regulation S.

(3) The owner will not offer, sell, pledge or otherwise transfer any interest in the International GDRs and underlying Shares except (a) in accordance with Rule 144A under the Securities Act to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or the account of a QIB, or (b) in an offshore transaction in acordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance with any applicable securities laws of any State of the United States.

(4) The International GDRs will bear a legend to the following effect, unless the Depositary and the Company determine otherwise in compliance with applicable law, and that it will observe the restrictions set forth below:

THE INTERNATIONAL GLOBAL DEPOSITARY RECEIPTS (“GDRs”) EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OF PAR VALUE NT$10 PER SHARE

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OF DELTA ELECTRONICS, INC. REPRESENTED THEREBY (THE “SHARES”) HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND, PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS THE 40-DAY PERIOD BEGINNING ON THE LATEST OF THE COMMENCEMENT OF THE OFFERING OF THE GDRs, THE ORIGINAL ISSUE DATE OF THE GDRs AND THE LATEST ISSUE DATE WITH RESPECT TO THE ADDITIONAL GDRS, IF ANY, ISSUED TO COVER OVER-ALLOTMENTS), MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR (B) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, PROVIDED THAT IN CONNECTION WITH ANY TRANSFER UNDER (A) ABOVE, THE TRANSFEROR SHALL, PRIOR TO THE SETTLEMENT OF SUCH SALE, WITHDRAW THE SHARES FROM THE INTERNATIONAL FACILITY AND CAUSE INSTRUCTIONS TO BE GIVEN TO THE CUSTODIAN FOR THE DEPOSITING OF SUCH SHARES IN THE RULE 144A FACILITY AND TO THE DEPOSITARY FOR THE ISSUANCE OF A CERTIFICATE EVIDENCING RULE 144A GDRs, OR ADJUSTMENT OF THE MASTER RULE 144A GDR CERTIFICATE, TO OR FOR THE ACCOUNT OF SUCH QUALIFIED INSTITUTIONAL BUYER, ALL IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE DEPOSIT AGREEMENT. EACH HOLDER OR BENEFICIAL HOLDER, BY ITS ACCEPTANCE OF GDRs REPRESENTED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWING RESTRICTIONS.

UPON THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED ABOVE), THE INTERNATIONAL GLOBAL DEPOSITARY RECEIPTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES REPRESENTED THEREBY SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN THIS LEGEND, PROVIDED THAT AT THE TIME OF SUCH EXPIRATION THE OFFER OR SALE OF SUCH GLOBAL DEPOSITARY RECEIPTS AND THE SHARES REPRESENTED THEREBY BY THE HOLDER HEREOF IN THE UNITED STATES WOULD NOT BE RESTRICTED UNDER ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES OR ANY STATE OR TERRITORIES OF THE UNITED STATES.

(5) The Company, the Depositary, the Registrar, the Purchasers and their affiliates, and others will rely on the truth and accuracy of the foregoing acknowledgements, representations and agreements.

(6) Any resale or other transfer, or attempted resale or other transfer, of the International GDRs made other than in compliance with the above-stated restrictions will not be recognized by the Company or the Depositary in respect of the International GDRs.

Other Provisions Regarding Transfer of the GDRs

The above legends and the certifications as further described in the Deposit Agreement and this offering circular prohibit or restrict certain transfers as summarized below. Interests in GDRs evidenced by the Master Rule 144A GDR Certificate may be transferred to a person whose interests in those GDRs are subsequently represented by the Master International GDR Certificate only upon receipt by the Depositary of written certifications from the transferor and the transferee to the effect that the

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transfer is being made in accordance with Regulation S and subject to the terms and any further representations as may be required by the Deposit Agreement. Any interest in GDRs evidenced by one of the Master GDRs that is transferred to a person whose interest in those GDRs is subsequently evidenced by an interest in the other Master GDR will, upon transfer, cease to be an interest in the GDRs evidenced by that first Master GDR and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to interests in GDRs evidenced by that other Master GDR for so long as it remains.

Except in the limited circumstances described in the Deposit Agreement and this offering circular, no person will be entitled to receive physical delivery of definitive GDRs. The GDRs are not issuable in bearer form.

The Company will not recognize any resale or other transfer, or attempted resale or other transfer, made other than in compliance with the above-stated restrictions.

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Underwriting

The Company, the Selling Shareholders and the Purchasers have entered into a Purchase Agreement with respect to the GDRs and the Shares evidenced by the GDRs. Subject to certain terms and conditions set forth in the Purchase Agreement, each Purchaser has severally and not jointly agreed to purchase the number of GDRs indicated in the following table from the Selling Shareholders.

Purchaser Goldman Sachs International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taiwan Securities (HK) Co., Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of GDRs
	12,372,000 3,628,000
	16,000,000

Purchaser
Goldman Sachs International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan Securities (HK) Co., Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
GDRs

12,372,000
3,628,000

16,000,000

The Purchasers are committed to take and pay for all of the GDRs being offered, if any are taken. The purchase price per GDR will be the initial offering price set forth on the cover page of this offering circular (the “Offering Price”) less the underwriting discount of US$0.1680 per GDR. The Purchasers propose to offer the GDRs at the Offering Price. After the GDRs are released for sale, the Purchasers may change the offering price and other selling terms.

The GDRs and the underlying Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except in certain transactions exempt from the registration requirements of the Securities Act.

The Company has been advised by Goldman Sachs International, on behalf of the Purchasers, that (a) Goldman Sachs International, through their respective selling agents, Goldman, Sachs & Co., propose to resell the Shares only to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act and (b) the Purchasers propose to resell the Shares outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and in accordance with applicable law. Terms used above have the meanings given to them by Regulation S and Rule 144A under the Securities Act.

In addition, until 40 days after the commencement of the offering of the GDRs any offer or sale of GDRs within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or pursuant to another exemption from registration under the Securities Act.

An affiliate of a member of the syndicate may purchase up to 10% of the number of GDRs offered in this offering.

The Purchasers have acknowledged and agreed that, except as permitted by the Purchase Agreement, they will offer or sell the International GDRs as part of the distribution at any time only in accordance with Rule 903 under Regulation S under the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

Prior to the expiry of a period of six months from the closing date of this offering, no GDRs may be offered or sold to persons in the United Kingdom, except to persons whose ordinary activities

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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 Offers of Securities Regulations 1995 (as amended). No invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act of 2000 (“FSMA”)) received by the Company in connection with the issue or sale of any GDRs may be communicated or caused to be communicated except in circumstances in which section 21(1) of the FSMA does not apply to the Company. All applicable provisions of the FSMA must be complied with respect to anything done by the Company in relation to the GDRs in, from or otherwise involving the United Kingdom.

No GDRs may be offered, sold or delivered, directly or indirectly, in the ROC.

The GDRs may not be offered or sold, directly or indirectly, in Japan or to, or for the account or benefit of, any resident of Japan or to, or for the account or benefit of, any resident for reoffering or resale, directly or indirectly, in Japan or to, or for the account or benefit of, any resident of Japan except (1) pursuant to an exemption from the registration requirements of, or otherwise in compliance with, the Securities and Exchange Law of Japan and (2) in compliance with the other relevant laws and regulations of Japan.

The GDRs may not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “Securities and Futures Ordinance”) and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the GDRs may be issued 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 of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the GDRs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

This Offering Circular has not been, and will not be, registered as a prospectus with the Monetary Authority of Singapore. The GDRs may not be offered or sold, or be the subject of an invitation for subscription or purchase and this Offering Circular or any other document or material relating to the GDRs may not be circulated or distributed, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor specified in Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

The GDRs may not be offered, sold, transferred or delivered in or from within the Netherlands as part of their initial distribution or at any time thereafter, directly or indirectly, and neither this prospectus nor any other document in respect of the offering may be distributed or circulated in the Netherlands, other than to individuals or legal entities who or which trade or invest in securities in the conduct of a profession or business within the meaning of the Netherlands Securities Transactions Supervision Act 1995 ( Vrijstellingsregeling wet foezicht effectenverkeer 1995 ) and its 152 implementing regulations (which includes banks, brokers, securities institutions, insurance companies, pension funds, investment institutions, other institutional investors and other parties including treasury departments of commercial enterprises and finance companies of groups which are regularly active in the financial markets in a professional manner).

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Buyers of GDRs 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 Offering Price.

The Company has applied to have the Rule 144A GDRs designated for trading on the PORTAL System, to have the International GDRs listed for trading on the Luxembourg Stock Exchange and to have the GDRs designated for quotation on the International Order Book of the London Stock Exchange Limited.

The Company agrees with each of the Purchasers, during the period beginning from the date of this Offering Circular and continuing to and including the date 90 days after the date of this Offering Circular, not to, and not to permit any entity controlled by it or any person acting on its behalf to, offer, sell, contract to sell or otherwise dispose of, except as provided in the Purchase Agreement, any Shares, GDRs, any securities of the Company that are substantially similar to the Shares or the GDRs, (including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Shares or any such substantially similar securities, other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of the Purchase Agreement or a dividend distribution plan consistent with past practice), or any securities that are linked to the Shares of the Company, without the prior written consent of the Purchasers.

During the period beginning from the date of this Offering Circular and continuing to and including the date 90 days after the date of this Offering Circular, each of the Selling Shareholders, Deltron Holding Limited and Deico International Ltd. will not offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any Shares or GDRs, or any options or warrants to purchase any Shares or GDRs, or any securities convertible into, exchangeable for or that represent the right to receive any Shares or GDRs, whether now owned or hereinafter acquired, whether owned directly by such Selling Shareholders, Deltron Holding Limited or Deico International Ltd. (including holding as a custodian) or with respect to which such Selling Shareholders, Deltron Holding Limited or Deico International Ltd. has beneficial ownership.

In connection with the offering, the Purchasers may purchase and sell the GDRs in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Purchasers of a greater number of GDRs than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the GDRs while the offering is in progress.

The Purchasers may also impose a penalty bid. This occurs when a particular Purchaser repays to the Purchasers a portion of the underwriting discount received by it because the representatives have repurchased GDRs sold by or for the account of such Purchaser in stabilizing or short covering transactions.

These activities may stabilize, maintain or otherwise affect the market price of the GDRs. As a result, the price of the GDRs may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Purchasers at any time. These transactions may be effected on the Luxembourg Stock Exchange, in the over-the-counter market or otherwise.

The Company and the Selling Shareholders have agreed to indemnify the Purchasers and certain other persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments which the Purchasers or such other persons may be required to make in respect thereof.

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The Purchase Agreement provides that the obligations of the Purchasers are subject to certain conditions precedent, and entitles the Purchasers to terminate it in certain circumstances prior to payments being made to the Selling Shareholders.

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Legal Matters

The Company is being represented by Lee & Li regarding matters of ROC law. The Purchasers are being represented by Linklaters regarding matters of New York state and United States federal law and regarding matters of English law.

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Independent Auditors

The Company’s consolidated financial statements as of December 31, 2002, 2003 and 2004 and for the years then ended, included in this offering circular, have been audited by PricewaterhouseCoopers, independent accountants, as stated in their report appearing herein.

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General Information

This offering was authorized and approved by the Company’s board of directors on December 20, 2004 and by the ROC FSC on January 19, 2005.

Application has been made to list the GDRs on the Luxembourg Stock Exchange. The legal notice relating to the issue of the GDRs, the Company’s articles of incorporation, the articles of incorporation of the Depositary, the Deposit Agreement, and the By-laws of the Depositary will be registered prior to the listing with the Registre de Commerce et des Sociétés à Luxembourg , where such documents will be available for inspection and where copies thereof can be obtained upon request.

For so long as any of the GDRs are outstanding and listed on the Luxembourg Stock Exchange, the Company will publish all notices to holders of the GDRs in the Luxemburger Wort . The Company publishes audited consolidated annual and semi-annual financial statements and unaudited consolidated quarterly financial statements.

Except as disclosed in this offering circular, there has been no material change in the financial position of the Company and the Company’s subsidiaries since December 31, 2004, the date of the Company’s latest financial statements.

Neither the Company nor any of the Company’s subsidiaries are involved in any litigation or arbitration proceedings that may have, or have had during the twelve months preceding the date of this offering circular, a material adverse effect on the financial condition of the Company or of the Company’s subsidiaries, nor, so far as any of them is aware, is any such proceeding pending or threatened.

The Deposit Agreement and the Purchase Agreement are governed by English law.

The GDRs have been accepted for clearance and settlement through the facilities of the DTC. The CUSIP number for the Rule 144A GDRs is 247629 20 7, the ISIN for the Rule 144A GDRs is US2476292071 and the Common Code is 021094498. The CUSIP number for the International GDRs is 247629 30 6, the ISIN for the International GDRs is US2476293061 and the Common Code is 021095192.

Trades for the International GDRs will be cleared and settled through Clearstream, International and Euroclear in accordance with their respective rules and operating procedures. Only GDRs evidenced by the Master International GDR Certificate have been accepted for clearance and settlement through Clearstream, International and Euroclear. Interests in GDRs evidenced by the Master Rule 144A GDR Certificate may be transferred to a person whose interest in such GDRs is subsequently represented by the Master International GDR Certificate only upon receipt by the Depositary of certain certifications as provided in the Deposit Agreements.

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Summary of Certain Differences Between ROC GAAP and US GAAP

Financial statements prepared in accordance with “Rules Governing Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China (collectively referred herein as “ROC GAAP”) differ in certain respects from US GAAP. The following is a summary of the principal differences between ROC GAAP and ROC FSC requirements, as applicable to the Company, and US 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 US GAAP, which are applicable to the Company. Finally, no attempt has been made to identify all future differences between ROC GAAP and US GAAP that may affect the financial statements as a result of transactions or events that may occur in the future.

ROC GAAP

US GAAP

1 Employee stock bonus

It is a statutory requirement that bonuses paid to employees and remuneration paid to directors and supervisors out of retained earnings are not regarded as expenses, but instead are reported as a distribution from retained earnings in the year the shareholders approve the distribution of earnings. Under 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.

Under US GAAP, employee bonuses and remuneration issued to directors and supervisors are charged to income as compensation expenses in the year when related services are provided, irrespective of whether the bonuses are paid in the form of cash or stock. For bonuses paid in stock, the shares are valued using the fair value with compensation measured based on the nominal bonus in the year of service and then additional compensation recognized in the year that shares are given in lieu of cash to the extent that the fair value of shares exceeds par value.

The stock bonus to employees is given retroactive effect in the computation of earnings per share.

Under US GAAP, stock bonus to employees is given only prospective effect in the computation of earnings per share.

2 Stock dividends

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

Under US GAAP, 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 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.

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ROC GAAP

US GAAP

3 Employee share purchase

In connection with a number of new shares issued to shareholders, the company also issues shares to employees at the same issue price, which usually represented a discount to the quoted market price. Under ROC GAAP, such issues are recorded as capital contribution for the cash amount received from the employees.

Under US GAAP, such issues would be recorded as capital contribution for fair value of the shares. In addition, compensation expense would be recorded, for the difference between the shares issue price and the fair market value, during the period when such issues were made.

4 Treasury stock/earnings per share

Under the ROC Company Law, a company’s subsidiaries are permitted to purchase the parent company’s shares, hold the shares for trading purpose and recognize the related investment income or loss. When preparing the consolidated financial statements, the shares of the parent company held by its subsidiaries are treated as treasury stock. However, these shares are still treated as outstanding shares when computing earnings per share as the gain or loss generated from the treasury stock transactions is included in the consolidated net income. Commencing from January 1, 2002, the company’s shares owned by its subsidiaries are treated as treasury stock and similar accounting treatments as US GAAP are adopted to account for such transactions.

Under US GAAP, the purchases and sales of a company’s shares by its subsidiaries are treated as treasury stock transactions of the company. Accordingly, no gain or loss on the disposal of the treasury stock is recognized as investment income or loss by the company and the proceeds from the sales are allocated between capital stock and capital reserve. Any shares of the company held by its subsidiaries at yearend are reported as treasury stock and are deducted in the calculation of earnings per share.

5 Consolidation

Under ROC GAAP, a company is required to include in its annual consolidated financial statements only those subsidiaries, which are directly or indirectly over 50% owned. For subsidiaries (i) with total assets and operating revenues which are less than 10% of the company’s non-consolidated total assets and operating revenues, respectively, or (ii) which are in a negative equity position, the company has the option of whether or not to consolidate such subsidiaries. Irrespective of the above test, if the combined revenues or total assets of all such non-consolidated subsidiaries exceeds 30% of the company’s non-consolidated total assets or operating revenues, then each

Under US GAAP, the parent company’s consolidated financial statements generally include the financial statements of majorityowned subsidiaries, unless control does not rest with the majority owner.

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ROC GAAP

US GAAP

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 Republic of China, the company is required to include in its consolidated financial statements the financial statements of its less than majority owned investee companies if the company has the ability to control the human resources, finance or operations of the investee companies.

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

Under ROC GAAP, the minority interest in consolidated subsidiaries can be presented either as part of liabilities, in between liabilities and stockholders’ equity or in stockholders’ equity in the consolidated financial statements.

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

Under US GAAP, the minority interest in consolidated subsidiaries is presented as a separate item between liabilities and stockholders’ equity in the consolidated financial statements.

6 Business combination

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

Under US GAAP, all business combinations initiated after June 30, 2001 are accounted for under purchase method. The cost to the acquirer in a purchase business combination is the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident and more reliably measurable. When the consideration is the publicly traded equity securities issued by the acquirer, fair value is generally based on the market price of the equity securities issued. The market price is determined based on a reasonable period before and after the date of the terms of the acquisition

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ROC GAAP

US GAAP

and then transferred to capital reserve pursuant to the Company Law and the related regulations in the ROC.

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

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

are agreed to and announced. The cost of an acquired company should be allocated to the assets (both tangible and intangible) acquired and liabilities assumed on the basis of their estimated fair values at the date of acquisition.

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

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

7 Equity investments of at least 20%

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

Under US GAAP, 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.

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

Long-term investments of less than 20% of a company’s shares are accounted for at the

Equity investments of less than 20% that have readily determinable fair value and

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ROC GAAP

US GAAP

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

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

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

debt investments are classified in three categories and accounted as follows: (a) Debt and equity securities classified as trading securities are marked to market at the end of the accounting period with unrealized gains or losses taken to current earnings. (b) Debt securities classified as held to maturity are reported at amortized cost, with any premium or discount amortized over the period of the investment.

(c) Debt and equity securities classified as available for sale are marked to market at the end of the accounting period with unrealized gains or losses taken to a separate component of shareholders’ equity, unless there is a permanent decline in the value of such investment in which case it is recorded against income.

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

9 Accounting for changes in ownership interest in investee companies

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

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

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ROC GAAP

US GAAP

10 Revaluation of fixed assets

ROC GAAP permits property, plant and equipment to be recorded at cost or at cost plus appreciation in respect of assets revalued in accordance with ROC government regulations.

Upward revaluation of assets is not permitted under US GAAP.

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

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

US 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. Reversal of losses is prohibited.

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.

According to the new statement of financial accounting standard No. 35 which will be effective January 1, 2005, if impairment indicated, assets need to be written down to the higher of net selling price and value in use based on discounted cash flows. A reversal of losses is permitted under certain circumstances.

12 Prepayment of fixed assets

Under ROC GAAP, prepayment of fixed assets is presented as part of fixed assets.

Under US GAAP, prepayment of fixed assets should be presented as other assets.

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ROC GAAP

US GAAP

13 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. Commencing 2001, the Company provided depreciation of newly acquired assets primarily using the economic useful lives of these assets with a nominal salvage value of $1.00 (in NT dollars)

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.

14 Convertible preferred stock and debt securities

When convertible bonds are issued, ROC GAAP does not recognize or account for any beneficial conversion feature embedded in the securities.

Under US GAAP, such beneficial conversion feature should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. That amount should be calculated at the commitment date as the difference between the conversion price and the fair value of the common stock, multiplied by the number of shares into which the security is convertible.

16 Accounting for derivative instruments

There are no specific accounting standards under ROC GAAP which address measurement for derivative instruments except for foreign currency forward contracts. Such contracts are classified as hedge or speculative in nature. The classification is generally based on the management’s intention.

Under US GAAP requires that all entities recognize derivative instruments as assets and liabilities in the statement of financial position and subsequently measure them at fair value. Generally, a derivative is classified as a hedge instrument if, (1) at inception of the hedge, there is formal documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument’s effectiveness is offsetting the exposure to changes in the hedged item’s fair value or variability in cash flows attributable to the hedged risk will be assessed, and (2) the hedging relationship is expected to be highly effective. If a derivative is qualified as a hedge, entities

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ROC GAAP

US GAAP

may elect to designate the derivative instrument as one of the following:

Fair value hedge—a hedge of the exposures to changes (that are attributable to a particular risk) in the fair value of (1) a recognized asset or liability or (2) an unrecognized firm commitment;

Cash-flow hedge—a hedge of the exposure to variability (that is attributable to a particular risk) in the cash flows of a forecasted transaction; and

Foreign-currency hedge—a hedge of the foreign-currency exposure of (1) an unrecognized firm commitment, (2) an available-for-sale security, (3) a forecasted transaction, or (4) a net investment in a foreign operation.

17 Compensated absences

ROC GAAP has no specific accounting practice regarding compensated absences.

Compensated absences must be accrued based on the liability for employees’ rights to receive compensation for future absences when certain conditions are met.

18 Cost of sales

Under ROC GAAP, provisions for normal inventory scrap and obsolescence are recorded as non-operating expenses.

Under ROC GAAP, the unrealized gross profit generated from downstream intercompany transactions is eliminated and presented as a reconciling item of gross profit in the statement of income. A corresponding liability is recorded for the amount of the unrealized gross profit in the balance sheet.

Under ROC GAAP, inventory provision can be written back whenever they are no longer required.

Under US GAAP, provisions for normal inventory scrap and obsolescence are generally charged to cost of sales.

Under US GAAP, the unrealized gross profit generated from downstream transactions is generally charged against cost of sales and credited the investment account.

Under US GAAP, a provision to write down inventories to market value cannot be reversed until the related inventory item is sold.

19 Concentration of risk

ROC GAAP has no specific disclosure requirements for concentration of risk.

Disclose concentration of risk on one or more parties, as appropriate, including such parties as sole/major customer, supplier, franchiser, distributor, general agent, borrower or lender is required.

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ROC GAAP

US GAAP

20 Segment information

ROC GAAP requires disclosure of segment information in the footnotes information to the financial statements according to industry and geographic information, which need not necessarily be the same as the management’s internal report to company decision-makers.

Under US GAAP, public business enterprise is required to present segment information based on operating segments. Several operating segments may, provided aggregation criteria are met, be aggregated to reportable segments for which the required information is disclosed. Disclosure is based on the management’s approach for reporting segments information to Company chief operating decision makers that are used internally for evaluating segment performance and deciding resources allocation to segments.

21 Statement of cash flows

Under ROC GAAP, certificates of time deposits with original maturities of greater than three months and within one year are classified as cash.

Under US GAAP, certificates of time deposits with original maturities of over three months are classified as trading securities.

22 Pension

Under ROC GAAP, the amortization of unrecognized net gain cannot exceed the excess of unrecognized net gain over unrecognized net transition obligation.

With respect to the pension plan disclosure, under ROC GAAP, disclosure of changes in plan assets and benefit obligations is not required.

Under US GAAP, no such limitation on the amortization of unrecognized net gain is required.

With respect to the pension plan disclosure, under US GAAP, changes in plan assets and benefit obligations are required to be disclosed.

23 Revenue recognition

Under ROC GAAP, revenue is recognized when realized or realizable. According to ROC SFAS No. 32 issued in June 2002 in relation to revenue recognition, similar criteria for revenue recognition are adopted. This Statement is effective for financial statements issued for fiscal year ending after December 31, 2003 and early adoption is encouraged.

Under ROC GAAP, sales to subsidiaries are generally recognized upon delivery but unrealized profits/losses would be eliminated.

Under US GAAP, revenue recognition is usually prescriptive and revenue is generally recognized when it is realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectibility is reasonably assured.

Under US GAAP, sales to subsidiaries are not recognized until the subsidiaries sell through to the third parties.

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US GAAP

24 10% additional income tax on undistributed earnings

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

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

25 Disclosure of new accounting pronouncements

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

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

26 Comprehensive income

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

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

27 Interim financial statements

Under ROC GAAP, the Company is not required to present statement of changes in stockholders’ equity in the three months and nine-months interim non-consolidated financial statements

Under US GAAP, the interim financial statements are prepared on the same basis as the latest annual financial statements, which requires the inclusion of the statement of changes in stockholders’ equity

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Index To Financial Statements

Audited Consolidated Financial Statements of Delta Electronics, Inc as at and for the years ended December 31, 2002, 2003 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

F-1

Report of Independent Accountants

To Delta Electronics, Inc.

We have audited the accompanying consolidated balance sheets of Delta Electronics, Inc. and its subsidiaries as of December 31, 2002, 2003 and 2004, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

As explained in Note 1(2), the financial statements of certain indirectly owned consolidated subsidiaries for the years ended December 31, 2002, 2003 and 2004, were audited by other auditors whose reports thereon have been furnished to us. These statements reflected total assets of NT$735,985,000, NT$216,083,000 and NT$ 383,637,000 constituting 1.3%, 0.3% and 0.6%, respectively, of the Company’s consolidated total assets as of December 31, 2002, 2003 and 2004, respectively, and total operating revenue of NT$1,063,921,000, NT$848,600,000 and NT$723,481,000 constituting 2.2%, 1.7% and 1.3%, respectively, of the Company’s consolidated operating revenue for the years then ended, respectively. In addition, as explained in Note 4(5), the financial statements of certain investee companies for the years ended December 31, 2002, 2003 and 2004, accounted for under the equity method, were audited by other auditors whose reports thereon have been furnished to us. The total amount of long-term investments in these investee companies were NT$5,457,426,000, NT$4,912,467,000 and NT$4,251,481,000 constituting 9.9%, 7,8% and 6.6%, respectively, of the Company’s consolidated total assets as of December 31, 2002, 2003 and 2004, respectively, and the related investment income were NT$331,030,000, NT$147,557,000 and NT$83,791,000 constituting 6.8%, 3.0% and 1.3%, respectively, of the Company’s consolidated income before income tax and minority interest for the years then ended, respectively. Our opinion expressed herein, insofar as it relates to the amounts included in the consolidated financial statements in respect of the above mentioned indirectly owned consolidated subsidiaries and investee companies are based solely on the reports of the other auditors.

We conducted our audits in accordance with the “Rules Governing Examinations of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those standards and rules require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statements presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Delta Electronics, Inc. and its consolidated subsidiaries as of December 31, 2002, 2003 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with the “Rules Governing the Preparation of the Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China.

The consolidated financial statements of the Company as of and for the year ended December 31, 2004, expressed in US dollars are presented solely for the convenience of the reader and were translated from the New Taiwan dollars financial statements using the exchange rate of NT$31.785 to US$1.00 at December 31, 2004. This basis of translation is not in accordance with generally accepted accounting principles in the Republic of China.

February 3, 2005

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

F-2

DELTA ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS December 31,

(EXPRESSED IN THOUSANDS OF DOLLARS)

New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars
2002	2003	2004
$13,160,118 3,599,746 97,394 10,048,453 954,205 681,558 495,914 6,350 4,097,939 307,830 — 257,821	$23,358,252 4,805,343 133,131 9,258,944 986,731 804,483 163,192 46,028 3,910,451 487,256 — 61,414	$23,779,111 2,305,115 80,642 12,848,505 741,302 385,290 167,017 40,983 4,895,044 144,532 22,980 153,364
33,707,328	44,015,225	45,563,885
6,889,045 2,181,380 63,861	6,194,691 1,864,459 69,035	6,320,956 2,108,050 72,431
9,134,286	8,128,185	8,501,437
104,250	169,875	—
1,275,266 5,343,882 4,508,302 880,333 639,246 2,656,259 114,551 1,046,581 26,718 168,738	1,294,482 5,300,670 4,369,080 885,863 688,020 2,858,878 119,601 1,030,038 26,587 168,738	1,309,877 5,425,476 4,793,466 1,020,270 721,401 3,133,920 119,014 1,031,898 16,026 168,738
16,659,876 (5,196,540) 111,132	16,741,957 (6,496,784) 147,104
11,574,468	10,392,277
— 225,399	— 220,991
225,399	220,991
45,253 258,218	26,733 288,554
303,471	315,287
$55,049,202	$63,241,840

Please refer to the accompanying notes and report of independent accountants dated February 3, 2005.

F-3

DELTA ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS—(Continued) December 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars
2002	2003	2004
$ 3,449,492 2,644,550 20,961 7,961,874 433,450 24,426 2,295,768 548,972 251,684 30,580 52,939 145,691	$ 3,751,259 1,748,148 — 8,748,446 438,252 22,747 2,063,176 570,659 332,674 31,791 90,584 295,837	$ 4,082,358 155,000 64 11,515,606 307,400 34,202 1,899,859 1,359,213 375,935 — — 74,237
17,860,387	18,093,573	19,803,874
— 29,290	6,795,000 —	6,337,929 —
29,290	6,795,000	6,337,929
80,945	80,945	80,945
503,956 8,833 3,150,475 3,266,261 14,973	673,798 13,603 2,571,827 3,328,096 3,496	772,117 6,248 1,986,770 2,771,756 —
6,944,498	6,590,820	5,536,891
24,915,120	31,560,338	31,759,639
30,134,082	31,681,502
$55,049,202	$63,241,840

Please refer to the accompanying notes and report of independent accountants dated February 3, 2005.

F-4

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)

Operating revenue (Note 5) Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating revenue. . . . . . . . . . . . . . . . . . . Operating costs (Notes 4(18) and 5) Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized intercompany loss (profit) . . . . . . . . . . . . . . . . . . . Realized intercompany profit . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses (Note 4(18)) Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and administrative. . . . . . . . . . . . . . . . . . . . Research and development. . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses. . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income under equity method-net (Note 4(5)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment . . . Gain on disposal of investments. . . . . . . . . . . . . . . . . . . . Foreign exchange gain—net . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment loss under equity method-net (Note 4(5)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment loss (Note 4(5)) . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . Loss on physical inventory. . . . . . . . . . . . . . . . . . . . . . . . . Provision for decline in market value and obsolescence of inventories . . . . . . . . . . . . . . . . . . . . . Other losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . Income before income tax and minority interest . . . . . . . . . . Income tax (expense) benefit (Note 4(16)). . . . . . . . . . . . . . . Income before minority interest. . . . . . . . . . . . . . . . . . . . . . . . . Minority interest in net income of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	New Taiwan Dollars 2002 2003 2004 $ 48,616,947 $ 49,771,779 $ 56,475,856 (375,855) (484,337) (352,128) (264,831) (197,274) (190,491) 47,976,261 49,090,168 55,933,237 538,461 451,744 541,749 48,514,722 49,541,912 56,474,986 (38,571,831) (38,929,313) (44,211,328) 9,942,891 10,612,599 12,263,658 (815) (815) 11 1,066 135 815 9,943,142 10,611,919 12,264,484 (1,935,987) (1,795,860) (2,104,063) (1,447,191) (1,387,682) (1,592,438) (2,764,084) (3,139,586) (3,221,720) (6,147,262) (6,323,128) (6,918,221) 3,795,880 4,288,791 5,346,263 227,657 268,875 380,354 299,149 — — 77,908 52,055 52,395 18,130 25,344 10,846 331,017 297,624 200,652 44,175 190,442 334,696 1,014,109 941,157 1,124,467 2,012,145 1,775,497 2,103,410 (145,167) (109,659) (126,099) — (9,417) (74,177) — (341,236) (66,126) (55,081) (154,661) (38,247) — — (1,570) (344,906) (268,862) (398,051) (420,004) (260,142) (343,154) (965,158) (1,143,977) (1,047,424) 4,842,867 4,920,311 6,402,249 (370,257) 489,879 635,400 4,472,610 5,410,190 7,037,649 (196,939) (194,817) (375,951) $ 4,275,671 $ 5,215,373 $ 6,661,698	New Taiwan Dollars 2002 2003 2004 $ 48,616,947 $ 49,771,779 $ 56,475,856 (375,855) (484,337) (352,128) (264,831) (197,274) (190,491) 47,976,261 49,090,168 55,933,237 538,461 451,744 541,749 48,514,722 49,541,912 56,474,986 (38,571,831) (38,929,313) (44,211,328) 9,942,891 10,612,599 12,263,658 (815) (815) 11 1,066 135 815 9,943,142 10,611,919 12,264,484 (1,935,987) (1,795,860) (2,104,063) (1,447,191) (1,387,682) (1,592,438) (2,764,084) (3,139,586) (3,221,720) (6,147,262) (6,323,128) (6,918,221) 3,795,880 4,288,791 5,346,263 227,657 268,875 380,354 299,149 — — 77,908 52,055 52,395 18,130 25,344 10,846 331,017 297,624 200,652 44,175 190,442 334,696 1,014,109 941,157 1,124,467 2,012,145 1,775,497 2,103,410 (145,167) (109,659) (126,099) — (9,417) (74,177) — (341,236) (66,126) (55,081) (154,661) (38,247) — — (1,570) (344,906) (268,862) (398,051) (420,004) (260,142) (343,154) (965,158) (1,143,977) (1,047,424) 4,842,867 4,920,311 6,402,249 (370,257) 489,879 635,400 4,472,610 5,410,190 7,037,649 (196,939) (194,817) (375,951) $ 4,275,671 $ 5,215,373 $ 6,661,698	US Dollars 2004
	2002 $ 48,616,947 (375,855) (264,831) 47,976,261 538,461 48,514,722 (38,571,831) 9,942,891 (815) 1,066 9,943,142 (1,935,987) (1,447,191) (2,764,084) (6,147,262) 3,795,880 227,657 299,149 77,908 18,130 331,017 44,175 1,014,109 2,012,145 (145,167) — — (55,081) — (344,906) (420,004) (965,158) 4,842,867 (370,257) 4,472,610 (196,939) $ 4,275,671	2003 $ 49,771,779 (484,337) (197,274) 49,090,168 451,744 49,541,912 (38,929,313) 10,612,599 (815) 135 10,611,919 (1,795,860) (1,387,682) (3,139,586) (6,323,128) 4,288,791 268,875 — 52,055 25,344 297,624 190,442 941,157 1,775,497 (109,659) (9,417) (341,236) (154,661) — (268,862) (260,142) (1,143,977) 4,920,311 489,879 5,410,190 (194,817) $ 5,215,373
			(Unaudited—Note 2) $ 1,776,808 (11,078) (5,993) 1,759,737 17,044 1,776,781 (1,390,949) 385,832 — 26 385,858 (66,197) (50,100) (101,360) (217,657) 168,201 11,966 — 1,648 341 6,313 10,530 35,377 66,175 (3,967) (2,334) (2,080) (1,203) (49) (12,523) (10,797) (32,953) 201,423 19,991 221,414 (11,828) $ 209,586

F-5

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME—(Continued) FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)

Earnings per share (In dollars) (Note 4(17))

Basic earnings per share Income before minority interest . . . . . . . . . . . . . . . . . . . . Minority interest in net income of consolidated subsidiaries . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . Diluted earnings per share Income before minority interest . . . . . . . . . . . . . . . . . . . . Minority interest in net income of consolidated subsidiaries . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . .	Income before income tax $ 3.05 (0.12) $ 2.93 $ 3.05 (0.12) $ 2.93	Net income $ 2.82 (0.12) $ 2.70 $ 2.82 (0.12) $ 2.70	Income before income tax $ 3.10 (0.12) $ 2.98 $ 3.00 (0.12) $ 2.88	Net income $ 3.41 (0.12) $ 3.29 $ 3.29 (0.12) $ 3.17	Income before income tax $4.04 (0.24) $3.80 $3.72 (0.22) $3.50	Net income $4.44 (0.24) $4.20 $4.09 (0.22) $3.87	Income before income tax $0.13 (0.01) $0.12 $0.12 (0.01) $0.11	Net income	Net income
									$0.14 (0.01) $0.13 $0.13 (0.01) $0.12

Please refer to the accompanying notes and report of independent accountants dated February 3, 2005.

F-6

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2002 Balance at January 1, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of 2001 earnings: Appropriation for legal reserve . . . . . . . . . . . . . . . . . . . . . . . Directors’ and supervisors’ remuneration . . . . . . . . . . . . . . Employees’ bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments due to change in long-term investment ownership percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized loss on market value decline of long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative translation adjustments on foreign long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 Distribution of 2002 earnings: Appropriation for legal reserve . . . . . . . . . . . . . . . . . . . . . . . Directors’ and supervisors’ remuneration . . . . . . . . . . . . . . Employees’ bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments due to change in long-term investment ownership percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proportional adjustment on investees’ unrealized loss on market value decline of long-term investments . . . . . . . . . . . Cumulative translation adjustments on foreign long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7	Common stock $11,894,600 — — 200,000 1,784,190 — — — — — 13,878,790 — — 230,000 693,940 — — — — — $14,802,730	Capital reserve $6,836,540 — — — — — — — — — 6,836,540 — — — — — — — — — $6,836,540	Retained Earnings Legal reserve Undistributed earnings $1,933,743 $ 4,513,860 354,793 (354,793) — (2,100) — (200,000) — (1,784,190) — (1,486,825) — (22,748) — — — — — 4,275,671 2,288,536 4,938,875 427,568 (427,568) — (2,100) — (230,000) — (693,940) — (2,775,758) — (82,516) — — — — — 5,215,373 $2,716,104 $ 5,942,366	Retained Earnings Legal reserve Undistributed earnings $1,933,743 $ 4,513,860 354,793 (354,793) — (2,100) — (200,000) — (1,784,190) — (1,486,825) — (22,748) — — — — — 4,275,671 2,288,536 4,938,875 427,568 (427,568) — (2,100) — (230,000) — (693,940) — (2,775,758) — (82,516) — — — — — 5,215,373 $2,716,104 $ 5,942,366	Unrealized loss on market value decline of long-term investments $(67,380) — — — — — — (28,847) — — (96,227) — — — — — — 93,537 — — $ (2,690)	Cumulative translation adjustments $2,451,993 — — — — — — — (164,425) — 2,287,568 — — — — — — — (901,116) — $1,386,452	Total $27,563,356 — (2,100) — — (1,486,825) (22,748) (28,847) (164,425) 4,275,671 30,134,082 — (2,100) — — (2,775,758) (82,516) 93,537 (901,116) 5,215,373 $31,681,502
			Legal reserve $1,933,743 354,793 — — — — — — — — 2,288,536 427,568 — — — — — — — — $2,716,104

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY—(Continued) FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Common stock	Capital reserve	Retained Earnings	Retained Earnings	Retained Earnings	Unrealized loss on market value decline of long-term investments	Cumulative translation adjustments
		Legal reserve	Undistributed earnings
$14,802,730 — — 312,734 740,136 — 4,120 — — — — —	$6,836,540 — — — — — 16,490 — — — — —	$2,716,104 521,537 — — — — — — — — — —		$ 5,942,366 (521,537) (13,000) (312,734) (740,136) (3,330,613) — (44,748) (20,783) — — 6,661,698 $ 7,620,513 $ 186,955 (16,408) (409) (9,839) (23,286) (104,786) — (1,408) (653) — — 209,586 $ 239,752	$(2,690) — — — — — — — — (277) — — $(2,967) $ (84) — — — — — — — — (9) — — $ (93)	$1,386,452 — — — — — — — — — (1,830,596) — $ (444,144) $ 43,620 — — — — — — — — — (57,593) — $ (13,973)
$15,859,720	$6,853,030	$3,237,641
$ 465,714 — — 9,839 23,286 — 130 — — — — —	$ 215,087 — — — — — 518 — — — — —	$ 85,452 16,408 — — — — — — — —
$ 498,969	$ 215,605	$ 101,860

Please refer to the accompanying notes and report of independent accountants dated February 3, 2005.

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

Cash flows from operating activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Minority interest in net income of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for (reversal of) allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . Cash dividend received from investee companies accounted for under the equity method . . . . . . . . . Investment loss (income) recognized under equity method and other investment loss-net . . . . . . . . . . Gain on disposal of long-term investment . . . . . . . . . Loss on disposal of property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on inventory market value decline and obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange loss on revaluation of foreign currency denominated convertible bonds . . . . . . . . . . . . . . . . Impairment loss on property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in assets and liabilities: (Increase) decrease in: Notes and Accounts receivable—third parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable—related parties . . . . . . . . . Other receivables—third parties. . . . . . . . . . . . . . Other receivables—related parties . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . Deferred pension costs. . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in: Notes and accounts payable—third parties . . . Accounts payable—related parties . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses, other payables and received in advance . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . Reserve for retirement plan. . . . . . . . . . . . . . . . . . Other liabilities—others . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities. . . . . . . . . . . . . .	New Taiwan Dollars 2002 2003 2004 $ 4,275,671 $5,215,373 $ 6,661,698 196,939 194,817 375,951 (172,331) 63,902 2,975 2,064,455 2,117,594 2,111,988 660,378 605,487 224,114 (299,149) 350,653 140,303 (191,871) (217,826) (112,533) 36,950 129,317 27,401 344,906 268,862 398,051 1,111 (85,463) (436,461) — 23,478 — (2,221,241) (394,703) (3,460,803) 29,316 (32,526) 245,428 (281,456) (122,925) 419,193 (339,466) 332,722 (3,825) (1,293,249) (233,697) (1,086,901) (207,662) (408,305) 342,724 (80,346) 196,407 (85,244) — — (489) 1,202,209 1,833,379 2,574,685 (475) 4,802 (130,852) (34,901) (1,679) 11,455 1,348,417 18,518 652,347 95,878 150,229 (225,391) 243,218 (541,003) (698,621) 55,491 169,842 98,319 9,010 (11,209) (817) 5,441,802 9,626,046 8,044,695	New Taiwan Dollars 2002 2003 2004 $ 4,275,671 $5,215,373 $ 6,661,698 196,939 194,817 375,951 (172,331) 63,902 2,975 2,064,455 2,117,594 2,111,988 660,378 605,487 224,114 (299,149) 350,653 140,303 (191,871) (217,826) (112,533) 36,950 129,317 27,401 344,906 268,862 398,051 1,111 (85,463) (436,461) — 23,478 — (2,221,241) (394,703) (3,460,803) 29,316 (32,526) 245,428 (281,456) (122,925) 419,193 (339,466) 332,722 (3,825) (1,293,249) (233,697) (1,086,901) (207,662) (408,305) 342,724 (80,346) 196,407 (85,244) — — (489) 1,202,209 1,833,379 2,574,685 (475) 4,802 (130,852) (34,901) (1,679) 11,455 1,348,417 18,518 652,347 95,878 150,229 (225,391) 243,218 (541,003) (698,621) 55,491 169,842 98,319 9,010 (11,209) (817) 5,441,802 9,626,046 8,044,695	US Dollars 2004
	2002 $ 4,275,671 196,939 (172,331) 2,064,455 660,378 (299,149) (191,871) 36,950 344,906 1,111 — (2,221,241) 29,316 (281,456) (339,466) (1,293,249) (207,662) (80,346) — 1,202,209 (475) (34,901) 1,348,417 95,878 243,218 55,491 9,010 5,441,802	2003 $5,215,373 194,817 63,902 2,117,594 605,487 350,653 (217,826) 129,317 268,862 (85,463) 23,478 (394,703) (32,526) (122,925) 332,722 (233,697) (408,305) 196,407 — 1,833,379 4,802 (1,679) 18,518 150,229 (541,003) 169,842 (11,209) 9,626,046
			(Unaudited—Note 2) $ 209,586 11,828 94 66,446 7,051 4,414 (3,540) 862 12,523 (13,732) — (108,882) 7,722 13,188 (120) (34,195) 10,783 (2,682) (15) 81,003 (4,117) 360 20,524 (7,091) (21,980) 3,093 (26) 253,097

(Continued)

F-9

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

New Taiwan Dollars 2002 2003 2004 $ 696,341 $ (1,222,972) $ 2,500,228 (110,600) (105,303) 174,920 (485,862) (234,070) (1,235,276) 218,677 716,693 — (7,155) (5,174) (3,396) — — 145,375 — 231,780 — 667,834 406,560 161,961 (2,250,687) (1,478,990) (2,266,800) 327,381 224,612 62,864 9,281 18,520 (8,398) (934,790) (1,448,344) (468,522) 1,222,196 301,767 251,636 — — (31,791) (2,458,005) (896,402) (1,593,148) — 6,876,910 — (4,033,336) (27,027) — 1,886 2,501 — (11,937) 4,770 (7,355) 1,664,862 272,488 (1,122,457) (2,100) (2,100) (13,000) (1,486,825) (2,775,758) (3,330,613) (5,103,259) 3,757,149 (5,846,728) (132,165) (1,736,717) (1,308,586) (1,400,008) — — (2,128,420) 10,198,134 420,859 15,288,538 13,160,118 23,358,252 $13,160,118 $23,358,252 $23,779,111	New Taiwan Dollars 2002 2003 2004 $ 696,341 $ (1,222,972) $ 2,500,228 (110,600) (105,303) 174,920 (485,862) (234,070) (1,235,276) 218,677 716,693 — (7,155) (5,174) (3,396) — — 145,375 — 231,780 — 667,834 406,560 161,961 (2,250,687) (1,478,990) (2,266,800) 327,381 224,612 62,864 9,281 18,520 (8,398) (934,790) (1,448,344) (468,522) 1,222,196 301,767 251,636 — — (31,791) (2,458,005) (896,402) (1,593,148) — 6,876,910 — (4,033,336) (27,027) — 1,886 2,501 — (11,937) 4,770 (7,355) 1,664,862 272,488 (1,122,457) (2,100) (2,100) (13,000) (1,486,825) (2,775,758) (3,330,613) (5,103,259) 3,757,149 (5,846,728) (132,165) (1,736,717) (1,308,586) (1,400,008) — — (2,128,420) 10,198,134 420,859 15,288,538 13,160,118 23,358,252 $13,160,118 $23,358,252 $23,779,111	New Taiwan Dollars 2002 2003 2004 $ 696,341 $ (1,222,972) $ 2,500,228 (110,600) (105,303) 174,920 (485,862) (234,070) (1,235,276) 218,677 716,693 — (7,155) (5,174) (3,396) — — 145,375 — 231,780 — 667,834 406,560 161,961 (2,250,687) (1,478,990) (2,266,800) 327,381 224,612 62,864 9,281 18,520 (8,398) (934,790) (1,448,344) (468,522) 1,222,196 301,767 251,636 — — (31,791) (2,458,005) (896,402) (1,593,148) — 6,876,910 — (4,033,336) (27,027) — 1,886 2,501 — (11,937) 4,770 (7,355) 1,664,862 272,488 (1,122,457) (2,100) (2,100) (13,000) (1,486,825) (2,775,758) (3,330,613) (5,103,259) 3,757,149 (5,846,728) (132,165) (1,736,717) (1,308,586) (1,400,008) — — (2,128,420) 10,198,134 420,859 15,288,538 13,160,118 23,358,252 $13,160,118 $23,358,252 $23,779,111	US Dollars 2004
2002 $ 696,341 (110,600) (485,862) 218,677 (7,155) — — 667,834 (2,250,687) 327,381 9,281 (934,790) 1,222,196 — (2,458,005) — (4,033,336) 1,886 (11,937) 1,664,862 (2,100) (1,486,825) (5,103,259) (132,165) (1,400,008) (2,128,420) 15,288,538 $13,160,118	2003 $ (1,222,972) (105,303) (234,070) 716,693 (5,174) — 231,780 406,560 (1,478,990) 224,612 18,520 (1,448,344) 301,767 — (896,402) 6,876,910 (27,027) 2,501 4,770 272,488 (2,100) (2,775,758) 3,757,149 (1,736,717) — 10,198,134 13,160,118 $23,358,252
			(Unaudited—Note 2) $ 78,661 5,503 (38,863) — (107) 4,574 — 5,095 (71,317) 1,978 (264) (14,740) 7,917 (1,000) (50,123) — — — (231) (35,314) (409) (104,786) (183,946) (41,170) — 13,241 734,883 $ 748,124 $ 3,441 $ 1,523 $ 9,839 $ 648
$ 144,737 $ 16,147 $ 200,000 $ —	$ 98,964 $ 48,485 $ 230,000 $ —	$ 109,358 $ 48,411 $ 312,734 $ 20,610

(Continued)

F-10

DELTA ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF DOLLARS)

The fair market value of assets and liabilities of the acquired and disposed subsidiaries were as follow Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Long-term investments in the subsidiaries before the acquisition or disposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents of the acquired or disposed subsidiaries. . . . . Disposal (acquisition) price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash received from the acquisition or disposal of subsidiaries . . . . . . .	New Taiwan Dollars 2002 2003 2004 $— $ 405,470 $ 288,408 — 17,375 — — 1,067,152 73,487 — 157,634 267,339 — 228,879 6,706 — — 165,564 — 138 1,232 — — (79,463) — (1,067,768) (192,539) — (148,433) (16,151) — (82) (3,792) — (190,166) — — (177,592) $— $ 660,365 $ 143,033 $— $ (405,470) $ 288,408 — 637,250 (143,033) $— $ 231,780 $ 145,375	New Taiwan Dollars 2002 2003 2004 $— $ 405,470 $ 288,408 — 17,375 — — 1,067,152 73,487 — 157,634 267,339 — 228,879 6,706 — — 165,564 — 138 1,232 — — (79,463) — (1,067,768) (192,539) — (148,433) (16,151) — (82) (3,792) — (190,166) — — (177,592) $— $ 660,365 $ 143,033 $— $ (405,470) $ 288,408 — 637,250 (143,033) $— $ 231,780 $ 145,375	US Dollars 2004
	2002 $— — — — — — — — — — — — $— $— — $—	2003 $ 405,470 17,375 1,067,152 157,634 228,879 — 138 — (1,067,768) (148,433) (82) — — $ 660,365 $ (405,470) 637,250 $ 231,780
			(Unaudited—Note 2) $ 9,074 — 2,312 8,411 211 5,209 38 (2,500) (6,058) (508) (119) (5,983) (5,587) $ 4,500 $ 9,074 (4,500) $ 4,574

Please refer to the accompanying notes and report of independent accountants dated February 3, 2005.

F-11

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

1. HISTORY AND ORGANIZATION

1) Delta Electronics, Inc.

The Company was incorporated in April 1971 under the provisions of the Company Law of the Republic of China (R.O.C.) as a company limited by shares. The total outstanding capital was $15,859,720 as of December 31, 2004. The main activities of the Company are installation of electronic control systems and developing, designing, manufacturing and selling of communication products and components, computer information system and power supply. The number of the Company’s employees approximated 3,600 as of December 31, 2004.

2) Consolidated subsidiaries

Name of Company Delta International Holding Ltd. (DIH) Delta Electronics (H.K) Ltd. (DHK) Delta Electronics Agent Ltd. (DAL) Delta Electronics International Ltd. (DEIL) Delta Electronics Trading Ltd. (DTL) Delta Power Sharp Ltd. (DPS) DEI Logistics (USA) Corp. (ALI) Delta Electronics (Japan) Inc. (DEJ) Addtron Technology (Japan) Co., Ltd. (AT Japen) Delta Electronics (Korea) Inc. (Delta Korea) Delta Electronics (Dong Guan) Co., Ltd. (DDG) Delta Electronics Components (Dong Guan) Co., Ltd. (DEC) Delta Electronics Power (Dong Guan) Co., Ltd. (DEP)	Relationship Note A Note B Note B Note B Note B Note B Note B Note B Note C Note C Note B Note B Note B	Main activities Equity investment Operations management and engineering services Operations management and engineering services Sales of electronic products Sales of electronics product Operations management and engineering services Warehousing and logistics services Operating and sales of electronic products Trading and import/export of networking system and peripherals Operating and sales of electronic products Manufacturing and sales of various power supplies Manufacturing and sales of transformer Manufacturing and sales of power supplies F-12	% of shares held as of December 31, 2002 2003 2004 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% — — 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00%	% of shares held as of December 31, 2002 2003 2004 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% — — 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00%
			2002 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% — 94.00% 94.00% 94.00%	2003 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% — 94.00% 94.00% 94.00%

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of Company Delta Electronics (Shanghai) Co., Ltd. Deltec Co., Ltd. Delta Electronics (Jiang Su) Co., Ltd. Delta Electronics Components (Wu Jiang) Co., Ltd. Delta Electro-optics (Wu Jiang) Ltd.) Delta Video Display System (Wu Jiang) Co., Ltd. DAC Holding Ltd. (DAC) Delta Electronics Mexico S.V DE C.V (DEM) Delta Video Technology Ltd. (DVT) Delta Networks Holding Ltd. (DNH) Delta Networks Inc. (DNI Cayman) Delta Electronics Industrial (Dong Guan) Co., Ltd. (DII) Delta Networks, Inc. (registered in Taiwan) Delta Networks International Ltd. (DNIL)	Relationship Note B Note B Note B Note B Note B Note B Note B Note D Note D Note A Note E Note F Note F Note F	Main activities Design the figure of the product Import/export of computer and electrical equipment and its components Manufacturing and sales of various power supplies Manufacturing and sales of transformer and peripherals Manufacturing and sales of peripherals and electronic control equipment Manufacturing and sales of various monitors Equity investment Manufacturing and sales of electronic products Operating and sales of electronic products Equity investment Equity investment Manufacturing and sales of electronic ballast for energy saving lighting and interface cards Development, design, manufacturing and sales of networking system and peripherals. Trading and import/export of networking system and peripherals F-13	% of shares held as of December 31, 2002 2003 2004 — — 94.00% 93.77% 94.00% — 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 46.06% 46.06% 55.78% — 46.06% 55.78% — 46.06% 55.78% 100% 100% 100% 100% 94.00% 94.00% 94.00% 94.00% 94.00% 87.39% 91.63% 93.25% 88.36% 94.00% 94.00%	% of shares held as of December 31, 2002 2003 2004 — — 94.00% 93.77% 94.00% — 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 46.06% 46.06% 55.78% — 46.06% 55.78% — 46.06% 55.78% 100% 100% 100% 100% 94.00% 94.00% 94.00% 94.00% 94.00% 87.39% 91.63% 93.25% 88.36% 94.00% 94.00%
			2002 — 93.77% 51.70% 51.70% 51.70% 51.70% 46.06% — — 100% 100% 94.00% 87.39% 88.36%	2003 — 94.00% 51.70% 51.70% 51.70% 51.70% 46.06% 46.06% 46.06% 100% 94.00% 94.00% 91.63% 94.00%

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of Company DNI Logistics (USA) Corp. (ALN) Pyramis Corporation (Pyramis) Pyramis Holding Ltd. (Pyramis Holding) Pyramis Corporation (Pyramis US)	Relationship Note F Note A Note G Note H	Main activities Trading and import/export of networking system and peripherals Design and sales of electronic products Equity investment Development of electronic products	% of shares held as of December 31, 2002 2003 2004 83.36% 94.00% 94.00% — 100% 99.24% — — 99.24% 62.67% 88.13% 99.24%	% of shares held as of December 31, 2002 2003 2004 83.36% 94.00% 94.00% — 100% 99.24% — — 99.24% 62.67% 88.13% 99.24%
			2002 83.36% — — 62.67%	2003 94.00% 100% — 88.13%

Note A: The Company’s total voting rights in the consolidated subsidiaries is over 50%.

Note B: A subsidiary of Delta International Holding Ltd. (DIH), the Company owns total voting rights over 50% indirectly.
Note C:A subsidiary of Delta Electronics (Japan) Inc. (DEJ), the Company owns total voting rights over 50% indirectly.
Note D:A subsidiary of DAC Holding Ltd. (DAC), the Company owns total voting rights over 50% indirectly.
Note E: A subsidiary of Delta Networks Holding Ltd. (DNH), the Company owns total voting rights over 50% indirectly.
Note F: A subsidiary of Delta Networks Inc. (DNI Cayman), the Company owns total voting rights over 50% indirectly.
Note G:A subsidiary of Pyramis Corporation (Pyramis), the Company owns total voting rights over 50% indirectly.
Note H:Originally a subsidiary of DIH, the Company owned total voting rights over 50% indirectly. In connection with the group restructuring in the fourth quarter of 2004, DIH sold all of its investments in Pyramis US to Pyramis Holding Ltd. (Pyramis Holding). As a result, Pyramis US became a consolidated subsidiary of Pyramis Holding. The Company owns total voting rights over 50% indirectly.

Among the consolidated subsidiaries of DIH, DNH and Pyramis, the financial statements for the years ended December 31, 2002, 2003 and 2004 of Pyramis US, ALN and Delta Electronics Components (Thailand) were audited by other independent accountants. The total assets of these subsidiaries at December 31, 2002, 2003 and 2004 were NT$735,985, NT$216,083, NT$383,637, constituting 1.3%, 0.3% and 0.6% of the Company’s consolidated total assets, respectively, and the related total operating revenues were NT$1,063,921, NT$848,600 and NT$723,481, constituting 2.2%, 1.7% and 1.3% of the Company’s consolidated operating revenues for the years ended December 31, 2002, 2003 and 2004, respectively.

F-14

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

3) Changes of consolidated subsidiaries
A. The newly consolidated subsidiaries in each respective year were as follows:

Name of Company Delta Electronics (Shanghai) Co., Ltd. Delta Electronics (Korea) Inc. DAC Holding Ltd. Pyramis Corporation (Pyramis) Pyramis Holding Ltd. (Pyramis Holding) Delta Electronics (Jiang Su) Co., Delta Electronics Components (Wu Jiang) Co., Ltd. Delta Electro-optics (Wu Jiang) Co., Ltd. Delta Networks Holding Ltd. (DNH) Delta Networks (Cayman) Inc. (DNI Cayman)	Relationship Note A Note C Note A Note E Note G Note A Note A Note A Note E Note I	Main activities Communication power technique service Operating and sales of electronic products Equity Investment Design and sales of electronic Products Equity investment Design the figure of the product Manufacturing and sales of various power supplies Manufacturing and sales of transformer and peripherals Equity investment Equity investment	% of shares held as of December 31, 2002 2003 2004 — — 94.00% — — 94.00% 46.06% 46.06% 55.78% — 100.00% 99.24% — — 99.24% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 100% 100% 100% 100% 94% 94%	% of shares held as of December 31, 2002 2003 2004 — — 94.00% — — 94.00% 46.06% 46.06% 55.78% — 100.00% 99.24% — — 99.24% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 51.70% 100% 100% 100% 100% 94% 94%	Note
			2002 — — 46.06% — — 51.70% 51.70% 51.70% 100% 100%	2003 — — 46.06% 100.00% — 51.70% 51.70% 51.70% 100% 94%
					Note B Note B Note D Note F Note G Note J Note J Note J Note J Note J

Note A: A subsidiary of DIH, the Company owns more than 50% voting rights indirectly. Note B: The subsidiary was established during the first half year of 2004. Note C:A subsidiary of DEJ, the Company owns more than 50% voting rights indirectly.

Note D:DAC Holding was acquired during the third quarter of 2004 by DIH, and the Company’s voting rights increased from 46.06% to 55.78%.

Note E: The company’s total voting rights in the consolidated subsidiaries is over 50%.

Note F: As consolidated entities should not be changed due to group restructuring, Pyramis was included in the consolidated entities in 2004 in order to consolidate Pyramis US which was consolidated through the Company’s another subsidiary, DIH, prior to the group restructuring as described in Note 1. 2).—Note H.

F-15

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Note G:A subsidiary of Pyramis, the company owns more than 50% voting rights indirectly. Note H:The subsidiary was established during the fourth quarter of 2004. Note I :A subsidiary of DNH, the Company owns more than 50% voting rights indirectly. Note J :A new consolidated subsidiaries in 2002.

B. The exclusion from consolidated subsidiaries in each respective year were as follows:

Name of company Deltec Co., Ltd.(DL) DNT Holding Ltd. Delta Electronics Components (Thailand) Co., Ltd	Relationship Note A Note B Note B	Main activities Import/export of computer and electrical equipment and its components. Equity investment Manufacturing and sales of electronic products	% of shares held as of December 31, 2002 2003 2004 99.99% 94.00% — 88.36% — — 88.59% — —	Note
			2002 99.99% 88.36% 88.59%
				Note C Note C

Note A: The financial statements of the subsidiary was excluded from consolidated financial statements, as the subsidiary was liquidated in June 2004. Before the liquidation, it was a subsidiary of DIH and the Company owned more than 50% voting rights indirectly.

Note B: A subsidiary of Delta International Holding Ltd. (DIH). The Company owns more than 50% voting right indirectly.

Note C:This subsidiary was liquidated in 2003.

C. The financial statements of these newly included or excluded consolidated subsidiaries in 2003 and 2004, DAC, DL, DNT Holding and Delta Electronics Components (Thailand) Co., Ltd. have no significant impact on the total assets and operating revenues of the consolidated financial statements for the years ended December 31, 2002 and 2003, respectively. Thus, the consolidated financial statements for years ended December 31, 2002 and 2003 were not restated.

4) Subsidiaries in which the Company’s voting right exceeded 50% but were not included in the consolidated financial statements were as follows:

Name of company Deltronics (Netherland) B.V. Delsolar Co., Ltd. Delta Optoelectronics, Inc. Volink Integrated System, Inc.	% of shares held 100.00% 95.21% 82.50% 100.00%	Remarks
		Note ” ” ”

Note: 1. Total assets and operating revenues are less than 10% of the Company’s unconsolidated total assets and operating revenue, respectively.
Total combined assets and operating revenue of all such unconsolidated subsidiaries constitute less than 30% of the Company’s unconsolidated total assets and operating revenue, respectively.

F-16

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

5) Difference in accounting period of the Company and the subsidiaries: None.

6) Difference in the accounting policies of the Company and the subsidiaries: No significant differences.

7) Special operating risk of foreign subsidiaries: No significant special operating risks which have material impact on the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The financial statements were prepared in accordance with the “Rules Governing the Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China. Summaries of significant accounting polices of the Company and its subsidiaries are as follows:

1) The consolidated financial statements include the accounts of the Company and the consolidated financial statements of DIH, DNH and Pyramis, after eliminating all significant intercompany accounts and transactions.

2) For long-term investments in which the Company owns more than 50% of the voting rights of the subsidiary, consolidated financial statements are prepared; however, if the total assets and the operating income of the subsidiary are less than 10% of the respective unconsolidated total assets and operating income of the Company, and such subsidiary also does not meet other consolidation criteria issued by the R.O.C. Securities and Futures Bureau (SFB), the subsidiary’s financial statements are not consolidated and instead are accounted for using the equity method.

Translation of financial statements of foreign subsidiaries

Assets and liabilities of the foreign subsidiaries are translated into New Taiwan dollars using the exchange rate at the balance sheet date; equity accounts are translated at historical rates, except for beginning retained earnings which are transferred from prior year’s ending retained earnings, and profit and loss accounts which are translated using the weighted average rate. Translation differences are recorded as translation adjustments and are included as a component of the stockholders’ equity.

Translation of foreign currency transactions

The accounts of the Company and its subsidiaries are maintained in their functional currencies. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated into their functional currencies at the rates of exchange prevailing at the balance sheet date. Transactions denominated in foreign currency, are translated into their functional currencies at the exchange rates prevailing at the transaction dates. Foreign currency gains or losses are included in current net income.

Cash equivalents

Cash equivalents are short-term, highly liquid investments which are readily convertible to known amounts of cash and with maturity dates that do not present significant risk of changes in value due to changes in interest rates.

F-17

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Forward currency option contracts

Premiums and discounts on option contracts are recorded at cost. Premiums and discounts and unrealized gains and losses on option contracts amortized over the contract period on a straight line basis. Outstanding put options at balance sheet date are accounted for at their fair values with the differences included in the current net income.

Forward exchange contracts

Cross currency swap contracts

Cross currency swap contracts entered into for hedging purposes are recorded using the contract rate on the contract date and recorded as accrued receivable and accrued payable, respectively. Interest receivable and interest payable are accrued base on the contract rate. Gains or losses on cross currency swap contracts are determined by the difference between the spot rate at the balance sheet date and the spot rate at the date of inception of the contract. Exchange gains or losses are included in current net income.

Short-term investments

Short-term investments are recorded at cost when acquired and is stated at the lower of cost or market value at the balance sheet date. Cost is calculated by the weighted-average method. The market value of open-end fund is determined based on the net value at the balance sheet date.

Allowance for doubtful accounts

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

Inventories

Inventories are stated at the lower of cost or market value; cost is determined by the standard cost. Variances from standard cost are allocated to ending inventories and cost of goods sold at the end of each period. When comparing with market value, current replacement price is used for materials. Net realizable value is used as market value for work in process and finished goods. Provision is made for obsolete and slow-moving inventories at balance sheet date.

Funds and long-term investments

1) Long-term investments

A. Long-term investments in which the Company owns less than 20% of the voting rights of the investee company and has no significant influence on the investee company’s operational decisions

F-18

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

are accounted for by the lower of cost or market value method if the investee company is listed, and by the cost method if the investee company is not listed. When it becomes evident that there has been a permanent impairment in value and the chance of recovery is minimal, loss is recognized in the current year’s income.

If the Company owns at least 20% of the voting rights of the investee company, the investment is accounted for by the equity method, unless there is evidence that the Company cannot exercise significant influence over the investee company. The unrealized gains or losses arising from transactions between the Company and investee companies accounted for under the equity method are eliminated.

B. The translation difference from foreign investments are included in the cumulative translation adjustment account in the stockholders’ equity.

C. The capital reserve and long-term investment amounts are adjusted by the variance between the investment cost and the net asset of the investee company due to the disproportionate acquisition of shares in connection with the capital increase by the investee company accounted for under the equity method. If the capital reserve arising from long-term investment is not sufficient, then retained earnings is debited.

D. The Company recognizes its proportionate share in the changes of the unrealized loss on market value decline of long-term investments accounted for under the equity method by its consolidated subsidiaries and includes it in the stockholders’ equity.

E. Under the equity method, the excess of investment cost over the underlying equity in net assets of the investee companies at the date of investment is amortized over 5~20 years.

F. The use of the equity method is discontinued if losses on investment reduce the balance of the investment to zero, unless the Company has a commitment to provide financial support to the investee company or acts as guarantor for loans made to the investee company. The credit balances of the investments should reduce the receivables from the investee company and the remaining balances are reported in the balance sheet as other liabilities.

G. Dividends received from long-term investments accounted for under cost method are recognized as dividend income. Dividends received from long-term investments accounted for under the equity method are credited to long-term investments.

2) Cash surrender value of life insurance

The cash surrender value of life insurance is recorded as an asset and classified as long-term investment. The increase in cash surrender value during the period is accounted for as an adjustment to insurance premiums paid.

Property, plant and equipment

1) With the exception of land, which is carried at appraised value, property, plant and equipment are carried at cost.

2) Prior to 2001, depreciation of the fixed assets of the Company, Pyramis and Delta Networks, Inc. (registered in Taiwan, DNIT), a subsidiary of Delta Networks, Inc. (registered in Cayman, DNI

F-19

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Cayman, the subsidiary of DNH) are provided on a straight-line method over the estimated useful lives of the assets plus one year as salvage value except for leasehold improvements which are based on the period of the contract. Salvage values of fixed assets, which are still in use after the end of their estimated useful lives, are depreciated over the newly estimated remaining useful lives of the assets.

For subsidiaries of DIH and DNH in Mainland China, depreciation of assets is provided on a straight-line method over the estimated useful lives of the assets with salvage value of $1.00 (in dollar of reporting currency).

The estimated useful lives of fixed assets are 2 to 10 years, except for buildings which are 5 to 55 years.

3) Renewals and improvements are treated as capital expenditure and are depreciated accordingly. Maintenance and repairs are charged to expense as incurred. When an asset is sold or retired, the cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is included in current non-operating income or expense.

Other intangible assets

Land use rights are recorded at actual cost and amortized over the lease term.

Deferred charges

Deferred charges are recorded at actual cost and amortized over the estimated useful lives based on the straight-line method, except for the issuance costs for convertible bonds which are amortized over the outstanding period of the bonds. The unamortized bonds issuance costs relating to the bonds converted or redeemed before the maturity date are transferred to expense at the date of redemption or conversion.

Retirement plan

1) The Company, Pyramis and DNIT adopted R.O.C. SFAS No.18 “Accounting for Pension”. The Company, Pyramis and DNIT recognized minimum pension liability for the excess of accumulated benefit obligation over the fair value of plan assets and pension cost based on actuarial valuation. Pension cost, which includes service cost, interest cost, expected return on plan assets and amortization of net obligation at transition and unrecognized pension loss, is recognized based on an actuarial valuation.

2) The Company’s overseas subsidiaries maintain defined contribution pension plans in accordance with the regulations in the countries where these subsidiaries are operating. Each of these subsidiaries contributes a certain amount into a separate fund and records such a contribution as pension expenses.

F-20

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Convertible bonds

1) The excess of the book value of the bonds over redemption price is treated as a contingent gain and should not be recognized until the bonds are redeemed.

2) When a bondholder exercises his/her conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the stock with the excess credited to capital reserve; no gain or loss is recognized on bond conversion.

Income tax

1) The Company, Pyramis and DNIT adopted R.O.C. SFAS No. 22, “Accounting for Income Taxes”. Income tax is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred income tax assets or liabilities are further classified into current and non-current items based on the classifications of the related assets or liabilities or on the expected reversal date of the temporary differences and are presented on the financial statements as net balance. Valuation allowance for deferred income tax assets is recognized if it is more likely than not that the tax benefits will not be realized. Tax credits resulting from equipment purchase, technology acquisition, research and development expenditure, training expense and longterm equity investment, etc. are recognized as current income tax benefit when incurred.

2) The Company’s overseas subsidiaries adopted liability method which is similar to R.O.C. SFAS No. 22 “Accounting for Income Taxes”.

3) Over or under provision of prior years’ income tax liabilities are included in the current year’s income tax expense.

4) According to the Taiwan imputation tax system, undistributed current earnings of a company derived on or after January 1, 1998 is subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional corporate income tax is recorded as income tax expense in the period when the stockholders approve a resolution to retain the earnings.

Earnings per share

1) In accordance with R.O.C. SFAS No. 24 “Earnings Per Common Share” as revised on November 1, 2002, the basic earnings and diluted earnings per share are disclosed in income statements. The computation of earnings per share are as follows:

A. Basic earnings per share: net income is divided by the weighted average number of shares outstanding during the period.

B. Diluted earnings per share: the computation is the same as basic earnings per share, except that potential common shares are assumed to have been converted to common stock at the beginning of the period and net income is adjusted by the amount associated with the conversion.

2) The potential common shares consist of Euro convertible bonds. The Company adopted the “if converted method” in computing the dilutive effect of the Euro convertible bonds.

F-21

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Revenue, costs and expenses recognition

Revenue is recognized when the earning process is completed and realized or realizable. Costs and expenses are recorded as incurred.

Accounting estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the Republic of China requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those assumptions and estimates.

Convenience translation into US dollars

The Company maintains its accounting records and prepares its financial statements in New Taiwan dollars. The United States dollar amounts disclosed in the 2004 financial statements are presented solely for the convenience of the reader and were translated to US dollar using the exchange rate of NT$31.785=US$1.00, the average of buying and selling exchange rate published by Hua Nan Bank on December 31, 2004. Such translated amounts are unaudited and should not be construed as representations that the New Taiwan dollar amounts represent, or have been or could be converted into United States dollars at this or any other rate.

3. CHANGES IN ACCOUNTING PRINCIPLES

1) Effective the quarter ended December 31, 2004, in accordance with No. 32 ruling issued by Accounting Research and Development Foundation in 2005, “The Accounting Treatment of Foreign Exchange Option Contract Before the Effectiveness of Financial Accounting Standards No. 34”, outstanding put options at balance sheet date shall be accounted for at their fair values with the differences included in the current net income. This change in accounting principles increased the consolidated net income for the year ended December 31, 2004 by $13,800.

2) There were certain changes in the consolidated entities in each of 2002, 2003 and 2004. Please refer to Note 1. 3) for further details. In addition, as discussed in Note 1. 3).—Note F, the consolidated financial statements of 2003 have been restated so as to include the financial position and operation results of Pyramis as of and for the year ended December 31, 2003. This restatement had no impact on total consolidated assets as of December 31, 2003 and operating revenues of 2003.

4. DESCRIPTION OF SIGNIFICANT ACCOUNTS

1) Cash and cash equivalent

*Cash and cash equivalent*
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Checking and demand deposits . . . . . . . . . . . . . . . . Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash equivalent—commercial paper. . . . . . . . . . . .		December 31,
	2002 $ 5,886 11,030,848 2,123,384 — $13,160,118	2003 $ 5,137 15,213,814 7,985,406 153,895 $23,358,252	2004
			$ 5,482 6,517,788 15,589,193 1,666,648
			$23,779,111

F-22

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

2) Short-term investments

	December 31,
2002 $1,134,477 — — 1,342,487 — 1,119,401 3,381 3,599,746 — $3,599,746 $3,602,034	2003 $ 343,000 1,198,627 789,156 — 271,000 — 1,062,627 3,664,410 1,140,933 $4,805,343 $4,813,409	2004
		$ 44,508 34,993 10,087 — — — —
		89,588 2,215,527
		$2,305,115
		$2,305,254

3) Accounts receivable

	December 31,
2002 $10,091,155 (42,702) 10,048,453 302,148 (302,148) — $10,048,453	2003 $9,275,866 (16,922) 9,258,944 219,942 (219,942) — $9,258,944	2004
		$12,884,022 (35,517)
		12,848,505
		179,817 (179,817)
		—
		$12,848,505

4) Inventories

*Inventories*
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory in transit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for decline in market value and inventory obsolescence. . . . . . . . . . . . . . . . . . . . .		December 31,
	2002 $1,754,154 516,863 2,276,350 15,757 4,563,124 (465,185) $4,097,939	2003 $1,961,440 494,501 1,627,329 74,170 4,157,440 (246,989) $3,910,451	2004
			$2,341,292 670,066 2,385,923 73,900
			5,471,181 (576,137)
			$4,895,044

F-23

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

5) Long-term investments

A. List of long-term investments:

December 31, 2002	December 31, 2002	December 31, 2003	December 31, 2003	December 31, 2004	December 31, 2004
%	Book value	%	Book value	%	Book value
20.14 37.66 39.20 32.92 86.11 49.00 — 2.11 — 2.20 4.56 10.38 Preferred stock 9.92 3.13 Preferred stock 3.89 Preferred stock Preferred stock 18.99 16.54 2.50	$4,967,464 768,930 214,925 341,111 123,694 174,308 — 295,663		$4,547,025 804,400 221,105 345,646 113,012 143,707 — 17,117		$4,224,283 814,945 184,785 — 575,166 — 494,579 27,198
	6,886,095 2,950		6,192,012 2,679		6,320,956 —
	6,889,045		6,194,691		6,320,956
	433,275 — 298,419 118,782 106,529 103,065 95,413 82,204 104,250 70,000 65,648 64,425 59,358 62,813 50,000 568,740		433,275 — 225,040 118,782 104,152 103,065 95,413 82,204 101,925 70,000 64,873 64,425 59,358 54,631 50,000 238,733		433,275 348,072 225,040 118,782 97,440 101,076 95,413 82,204 52,447 70,000 62,683 — 59,358 54,631 50,000 259,347
					2,109,768 (1,718)
					2,108,050
					$8,429,006

F-24

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

(Note A): The combined ownership percentage in DET’s common share held by the Company and DIH was more than 20%. Accordingly, the investment was accounted for under the equity method.

(Note B): Because the ownership percentage in Union was reduced to below 20% in April 2004, the Company discontinued the recognition of the investment income/loss under the equity method thereafter.

(Note C): In July 2004, due to the increase of ownership percentage in DAC, DAC became a consolidated subsidiary of DIH from an investee accounted for under the equity method. Therefore, the related long-term investment and investment loss were eliminated when preparing the consolidated financial statements.

(Note D): The shares of Netgear Inc. owned by DIH were preferred stock in 2002, which were converted to common stock in 2003.

B. The Company and its subsidiaries recognized investment (loss) income under the equity method as follows:

Name of investee company Delta Electronics (Thailand) Public Co., Ltd. (DET) . . . . . Cyntec Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delta Optoelectronics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	For theyears ended December 31, 2002 2003 2004 $ 408,146 $ 188,921 $ 82,692 99,427 94,133 81,569 (200,877) (187,967) (202,584) (7,547) (104,504) (35,854) $ 299,149 $ (9,417) $ (74,177)	For theyears ended December 31, 2002 2003 2004 $ 408,146 $ 188,921 $ 82,692 99,427 94,133 81,569 (200,877) (187,967) (202,584) (7,547) (104,504) (35,854) $ 299,149 $ (9,417) $ (74,177)
	2002 $ 408,146 99,427 (200,877) (7,547) $ 299,149	2003 $ 188,921 94,133 (187,967) (104,504) $ (9,417)

C. The financial statements of DET, Union, Delta Electronics Europe, Deltronics (Netherlands) B.V., Netpower Technologies Inc., Delcom Electronics Company Ltd., Volink Integrated System, Inc. and Addtron Technology Co., Ltd. of 2002, 2003 and 2004 were audited by other auditors. In 2002, 2003 and 2004, the net investment income recognized by the Company in these investee companies under the equity method was NT$331,030, NT$147,557 and NT$83,791, respectively.

D. The Company and its subsidiaries, DIH and DNH, recognized impairment loss of NT$341,236 and NT$66,126 on some of their investee companies accounted for under the cost method for the years ended December 31, 2003 and 2004, respectively.

6) Property, plant and equipment

6) *Property, plant and equipment*
Item Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment. . . . . . . . . . Molds . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer and communication equipment . . . . . . . . . . . . . . . . . . . . . . Test equipment . . . . . . . . . . . . . . . . . . . Motor vehicles . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . Prepayments for equipment and construction in progress. . . . . . . . . .			December 31, 2002
	Original cost $ 1,275,266 5,343,882 4,508,302 880,333 639,246 2,656,259 114,551 1,046,581 26,718 111,132 $16,602,270	Appraisal increment $168,738 — — — — — — — — — $168,738	Total $ 1,444,004 5,343,882 4,508,302 880,333 639,246 2,656,259 114,551 1,046,581 26,718 111,132 $16,771,008	Accumulated depreciation $ — (658,816) (1,676,939) (515,418) (370,220) (1,503,203) (58,245) (399,523) (14,176) — $(5,196,540)	Net book value
					$ 1,444,004 4,685,066 2,831,363 364,915 269,026 1,153,056 56,306 647,058 12,542 111,132
					$11,574,468

F-25

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

		December 31, 2003	December 31, 2003
Original cost $ 1,294,482 5,300,670 4,369,080 885,863 688,020 2,858,878 119,601 1,030,038 26,587 147,104 $16,720,323	Appraisal increment $168,738 — — — — — — — — — $168,738	Total $ 1,463,220 5,300,670 4,369,080 885,863 688,020 2,858,878 119,601 1,030,038 26,587 147,104 $16,889,061	Accumulated depreciation $ — (881,598) (1,920,116) (636,613) (500,885) (1,929,053) (70,279) (533,815) (24,425) — $(6,496,784)	Net book value
				$ 1,463,220 4,419,072 2,448,964 249,250 187,135 929,825 49,322 496,223 2,162 147,104
				$10,392,277

		December 31, 2004	December 31, 2004
Original cost $ 1,309,877 5,425,476 4,793,466 1,020,270 721,401 3,133,920 119,014 1,031,898 16,026 418,263 $17,989,611	Appraisal increment $168,738 — — — — — — — — — $168,738	Total $ 1,478,615 5,425,476 4,793,466 1,020,270 721,401 3,133,920 119,014 1,031,898 16,026 418,263 $18,158,349	Accumulated depreciation $ — (1,069,763) (2,465,212) (773,161) (531,060) (2,302,010) (79,473) (638,195) (15,695) — $(7,874,569)	Net book value
				$ 1,478,615 4,355,713 2,328,254 247,109 190,341 831,910 39,541 393,703 331 418,263
				$10,283,780

The appraisal increment of land amounted to $168,738, the reserve for land value incremental tax amounted to $80,945 and the capital reserve resulting from the appreciation on the revalued land amounted to $114,714 as of December 31, 2004.

F-26

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

7) Short-term loans

	December 31,
2002 $ 3,001,351 448,141 $ 3,449,492	2003 $ 3,751,259 — $ 3,751,259	2004
		$ 4,082,358 —
		$ 4,082,358
$ 13,127,011 0.8%~3.54%	$ 13,833,206 0.79%~1.70%	$ 16,074,215
		0.78%~2.75%

8) Commercial paper payable

December 31,	December 31,
2002 $ 2,650,000 (5,450) $ 2,644,550 1.67%~3.20%	2003 $ 1,750,000 (1,852) $ 1,748,148 1.00%~1.15%	2004
		$155,000 —
		$155,000
		1.288%

9) Convertible bonds

A. As of December 31, 2002, 2003, and 2004, the details of the third and fourth foreign currency Euro convertible bonds (ECB III and ECB IV) were as follows:

December 31,	December 31,
2002 $ 6,142,400 (6,115,373) 27,027 3,553 $ 30,580 $ (30,580) $ —	2003 $6,876,910 — 6,876,910 (81,910) $6,795,000 $ — $6,795,000	2004
		$6,876,910 (20,610
		6,856,300 (518,371
		$6,337,929 $ —
		$6,337,929

F-27

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

B. The issuances of ECB III and IV were approved by SFB. The issuance terms and conditions of ECB III and IV are summarized as follows:

(A) Trustee
(B) Amount of issuance

ECB III ECB IV The Bank of New York The Bank of New York US$200,000 US$200,000

(Thousand dollars)
(C) Nominal interest rate (net of tax)
(D) Period of issuance
(E) Listing exchange
(F) Period of conversion
(G) Exchange rate of conversion
(H) Redemption price and adjustment
(I) Redemption of bonds

5 years (Feb. 15, 2000 ~Feb. 15, 2005) Luxembourg March.15, 2000 ~ Jan. 15, 2005 Fixed exchange rate of NT$30.699 to US$1.00

The initial conversion price was NT$182, and it will be adjusted for change in common shares outstanding. The conversion price as of December 31, 2002 was NT$98.3

a. Redemption at principal amount on due date.
b. Early redemption
(a) Redemption price: 100.00% of outstanding principal amount.
(b) Redemption date: At any time on or after Feb. 15, 2003.
(c) The condition of early redemption:
the closing price of the common shares of the Company on each of 20 consecutive trading days is at least 140% of the conversion price,

5 years (July 30, 2003 ~July 30, 2008) Luxembourg
Aug.30, 2003 ~ Jun. 30, 2008
Fixed exchange rate of NT$34.35 to US$1.00

The initial conversion price was NT$55, and it will be adjusted for change in common shares outstanding. The conversion price as of December 31, 2004 was NT$50.03.

a. Redemption at principal amount on due date.
b. Early redemption
(d) Redemption price: 94.63% of outstanding principal amount.
(e) Redemption date: At any time on or after July 30, 2006.
(f) The condition of early redemption:
1. the closing price of the common shares of the Company on each of 20 consecutive trading days is at least 125% of the conversion price,

F-28

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

(J) Bondholders’ put option
ECB III ECB IV
1. at least 90% in 2. at least 90% in principal amount of principal amount of the bonds have been the bonds have been converted, redeemed converted, redeemed or purchased and or purchased and cancelled. cancelled.
a. Exercise date: Feb. 15, 2001, a. Exercise date: July 30, 2005 2002 and 2003. b. Exercise price: 97.82% of
b. Exercise price: face value outstanding principal amount (the investor should notify the Company not more than 60 nor less than 30 days prior to exercise date)

C. As of December 31, 2004, US$600 thousand of ECB IV had been converted into 412,000 common shares with the premium recognized as capital reserve amounting to $16,490.

10) Long-term loans

December 31,	December 31,
2002 $29,290 — $29,290	2003 $ 31,791 (31,791) $ —	2004
		$— —
		$—

11) Reserve for retirement plan

A. The Company maintains a defined benefit employee retirement plan (the Plan) covering all regular employees. The Company contributes to the Central Trust of China at a fixed rate equal to 2% of monthly salaries and wages.

The subsidiaries of DNI Cayman, DNIT and Pyramis maintain employee retirement plans according to the Labor Law and related regulations of the country they operate.

DIH and DNH do not maintain an employee retirement plan. Each DIH’s and DNH’s subsidiary located in Mainland China maintains a contributory employee retirement plan covering all employees. Under the plan, the employees of each DIH’s and DNH’s subsidiary contribute to a separate fund for an amount based on certain percentage of the monthly basic salary of employees. Each DIH’s and DNH’s subsidiary also provides pension reserve for its employees for amounts depending on employees’ positions.

The subsidiaries of DIH, DNH and Pyramis located in Hong Kong and United States of America have defined contribution plan in accordance with the regulations in the country where these

F-29

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

subsidiaries operate and contribute pension fund based on certain percentage of salaries. Except for the annual contribution referred to above, the subsidiaries have no further employee retirement benefit obligations.

B. As of December 31, 2002, 2003 and 2004, the total pension fund deposited in the Central Trust of China by the Company, Pyramis and DNIT, was $309,043, $384,825 and $395,891, respectively.

C. The reconciliation of the funded status to accrued pension liability of the Company, Pyramis and DNIT as of December 31, 2002, 2003 and 2004, the respective measurement dates, were as follows:

ws:
Vested benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested benefit obligation . . . . . . . . . . . . . . . . . . . . . Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . Additional benefits based on future salary increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation . . . . . . . . . . . . . . . . . Unrecognized net pension loss . . . . . . . . . . . . . . . . . . . . Additional pension liability. . . . . . . . . . . . . . . . . . . . . . . . . Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . . . .		December 31,	2004 $ (117,172) (699,851) (817,023) (597,413) (1,414,436) 395,891 (1,018,545) 85,795 337,965 (489) $ (595,274)
	2002 $ (60,753) (424,445) (485,198) (367,072) (852,270) 309,043 (543,227) 103,430 59,274 — $(380,523)	2003 $ (104,102) (555,724) (659,826) (501,436) (1,161,262) 348,825 (812,437) 94,027 244,509 — $ (473,901)

The related assumptions used for the actuarial valuation were as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return rate on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The average rate of salary increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 4.00% 3.25% 4.00%	2003 3.50% 2.75% 4.00%	2004 3.50% 2.50% 4.00%

D. In 2002, 2003 and 2004, the details of net pension cost were as follows:

Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized transition obligation . . . . . . . . Unrecognized pension loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31,	December 31,	2004 $122,113 40,644 (9,592) 9,403 13,447 $176,015
	2002 $ 85,282 29,958 (10,048) 9,403 155 $114,750	2003 $101,454 34,717 (10,072) 9,403 1,740 $137,242

F-30

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

E. As of December 31, 2002, 2003 and 2004, the total balance of the reserve for retirement plan of DIH’s subsidiaries located in Mainland China was $123,433, $199,897 and $176,843, respectively.

12) Common stock

In accordance with the Company’s Articles of Incorporation, as amended in the shareholders’ meeting on May 18, 2004, the total shares of authorized common stock was 2,000,000,000 shares. As of December 31, 2004, the total issued and outstanding common stock was 1,585,972,000 shares with a par value of $10 (in NT dollars).

13) Capital reserve

The R.O.C. Company Law requires that the capital reserve shall be exclusively used to offset against accumulated deficit or increase in capital and shall not be used for any other purpose. The capital reserve can be used to offset against accumulated deficit only when legal reserve and special reserve are insufficient. Only capital reserve from paid-in capital in excess of par value and donated surplus can be used to increase capital and the total amount shall be limited to 10% of outstanding capital each year.

14) Legal reserve

The R.O.C Company Law requires that the Company shall set aside 10% of its net income as legal reserve after offsetting against prior years’ losses until the legal reserve equals the Company’s capital. The legal reserve can be used only to offset against accumulated deficit or increase capital. The legal reserve can be used to increase capital only when the reserve exceeds 50% of the Company’s capital, and should be limited to 50% of the excess portion of the reserve.

15) Undistributed earnings

A. Based on the Company’s Articles of Incorporation, the current year’s earnings, if any, shall be distributed in the following order:

a) Payment of all taxes and dues.
b) Offset against prior years’ operating losses, if any.
c) Set aside 10% of the remaining amount as legal reserve.
d) Set aside a certain amount as special reserve, if necessary.

e) The amount of distributable earnings after deducting items (a), (b), (c) and (d), plus beginning undistributed earnings (the earnings), shall be distributed in the following percentage according to the resolution of the meeting of stockholders:

(i) Directors’ and supervisors’ remuneration: up to 1% of the earnings.
(ii) Employees’ bonus: at least 3% of the earnings.
(iii) Stockholders’ bonus: balance of the earnings after deducting (i) and (ii).

F-31

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

According to the Company’s Articles of Incorporation, at least 50% of the distributable retained earnings shall be distributed as stockholders’ bonus, of which at least 5% is payable by cash.

B. As of February 3, 2005, the distribution of 2004 earnings had not been approved by the Company’s board of directors. The distribution of 2003 earnings was approved by the stockholders meeting on May 18, 2004, which included the employees’ bonuses of $312,734, stock dividends of $740,136 and cash dividends of $3,330,613. The distribution of 2003 earnings was approved by the Securities and Futures Bureau (“SFB”) and the Company set July 4, 2004 as the ex-rights/dividend date.

The subsequent resolutions of board of directors’ and stockholders’ meetings on the distribution of 2004 earnings will be disclosed in the “Market Observation Post System” of the Taiwan Stock Exchange Corporation.

For the distribution of 2003 earnings, the information relating to employee bonus is as follows:

a) The distribution of employees’ bonus and directors’ and supervisors’ remuneration set forth in the Articles of Incorporation: Please refer to Note 4 (16) A.

b) The actual payment of employees’ bonus and directors’ and supervisors’ remuneration from the distribution of 2003 earnings were $312,734 and $13,000, respectively. The Company issued 31,273 thousand shares of common stock as a payment of employees’ bonus, which accounted for 2.11% of the outstanding common shares on December 31, 2003.

The effect on the 2003 earnings per share (EPS) was as follows:

The effect on the 2003 earnings per share (EPS) was as follows:
Original EPS in 2003 financial statements . . . . . . . . . . . . . . . . . . . . . . Effect of employees’ bonus and directors’ and supervisors’ remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Basic EPS $ 3.52 (0.22) $ 3.30	Fully diluted EPS
			$ 3.25 (0.20) $ 3.05

c) The distribution of 2003 earnings approved at the stockholders’ meeting was the same as that proposed at the board of directors’ meeting.

C. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by the stockholders, including foreign stockholders, against the withholding tax on dividends. In addition, the domestic stockholders can claim a proportionate share in the company’s corporate income tax as tax credit against their individual income tax liability.

D. As of December 31, 2002, 2003 and 2004, the information on tax credit of the Company were as follows:

Imputation tax credit account balance . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31,	December 31,	December 31,
	2002 $4,106	2003 $7,480	2004
			$7,433

F-32

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Creditable tax ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002(Actual) 0.30%	2003(Actual) 0.17%	2004(Estimated)
			0.11%

The actual creditable tax ratio will be adjusted based on the imputation tax credit account balance as of ex-rights date. The earnings of 2003 and 2002 have been distributed, and the 2002 and 2003 creditable tax ratio were calculated based on the balance of the imputation tax credit account on June 28, 2003 and July 4, 2004, respectively.

E. As of December 31, 2002, 2003 and 2004, the information on undistributed earnings of the Company were as follows:

	December 31,
2002 $ 685,952 — 4,252,923 $4,938,875	2003 $ 685,952 123,557 5,132,857 $5,942,366	2004
		$ 685,952 338,394 6,596,167
		$7,620,513

16) Income tax

A. As of December 31, 2002, 2003 and 2004, deferred income tax assets and liabilities were as follows:

	December 31,
2002 $1,662,296 $ 953,544 $3,912,166	2003 $1,720,028 $ 968,001 $3,414,438	2004
		$2,247,436
		$1,311,872
		$2,899,354

F-33

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

B. The components of deferred income tax assets and liabilities are as follows:

Current: Allowance for inventory obsolescence . . . . . Unrealized exchange gain. . . . . . . . . . . . . . Others . . . . . . . . . . . . . Income tax credit. . . . Less: allowance for deferred income tax assets-current. . . . . . . . . Net deferred income tax assets (liabilities)- current . . . . . . . . . . . . . . . Non-current: Investment income accounted for under the equity method. . . . . . . . . . . Unfunded pension. . . Loss carryforward . . . Others . . . . . . . . . . . . . Income tax credit. . . . Less: allowance for deferred income tax assets-non current. . . . . Net deferred income tax liabilities-non current. . .	December	31, 2002 Tax effects $ 28,320 (114,089) 32,830 395,158 342,219 (395,158) $ (52,939) $(3,697,772) 95,131 — (11,284) 1,021,836 (2,592,089) (558,386) $(3,150,475)	December	31, 2003 Tax effects $ 25,492 (109,915) (17,074) 196,999 95,502 (186,086) $ (90,584) $(3,256,472) 118,476 44,080 60,413 1,243,591 (1,789,912) (781,915) $(2,571,827)	December	31, 2004 Tax effects $ 62,760 (47,787) 3,986 278,279 297,238 (274,258) $ 22,980 $(2,801,728) 148,640 64,961 32,264 1,606,707 (949,156) (1,037,614) $(1,986,770)
	Original amount $ 113,280 (456,357) 131,318 $(14,791,089) 380,524 — (45,138)		Original amount $ 101,969 (439,662) (68,296) $(13,025,888) 473,902 176,319 241,652		Original amount $ 251,041 (191,149) 15,944 $(11,206,914) 594,561 259,842 129,058

F-34

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

C. As of December 31, 2002, 2003 and 2004, income tax payable (refundable) were arrived at as follows:

For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,
2002 $ 370,257 (376,960) (184) 32,142 (579) (1,467) 23,209 1,217 $ 24,426	2003 $(489,879) 541,003 (2) (8,043) (33,635) (1,406) 8,038 14,709 $ 22,747	2004
		$(635,400) 698,621 (483) 13,299 (44,530) (2,014)
		29,493 4,709
		$ 34,202

D. As of December 31, 2004, according to “Income Tax Law” and “Statute for Upgrading Industries”, the income tax credits were as follows:

Item R&D expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . Training expenditure . . . . . . . . . . . . . . . . . . . . . . . . Expenditure for procurement of machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in important technology based enterprise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Total income tax credits $1,738,419 18,023 13,223 164,460 $1,934,125	Unused income tax credits $1,691,623 17,691 11,212 164,460 $1,884,986	Year of expiration
			Between 2004 and 2008 Between 2004 and 2008 Between 2004 and 2008 Between 2004 and 2007

E. DDG, DEC, DEP, Delta Electronics (Jiang Su) Co., Ltd., Delta Electronics Components (Wu Jiang) Co., Ltd., Delta Electro-optics (Wu Jiang) Ltd., Delta Video Display System (Wu Jiang) Co., Ltd., and DII are subject to tax laws applicable to foreign investment enterprises in the PRC and are fully exempt from PRC enterprise income tax for two years starting from the first profit-making year followed by a 50% reduction for the next three years.

F. The Company’s income tax returns have been assessed and approved by the Tax Authority for the years up to 2002.

The income tax return of DNIT has been assessed and approved by the Tax Authority for the years up to 2001.

F-35

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

17) Earnings per share (EPS)

For the year ended December 31, 2002

Amount	Amount	Amount	Weighted average outstanding common shares (in thousands)	Weighted average outstanding common shares (in thousands)	Earnings per share(in NT dollars)	Earnings per share(in NT dollars)	Earnings per share(in NT dollars)	Earnings per share(in NT dollars)
Income before income tax		Net income			Income before income tax		Net income
	$4,645,928 — $4,645,928	$4,275,671 —	For	(Note) 1,585,560 275 1,585,835 theyear ended	$2.93 $2.93 December 31, 2003			$2.70 $2.70
		$4,275,671

	Amount		Weighted average outstanding common shares (in thousands)		Earnings per share(in NT dollars)
Income before income tax		Net income			Income before income tax		Net income
	$4,725,494 — $4,725,494	$5,215,373 —	For	(Note) 1,585,560 57,216 1,642,776 theyear ended	$2.98 $2.88 December 31, 2004			$3.29 $3.17
		$5,215,373

	Amount		Weighted average outstanding common shares (in thousands)		Earnings per share(in NT dollars)
Income before income tax		Net income			Income before income tax		Net income
	$6,026,298 — $6,026,298	$6,661,698 —		1,585,566 136,906 1,722,472		$3.80 $3.50		$4.20 $3.87
		$6,661,698

Note: The weighted average outstanding common shares was retroactively adjusted for stock dividends and employee bonuses distributed in 2004.

F-36

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

18) Personnel expense, depreciation and amortization expense

For the year ended December 31,

	2002
Operating cost $1,324,626 36,625 45,742 55,466 $1,462,459 $1,370,251 $ 35,982	Operating expense $2,121,164 121,558 127,354 110,222 $2,480,298 $ 481,349 $ 176,873	Total
		$3,445,790 158,183 173,096 165,688
		$3,942,757
		$1,851,600
		$ 212,855

For the	For the	year ended December 31,	year ended December 31,	year ended December 31,
		2003
Operating cost $1,421,174 32,924 82,067 280,073 $1,816,238 $1,453,021 $ 44,293		Operating expense $2,140,958 143,848 143,501 132,973 $2,561,280		Total
				$3,562,132 176,772 225,568 413,046
				$4,377,518
	$1,453,021 $ 44,293		$ 492,918 $ 127,362	$1,945,939
				$ 171,655

For the	year ended December 31,	year ended December 31,
	2004
Operating cost $1,740,971 40,485 33,313 242,659 $2,057,428 $1,471,126 $ 11,801	Operating expense $2,357,592 171,994 173,949 102,961 $2,806,496 $ 475,074 $ 153,987	Total
		$4,098,563 212,479 207,262 345,620
		$4,863,924
		$1,946,200
		$ 165,788

F-37

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

5. RELATED PARTY TRANSACTIONS

1) Names and relationship of related parties

Names of related parties Relationship with the Company Delta Optoelectronics, Inc (Delta A subsidiary of the Company Optoelectronics) Deltaronics (Netherlands) B.V (DEN) ” Cyntec Co., Ltd. Investee company accounted for under the equity method Grand Advance Technology Ltd. (Grand) ” Delta Electronics (Thailand) Public Co., Ltd. ” (DET) Delta Products Corporation (DPC) Affiliated enterprise Delta-Cimic Electric and Electronics Co., Ltd. Affiliated enterprise (Delta-Cimic) Delta Video Technology Ltd. (DVT) Indirectly held investee company accounted for under the equity method (Note 1) Delta Green (Tianjin) Industries Company Indirectly held investee company accounted Limited (Delta Green (Tianjin)) for under the equity method Delta Energy Systems (Switzerland) AG. (DES A Subsidiary of DET Switzerland) Delta Electronics Europe Ltd. (DEU) A subsidiary of DES Switzerland (Note 2)

(Note 1): DAC Holding was acquired during the third quarter of 2004 by DIH. As the results, DVT became a consolidated subsidiary of the Company. The related party transactions with DVT disclosed as follows were only for the seven-month period ended July 31, 2004. After July 31, 2004, the significant intercompany transactions between the DVT and the consolidated subsidiaries were eliminated.
(Note 2): In connection with the group restructuring in Europe, the Company sold all of its investments in DEU to DES Switzerland at its net book value. As a result, DEU became a consolidated subsidiary of DES Switzerland from an investee company accounted for under the equity method of the Company.

F-38

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

2) Significant transactions with related parties

A. Sales

Delta-Cimic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DVT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $ 535,660 1,019,260 — 76,843 391,861 45,110 $2,068,734	2003 $ 864,240 1,185,374 125,907 134,659 228,985 9,716 $2,548,881	2004
			$1,054,299 1,010,030 563,030 301,414 165,326 12,573
			$3,106,672

The sales terms, including prices and collections, were negotiated based on cost, market, competitors and other factors.

B. Purchases

DET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DVT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delta Green (Tianjin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $2,219,200 — — 95,790 $2,314,990	2003 $1,412,339 92,150 155,563 48,549 $1,708,601	2004
			$ 934,823 317,800 265,236 61,776
			$1,579,635

The purchases terms, including prices and payments, were negotiated based on cost, market, competitors and other factors.

C. Accounts receivable

December 31,	December 31,
2002 $274,448 156,134 — 496,255 — 27,368 $954,205	2003 $244,424 269,100 85,799 225,947 160,331 1,130 $986,731	2004
		$317,884 245,923 108,952 51,843 — 16,700
		$741,302

F-39

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

D. Other receivables

December 31,	December 31,
2002 $370,342 125,572 495,914 — $495,914	2003 $138,111 25,081 163,192 — $163,192	2004
		$128,015 40,404
		168,419 (1,402)
		$167,017

Other receivables mainly arose from supporting fee revenues and payments on behalf of related parties.

E. Accounts payable

December 31,	December 31,
2002 $398,305 35,145 $433,450	2003 $290,889 147,363 $438,252	2004
		$218,784 88,616
		$307,400

F. Endorsements and guarantees

As of December 31, 2002, 2003 and 2004, the amounts of endorsements and guarantees provided by the Company for the related parties are listed below:

December 31,	December 31,
2002 $347,500 — 97,303 $444,803	2003 $339,750 179,600 1,580 $520,930	2004
		$317,850 — —
		$317,850

F-40

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

6. DETAILS OF PLEDGED ASSETS

As of December 31, 2002, 2003 and 2004, details of pledged assets are listed below:

Name of assets Time deposits (Shown as other monetary assets-current) . . . . . . . . . . . . Time deposits (Shown as other monetary assets-current) . . . . . . . . . . . . Demand deposits (Shown as other monetary assets-non current) . . . . . . . . Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31,	December 31,	2004 $39,173 1,810 — — — $40,983	The purpose of pledged assets
	2002 $ — 6,350 104,250 45,232 17,023 $172,855	2003 $ 43,362 2,666 169,875 — — $215,903
				Collateral for provisional measures of lawsuit Collateral for bonded warehouse and bond for a bid Collateral for foreign currency transaction Collateral for credit line Collateral for credit line

7. COMMITMENTS AND CONTINGENT LIABILITIES

Except for Note 5, the Company’s commitments in relation to the leases and constructions of property and plant for new product lines were as follows:

1) The Company leased the land and building in Taiwan Science-Based Industrial Park under operating leases. The leasing period was 20 years. As of December 31, 2004, the future lease payments and the net present value discounted at 1.665%, one-year time deposit interest rate given by the Chunghwa Post Co., Ltd. at the end of 2004, are as follows:

Year
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010~2014 (the net present value is $ 12,422) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015~2019 (the net present value is $ 11,438) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020~2023 (the net present value is $ 8,425) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 5,000
2,930
2,930
2,930
2,930
14,653
14,653
11,722

$57,748

2) For the new product line of CCFL, the Company entered into a contract for the construction of new plant with total future payments approximating $248,000.

3) As of December 31, 2004, unused letter of credit of the Company was $176,709.

F-41

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

8. MAJOR CATASTROPHE

None.

9. SUBSEQUENT EVENTS

None.

10. OTHERS

1) Certain accounts in the 2003 and 2002 consolidated financial statements have been reclassified to conform with the presentation adopted for 2004.

2) Fair value of non-derivative assets and liabilities

ASSETS Non-derivative assets with fair values equal to book values . . . . . . . . . . . . . . . . . . . Short-term investments. . . . . . Long-term investments . . . . . . LIABILITIES Non-derivative liabilities with fair values equal to book values . . . . . . . . . . . . . . . . . . . Reserve for retirement plan . . . . . . . . . . . . . . . . . . . . .	December 31, 2002 Book value Fair value $25,657,356 $25,657,356 3,599,746 3,602,034 9,070,425 11,221,989 17,593,887 17,593,887 503,956 666,660	December 31, 2003 Book value Fair value $35,016,404 $35,016,404 4,805,343 4,813,409 8,059,150 11,686,936 24,478,918 24,478,918 673,798 1,012,334	December 31, 2004	December 31, 2004
	Book value $25,657,356 3,599,746 9,070,425 17,593,887 503,956	Book value $35,016,404 4,805,343 8,059,150 24,478,918 673,798	Book value $38,155,688 2,305,115 8,429,006 25,772,116 772,117	Fair value
				$38,155,688 2,305,254 8,287,467 25,772,116 1,195,388

The related assumptions on the fair value of non-derivative assets and liabilities are as follows:

A. Non-derivative assets and liabilities with fair values equal to book values.

a. The carrying amounts of short-term non-derivative assets and liabilities including cash and cash equivalents, notes receivable and accounts receivable, other receivables, other monetary assets-current, other monetary assets-non current, short-term loans, commercial paper payable, notes payable, accounts payable, income tax payable, accrued expenses, other payables and other current liabilities approximate their fair values because of their short-term maturities.

b. The fair value of cash surrender value of life insurance is based on the book value at balance sheet date.

c. The fair values of deposits-out and deposits-in are based on book value, which approximate present value.

d. The fair value of convertible bonds, including current portion of long-term loans, is based on book value at balance sheet date. According to the terms and condition of convertible bonds, the interest rate is zero, and the redemption price is lower than the face value. The

F-42

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

discounted value was not easily determinable due to uncertain redemption or conversion dates and the amount denominated in foreign currency was translated into New Taiwan dollars using the exchange rate at the balance sheet date.

B. The short-term investments are open-ended funds and foreign treasury bonds repurchasable by issuer. The fair values are based on the net assets of the open-end funds and the book value of the foreign treasury bonds repurchasable by issuer at the balance sheet date.

C. The fair values of long-term investments are based on their market values at the balance sheet date or the underlying equity in net assets if market value is not available.

D. The fair value of reserve for retirement plan is the funded status based on the pension actuarial report as of December 31, 2002, 2003 and 2004. The fair value of reserve for retirement plan which was not based on an actuarial report is based on book value.

3) Financial instruments with credit risk:

Loan guarantees for related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31,	December 31,
	2002 $444,803	2003 $520,930	2004
			$317,850

Loan guarantees provided by the Company are in compliance with the Company’s “Procedures for Provision of Endorsements and Guarantees” and are only provided to affiliated companies of which the Company owns directly or indirectly more than 50% ownership and has control over decision making processes. As the Company is fully aware of the credit conditions of these related parties, it has not asked for collateral for the loan guarantees provided. In these event that these related parties fail to comply with the loan agreements with banks, the maximum loss to the Company is the total amount of the loan guarantees as listed above.

4) Information on derivative transactions
A. General information disclosure:

a. The Company and its consolidated subsidiaries entered into certain foreign currency option contracts, foreign currency deposit contracts, forward foreign currency contracts and cross currency swap contracts to hedge foreign exchange risks in foreign currency denominated accounts receivable and payable, and Euro convertible bonds.

b. Accounting policy: See Note 2.
c. Credit risk:

The banks, which the Company and its consolidated subsidiaries deal with, are all in good credit standing and, therefore, the possibility is low for these banks not to comply with the terms of the contracts.

d. Market risk:

The Company and its consolidated subsidiaries, entered into these contracts in order to hedge foreign exchange losses. The exchange gain or loss from exchange rate fluctuation of hedge items will be offset by these transactions. Accordingly, no material market risk is expected.

F-43

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

e. The information on derivative transactions of the Company and its consolidated subsidiaries for the years ended December 31, 2002, 2003 and 2004 are as follows:

Derivative transactions Derivative transactions of the Company during 2002 Buy option (TWD PUT/ USD CALL) . . . . . . . . . Buy option (USD PUT/ TWD CALL) . . . . . . . . . Sell option (TWD CALL/ USD PUT) . . . . . . . . . . Sell option (USD CALL/ JPY PUT) . . . . . . . . . . . Sell option(EUR CALL/ USD PUT) . . . . . . . . . . Foreign currency deposit contracts . . . . ” Forward foreign currency contracts . . . ” ” ” ” ” Accumulation Disappearing Option . . . . . . . . . . . . . . Interest Rate Swap. . . . . F-44	Par value, contracts amount or nominal principal		Transaction ter	ms	Recognized gain (loss)	Related future cash flows Cash inflow Cash outflow — — — — — — — — USD 10,670 EUR 11,000 — — — — — — — — — — — — USD 27,715 THB1,200,000 THB1,200,000 USD 27,705 — — (Note d) (Note d)
		Contract dates	Exercise dates	Exercise prices/ Exercise rates		Cash inflow
	USD 3,000 USD 3,000 USD 38,972 USD 3,000 USD 15,120 USD 1,000 USD 10,000 USD 11,000 USD 10,000 USD 7,000 USD 2,000 USD 28,137 USD 28,099 USD 39,000 (Note a) NTD 1,000,000 (Note b)	2002.09.23 2002.01.02 2002.10.17~2002.12.10 2002.04.03 2002.04.26~2002.12.13 2002.01.17 2002.02.07~2002.11.26 2002.05.17~2002.07.25 2002.07.29 2002.05.17~2002.09.16 2002.10.30 2002.08.06~2002.12.16 2002.08.06~2002.12.16 2001.07.02~2002.04.09 2001.10.24~2002.06.27	2002.10.23 2002.01.25 2002.10.23~2002.12.30 2002.06.05 2002.05.29~2003.06.13 2002.01.22 2002.03.04~2002.11.26 2002.05.22~2002.10.29 2002.08.29 2002.06.05~2002.11.21 2002.11.21 2002.11.08~2003.03.18 2002.11.08~2003.03.18 2002.12.17~2002.12.23 2002.10.28~2004.07.01	USD1:NTD34.750 USD1:NTD35.3 USD1:NTD34.872~34.93 USD1:JYP134.35 USD1:EUR0.890 USD1:JPY132.50/4% USD:LIBOR of three months plus 150 bps~200 bps USD1:NTD33.352~35.132 USD1:NTD33.950 USD1:JPY120.5~132.5 USD1:JPY122.71 USD1:THB42.468~43.197 USD1:THB42.518~43.282 USD34.75~35.5 2.1%~2.7%	$ 449 737 (3,156) (6,598) (7,932) 9 686 3,868 1,499 7,892 (188) 1,333 — 28,825 (116)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Callable Range Accrual Swap . . . . . . . . . . . . . . . Inflating Reverse Strangle. . . . . . . . . . . . . USD NTD Selling Strategy. . . . . . . . . . . . . Limited Average Strike Forward. . . . . . . . . . . . . Enhanced Premium Range Trade . . . . . . . . Total. . . . . . . . . . . . . . . . . . Derivative transactions of the consolidated subsidiary during 2002 1.Delta International Holding Ltd. (DIH) Forward foreign currency contracts . . . ” Total. . . . . . . . . . . . . . . . . . 2.Delta Electronics International Ltd. (the subsidiary of DIH) Buy option (USD CALL/ EUR PUT) . . . . . . . . . . Sell option (USD PUT/ EUR CALL) . . . . . . . . . Buy option (USD CALL/ JPY PUT) . . . . . . . . . . . Buy option (USD PUT/ JPY CALL) . . . . . . . . . . F-45	Par value, contracts amount or nominal principal		Transaction ter	ms	Recognized gain (loss)	Recognized gain (loss)	Related future cash flows Cash inflow Cash outflow (Note d) (Note d) — — (Note d) (Note d) — — — — THB2,900,000 USD 66,831 USD 66,864 THB2,900,000 — — USD 5,820 EUR 6,000 — — — —
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow
	USD 15,000 (Note c) USD 12,000 USD 30,000 (Note f) USD 20,000 (Note g) USD 6,840 (Note f) USD570,655 USD571,207 USD 8,800 USD 10,820 USD 5,000 USD 5,000	2001.10.17~2002.07.19 2002.02.25 2002.04.22~2002.06.10 2002.04.04~2002.06.27 2002.05.29 2002.01.09~2002.12.26 2002.01.09~2002.12.26 2002.02.05 2001.04.26~2002.12.16 2002.01.15~2002.04.03 2002.11.08	2002.03.10~2007.07.19 2002.03.25~2002.08.23 2002.07.30~2003.01.20 2002.05.29~2002.06.27 2002.12.28 2002.02.27~2003.03.18 2002.02.27~2003.03.18 2002.02.05 2002.05.29~2003.06.13 2002.01.18~2002.06.12 2002.11.19	4.00%~5.00% (Note e) (Note f) (Note g) (Note f) USD1:THB41.787~44.204 USD1:DTHB41.732~44.140 EUR1:USD0.88 EUR1:USD0.89~0.97 USD1:JPY121.76~132.00 USD1:JPY124.00		14,115 (9,274) 2,713 22,920 6,463 $64,245 $ — 372 $ 372 $ 3,456 (9,009) 347 4,255

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Sell option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Foreign currency deposit contracts . . . . . . . . . . . . . . . Forward foreign currency contracts . . . . . . . . . . . . . . . ” Inflating Reverse Strangle . . . . . . . . . . . . . . . . USD Buying Strategy . . . . . . Callable Range Accrual Swap. . . . . . . . . . . . . . . . . . . Callable Range Accrual Notes . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . 3.Delta Networks, Inc.(DNIT). (registered in Taiwan, the subsidiary of DNI Cayman) Buy option (TWD PUT/USD CALL) . . . . . . . . . . . . . . . . . . Sell option (USD CALL/ TWD PUT). . . . . . . . . . . . . . Buy option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Sell option (TWD CALL/ USD PUT) . . . . . . . . . . . . . . Buy option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Sell option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Sell option (USD CALL/JPY PUT) . . . . . . . . . . . . . . . . . . . F-46	Par value, contracts amount or nominal principal		Transaction ter	ms	Recognized gain (loss)	Recognized gain (loss)	Related future cash flows Cash inflow Cash outflow — — USD28,000 — — — — — — — — — (Note d) (Note d) (Note d) (Note d) — — — — — — — — — — USD10,000 JPY1,258,000 — —
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow
	USD 16,500 USD 28,000 USD 15,273 USD 4,068 USD 2,000 USD (Note f) USD 5,000 (Note c) USD 15,000 (Note c) USD 6,000 USD 4,000 USD 3,000 USD 56,000 USD 4,000 USD 23,500 USD 5,000	2002.02.07~2002.05.17 2002.02.05~2002.03.15 2002.05.28~2002.09.17 2002.11.05 2002.02.25 2002.05.28 2002.07.17 2002.07.24 2002.01.07~2002.09.20 2001.05.23 2002.01.02 2002.10.17~2002.12.13 2002.12.13 2002.02.07~2002.12.13 2002.03.27	2002.08.08~2002.06.12 2002.06.17~2004.08.09 2002.06.14~2002.11.19 2002.11.19 2002.03.25~2002.08.23 2002.10.30~2002.12.30 2007.07.19 2004.11.07 2002.05.24~2002.10.25 2002.05.28 2002.01.25 2002.10.29~2002.12.30 2002.12.26 2002.06.12~2003.12.17 2002.09.26	USD1:JYP124.00~135.00 3-Month LIBOR+40bps~175bps USD1:JPY117.44~132.00 USD1:JPY121.92 (Note e) (Note f) (Note c) (Note c) USD1:NTD33.51~34.75 USD1:NTD33.51 USD:NTD35.3 USD1:NTD34.855~34.93 USD1:JPY132.8 USD1:JPY125~135 USD1:JPY132.5		(21,293) — 5,413 779 $ (7,068) 1,590 11,716 18,144 $ 8,330 $ 3,622 (3,628) 737 (4,694) 13,922 (12,405) 1,488

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Sell option (USD CALL/EUR PUT) . . . . . . . . . . . . . . . . . . . . Sell option (USD PUT/EUR CALL) . . . . . . . . . . . . . . . . . . . Interest Rate Swap . . . . . . . . . Callable Range Accrual Swap. . . . . . . . . . . . . . . . . . . . USD NTD Selling Strategy . . USD JPY Selling Strategy . . . USD EUR Selling Strategy . . Limited Average Strike Forward . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . F-47	Par value, contracts amount or nominal principal		Transaction ter	ms	Recognized gain (loss)	Recognized gain (loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 10,315 USD 9,790 NTD500,000 (Note b) USD 5,000 (Note c) USD101,000 (Note f) USD 6,000 (Note f) USD 4,320 (Note f) USD 20,000 (Note g)	2002.03.21~2002.12.13 2002.03.21~2002.12.13 2002.06.26 2002.07.17 2002.04.22~2002.09.19 2002.05.29 2002.05.29 2002.04.04~2002.04.09	2002.04.26~2003.06.17 2002.04.26~2003.06.17 2002.10.01~2004.07.01 2002.10.19~2007.07.19 2002.10.28~2003.02.26 2002.10.30~2002.12.30 2002.12.18 2002.06.27~2002.12.26	USD1:EUR0.880~1.045 USD1:EUR0.880~0.97 2.1%~2.7% 4.30% (Note f) (Note f) (Note f) (Note g)		7,022 368 $ (359) 10,245 (1,063) 142 (10,523) 17,667 $ 22,541

(Note a): There are 372 fixing dates in the life of this contract. If spot rate is above 35.5 NTD/USD on a fixing date, the notional amount shall be reduced by USD26.9 thousand. The remaining notional amount will be settled based on the exercise rates on the exercise dates.
(Note b): The company will pay or receive the difference between the floating and predetermined interest rate multiplied by the notional amount.
(Note c): If LIBOR is between the contract range, the company will receive the difference between predetermined rate and floating rate multiplied by the notional amount from bank. However, when LIBOR falls outside of the contract range, the company will pay the predetermined rate multiplied by the notional amount to bank.
(Note d): Due to the uncertainty of the transaction, the future cash flow cannot be reasonably estimated.
(Note e): The exercise price varies depending on the spot rate on the exercise date within the range of JPY127~JPY141.
(Note f): The notional amount and exercise price vary depending on the spot rate of the exercise date.
(Note g): The notional amount and exercise price vary depending on the accumulated changes of the average exchange rate.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Derivative transactions of the Company during 2003 Buy option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Sell option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Buy option (USD CALL/TWD PUT) . . . . . . . . . . . . . . . . . . . Sell option (USD CALL/TWD PUT) . . . . . . . . . . . . . . . . . . . Sell option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Sell option (USD CALL/JPY PUT) . . . . . . . . . . . . . . . . . . . Sell option (EUR CALL/USD PUT) . . . . . . . . . . . . . . . . . . . Forward foreign currency contracts. . . . . . . . . . . . . . . . ” ” ” Interest Rate Swap. . . . . . . . . Callable Range Accrual Swap . . . . . . . . . . . . . . . . . . . F-48	Par value, contracts amount or nominalprincipal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 35,000 USD 22,000 USD 225,000 USD 142,000 USD 15,000 USD 10,000 USD 10,670 USD 68,139 USD 68,096 USD 2,500 USD 5,000 NTD 1,500,000 (Note a) USD 220,000 (Note b)	2003.02.10~2003.10.14 2003.10.02~2003.12.29 2003.07.30~2003.10.09 2003.08.07~2003.12.29 2001.12.13 2003.09.30~2003.10.01 2002.12.13 2002.11.06~2003.11.18 2002.11.06~2003.11.18 2003.12.26 2003.10.02 2002.06.27~2003.07.30 2002.07.17~2003.07.30	2003.02.25~2003.10.30 2004.01.02~2004.12.26 2003.11.24~2008.07.30 2004.01.08~2004.05.20 2003.10.01~2004.12.15 2003.10.21~2004.07.19 2003.06.13 2003.02.10~2003.12.22 2003.02.10~2003.12.22 2004.12.17 2004.01.02 2002.10.01~2006.06.10 2002.07.18~2007.07.30	USD1:NTD34.0~35.10 USD1:NTD33.392~33.5 USD1:NTD33.392~34.40 UAD1:NTD34.10~34.80 UAD1:JPY125.80 (Note d) EUR1:USD0.9700 USD1:THB39.912~43.357 USD1:THB39.992~43.372 USD1:JPY105.44 USD:NTD33.674 1.73%~2.7% 1%~4.3%		$ 8,065 — 17,396 — — — (56,509) — 1,388 — — (5,345) 59,841 $24,836	(closed) USD 22,000 USD 195,000 NTD 4,886,460 USD 2,500 (Note d) (closed) (closed) (closed) JPY 263,600 NTD 168,370 (Note c) (Note d)	(closed) NTD 738,320 NTD 6,697,920 USD 142,000 JPY 314,500 (Note d) (closed) (closed) (closed) USD 2,500 USD 5,000 (Note c) (Note d)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Derivative transactions of the consolidated subsidiary during 2003 1.Delta International Holding Ltd. (DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . . ” Total . . . . . . . . . . . . . . . . . . . . . . 2.Delta Electronics International Ltd. (the subsidiary of DIH) Sell option (USD PUT/EUR CALL) . . . . . . . . . . . . . . . . . . . Buy option (USD PUT/RMB CALL) . . . . . . . . . . . . . . . . . . . Forward foreign currency contracts . . . . . . . . . . . . . . . . ” ” ” ” ” Callable Range Accrual Notes . . . . . . . . . . . . . . . . . . . Callable Range Accrual Swap. . . . . . . . . . . . . . . . . . . . Libor-linked USD/YEN Strategy . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . F-49	Par value, contracts amount or nominalprincipal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows Cash inflow Cash outflow THB 1,000,000 USD 25,029 USD 25,047 USD1,000,000 — — RMB 8,280 USD 1,000 — — — — — — — — USD 46,000 RMB 372,765 RMB 130,868 USD 16,000 (Note b) (Note b) (Note b) (Note b) (Note d) (Note d)
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow
	USD 243,983 USD 244,085 USD 5,820 USD 1,000 USD 11,439 USD 18,041 USD 15,000 USD 15,000 USD 48,000 USD 18,000 USD 15,000 USD 5,000 USD 60,000	2002.10.28~2003.12.03 2002.10.28~2003.12.03 2002.12.16 2003.08.28 2003.05.01 2003.06.12 2003.05.26 2003.08.26 2003.06.10 2003.06.11 2003.05.05 2003.05.29 2003.04.29 2003.12.05 2003.08.13 2002.07.24 2002.07.17 2003.12.22	2003.01.15~2004.03.08 2003.01.15~2004.03.08 2003.06.13 2004.01.28 2003.06.17 2003.09.03 2003.06.17 2003.11.26 2003.06.23 2003.09.03 2003.06.23 2003.09.03 2003.12.22 2004.12.10 2003.08.13 2004.03.22 2004.11.07 2007.07.19 2004.07.29	USD1:THB39.936~43.5985 USD1:THB39.916~43.5785 EUR1:USD0.97 USD1:RMB8.28 EUR1:USD1.1123~1.175 EUR1:USD1.0810~1.1825 USD1:JPY118.25~118.82 USD:JPY116.08~118.10 USD1:RMB7.8670~8.258 USD1:RMB8.1520~8.2270 (Note e) (Note e) (Note e)		$ — 82 $ 82 ($ 633) — (282) (61) (60) (123) — 5 — — — ($1,154)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions 3.Delta Electronics (Dong Guan) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . 4.Delta Electronics Power (Dong Guan) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . 5.Delta Electronics Components (Dong Guan) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . 6.Delta Electronics (Jiang Su) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . 7.Delta Networks, Inc. (registered in Taiwan, the subsidiary of DNI Cayman) Buy option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Buy option (USD CALL/ TWD PUT). . . . . . . . . . . . . . Sell option (USD CALL/ TWD PUT). . . . . . . . . . . . . . Sell option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . F-50	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 16,000 USD 23,000 USD 16,000 USD 32,000 USD 20,000 USD 1,000 USD 39,800 USD 7,000	2003.04.30~2003.12.05 2003.04.29~2003.12.05 2003.04.29~2003.12.05 2003.08.11~2003.08.25 2003.01.15~2003.12.18 2003.10.02 2003.01.22~2003.12.18 2003.01.02~2003.10.09	2004.01.28~2004.12.08 2004.01.05~2004.12.18 2004.02.05~2004.12.08 2004.01.12~2004.08.25 2003.01.29~2003.12.19 2004.01.06 2003.03.24~2004.06.16 2003.01.15~2004.01.06	USD1:RMB8.2063~8.337 USD1:RMB8.2063~8.337 USD1:RMB8.2063~8.337 USD1:RMB8.2925~8.3083 USD1:NTD33.90~35.10 USD1:NTD33.381 USD1:MTD34.00~35.45 USD1:NTD33.375~34.77		$ — $ — $ — $ — $ 884 — 204 (898)	RMB132,651 RMB190,716 RMB132,385 RMB265,645 — USD 1,000 NTD 544,680 USD 1,000	USD 16,000 USD 23,000 USD 16,000 USD 32,000 — NTD 33,381 USD 15,800 NTD 33,381

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Sell option (USD PUT/EUR CALL) . . . . . . . . . . . . . . . . . . Sell option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Forward foreign currency contracts. . . . . . . . . . . . . . . . Interest Rate Swap . . . . . . . . Libor Link Forward . . . . . . . . . Callable Put Spread Option . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . 8.Delta Electronics Industrial (Dong Guan) Co., Ltd. (the subsidiary of DNI Cayman) Forward foreign currency contracts. . . . . . . . . . . . . . . . F-51	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 6,790 USD 3,000 USD 1,000 NTD500,000 USD 6,500 (Note a) EUR 2,000 (Note a) EUR 9,000 USD 13,000 USD 6,000	2002.12.13 2003.01.06 2003.10.02 2002.06.27 2002.07.17~2003.05.21 2003.04.14 2003.05.02 2003.05.02 2003.4.29~2003.8.4	2003.06.17 2003.01.27 2004.01.02 2004.07.01 2007.07.19~2008.05.23 2004.03.29~2004.04.29 2003.06.17 2003.06.17 2004.1.5~2004.7.9	USD1:EUR1.031 USD1:JPY122 USD1:NTD33.672 2.1%~ 2.7% 3.5%~ 4.3% (Note e) EUR1:USD1.0986~1.1570 USD1:JPY117.9~128.65 USD1:RMB8.2924~8.337		(35,149) 28 — — — — 17,981 $(16,950) $ —	— — NTD 33,672 (Note c) (Note c) (Note c) — RMB 49,899	— — USD 1,000 (Note c) (Note c) (Note c) — USD 6,000

(Note a) The company will pay or receive the difference between the floating and predetermined interest rate multiplied by the notional amount.

(Note b) If LIBOR is between the contract range, the company will receive the difference between the predetermined and floating rate multiplied by the notional amount from the bank. However, when LIBOR falls outside of the contract range, the company will pay predetermined rate multiplied by the notional amount to the bank.

(Note c) Due to the uncertainty of the transaction, the future cash flow cannot be reasonably estimated.

(Note d) As the exercise rates of the transactions will not be determined until the exercise dates, the future cash flow cannot be reasonably estimated.

(Note e) The notional amount and exercise rate vary depending on the spot rate on the exercise date.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Derivative transactions of the Company during 2004 Buy option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Sell option (USD CALL/TWD PUT) . . . . . . . . . . . . . . . . . . . Sell option (USD CALL/JPY PUT) . . . . . . . . . . . . . . . . . . . Sell option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . Buy option (USD CALL/ TWD PUT) . . . . . . . . . . . . . . Buy option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Sell option (USD PUT/JPY CALL) . . . . . . . . . . . . . . . . . . Forward foreign currency contracts. . . . . . . . . . . . . . . . ” ” ” Interest Rate Swap . . . . . . . . Callable Range Accrual Swap . . . . . . . . . . . . . . . . . . . F-52	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future	cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 208,000 USD 257,900 USD 9,500 USD 62,000 USD 110,000 USD 2,000 USD 2,500 USD 37,694 USD 37,684 USD 63,000 USD 1,000 NTD 1,500,000 (Note a) USD 190,000 (Note b)	2004.03.24~2004.12.30 2003.12.29~2004.12.30 2004.09.03~2004.12.15 2003.12.29~2004.09.01 2003.10.02~2004.06.09 2004.12.15 2002.12.13 2004.02.24~2004.06.10 2004.02.24~2004.06.10 2004.01.08~2004.03.24 2004.09.01 2002.06.27~2003.07.30 2002.07.18~2003.07.30	2004.07.27~2005.01.03 2004.07.27~2005.06.28 2004.09.22~2005.04.17 2004.04.27~2004.12.23 2004.01.02~2004.12.23 2004.12.21~2004.12.28 2004.12.15 2004.03.26~2004.09.14 2004.03.26~2004.09.14 2004.04.12~2004.06.29 2004.09.30 2002.10.01~2006.06.10 2002.07.18~2008.07.30	USD1:NTD32.23~34.10 UAD1:NTD32.23~33.878 USD1:JYP102.20~108.70 USD1:NTD32.97~33.5 USD1:NTD32.807~33.392 UAD1:JPY102.20 USD:JYP125.80 USD1:THB39.72~40.6075 USD1:THB39.28~40.6175 USD1:NTD33.054~33.71 USD:JYP105.50 1.73%~2.7% 1%~4.3%		$ — 4,815 — — 22,191 — (13,418) — 317 — — (2,142) (47,013) $(35,250)	NTD 1,009,900 NTD 6,296,805 JPY 617,000 USD (closed) USD (closed) USD (closed) USD (closed) USD (closed) THB (closed) JPY (closed) NTD (closed) (Note c) (closed)	USD 31,000 USD192,900 USD 6,000 NTD(closed) NTD(closed) JPY (closed) JPY (closed) THB (closed) USD(closed) USD(closed) USD(closed) (Note c) (closed)

[Note a]: The Company will pay or receive the difference between the floating and predetermined interest rate multiplied by the notional amount. [Note b]: If LIBOR is between the contract rate range, the Company will receive the difference between the predetermined and floating rate multiplied by the notional amount from the bank. However, when LIBOR falls outside the contract rate range, the Company will pay predetermined rate multiplied by the notional amount to the bank.

[Note c]: The Interest Rate Swap in the amount of $500,000 was closed. For the remaining outstanding contract amount, as the Company will pay or receive the difference net of total transactions, so future cash flows cannot be reasonably estimated.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

F-53	Derivative transactions Derivative transactions of the consolidated subsidiary during 2004 1.Delta International Holding Ltd. (DIH) Forward foreign currency contracts . . . . . . . . . . . . . ” Total . . . . . . . . . . . . . . . . . . . 2.Delta Electronics International Ltd. (the subsidiary of DIH) Buy option (USD PUT/ RMB CALL) . . . . . . . . . . Forward foreign currency contracts . . . . . . . . . . . . . ” ” Callable Range Accrual Swap . . . . . . . . . . . . . . . . Libor-linked USD/YEN Strategy . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . 3.Delta Electronics (Dong Guan) Co., Ltd (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . .	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
			Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
		USD 207,241 USD 207,178 USD 1,000 USD 6,000 USD 119,000 USD 25,500 USD 5,000 (Note b) USD 60,000 USD 16,000	2003.12.03~2004.09.01 2003.12.03~2004.09.01 2003.08.28 2003.08.13 2003.04.29~2004.12.06 2004.02.06~2004.12.30 2002.07.17 2003.12.22 2004.01.06~2004.12.07	2004.01.08~2004.12.03 2004.01.08~2004.12.03 2004.01.28 2004.01.30~2004.03.22 2004.01.30~2005.12.07 2004.04.15~2005.01.25 2007.07.19 2004.07.29 20005.01.07~2005.12.07	USD1:THB39.2205~41.61 USD1:THB39.2305~41.6225 USD1:RMB8.28 USD1:RMB8.2030~8.2270 USD1:RMB7.8340~8.2580 USD1:JPY103.20~111.00 (Note d) USD1:RMB8.1122~8.2235		$ — 63 $ 63 $ 0.35 8 858 31 (72) (159) $ 666 $(1,450)	(closed) (closed) (closed) (closed) (Note c) JPY 417,023 (closed) (closed) USD 16,000	(closed) (closed) (closed) (closed) (Note c) USD 4,000 (closed) (closed) USD130,965

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

F-54	Derivative transactions 4.Delta Electronics Power (Dong Guan) Co., Ltd (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . 5.Delta Electronics components (Dong Guan) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . 6.Delta Electronics Industrial (Dong Guan) Co., Ltd (the subsidiary of DNI Cayman) Forward foreign currency contracts . . . . . . . . . . . . . . 7. Delta Networks, Inc (registered in Taiwan, the subsidiary of DNI Cayman) Sell option (USD CALL/ TWD PUT) . . . . . . . . . . . . Sell option (USD PUT/ TWD CALL) . . . . . . . . . . . Sell option (USD CALL/ JPY PUT) . . . . . . . . . . . . . Buy option (USD PUT/ TWD CALL) . . . . . . . . . . . Buy option (USD CALL/ TWD PUT) . . . . . . . . . . . . Buy option (USD CALL/ JPY PUT) . . . . . . . . . . . . .	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Related future cash flows	Related future cash flows
			Contract dates	Exercise dates	Exercise prices/ Exercise rates		Cash inflow	Cash outflow
		USD 34,000 USD 34,000 USD 1,000 USD 117,900 USD 39,400 USD 4,200 USD 32,100 USD 11,000 USD 2,000	2004.01.06~2004.12.06 2004.01.07~2004.12.06 2004.01.07 2004.02.13~2004.12.30 2004.01.06~2004.12.30 2004.10.28~2004.12.02 2004.01.13~2004.12.30 2004.01.28~2004.12.30 2004.12.10	2005.01.07~2005.12.07 2005.01.08~2005.12.07 2005.01.07 2004.08.06~2005.09.28 2004.02.02~2005.08.25 2004.12.30~2005.02.24 2004.01.14~2005.03.22 2004.03.24~2005.02.22 2004.12.17	USD1:RMB8.1122~8.2235 USD1:RMB8.1122~8.2235 USD1:RMB8.2160 USD1:NTD31.82~.34.50 USD1:NTD31.00~ 34.00 USD1:JPY104.50~108.00 USD1:NTD32.00~34.14 USD1:NTD32.887~33.45 USD1:JPY97.40~99.45			USD 34,000 USD 34,000 USD 1,000 USD 97,000 NTD 560,250 USD 3,000 (closed) (closed) (closed)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Forward foreign currency contracts . . . . . . . . . . . . . . . . . . . ” Interest Rate Swap. . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . .	Par value, contracts amount or nominal principal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 980 USD 19,000 NTD 500,000 USD 5,000 (Note a)	2004.04.12 2003.10.02~2004.04.3 2002.06.27 2002.07.17	2004.04.26 2004.01.02~2004.08.04 2002.07.01~2004.07.01 2002.10.19~2007.07.19	USD1:NTD32.881 USD1:NTD32.946~33.733 2.1%~ 2.7% 4.30%		— — (6,436) (3,754) $745	(closed) (closed) (closed) (closed)	(closed) (closed) (closed) (closed)

[Note a]: The company will pay or receive the difference between the floating and predetermined interest rate multiplied by the notional amount.

[Note c]: The Company will pay or receive the difference net of all transactions, so future cash flow cannot be reasonably estimated.
[Note d]: The exercise rates of the transactions will be decided on exercise dates.

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

(F) The Company and its consolidated subsidiaries combined the buy and sell option contracts to form the range forward contract. The premiums expense and income from buy and sell options are to be offset and the net premium income of the Company and its consolidated subsidiaries was NT$18,645, NT$128,497 and NT$41,517 for the years ended December 31, 2002, 2003 and 2004, respectively.

(G) Fair value:

		December 31,	December 31,
2002 Nominal principal Fair value $2,383,676 $(62,018) $1,500,000 $(13,392) $ 868,750 $(21,350) $4,552,250 $ (120) $ 521,250 $ —		2003 Nominal principal Fair value $13,158,518 $ (43,390) $ 2,220,838 $ (42,979) $ 8,154,000 $(152,973) $ — $ — $ 85,680 $ (10)		2004
Nominal principal $2,383,676 $1,500,000 $ 868,750 $4,552,250 $ 521,250		Nominal principal $13,158,518 $ 2,220,838 $ 8,154,000 $ — $ 85,680		Nominal principal $11,054,824 $ 1,000,000 $ — $ — $ —
$ 973,000 $6,571,746	$ — $ 361	$ — $ 7,255,372	$ — $ 3,254	$ — $ 5,403,450

(H) The book value for related derivative transactions of the Company and the subsidiaries are as follows:

Other receivables . . . . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . Other receivable-net . . . . . . . . . . . . . . . . . . .		December 31,	2004 $ 5,398,531 (5,357,077) $ 41,454
	2002 $ 1,935,120 (1,935,120) $ —	2003 $ 5,494,344 (5,486,487) $ 7,857

B. Additional disclosure information

Pursuant to the terms of the contracts, the premiums are delivered or paid on the trade date. The Company and the consolidated subsidiaries provided time deposit amounting to US$1,000 and US$4,000 as collateral as of December 31, 2002 and 2003, respectively.

F-56

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

5) Significant intercompany transactions between the Company, DIH, DNH and the consolidated subsidiaries are eliminated when preparing the consolidated financial statements.

The details are as follows:

Transactions 1.Elimination of long-term investments . . . . . . . . . . . . . 2.Elimination of intercompany receivable (AR) and payable (AP) accounts . . . . . . . . . . . . . . . . . . . . . . . . . 3.Elimination of profit and loss accounts (1)Sale and purchase transactions A. Downstream transactions . . . . . . . . . . . . . . . . . . B. Upstream transactions. . . . . . . . . . . . . . . . . . . . . C. Sidestream transactions . . . . . . . . . . . . . . . . . . . (2)Services revenue, selling expenses, management and administrative expenses . . . . . (3)Unrealized (realized) intercompany profit from downstream transactions . . . . . . . . . . . . . . . . . . . . . 4.Elimination of minority interest. . . . . . . . . . . . . . . . . . . 5.Elimination of other transactions (1) Deposits-in and deposits-out. . . . . . . . . . . . . . . (2) Rental revenue and rental expense. . . . . . . . . F-57		2002			2003
	The Company	DIH	DNI	The Company	DIH	DNH	Pyramis

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Transactions 1.Elimination of long-term investments . . . . . . . 2.Elimination of intercompany receivable (AR) and payable (AP) accounts . . . . . . . . . . . . . . . 3.Elimination of profit and loss accounts (1)Sale and purchase transactions A. Downstream transactions . . . . . . . . . . . . B. Upstream transactions . . . . . . . . . . . . . . . C. Sidestream transactions . . . . . . . . . . . . . (2)Services revenue, selling expenses, management and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)Unrealized (realized) intercompany profit from downstream transactions . . . . . . . . . . 4.Elimination of minority interest . . . . . . . . . . . . . 5.Elimination of other transactions (1) Deposits-in and deposits-out . . . . . . . . . . . (2) Rental revenue and rental expense . . . . .		2004
	The Company $(15,788,696) 10,314,169 3,022,310 (39,763,928) — 3,198,407 (3,566) 375,950 3,194 33,829	DIH $ 14,140,739 (10,562,720) (2,796,012) 39,547,086 194,077 (3,181,084) 3,566 (379,243) — —	DNH $1,423,303 248,551 (226,298) 216,842 (194,077) (17,323) — — (4,400) (33,829)	Pyramis
				$224,654 — — — — — — 3,293 1,206 —

F-58

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

11. Disclosure information of investee company

(1) Related information of significant transactions
A. Financing activities to any company or person: None.
B. Guarantee information:

Name of the company providing guarantee Number Name (Note 1) 0 Delta Electronics, Inc. 0 ”	Parties being guaranteed Name Relationship with the Company (Note 2) Delta Products Corp. 1 Delta Optoelectronics Inc. 2	The limit of guarantee for such party (Note 3) $317,850 450,000	The highest outstanding guarantee amount in 2004 $317,850 (Note 5) 306,800	The outstanding guarantee amount at 12/31/2004 $317,850 —	The amount of guarantee with collateral placed $— —	The ratio of accumulated guarantee amount to net value of the Company 0.96% —	The ceiling of the outstanding guarantee to the respective party
Number (Note 1) 0 0	Name Delta Products Corp. Delta Optoelectronics Inc.
							(Note 4) (Note 4)

(Note 1): Number 0 represents the Company.

(Note 2): Number 1 means the Company has business transactions with the party.

Number 2 means the Company and its subsidiaries directly own over 50% of the shares.

(Note 3): The limit was determined by the Board of Directors.
(Note 4): In accordance with the guarantee procedure of the Company, the Company’s guarantee to others should not be in excess of 80% of the Company’s net assets. As of December 31, 2004, the maximum amount of guarantee that the Company can provide was NT$26,499,034.
(Note 5): The highest outstanding guarantee amount is exchanged by the rate at Dec. 31, 2004.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

C. Marketable Securities held at December, 31, 2004: (Cmbine the individual amount less than 50,000 on December 31,2004)

Name and kind of marketable securities	Name and kind of marketable securities	The relationship of the issuers with the Company	General ledger accounts		December	31, 2004
Kind of marketable securities	Name of marketable securities			Number of shares (In thousand)	Book value	Percentage ownership
Common stock ” ” ” Common stock ” ” ” ” ” ” ” Preferred Stock Common Stock ” ” ” ” ” ”	Delta International Holding Ltd. Delta Electronics (Thailand) Public Co., Ltd. Delta Networks Holding Ltd. Cyntec Co., Ltd. Delta Optoelectronics Inc. DelSolar Co., Ltd. Grand Advance Technology Ltd. Pyramis Corporation D-Link Corporation Union Optronics Corp. Macronix International Co., Ltd WK Technology Fund. Delta America Ltd. Loyalty Funder Enerprise Co., Ltd. WK Technology Fund IV WK Technology Fund V Betacera Inc. Analog and Power Electronics Corp Sheng Hua Venture Capital Corp. Others	A subsidiary of the company Investee Company accounted for under equity method A subsidiary of the company Investee Company accounted for under equity method A subsidiary of the company ” Investee Company accounted for under equity method A subsidiary of the company None ” ” ” ” ” ” ” ” ” ” ” ”	Long-term investment ” ” ” Long-term investment ” ” ” ” ” ” ” ” ” ” ” ” ” ” ” ”	51,700 69,128 39,800 49,319 128,057 49,500 19,600 30,346 11,454 24,031 61,335 11,098 2,100 12,909 8,254 7,000 7,134 9,752 5,000	$14,140,739 1,260,707 1,423,302 814,945 $ 575,166 494,579 184,785 224,654 653,362 348,072 225,040 118,782 101,076 95,413 82,204 70,000 59,358 54,631 50,000 208,973	94.00 5.82 100.00 36.57 95.21 82.50 39.20 99.24 2.09 12.70 1.22 4.56 Preferred Stock 9.87 3.13 3.89 18.99 13.61 2.50
					$21,185,788

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

D. Marketable securities acquired or sold during 2004 in excess of $100,000 or 20% of capital:

Acquirer/seller Delta Electronics, Inc.. . ” ” ” ” ” ” ” ” ”	Name of marketable security	General ledger accounts	Name of transaction parties	Relationship	January 1, 2004	January 1, 2004	Addit	ion		Disposal	Disposal		December 31, 2004	December 31, 2004
					Number of shares (In thousand)	Amount	Number of shares (In thousand)	Amount	Number of shares (In thousand)	Sales amount	Cost	Disposal gain (loss)	Number of shares (In thousand)	Amount
	UBS Taiwan Bond Fund Core Pacific Well Pool Bond Fund JF (Taiwan) First Bond Fund ABN-AMRO Bond Fund Tachong Bond Fund Taiwan Life Asset Management-Solomon Dresdner Bond Delta Optoelectronics Inc. Pyramis Corporation DelSolar Co., Ltd.	Short-term investments ” ” ” ” ” ” Long-term investment ” ”	— — — — — — — Delta Optoelectronics Inc. (Note 1) Pyramis Corporation (Note 1) DelSolar Co., Ltd. (Note 1)	— — — — — — — A subsidiary of the Company ” ”	24,003 88,597 58,434 82,550 21,736 — — 58,160 100 —	$343,000 1,062,627 789,156 1,192,627 271,000 — — 113,011 1,000 —	221,048 120,665 201,290 265,669 — 8,839 18,832 69,897 30,246 49,500	$3,172,400 (245,051) 1,457,500 (209,262) 2,738,500 (259,724) 3,868,000 (348,219) — (21,736) 100,000 (8.839) 210,000 (18,832) 462,155 (Note 2) — 223,654 (Note 3) — 494,579 (Note 3) —		$3,522,158 2,530,502 3,536,393 5,073,235 272,639 100,109 210,546 — — —	$(3,515,400) $6,758 (2,520,127) 10,375 (3,527,656) 8,737 (5,060,627) 12,608 (271,000) 1,639 (100,000) 109 (210,000) 546 — — — — — —		— — — — — — — 128,057 30,346 49,500	$— — — — — — — 575,166 224,654 494,579

(Note 1): Investee company issuance of common stock for cash.

(Note 2): Including investment loss accounted for under the equity method and the adjustments due to change in long-term investment ownership percentage. (Note 3): Including investment loss accounted for under the equity method.

E. Acquisition of real estate in excess of $100,000 or 20% of capital: None.
F. Disposal of real estate in excess of $100,000 or 20% of capital: None.
G. Related party purchases or sales transactions in excess of $100,000 or 20% of capital: Please refer to Note 5 (2) A and C.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

H. Receivable from related parties in excess of $100,000 or 20% of capital:

Name of creditor Transaction parties Delta Electronics, Inc.. . . . . . Delta International Holding Ltd. (DIH) ” DEI Logistics (USA) Corp. ” Delta Electronics (Thailand) Public Co., Ltd. ” Delta Products Corporation ” Delta Electronics Europe Ltd. ” Delta Video Display System (Wu Jiang) Co., Ltd. ” Delta Electronics International Ltd.	Transaction parties	Relationship	Balance of receivable from related parties	Turnover rate	Overdue receivable (Note 1)	Overdue receivable (Note 1)	Subsequent collections (Note 2)	Allowance for doubtful accounts provided
					Amount	Action adopted for overdue accounts
		A subsidiary of the Company A subsidiary of DIH Investee company accounted for under equity method Affiliated enterprise Investee company accounted for under equity method A subsidiary of DIH A subsidiary of DIH	Accounts receivable Other receivables $ 398,383 5,935,204 Accounts receivable Other receivables 899,778 76,927 Accounts receivable Other receivables 47,565 124,402 Accounts receivable Other receivables 245,496 7,640 Accounts receivable Other receivables 108,952 5,898 Accounts receivable Other receivables 145,882 9,989 Account receivable Other receivables 4,535 164,458	9.94 — 3.33 — 0.99 — 3.90 — 3.10 — 3.92 — 1.46 —	$ — 922 — 67,306 — 323 — 1,755 — — — 7,715 — —	— — Continued collection expected in 2005 — — — — — — — — — —	$ — 1,589,250 296,663 — 41,195 3,526 106,392 — 36,167 2,264 85,261 — 1.395 113,569	$— — — — — — — — — — — — — —

(Note 1): The overdue accounts receivable which was reported as other receivables.

(Note 2): The amounts collected subsequently by February 3, 2005.

I. Information on derivative transactions: Please refer to Note 10 (3).

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

(2) Disclosure information of investee company

Information relating to investee companies’ investment income or loss was translated at the average exchange rate in 2004 while others were translated at the rate of exchange prevailing at December 31, 2004.

A. Information of investee company:

Delt	Name of investor a Electronics, Inc. . . . . . ” ” ” ” ” ” ” ”	Name of investee company	Address	Main activities	Original in	vestment	Held a	s of December 31, 2004	s of December 31, 2004	Income (loss) of the investee company	Investment income (loss) recognized by the Company	Note
					Balance as of December 31, 2004	Balance as of December 31, 2003	Number of shares (In thousand)	Percentage of ownership	Book value
		Delta International Holding Ltd. Delta Networks Holding Ltd. Delta Electronics (Thailand) Public Co., Ltd. Pyramis Corporation Delta Optoelectronics, Inc. Grand Advance Technology Ltd. Cyntec Co., Ltd. Deltronics (Netherlands) B.V. DelSolar Co., Ltd.	Cayman Islands Cayman Islands Thailand Taipei Taiwan R.O.C. Science-Based Industrial Park, Hsinchu, Taiwan Tao-Yuan, Taiwan Science-Based Industrial Park, Hsinchu, Taiwan Netherlands Science-based Industrial Park Hsinchu, Taiwan	Equity investments Equity investments Manufacturing and sales of electronic products Development and sales of electronics products. Development, design, manufacturing and sales of displays with polymer light emission display (PLED) and carbon nano- tube electronic emitter (CNT) technologies Manufacturing and sales of CD, CDR, VCD and DVD Research, development, manufacturing and sales of various thin film components, such as thermal printer head, temperature sensor and its application modules, chip resistors and hybrid circuits Trading and import-export of the related equipment, components and materials telecom system, computer system and instruments. Research, development, manufacturing and sales of solar batheries and related systems.	$4,425,537 1,377,206 114,615 316,263 1,418,882 400,000 455,814 11,306 495,000	$4,425,537 1,377,206 114,615 1,000 719,912 400,000 455,814 — —	51,700 39,800 69,128 30,346 128,057 19,600 49,319 450 49,500	94.00 100.00 5.82 99.24 95.21 39.20 36.57 100.00 82.50	$14,140,739 1,423,302 1,260,707 224,654 575,166 184,785 814,945 13,314 494,579	$5,263,135 209,826 1,034,355 (91,696) (224,046) (92,654) 225,821 1,232 (502)	$4,873,357 209,826 82,692 (91,608) (202,584) (36,321) 81,569 1,232 (421)	(Note d) — (Note e) — — — — — —

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of investor Delta International Holding Ltd.. . . . . . . ” ” ” ” ” ” ” F-64	Name of investee company	Address	Main activities	Original in	vestment	Held a	s of December	31, 2004	Income (loss) of the investee company	Investment income (loss) recognized by the Company Note (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) —
				Balance as of December 31, 2004	Balance as of December 31, 2003	Number of shares (In thousand)	Percentage of ownership	Book value
	Delta Electronics (H.K.) Ltd. Delta Electronics Agent Ltd. Delta Electronics International Ltd. Delta Electronics Trading Ltd. Delta Power Sharp Ltd. Delta Electronics (Dong Guan) Co., Ltd. Delta Electronics (Shanghai) Co., Ltd. Delta Electronics Components (Dong Guan) Co., Ltd.	Hong Kong British Virgin Islands British Virgin Islands. British Virgin Islands Hong Kong Dongguan, Guangdong, P.R.C. Shanghai Dongguan, Guangdong, P.R.C.	Operations management and engineering services Operations management and engineering services Manufacturing and sales of electronic products Electronics product sales Operations management and engineering services Manufacturing and sales of various power supplies Design the figure of the product Manufacturing and sales of transformers	$ 41,130 318 28,607 318 41,106 1,176,045 317,288 1,017,120	$41,130 318 28,607 318 41,106 1,176,045 — 1,017,101	10,000 10 900 10 10,000 — — —	100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00	$42,322 2,206 7,544,443 5,881 47,928 1,358,034 297,321 1,342,429	$(23) 1,331 7,408,105 (115) 716 48,722 (21,590) 382,439

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of investor Delta International Holding Ltd. ” ” ” ” ” ” ” ” F-65	Name of investee company	Address	Main activities	Original in	vestment	Held a	s of December	31, 2004	Income (loss) of the investee company	Investment income (loss) recognized by the Company Note (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) — (Note a) —
				Balance as of December 31, 2004	Balance as of December 31, 2003	Number of shares (In thousand)	Percentage of ownership	Book value
	Delta Electronics Power (Dong Guan) Co., Ltd. DEI Logistics (USA) Corp. Delta Electronics (Japan) Inc. Delta Video Display System (Wu Jiang ) Co., Ltd. Delta Electronics (Jiang Su) Co., Ltd. Delta Electronics Components (Wu Jiang) Co., Ltd. Delta Electro- optics (Wu Jiang) Co., Ltd. DAC Holding Ltd. Netpower Technologies, Inc.	Dongguan, Guangdong, P.R.C. U.S.A. Japan Jiang Su Province, P.R.C. Jiang Su Province, P.R.C. Jiang Su Province, P.R.C. Jiang Su Province, P.R.C. Cayman Islands U.S.A.	Manufacturing and sales of other power supplies Warehousing and logistics services Operating and sales of electronic products Manufacturing and sales of various monitor Manufacturing and sales of various power supplies Manufacturing and sales of transformer and peripherals Manufacturing and sales of peripherals and electronic control equipment Equity investment Produce DC/DC/ Power/Module, product design, sample production, and marketing & sales	572,130 15,893 56,465 227,263 669,270 699,270 $437,044 418,704 57,211	572,130 15,893 56,465 227,263 699,270 699,270 $437,044 227,390 57,211	— 500 3.8 — — — — 13,173 3,913	100.00 100.00 100.00 55.00 55.00 55.00 55.00 59.34 24.14	1,815,143 22,383 76,193 133,289 782,031 690,128 $525,991 209,417 13,884	439,939 1,525 2,600 (113,218) 152,162 130,177 $91,468 (162,991) (20,180)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of investor Delta Networks Holding Ltd. . . . . . . . . . . . . . . . . Delta Networks, Inc. (registered in Cayman) . . . . . . . . . . . ” ” ” Pyramis Corporation. . . . . . . . . F-66	Name of investee company	Address	Main activities	Original in	vestment	Held a	s of December	31, 2004	Income (loss) of the investee company	Investment income (loss) recognized by the Company Note (Note b) — (Note c) — (Note c) — (Note c) — (Note c) — (Note f) —
				Balance as of December 31, 2004	Balance as of December 31, 2003	Number of shares (In thousand)	Percentage of ownership	Book value
	Delta Networks (Cayman) Inc. Delta Networks Inc. DNI Logistics (USA) Corp. Delta Networks International Ltd. Delta Electronics Industrial (Dong Guan) Co., Ltd. Pyramis Holding Ltd.	Cayman Islands. Tao-Yuan, Taiwan USA Hong Kong Dongguan, Guangdong P.R.C. Cayman Islands	Equity Investment Development design manufacturing and sales of networking system and peripherals. Trading and import/ export of networking system and peripherals Trading and import/ export of networking system and peripherals Manufacturing and sales of electronic ballast for energy saving lighting and interface cards Equity investment	1,251,287 458,969 17,674 274,622 610,131 132,285	1,251,287 455,243 17,674 274,622 537,022 —	39,367 49,599 500 10 — 4,100	94.00 99.20 100.00 100.00 100.00 100.00	1,399,130 225,204 21,606 508,573 732,057 128,388	215,318 15,959 2,177 103,219 83,474 (1,958)

(Note a): Investment income/loss recognized by Delta International Holding Ltd.

(Note b): Investment income/loss recognized by Delta Networks Holding Ltd. (Note c): Investment income/loss recognized by Delta Networks, Inc.(registered in Cayman) (Note d): The investment income is net of the elimination of intercompany transactions.

(Note e): The weighted average shareholding ratio was 20.14% and the investment income included the amortization of the excess of investment cost over the net assets of the investee as well as the elimination of intercompany transactions.

(Note f): Investment income/loss recognized by Pyramis Corporation

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

B. Financing activities to any company or person: None.
C. Guarantee information: None.

D. Marketable securities held by the company at December 31, 2004: (Combine the individual amount less than 50,000 on December 31, 2004)

Name and kind of

	Name and kind of
Name of investor Delta International Holding Ltd. (DIH) . . . . . ” ” ” ” ” ” ” ”	marketable securities Kind of marketable securities Name of marketable securities Common stock Delta Electronics International Ltd. ” Delta Electronics (Japan) Inc. Certificate of amount contributed Delta Electronics (Dong Guan) Co., Ltd. ” Delta Electronics Components (Dong Guan) Co., Ltd. ” Delta Electronics Power (Dong Guan) Co., Ltd. ” Delta Electronics (Shanghai) Co., Ltd. ” Delta Electronics (Jiang Su) Co., Ltd. ” Delta Electronics Components (Wu Jiang) Co., Ltd. ” Delta Electro-optics (Wu Jiang) Ltd.	The relationship of the issuers with the Company A subsidiary of DIH ” ” ” ” ” ” ” ”	General ledger accounts Long-term investment ” ” ” ” ” ” ” ”		December 31, 2004
	Kind of marketable securities Common stock ” Certificate of amount contributed ” ” ” ” ” ”			Number of shares 900 3.8 — — — — — — —	Book value $7,544,443 76,193 1,358,034 1,342,429 1,815,143 297,321 782,031 690,128 525,991	Percentage 100.00 100.00 100.00 100.00 100.00 100.00 55.00 55.00 55.00	Market value
							$7,544,443 76,193 1,358,034 1,342,429 1,815,143 297,321 782,031 690,128 525,991

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

F-68	Name of investor Delta International Holding Ltd. (DIH). . . . . ” ” ” ” ” Delta Networks Holding Ltd.. . . . . . . . . . . . . . . . . .	Name and kind of marketable securities Kind of marketable securities Name of marketable securities ” Delta Video Display System (Wu Jiang) Co., Ltd. Common stock DAC Holding Ltd. ” Delta Electronics (Thailand) Public Co., Ltd. ” Deltron-Cimic Electric and Electronics Co., Ltd. ” Netgear Inc. Others ” Delta Networks, Inc. (registered in Cayman)	The relationship of the issuers with the Company ” ” Investee company accounted for under equity method Affiliated enterprise — A subsidiary of DNH	General ledger accounts ” ” ” ” ” ”		December 31, 2004	December 31, 2004
		Kind of marketable securities ” Common stock ” ” ” ”			Number of shares — 13,173 180,984 34,036 506 39,367	Book value 133,289 209,417 4,365,421 97,440 52,447 227,872 1,399,130	Percentage 55.00 59.34 15.23 10.38 1.63 94.00	Market value
								133,289 209,417 2,536,678 97,440 292,114 240,511 1,399,130

E. Marketable securities acquired or sold during 2004 in excess of $100,000 or over 20% of capital:

Acquirer/seller Delta International Holding Ltd.. . . . . ” ”	Name of marketable security	General ledger accounts	Name of transaction parties	Relationship	January 1, 2004	January 1, 2004	Additi	on		Disposal	Disposal		December 31, 2004	December 31, 2004
					Number of shares (In thousand)	Amount	Number of shares (In thousand)	Amount	Number of shares (In thousand)	Sales amount	Cost	Disposal gain/(loss)	Number of shares (In thousand)	Amount
	Delta Electronics (Shanghai) Co., Ltd. DAC Holding Netgear Inc.	Long-term investments ” ”	— DAC Holding Open Market	Affiliated enterprise A subsidiary of the company —	— 7,154 920	$ — 134,444 95,355	— 6,019 —	$297,321 (Note a) 74,973 (Note b) —	— — 414	$ — — 192,491	$ — — 42,908	$ — — 149,583	— 13,173 506	$297,321 209,417 52,447

(Note a): The cost of securities acquired this year is $317,288, including the cumulative translation adjustment on foreign long-term investment and investment loss under equity method.

(Note b): The cost of securities acquired this year is $191,314, including the cumulative translation adjustment on foreign long-term investment, investment loss under equity method and long-term investment adjustment for change in investment ownership percentage.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

F. Acquisition of real estate in excess of $100,000 or 20% of Capital: None.
G. Disposal of real estate in excess of $100,000 or 20% of Capital: None.
H. Related party purchases or sales transactions in excess of NT$100,000 or 20% of Capital:

The transaction of the Company and its consolidated subsidiaries: Please see note 5(2) A and B

Name of the counterparty Delta Electronics International Ltd. . . . . . . . . . ” ” ” ” ” Delta Video Display System (Wu Jiang) Co,. Ltd. . . . . . . Delta Networks International Ltd. . . . . . . . . . . . . . . . . . . . . .	Name of transaction parties	Relationship		Transaction terms	Transaction terms		Description of and reasons for difference in transaction terms compared to non- related party transactions	Description of and reasons for difference in transaction terms compared to non- related party transactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)
			Purchases (sales)	Amount	% of total purchases (sales)	Credit terms	Unit price	Credit period	Balance (Note)	% of total accounts or notes receivable (payable)
	Delta Electronics (Thailand) Public Co., Ltd Delta Green (Tianjin) Industries Co. Delta Electronics (JAPAN) Inc. Delta Electronics (Dong Guan) Co., Ltd Delta Electronics Components (Dong Guan) Co., Ltd Delta Electronics Power (Dong Guan) Co, Ltd Delta Electronics (JAPAN) Inc. Delta Electronics Industrial (Dong Guan)Co., Ltd.	Affiliated enterprise ” ” ” ” ” ” ”	Purchase ” ” ” ” ” ” ”	$210,371 264,207 186,849 1,244,615 4,888,777 16,824,414 287,966 4,489,022	0.42 0.52 0.37 2.47 9.70 33.38 14.60 51.18	75 days ” ” ” ” ” ” ”	— — — According to the contract ” ” — According to the contract	— — — — — — — —

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of the counterparty Delta Electronics International Ltd . . . . . . . ” ” ” Delta Electronics Component (Dong Guan) Co., Ltd. . . . . . . . . Delta Electronics (Jiang Su) Co., Ltd.. . . . . . . . . . . ” Delta Electronics Components (Wu Jiang) Co., Ltd.. . . . . . . . . . . . . . . ” Delta Electro-Optics (Wu Jiang) Co., Ltd. . . . . . . . . ” Delta Video Display System (Wu Jiang) Co., Ltd. . . . . . . . . . . . . . . . . . . . F-70	Name of transaction parties	Relationship		Transaction terms	Transaction terms		Description of and reasons for difference in transaction terms compared to non- related party transactions	Description of and reasons for difference in transaction terms compared to non- related party transactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)
			Purchases (sales)	Amount	% of total purchases (sales)	Credit terms	Unit price	Credit period	Balance (Note)	% of total accounts or notes receivable (payable)
	Delta Electronics (Dong Guan) Co., Ltd Delta Electronics Power (Dong Guan) Co., Ltd Delta Electronics Components (Dong Guan) Co., Ltd Delta Electronics, Inc. Delta Electronics Power (Dong guan) Co., Ltd. Deltron-Cimic Electric and Electronics Co., Ltd. Delta Electronics International Ltd. Delta Electronics (Jiang Su) Co., Ltd. Delta Electronics International Ltd. ” Deltron-Cimic Electric and Electronics Co., Ltd. Delta Electronics International Ltd.	” ” ” The ultimate parent company Affiliated enterprise ” ” ” ” ” ” ”	Sales ” ” ” Sales ” ” ” ” ” ” ”	1,555,587 13,206,296 4,201,611 39,761,526 $ 593,213 526,629 4,907,616 698,405 1,390,266 641,503 470,900 1,062,198	2.65 22.50 7.16 67.75 9.15 6.78 63.21 21.83 43.46 51.40 37.73 57.82	” ” ” ” 75 days ” ” ” ” ” ” ”	” ” ” — According to the contract — — — — — — —	— — — — — — — — — — — —	1,029,951 — — 12,019,547 $312,773 128,494 588,353 231,797 131,659 58,470 166,221 110,651	7.82 — — 91.22 18.41 9.23 42.26 29.47 16.74 25.88 73.56 54.46

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of the counterparty Delta Networks International Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . ” Delta Networks, Inc.. . . . . . . . . . . . ” Delta Electronics (Dong Guan) Co., Ltd. . . . . . . . . . . . . . . . . . . . . ” F-71	Name of transaction parties	Relationship		Transaction terms	Transaction terms		Description of and reasons for difference in transaction terms compared to non-related party transactions	Description of and reasons for difference in transaction terms compared to non-related party transactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)
			Purchases (sales)	Amount	% of total purchases (sales)	Credit terms	Unit price	Credit period	Balance (Note)	% of total accounts or notes receivable (payable)
	Delta Electronics Industrial (Dong Guan) Co., Ltd DNI Logistics(USA) Corp. Delta Networks International Ltd. Delta Electronics, Inc. Delta Electronics Power (Dong Guan) Co., Ltd. Delta Electronics Components (Dong Guan) Co., Ltd	” ” ” The ultimate parent company Affiliated enterprise ”	” ” ” ” ” ”	4,256,510 774,077 116,945 217,626 1,085,745 1,159	44.40 8.07 9.33 17.36 45.71 0.05	” ” ” ” ” ”	According to the contract — — — According to the contract ”	— — — — — —	34,122 266,148 247,057 40,538 315,650 754,969	2.15 16.8 47.73 7.83 29.32 70.12

(Note): According to the agreement between Delta Electronics International Ltd., Delta Networks International Ltd and the companies in Dong Guan, the accounts receivable (payable) from the sales (purchases) among these companies are settled in net, therefore they were presented on balance sheet in net amount.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

I. Receivable from related parties in excess of $100,000 or 20% capital:

F-72	Name of the creditor Delta Electronics International Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . ” ” ” Delta Electronics Power (Dong Guan) Co., Ltd.. . . . . . . . . . . . . . Delta Electronics Components (Dong Guan) Co., Ltd . . . . . . . . ” Delta Electronics (Dong Guan) Co., Ltd. . . . . . . . . . . . . . . . . . . . . ” Delta Electro-optics (Wu Jiang) Co., Ltd. . . . . . . . . . . . . . . . . . . . . Delta Electronics (Jiang Su) Co., Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . ” Delta Electronics Components (Wu Jiang) Co., Ltd. . . . . . . . . . ” Delta Video Display System (Wu Jrang) Co., Ltd.. . . . . . . . . . . . . .	Transaction parties	Relationship	Balance of receivable from related parties (Note a)	Turnover rate	Overdue receivable	Overdue receivable	Subsequent collections (Note b)	Allowance for doubtful accounts provided
						Amount	Action adopted for overdue accounts
		Delta Electronics (Dong Guan) Co., Ltd. Delta Electronics, Inc. Delta Networks, Inc. Delta Networks International Ltd. Delta Electronics International Ltd. ” Delta Electronics Power (Dong Guan) Co., Ltd. ” Delta Electronics components (Dong Guan) Co., Ltd. Deltron-Cimic Electric and Electronics Co., Ltd ” Delta Electronics International Ltd. ” Delta Electronics (Jiang Su) Co., Ltd. Delta Electronics International Ltd.	Affiliated enterprise The ultimate parent company Affiliated enterprise ” ” ” ” ” ” ” ” ” ” ” ”	$1,029,951 12,021,809 197,357 191,410 1,078,506 1,249,341 312,773 315,650 754,969 166,221 128,494 588,353 131,659 231,797 110,651	2.05 3.81 0.44 — 22.63 3.69 2.47 4.27 — 3.27 4.58 7.67 6.41 3.17 5.03	$— — — — — — — — — — — — — — —	— — — — — — — — — — — — — — —	$ — 3,592,106 2,892 — 128,443 87,194 32 — — 52,881 41,066 587,959 131,659 86,130 110,555	$— — — — — — — — — — — — — — —

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Name of the creditor Delta Networks International Ltd.. . . . . . . . . . . . . . . . . . ” Delta Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delta Electronics (JAPAN) Inc.. . . . . . . . . . . . . . . . . . . .	Transaction parties	Relationship	Balance of receivable from related parties (Note a)	Turnover rate	Overdue receivable Subsequent collections (Note b) Allowance for doubtful accounts provided Amount Action adopted for overdue accounts — — 89,558 — — — 138,591 — — — 222,113 — — — 73,168 —
					Amount
	DNI Logistics (USA) Corp. Delta Networks, Inc. Delta Networks International Ltd. Delta Video Display System (Wu Jiang) Co., Ltd.	” ” ” ”	266,148 144,950 255,150 161,824	4.22 4.60 0.80 2.95	— — — —

(Note a): Including the Accounts receivable and Other receivable.
(Note b): The amounts collected subsequently by February 3, 2005.
J. Information on derivative transactions
- (A) General information disclosure:

a. Purpose:

The investee companies entered into certain foreign currency option contracts, foreign currency forward contracts and cross currency swap contracts to hedge foreign exchange risks in foreign currency denominated accounts receivable and payable.

b. Accounting policy: See Note 2.

c. Credit risk:

The banks, which the investee companies deal with, are all in good credit standing and the investee companies will deal with several banks to disperse the credit risk, therefore, the possibility is low for the banks not to comply with the terms of the contracts.

d. Market risk:

The investee companies entered into these contracts in order to hedge foreign exchange losses. The exchange gain or loss from exchange rate fluctuation of hedged items will be offset by these transactions. Accordingly, no material market risk is expected.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

e. The information on derivative transactions of the investee companies for the year ended December 31, 2004 are as follows (unit: thousand of dollars):

Derivative transactions Derivative transactions of the consolidated subsidiary during 2004 1.Delta International Holding Ltd. (DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . . . ” Total . . . . . . . . . . . . . . . . . . . . . . . 2.Delta Electronics International Ltd. (the subsidiary of DIH) Buy option (USD PUT/RMB CALL) . . . . . . . . . . . . . . . . . . . Forward foreign currency contracts . . . . . . . . . . . . . . . . . ” ” Callable Range Accrual Swap . . . . . . . . . . . . . . . . . . . . Libor-linked USD/YEN Strategy. . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . F-74	Par value, contracts amount or nominalprincipal		Transaction terms	Transaction terms	Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 207,241 USD 207,178 USD 1,000 USD 6,000 USD 119,000 USD 25,500 USD 5,000 (Note b) USD 60,000	2003.12.03~2004.09.01 2003.12.03~2004.09.01 2003.08.28 2003.08.13 2003.04.29~2004.12.06 2004.02.06~2004.12.30 2002.07.17 2003.12.22	2004.01.08~2004.12.03 2004.01.08~2004.12.03 2004.01.28 2004.01.30~2004.03.22 2004.01.30~2005.12.07 2004.04.15~2005.01.25 2007.07.19 2004.07.29	USD1:THB 39.2205~41.61 USD1:THB 39.2305~41.6225 USD1:RMB8.28 USD1:RMB8.2030~8.2270 USD1:RMB7.8340~8.2580 USD1:JPY103.20~111.00 (Note d)		$ — 63 $ 63 $0.35 8 858 31 (72) (159) $ 666	(closed) (closed) (closed) (closed) (Note c) JPY 417,023 (closed) (closed)	(closed) (closed) (closed) (closed) (Note c) USD 4,000 (closed) (closed)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions 3.Delta Electronics (Dong Guan) Co., Ltd (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . . . . 4.Delta Electronics Power (Dong Guan) Co., Ltd (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . . . . 5.Delta Electronics components (Dong Guan) Co., Ltd. (the subsidiary of DIH) Forward foreign currency contracts . . . . . . . . . . . . . . . . . . 6.Delta Electronics Industrial (Dong Guan) Co., Ltd (the subsidiary of DNI Cayman) Forward foreign currency contracts . . . . . . . . . . . . . . . . . . 7. Delta Networks, Inc (registered in Taiwan, the subsidiary of DNI Cayman) Sell option (USD CALL/TWD PUT) . . . . . . . . . . . . . . . . . . . . . Sell option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . . . Sell option (USD CALL/JPY PUT) . . . . . . . . . . . . . . . . . . . . . Buy option (USD PUT/TWD CALL) . . . . . . . . . . . . . . . . . . . . F-75	Par value, contracts amount or nominalprincipal		Transaction terms		Recognized gain(loss)	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates	Exercise prices/ Exercise rates			Cash inflow	Cash outflow
	USD 16,000 USD 34,000 USD 34,000 USD 1,000 USD117,900 USD 39,400 USD 4,200 USD 32,100	2004.01.06~2004.12.07 2004.01.06~2004.12.06 2004.01.07~2004.12.06 2004.01.07 2004.02.13~2004.12.30 2004.01.06~2004.12.30 2004.10.28~2004.12.02 2004.01.13~2004.12.30	2005.01.07~2005.12.07 2005.01.07~2005.12.07 2005.01.08~2005.12.07 2005.01.07 2004.08.06~2005.09.28 2004.02.02~2005.08.25 2004.12.30~2005.02.24 2004.01.14~2005.03.22	USD1:RMB8.1122~8.2235 USD1:RMB8.1122~8.2235 USD1:RMB8.1122~8.2235 USD1:RMB8.2160 USD1:NTD31.82~.34.50 USD1:NTD31.00~34.00 USD1:JPY104.50~108.00 USD1:NTD32.00~34.14		$ (1,450) $ (2,346) $ (2.537) $ (227) NTD 600 NTD(2,649) NTD 64 NTD 5,612	USD 16,000 RMB 278,097 RMB 278,467 RMB 8,216 NTD 3,181,643 USD 17,900 JPY 316,500 (closed)	USD130,965 USD 34,000 USD 34,000 USD 1,000 USD 97,000 NTD560,250 USD 3,000 (closed)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Derivative transactions Buy option (USD CALL/TWD PUT) . . . . . . . . . . . . . . . . . . . . . . . . Buy option (USD CALL /JPY PUT) . . . . . . . . . . . . . . . . . . . . . . . . Forward foreign currency contracts . . . . . . . . . . . . . . . . . . . . ” Interest Rate Swap . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . .	Par value, contracts amount or nominalprincipal		Transaction terms	Exercise prices/ Exercise rates USD1:NTD32.887~33.45 USD1:JPY97.40~99.45 USD1:NTD32.881 USD1:NTD32.946~33.733 2.1%~ 2.7% 4.30%	Recognized gain(loss)	Related future cash flows	Related future cash flows
		Contract dates	Exercise dates			Cash inflow	Cash outflow
	USD 11,000 USD 2,000 USD 980 USD 19,000 NTD500,000 USD 5,000 (Note a)	2004.01.28~2004.12.30 2004.12.10 2004.04.12 2003.10.02~2004.04.3 2002.06.27 2002.07.17	2004.03.24~2005.02.22 2004.12.17 2004.04.26 2004.01.02~2004.08.04 2002.07.01~2004.07.01 2002.10.19~2007.07.19		NTD 3,077 NTD 4,231 — — (6,436) (3,754) $ 745	(closed) (closed) (closed) (closed) Unwind (closed)	(closed) (closed) (closed) (closed) (closed)

[Note a]: The company will pay or receive the difference between the floating and predetermined interest rate multiplied by the notional amount.

[Note b]: If LIBOR is between the contract rate range, the company will receive the difference between the predetermined and floating rate multiplied by the notional amount from the bank. However, when LIBOR falls outside the contract rate range, the Company will pay predetermined rate multiplied by the notional amount to the bank. [Note c]: The Company will pay or receive the difference among the transactions, so future cash flow cannot be reasonably estimated. [Note d]: The exercise rates of the transactions will be decided on exercise dates.

DELTA ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

f. The information of book value on derivative transactions of investee company as of December 31, 2004

Delta Electronics International Holding Ltd.. . . . . . . . . Delta Electronics (Dong Guan)Co., Ltd. . . . . . . . . . . . . Delta Electronics Power (Dong Guan) Co., Ltd . . . . . Delta Electronics Components (Dong Guan) Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delta Electronics Industrial (Dong Guan) Co., Ltd. . .		Book Value
	Other receivable $2,703,366 $ 507,110 $1,078,344 $1,078,153 $ 31,558	Otherpayable $(2,655,352) $ (508,560) $(1,080,690) $(1,080,690) $ (31,785)	Other receivable (payable)-net
				$48,014 $ (1,450) $ (2,346) $ (2,537) $ (227)

(B) Additional disclosure

Pursuant to the terms of the contracts. The investee companies does not provide any pledged assets.

F-77

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

(3) Disclosure of information on indirect investments in Mainland China (Units: In thousands)

A. Basic information

Investment Income or loss recognized are translated at the annual average rate, others are translated at the rate of exchange prevailing at the balance sheet date.

F-78	Name of investee in Mainland China Delta Electronics (Dong Guan) Co., Ltd.. . . . . . . . Deltron-Cimic Electric and Electronics Co., Ltd. . . . Delta Electronics Industrial (Dong Guan) Co., Ltd. . . . . . . . . . . . . . . Delta Electronics Components (Dong Guan) Co., Ltd.. . . . . . . . Delta Electronics Power (Dong Guan) Co., Ltd.. . . . . . . . . . . . . . . . . . .	Main activities of investee	Capital	Investment method	Accumulated remittance as of January 1, 2004	Remitted or collected this period	Remitted or collected this period	Accumulated remittance as of December 31, 2004	Ownership held by the Company (direct and indirect)	Investment income (loss) recognized by the Company during the year	Ending balance of investment	The investment income (loss) remitted back as of December 31, 2004
						Remitted out	Collected
		Manufacturing and sales of various power supplies Manufacturing and sales of uninterruptible power system Manufacturing and sales of electronic ballast for energy saving lighting and interface cards Manufacturing and sales of transformer and peripherals Manufacturing and sales of power supplies	NT$ 1,176,045 (Equivalent to US$ 37,000) (RMB 306,360) NT$ 1,259,116 (Equivalent to US$ 39,614) (RMB328,000) (Note a and d) NT$ 711,984 (Equivalent to US$ 22,400) (RMB185,472) NT$1,017,120 (Equivalent to US$ 32,000) (RMB264,960) NT$ 572,130 (Equivalent to US$18,000) (RMB149,040)	Invested by Delta International Holding Ltd. ” Invested by Delta Networks, Inc. (registered in Cayman) Invested by Delta International Holding Ltd. ”	NT$ 1,179,435 (Equivalent to US$ 37,107) NT$ 95,421 (Equivalent to US $ 3,002) NT$ 601,541 (Equivalent to US$18,925) NT$ 957,485 (Equivalent to US$30,124) NT$ 537,800 (Equivalent to US$16,920)	— — NT$ 68,722 (Equivalent to US$ 2,162) NT$ 17 (Equivalent to US$ 0.5) NT$ 2 (Equivalent to US$ 0.07)	— — — — —	NT$1,179,435 (Equivalent to US$ 37,107) 94.00% NT$ 95,421 (Equivalent to US$ 3,002) 9.76% NT$ 670,263 (Equivalent to US$ 21,087) 94.00% NT$ 957,502 (Equivalent to US$ 30,124) 94.00% NT$ 537,802 (Equivalent to US$ 16,920) 94.00%		$45,798 — 78,466 359,492 413,543	$1,276,552 91,593 688,134 1,261,883 1,706,234	— (Note b and f) — — — (Note e)

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

F-79	Name of investee in Mainland China Delta Electronics Components (Wu Jiang) Co., Ltd. . . . . . . . . . . . . . . . Delta Electronics (Jiang Su) Co., Ltd. . . . . . . . . . . . . . . . Delta Electro—optics (Wu Jiang) Ltd.. . . . . . . . . . . . . . Delta Video Display System (Wu Jiang) Co., Ltd.. . . . . Delta Electronics (Shanghai) Co., Ltd . . . . .	Main activities of investee	Capital	Investment method	Accumulated remittance as of January 1, 2004	Remitted or collected this period	Remitted or collected this period	Accumulated remittance as of December 31, 2004	Ownership held by the Company (direct and indirect)	Investment income (loss) recognized by the Company during the year	Ending balance of investment	The investment income (loss) remitted back as of December 31, 2004
						Remitted out	Collected
		Manufacturing and sales of various power supplies Manufacturing and sales of various power supplies Manufacturing and sales of peripherals and electronic control equipment Manufacturing and sales of various monitors Design the figure of the product	NT$ 1,271,400 (Equivalent to US$ 40,000) (RMB331,200) NT$ 1,271,400 (Equivalent to US$ 40,000) (RMB331,200) NT$ 794,625 (Equivalent to US$ 25,000) (RMB207,000) NT$ 413,205 (Equivalent to US$ 13,000) (RMB107,640) NT$ 317,850 (Equivalent to US$ 10,000) (RMB 82,800) (Note c)	” ” Invested by Delta International Holding Ltd. ” ”	NT$ 657,314 (Equivalent to US$20,680) NT$ 657,314 (Equivalent to US$20,680) NT$ 410,821 (Equivalent to US$12,925) NT$ 213,627 (Equivalent to US$ 6,721) —	— — NT$ — — —	— — NT$ — — —	NT$ 657,314 (Equivalent to US$20,680) 51.7% NT$ 657,314 (Equivalent to US$20,680) 51.7% NT$ 410,821 (Equivalent to US$12,925) 51.7% NT$ 213,627 (Equivalent to US$6,721) 51.7% — 94%		67,301 78,668 $47,289 (58,534) (20,295)	648,720 735,109 $494,432 125,292 279,482	— — $— — —

Note a: Some parts of the investment was paid by RMB, and the investment was translated at the exchange rate of RMB8.28 to US$1. Note b: The company is permitted by Investment Commission to use Delta Electronics (Dong Guan) Co., Ltd’s earning distribution of RMB$82,800 (US$10,000) paid to DIH to establish Delta Electronics (Shanghai) Co., Ltd. As capital.

Note c: The company is permitted by Investment Commission to use Delta Electronics (Dong Guan) Co., Ltd’s earning distribution paid to DIH to establish Delta Electronics (Shanghai) Co., Ltd as capital. The investment was transferred from earning, therefore, the investment amount is excluded from the ceiling of investment amount.

Note d: The company is permitted by Investment Commission to use Deltron-Cimic Electric and Electronics Co., Ltd’s earning distribution of RMB$8,122 (US$980) paid to DIH to increase capital of Deltron-Cimic Electric and Electronics Co., Ltd.

Note e: The company is permitted by Investment Commission to use Delta Electronics Power (Dong Guan) Co., Ltd.’s earning distribution of US$9,000 paid to DIH to increase capital of Delta Electronics Power (Dong Guan) Co., Ltd.

Note f: The company is permitted by Investment Commission to use Delta Electronics (Dong Guan) Co., Ltd.’s earning distribution of US$700 paid to DIH to increase capital of Delta Electronics (Dong Guan) Co., Ltd.

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Accumulated amount remitted out of Taiwan to Mainland China NT$ 5,379,499 (US$ 169,246)	Investment amount approved by the Investment Commission NT$5,461,078 US$ (171,813)	Ceiling of investment amount of the Company
		NT$ 8,124,759

B. The significant direct and indirect transactions of the Company with the investee companies in Mainland China:

The significant purchases, sales, accounts payable and accounts receivable of the Company indirectly conducted with investee companies in Mainland China through the DIH’s subsidiary, Delta Electronics International Ltd. (DEIL), and DNI Cayman’s subsidiary, Delta Networks International Ltd. (DNIL) for 2004. Please refer to Notes 5 and Note 11(2)H.

12. SEGMENT FINANCIAL IN FORMATION

A. Financial information by industry

The Company and its consolidated subsidiaries operate in one single industry. The electronics industry. Accordingly, no different industry information is presented in 2002, 2003 and 2004.

B. Financial information by geographic area

Geographic area information in 2002, 2003 and 2004 were as follows:

		2002
Asia $18,286,222 24,625,446 $42,911,668 $ 7,931,504 $34,698,448	Others $3,821,485 — $3,821,485 $ 9,918 $1,375,484	Domestic $26,407,015 7,298,658 $33,705,673 $ 367,439 $21,540,151	Elimination $ — (31,924,104) $(31,924,104) $ (3,065,790) $(11,635,306) $ — $ —	Consolidated
				$48,514,722 —
				$48,514,722
				$ 5,243,071 299,149 (544,186) (145,167)
				$ 4,842,867
				$45,978,777 9,070,425 —
$ 1,340,944 $ 4,342,354	$ 2,604 $ 20,244	$ 508,052 $ 355,621
				$55,049,202
				$ 1,851,600
				$ 4,718,219

F-80

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

Operating revenues from unaffiliated customers . . Operating revenues from the Company and its consolidated subsidiaries. . . . . . . . . . . . Total operating revenues . . . . . . . . . . . . . . Segment profits . . . . . . . . . . Investment loss under equity method . . . . . . . . . General expense. . . . . . . . . Interest expense . . . . . . . . . Net income before income tax and minority interest. . . . . . . . . . . . . . . . Identifiable assets . . . . . . . . Long-term investments . . . General assets. . . . . . . . . . . Total assets . . . . . . . . . . . . . Depreciation expense . . . . Capital expenditure. . . . . . .			2003		Consolidated $49,541,912 — $49,541,912 $ 5,676,473 (9,417) (637,086) (109,659) $ 4,920,311 $55,182,690 8,059,150 — $63,241,840 $ 1,945,939 $ 1,240,838
	Asia $ 6,170,579 34,520,956 $40,691,535 $ 8,387,951 $40,704,879 $ 1,485,338 $ 819,206	Others $2,867,508 — $2,867,508 $ 16,226 $ 721,479 $ 3,775 $ 2,064	Domestic $40,503,825 6,227,775 $46,731,600 $ 912,942 $25,307,265 $ 456,826 $ 419,568	Elimination $ — (40,748,731) $(40,748,731) $ (3,640,646) $(11,550,933) $ — $ —

F-81

DELTA ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DECEMBER 31, 2002, 2003 and 2004 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS INDICATED OTHERWISE)

		2004
Asia	Others	Domestic	Elimination $ — (46,374,616) $(46,374,616) $ (3,287,798) $(20,508,730) $ — $ —	Consolidated
$ 7,369,303 267,518	$ 7,923,201 39,559,870	$41,182,482 6,547,228		$56,474,986 —
$ 7,636,821	$47,483,071	$47,729,710		$56,474,986
$ 2,037,673	$ 6,959,419	$ 1,229,406		$ 6,938,700 (74,177) (336,175) (126,099)
$17,798,370	$23,368,034	$35,796,752
				$ 6,402,249
				$56,454,426 8,429,006 —
$ 1,253,887	$ 253,082	$ 439,231
				$64,883,432
				$ 1,946,200
$ 1,344,631	$ 72,848	$ 629,144		$ 2,046,623

C. Information about export sales

The export sales of the Company and its consolidated subsidiaries in 2002, 2003 and 2004 were as follows:

Destination Southeast Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.A.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Northeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $11,034,475 15,870,703 4,128,910 3,430,370 292,572 612,219 $35,369,249	2003 $ 8,683,595 22,106,202 9,318,376 5,321,207 1,646,315 1,296,248 $48,371,943	2004
			$28,758,837 12,281,384 6,035,965 3,280,435 652,549 567,733
			$51,576,903

D. Major customer information

No single customer of the Company and its consolidated subsidiaries accounted for more than 10% of the consolidated operating revenue in 2002, 2003 and 2004.

F-82

Appendix A—Foreign Investment and Exchange Controls in the ROC

The information provided in this discussion has been extracted from various government and other publicly available publications that have not been prepared or independently verified by the Company or the Purchasers in connection with the offering of the GDRs.

Foreign Investment

Historically, foreign investment in the ROC securities markets has been restricted. Since 1983, the ROC government has periodically enacted legislation and adopted regulations to permit foreign investment in the ROC securities market.

On September 30, 2003, the Executive Yuan approved the amendment to Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals (the “Regulations”), which took effect on October 2, 2003. According to the Regulations, the ROC FSC abolished the mechanism of the so-called “qualified foreign institutional investors” and “general foreign investors” as stipulated in the Regulations before the amendment.

Under the Regulations, foreign investors are classified as either “onshore foreign investors” or “offshore foreign investors” according to their respective geographical location. Both onshore and offshore foreign investors are allowed to invest in ROC securities after they register with the TSE. The Regulations further classify foreign investors into foreign institutional investors and foreign individual investors. “Foreign institutional investors” refer to those investors incorporated and registered in accordance with foreign laws outside of the ROC (i.e., offshore foreign institutional investors) or their branches set up and recognized within the ROC (i.e., onshore foreign institutional investors). Offshore overseas Chinese and foreign individual investors are subject to a maximum investment ceiling that will be separately determined by the ROC FSC after consultation with the CBC. Foreign institutional investors, on the other hand, are not subject to any ceiling for investment in the ROC securities markets.

Depositary Receipts

In April 1992, the ROC SFB enacted regulations permitting ROC companies with securities listed on the TSE, with the prior approval of the ROC SFB, to sponsor the issue and sale to foreign investors of depositary receipts. Depositary receipts represent deposited shares of ROC companies. In December 1994, the Ministry of Finance allowed companies whose shares are traded on the GTSM or listed on the TSE, upon approval of the ROC SFB, to sponsor the issue and sale of depositary receipts.

In the past, for depositary shares that represented new shares, three months after the issuance of the depositary receipts, a holder of the depositary receipts (other than citizens of the PRC and entities organized under the laws of the PRC) could request the depositary to either cause the underlying shares to be sold in the ROC and to distribute the sale proceeds to the holder or to withdraw from the depositary receipt facility the shares represented by the depositary receipts and transfer the shares to the holder. For depositary shares that represent previously issued and existing shares, a holder of the depositary receipts (other than citizens of the People’s Republic of China and entities organized under the laws of the PRC) could, immediately after the issuance of the depositary receipts, request the depositary to either cause the underlying shares to be sold in the ROC and to distribute the sale proceeds to the holder or to withdraw from the depositary receipt facility the shares represented by the depositary receipts and transfer the shares to the holder. In 2003, the Executive Yuan and the ROC SFB amended the relevant regulations such that the three-month withdrawal restriction has been removed. Accordingly, a holder of depositary receipts (other than citizens of the

A-1

PRC and entities organized under the laws of the PRC) may now withdraw shares after the issuance of the depositary receipts representing new shares to the extent permitted under the deposit agreement (in practice, typically four to seven business days thereafter).

Under existing laws and regulations relating to foreign exchange control, a depositary or a holder of depositary receipts may, without obtaining further approvals from the CBC or any other governmental authority or agency of the ROC, convert NT Dollars into other currencies, including US dollars, in respect of the following: proceeds of the sale of shares represented by depositary receipts, proceeds of the sale of shares received as stock dividends and deposited into the depositary receipt facility and any cash dividends or cash distributions received in respect of the shares represented by depositary receipts. In addition, a depositary, also without any of these approvals, may convert inward remittances of payments into NT Dollars for purchases of underlying shares for deposit into the depositary receipt facility against the creation of additional depositary receipts. A depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT Dollars into other currencies relating to the sale of subscription rights for new shares if proceeds exceed US$100,000 per remittance. Proceeds from the sale of any underlying shares by holders of depositary receipts withdrawn from the depositary receipt facility may be converted into other currencies without obtaining CBC approval. Proceeds from the sale of the underlying shares withdrawn from the depositary receipt facility may be used for reinvestment in the TSE or the Gre Tai Securities Market.

Under current ROC laws, a non-ROC holder of depositary receipts, when withdrawing the depositary receipts, will be required to register with the TSE and appoint a local agent (with such qualifications as are set by the Regulations) to open a securities trading account with a local brokerage firm, pay taxes, remit funds, exercise rights relating to the securities and perform such other matters as may be designated by such holder of depositary receipts on behalf of and as an agent for such holder of depositary receipts. If a GDR holder is already a registered foreign investor, the common shares held in the special securities trading account that the GDR holder has already opened for withdrawing the shares represented by the GDRs can be transferred into the general securities trading account upon filing an application with the appropriate government agency. Any such holder of depositary receipts is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades and to report all relevant information. Without making this appointment, opening these accounts and registering with the TSE, the withdrawing holder would be unable to subsequently hold or sell the shares withdrawn from a depositary receipt facility on the TSE or otherwise. In addition, such holder of depositary receipts is required to appoint a tax guarantor for filing tax returns and making tax payments.

Other Foreign Investment

In addition to investments permitted under the Regulations, foreign investors (other than foreign investors who have registered with the TSE for making investments in the ROC securities markets) who wish to make direct investments in the shares of ROC companies are required to submit a Foreign Investment Approval application to the Investment Commission of the ROC Ministry of Economic Affairs or other government authority. The Investment Commission or such other government authority reviews each Foreign Investment Approval application and approves or disapproves each application after consultation with other governmental agencies (such as the CBC and the ROC FSC).

Under current law, any non-ROC person possessing a Foreign Investment Approval may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends attributable to such investment. Dividends attributable to such investment may be repatriated upon submitting certain required documents to the remitting bank, and investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other authorities have been obtained.

A-2

In addition to the general restriction against direct investment by non-ROC persons in securities of ROC companies, non-ROC persons (except in certain limited cases) are currently prohibited from investing in certain industries in the ROC pursuant to a Negative List, as amended by the Executive Yuan. The prohibition on foreign investment in the prohibited industries specified in the Negative List is absolute in the absence of specific exemption from the application of the Negative List. Pursuant to the Negative List, certain industries such as are restricted so that non-ROC persons (except in certain limited cases) 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.

Exchange Controls

The Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle such business by the Ministry of Finance and by the CBC. Current regulations favor trade-related foreign exchange transactions and Foreign Investment Approval investments. 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 importation of merchandise and services may be purchased freely from the designed foreign exchange banks.

Trade aside, ROC companies and resident individuals may, without foreign exchange approval, remit outside the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent), respectively, in each calendar year. In addition, ROC companies and resident individuals may, without foreign exchange approval, remit into the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent), respectively, in each calendar year. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of the ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittances involving a conversion of NT Dollars to a foreign currency and vice versa. A requirement is also imposed on all enterprises to register mediumand long-term foreign debt with the CBC.

In addition, foreign persons, may, subject to certain requirements but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for each remittance. The above limit applies to remittances involving a conversion of NT Dollars to a foreign currency and vice versa.

A-3

Appendix B—The Securities Market in ROC

The information presented in this section has been extracted from publicly available documents, such as statistical data and information published by the ROC SFB and the TSE, which have not been prepared or independently verified by the Company, the Managers or any of their respective affiliates or advisors in connection with this Offering. The Company only accepts responsibility for correctly reproducing such information.

The Taiwan Stock Exchange

In 1961, the ROC SFB established the TSE to provide a marketplace for securities trading. The TSE is a corporation owned by government controlled 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 SFB actively encouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 697 in 2004. As of March 22, 2005, the market capitalization of companies listed on the TSE was approximately NT$13.8 trillion.

Historically, ROC companies have listed only shares and bonds on the TSE. However, the ROC SFB has encouraged companies to list other types of securities. In 1988, the ROC SFB permitted the issuance of Taiwan’s first exchangeable 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 Gre Tai Securities Market. The ROC FSC 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, five 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 shareholders, 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 ROC Gre Tai Securities Market

To complement the TSE, the Gre Tai Securities Market was established in September 1982 on the initiative of the ROC SFB to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of March 22, 2005, 471 companies had listed equity securities on the Gre Tai Securities Market and the total market capitalization of those companies was approximately NT$1.2 trillion.

B-1

TSE 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 sets forth, for the periods indicated, information relating to the TSE Index.

Period Ended December 31, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of Listed Companies at the Period End 199 221 256 285 313 347 382 404 437 462 531 584 638 669 697	Stock Values NT$ (in billions) 19,031.3 9,682.7 5,917.1 9,056.7 18,812.1 10,151.5 12,907.6 37,241.1 29,619.0 29,291.5 30,526.6 18,354.9 21,874.0 20,333.2 23,875.37	Trading Index at	Trading Index at	Trading Index at
			Index High 12,495.34 6,305.22 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 6,142.32 7,034.10	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 5,474.79 4,614.63 3,446.26 3,850.04 4,139.5 5,316.87	Period End
					4,530.16 4,600.67 3,377.06 6,070.56 7,124.66 5,173.73 6,933.94 8,187.27 6,418.43 8,448.84 4,739.09 5,551.24 4,452.45 5,890.69 6,139.69

Source: Taiwan Stock Exchange.

As indicated above, the performance of the TSE 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. Fluctuations in the price of securities traded on the TSE is restricted to 7% above and below the previous day’s closing price in the case of equity securities, and 5% in the case of debt securities. The price limit for movements below the previous day’s closing price has been modified from time to time by MOF based on market conditions.

Effective July 1, 2000, brokerage commission can be set at any rate not exceeding 0.1425% of the transaction price subject to reporting to the TSE.

B-2

A securities transaction tax of 0.3% of the transaction price is payable by the seller of equity securities. These securities transaction taxes are withheld at the time of the transaction. According to the amended ROC Statute of Upgrading Industries, which became effective on February 1, 2002, no securities transaction tax will be imposed on the transfer of corporate bonds and financial debentures until December 31, 2009.

Sales of shares of listed companies on the TSE are generally sold in “round lots” of 1,000 shares. Investors who desire to sell less than 1,000 shares of a listed company occasionally experience delays in making these sales. Transactions that involve 500 trading lots (500,000 shares) or more must be registered and executed in accordance with TSE guidelines.

Regulation and Supervision

The ROC FSC has extensive regulatory authority over public companies. Public companies are generally required to obtain approval from, or registration with, the ROC FSC for all securities offerings. The ROC FSC requires periodic reporting of financial and operating information by all public companies. In addition, the ROC FSC establishes standards for financial reporting and carries out licensing and supervision of participants in the Taiwan securities market.

The ROC FSC has responsibility for implementing the ROC Securities and Exchange Law and for overall administration of governmental policies in the Taiwan securities market. It has extensive regulatory authority over the offering, issuance and trading of securities. In addition, the ROC Securities and Exchange Law specifically empowers the ROC FSC to promulgate necessary rules. The ROC Securities and Exchange Law prohibits market manipulation. For example, it permits an issuer to recover short-term trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors, as well as the spouses, minor children and nominees of these parties, and shareholders who (together with their spouses, minor children and nominees) hold 10% or more of the shares of the issuer. The ROC Securities and Exchange Law prohibits trading by “insiders” based on non-public information that materially affects share price movement. “Insiders” include:

‰ directors, supervisors, managers, as well as the spouses, minor children and nominees of these parties, and shareholders (together with their spouses, minor children and nominees) who hold 10% or more of the issuing company’s shares;
‰ any person who has learned material, non public information due to an occupational or controlling relationship with the issuing company; and
‰ any person who has learned material, non-public information from any of the above.

Sanctions include imprisonment. 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 an issuer’s contracts, reports and other documents related to securities transactions. The ROC FSC 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.

In addition, the ROC Securities and Exchange Law provides for civil liability for material misstatements or omissions made by issuers and regulation of tender offers.

B-3

The ROC FSC does not have criminal or civil enforcement powers under the ROC Securities and Exchange Law. Criminal actions may be pursued only by the government prosecutors. Civil actions may only be brought by plaintiffs who assert that they have suffered damages. The ROC FSC is empowered to curb abuses and violations of laws and regulations only through administrative measures including:

‰ issuance of warnings;
‰ temporary suspension of operation;
‰ imposition of administrative fines; and
‰ revocation of licenses.

In addition to providing a market for securities trading, the TSE reviews applications by Taiwan issuers to list securities on the TSE. If issuers of listed securities violate laws and regulations or encounter extended or severe negative results of operations, the TSE may, with the approval of the ROC FSC, delist securities of these issuers.

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EXECUTIVE OFFICES OF THE COMPANY

Delta Electronics, Inc.

186 Ruey Kuang Road, Neihu Taipei 114 Taiwan, Republic of China

INDEPENDENT ACCOUNTANTS OF THE COMPANY

PricewaterhouseCoopers

27th Floor, International Trade Building 333 Keelung Road, Section 1 Taipei Taiwan, Republic of China

DEPOSITARY

CUSTODIAN

The Bank of New York

101 Barclay Street 22nd Floor New York, New York 10286 United States of America

The International Commercial Bank of China

100 Chilin Road Taipei, Taiwan ROC

LEGAL ADVISERS

To the Company as to ROC law

To the Purchasers

as to United States and English law

Lee and Li

7th Floor, 201 Tun Hua North Road Taipei 105 Taiwan, Republic of China

Linklaters

10th Floor Alexandra House Chater Road Hong Kong

LUXEMBOURG INTERMEDIARY

LUXEMBOURG LISTING AGENT

The Bank of New York (Luxembourg)

Aerogolf Center 1A, Hoehenhof L-1736 Senningerberg Luxembourg

The Bank of New York Europe Ltd.

One Canada Square 48th Floor London E14 5AL England

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Offering Circular. You must not rely on any unauthorized information or representations. This Offering Circular is an offer to sell only the GDRs offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular is current only as of its date.

Notice to Investors . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . .
Certain Defined Terms, Conventions and
Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Information . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .
Market Price Information . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Delta Group. . . . . . . . . . . . . . . . . . . . . . . . . . .
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors and Management. . . . . . . . .
The Selling Shareholders . . . . . . . . . . . . . . . . . . .
Information Relating to the Depositary . . . . . . .
Terms and Conditions of the Global
Depositary Receipts . . . . . . . . . . . . . . . . . . . . .
Summary of Provisions relating to the GDRs
while in Master Form. . . . . . . . . . . . . . . . . . . . .
Clearance and Settlement . . . . . . . . . . . . . . . . . .
Description of the Shares. . . . . . . . . . . . . . . . . . .
Changes In Issued Share Capital. . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . .
Underwriting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . . . . . . . . .
General Information. . . . . . . . . . . . . . . . . . . . . . . .
Summary of Certain Differences Between
ROC GAAP and US GAAP . . . . . . . . . . . . . . .
Index To Financial Statements . . . . . . . . . . . . . .
Appendix A—Foreign Investment and
Exchange Controls in the ROC. . . . . . . . . . . .
Appendix B—The Securities Market in
ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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==> picture [123 x 40] intentionally omitted <==

Delta Electronics, Inc.

16,000,000 Global Depositary Receipts Representing 80,000,000 Shares (par value NT$10 per share)

Global Coordinator, Bookrunner and Lead Manager

Goldman Sachs International

Co-Manager Taiwan Securities (HK) Co., Ltd

AI assistant

DELTA — Capital/Financing Update 2015

52000_rns_2015-12-14_cb09b6a9-cc75-443d-bf37-49ff394fa356.pdf

Delta Electronics, Inc.

16,000,000 Global Depositary Receipts representing 80,000,000 Common Shares (par value NT$10 per share)

Offering Price: US$8.4166 per GDR

Goldman Sachs International

Taiwan Securities (HK) Co., Ltd

NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY

NOTICE TO INVESTORS

AVAILABLE INFORMATION

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Certain Defined Terms, Conventions and Currency

Summary

The Offering

Selected Financial Information

Risk Factors

RISKS RELATING TO THE DELTA GROUP AND ITS BUSINESS

Dependence on the global information technology (computer products and networking products) and telecommunications industries

Sensitivity to product cycles, new products and technological changes

The Group operates in a highly competitive market environment

Reliance on key customers

The Company’s chairman controls the Delta Group

Inter-relationships among the Company and its subsidiaries and affiliates

Reliance on certain sources of key components

Dependence on and ability to attract, retain and motivate qualified personnel

Intellectual property protection

Joint venture risks

POLITICAL AND ECONOMIC RISKS

The Delta Group’s business may be harmed, and the price of the Shares or the GDRs may be adversely affected, by changes in economic, political and business conditions resulting from outside Taiwan, such as terrorist activities, political unrest and military action

Political risks associated with doing business in Taiwan

Natural or man-made disasters

The trading price of the GDRs may be adversely affected by the general activities of the ROC securities market, the trading price of the Shares, increases in interest rates and the economic performance of Taiwan

Any future outbreak of severe acute respiratory syndrome (“SARS”) in Taiwan may adversely affect the Taiwan economy and, as a result, may adversely affect the Company’s results of operations

Holders of the GDRs may have difficulty enforcing any judgment obtained outside Taiwan against the Company or the Company’s directors, supervisors or executive officers

Financial reporting and accounting standards in the ROC

RISKS RELATING TO THE PRC

Political and economic situation and legal developments in the PRC

PRC legal system

RISKS RELATED TO THE COMMON SHARES AND THE GDRs

There are limitations on the voting rights of holders of GDRs

Withdrawal of Shares from, and restrictions on the ability to deposit the Shares into, the GDR facilities may adversely affect the liquidity and price of the GDRs

Holders of GDRs may not be able to participate in rights offerings

There are restrictions on the transfer of the GDRs

The Company is a ROC company and, because the rights of shareholders under ROC law differ from those under the laws of some other jurisdictions, investors may have more difficulty protecting their rights than shareholders in some other jurisdictions

Holders of GDRs who withdraw Shares will be required to appoint a local agent and a tax guarantor in the ROC

A holder of GDRs or its designee requesting the withdrawal of the Shares represented by the GDRs may be required to provide certain information to the Company or the Depositary, and failure to provide that information may result in a delay of the withdrawal

Changes in exchange controls that restrict investor’s ability to convert proceeds received from their ownership of GDRs may have an adverse effect on the value of their investment

The value of investor’s investment may be adversely affected by future sales of the Company’s Shares by the Company’s shareholders, including the Company’s controlling shareholders

Use of Proceeds

Market Price Information

Dividends

Exchange Rates

Capitalization

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Factors Affecting Results of Operations

Change in Product Mix

Raw Materials

Introduction of New Products

Global Economic Conditions Affecting Demand

Operating revenues

Power-related products revenues

Components revenues

Networking products revenues

Visual display products revenues

Electromechanical products revenues

Other products and services revenues

Operating costs

Gross margins

Operating expenses

Non-operating income

Non-operating expenses

Critical Accounting Policies

Consolidation

Research and development

Inventories

Property, plant and equipment

Income Tax

DELTA Capital/Financing Update 2015