FOCL — Capital/Financing Update 2020

Nov 9, 2020

OFFERING CIRCULAR

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INFODISC TECHNOLOGY COMPANY LIMITED

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

Up to U.S.$60,000,000 Zero Coupon Convertible Bonds due 2008

Issue Price: 100%

Infodisc Technology Company Limited (“Infodisc”) is offering Zero Coupon Convertible Bonds due 2008 in an aggregate amount of U.S.$40,000,000 (the “Initial Bonds”) in reliance on Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Infodisc has granted an option to the Manager, which may be exercised in whole, or in part, at any time up to and including August 12, 2003, to purchase up to an additional U.S.$20,000,000 aggregate principal amount of the Bonds (the “Optional Bonds” and, together with the Initial Bonds, the “Bonds”).

The Bonds will be direct and unconditional obligations of Infodisc and will rank at least pari passu in right of payment with all other unsecured and unsubordinated debt of Infodisc, except as otherwise provided herein. The Bonds will not bear interest except in the limited circumstances set forth herein. Holders of the Bonds may convert the Bonds into the common shares, par value NT$10 per share, of Infodisc (the “Shares”) at any time (subject to certain restrictions) on or after July 3, 2003 and prior to the close of business (at the place the Bond is deposited for conversion) on May 14, 2008. The Conversion Price will initially be NT$11.35 per Share, which is equivalent to U.S.$0.3272 per Share, based on a fixed rate of exchange of NT$34.687 = U.S.$1.00, subject to adjustment in the manner provided herein. In addition, the Conversion Price will be adjusted from time to time in certain circumstances relating to the then prevailing closing price of the Shares relative to the Conversion Price. The Shares are listed on the Taiwan Stock Exchange and application will be made to list the Shares issued on conversion of the Bonds on the Taiwan Stock Exchange. On June 3, 2003, the closing price of the Shares on the Taiwan Stock Exchange was NT$12.15 per Share.

Unless the Bonds have been previously redeemed, repurchased and cancelled or converted, Infodisc will, at the option of the holder of any Bond (the “Bondholder”), redeem all or part of the holder’s Bonds on December 13, 2004, June 13, 2006 and June 13, 2007 at the principal amount. Infodisc has the option to call all or any portion of the Bonds on or at any time after June 13, 2004 and prior to June 13, 2008 (the “Maturity Date”) at their principal amount by giving not less than 30 nor more than 60 days’ notice of redemption to the Bondholders, if the closing price of the Shares on the Taiwan Stock Exchange in U.S. dollars, calculated at the prevailing exchange rate, for each of the 30 consecutive trading days, the last of which occurs not more than seven days prior to the date of the notice of such redemption, is at least 140% of the Conversion Price in effect on each such trading day translated into U.S. dollars at the rate of exchange established on June 3, 2003. In addition, the Company may redeem the outstanding Bonds in whole, but not in part, at any time at their principal amount in the event that (i) 90% of the Bonds have been previously redeemed, repurchased and cancelled or converted, or (ii) certain changes relating to Republic of China taxation have been made which will result in additional costs to the Company.

For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see “Risk Factors” on page 10 herein.

The Bonds and Shares to be issued upon conversion of the Bonds have not been and will not be offered or sold within the United States or to, or for the account on behalf of, U.S. persons. The Bonds are not being offered in the Republic of China or in the United States. No application has been made to list the Bonds on any stock exchange.

Sole Bookrunner and Manager

June 3, 2003

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

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

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

The Bonds will be represented by beneficial interests in a permanent global certificate (the “Global Certificate”) in registered form, which will be registered in the name of a nominee of, and shall be deposited on or about June 13, 2003 with a common depositary for, Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, socie´te´ anonyme (“Clearstream, Luxembourg”).

Infodisc has prepared the audited consolidated financial statements as at and for the years ended December 31, 2002, 2001 and 2000 contained herein in accordance with accounting principles generally accepted in the ROC.

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NOTICE TO INVESTORS

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

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

• (1) it is purchasing the Bonds for its own account or for an account with respect to which it exercises sole investment discretion, and it and any such account is outside the United States and is not a U.S. person;

• (2) it acknowledges that neither the Bonds nor the Shares issued upon conversion of the Bonds have been or will be registered under the Securities Act or with any securities regulatory authority of any jurisdiction and may not be offered or sold within the United States except as set forth below;

• (3) it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any Bond or beneficial interest therein, or any Shares issued upon conversion of the Bonds, it may do so only (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S, (ii) pursuant to an exemption from registration under the Securities Act, if available, or (iii) pursuant to an effective registration statement under the Securities Act, and in each of cases (ii) and (iii), in accordance with applicable securities laws of the states of the United States;

• (4) if it is purchasing Bonds prior to the expiration of 40 days after the later of the commencement of the offering and the latest closing date (the “distribution compliance period”), it is purchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S and the Bonds will not be sold, pledged or otherwise transferred to, or for the account or benefit of, any U.S. person outside the United States or any person in the United States during the distribution compliance period;

• (5) it agrees to, and each subsequent holder is required to, notify any purchaser from it of a Bond or beneficial interest therein of the resale restrictions referred to in sections (3) and (4) above, if then applicable;

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

• (7) it understands that the Global Certificate will bear a legend to the following effect (unless otherwise agreed by the Company):

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

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THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF 40 DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2008 OF INFODISC TECHNOLOGY COMPANY LIMITED ”; and

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

For further information about the requirements under the Trust Deed to effect exchanges or transfers of interests in the Global Certificate and of Bonds in certificated form, see “The Global Certificate”.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

Infodisc is a company limited by shares incorporated under the ROC Company Law. All of Infodisc’s directors, supervisors and executive officers are residents of the ROC and the principal place of business and a substantial portion of the assets of Infodisc and such persons are located in the ROC. As a result, it may not be possible for investors to effect service of process upon Infodisc or such persons outside the ROC, or to enforce against any of them judgments obtained in courts outside the ROC, including those predicated upon the civil liability provisions of the securities laws of the United States or any State or territory within the United States.

Any final judgment obtained against Infodisc or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds 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: (i) the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC; (ii) the judgment is not contrary to the public order or good morals of the ROC; (iii) the judgment is a final judgment for which the period for appeal has expired or from which no appeal can be taken (iv) if the judgment was rendered by default by the court rendering the judgment, Infodisc or such persons were served within the jurisdiction of such court, or process was served on Infodisc or such persons with judicial assistance of the ROC; and (v) judgments of the courts of the ROC are recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis. Remittance out of the ROC of any amount recovered from enforcing a foreign judgment in the ROC is also subject to the Foreign Exchange Control Statute and related regulations thereto as described in “Foreign Investment and Exchange Controls in the ROC” herein.

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TABLE OF CONTENTS

TABLE OF CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Audited Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Price Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in Issued Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terms and Conditions of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Global Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign Investment and Exchange Controls in the ROC . . . . . . . . . . . . . . . . . . . . . . . . . . The Securities Market of the ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of Significant Differences Between ROC GAAP and U.S. GAAP . . . . . . . . . . . . Subscription and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Page
	1 10 24 25 26 50 53 54 56 69 70 71 72 90 91 92 95 99 103 105 119 121 F-1

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CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Except where the context otherwise requires, all references herein to “Infodisc” are to Infodisc Technology Company Limited and all references to the “Company” are to Infodisc or Infodisc and its subsidiaries as the context requires. All references herein to the “Group” are to Infodisc and its subsidiaries and affiliates as a whole. All references herein to “affiliate” are to a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified, as these terms are defined in Rule 405 under the Securities Act. All references herein to “Taiwan” or the “ROC” are to the island of Taiwan and other areas under the effective control of the Republic of China. All references herein to the “ROC Government” or the “ROC Company Law” are references to the government of the Republic of China and the Company Law of the Republic of China, respectively. All references herein to “ROC GAAP” are to the Rules Governing Preparation of the Financial Statements of Securities Issuers and accounting principles generally accepted in the ROC and all references herein to “U.S. GAAP” are to accounting principles generally accepted in the United States. All references herein to the “PRC” are to the People’s Republic of China.

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

The Group does not exist as a legal entity. References herein to the Group and to financial or statistical information relating to the Group are for convenience of presentation only. Except as otherwise indicated, all financial information set forth herein with respect to various members of the Company has been presented in New Taiwan Dollars.

The Company publishes its financial statements in New Taiwan Dollars, the lawful currency of the ROC. All references herein to “New Taiwan Dollars”, “NT Dollars” and “NT$” are to New Taiwan Dollars and all references herein to “United States Dollars”, “U.S. Dollars” and “U.S.$” are to United States Dollars. All translations from New Taiwan Dollars to United States Dollars were made on the basis of the average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollars as certified by the Bank of Taiwan of NT$34.635 = U.S.$1.00 as of December 31, 2002, and of NT$34.748 = U.S.$1.00 as of March 31, 2003, with respect to information for the year ended December 31, 2002 and information as of March 31, 2003. All amounts translated into United States Dollars as described above are provided solely for the convenience of the reader, and no representation is made that the NT Dollar or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or NT Dollars, as the case may be, at any particular rate, the above rates or at all. See “Exchange Rate Information”. The closing rate between the NT Dollar and the U.S. Dollar on June 3, 2003 was NT$34.687 = U.S.$1.00.

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SUMMARY

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

The Group

The Group manufactures and distributes pre-recorded optical storage media products, including pre-recorded digital versatile discs, or DVDs, audio compact discs, or CDs, and VHS videocassettes, for major motion picture studio customers and other content providers in principal markets worldwide. The Group also manufactures blank optical storage media products, including compact discs-recordable, or CD-R, and compact discs-rewritable, or CD-RW, and, commencing in the second half of 2003, DVD-Recordable and DVD-Rewritable.

Pre-recorded Storage Media Products

Pre-recorded storage media products, including DVDs, audio CDs and VHS videocassettes, are currently the Group’s most important product category, representing 74.4% and 73.8% of the Group’s sales in 2002 and 2001 respectively. The Group has focused its operations on DVD products. The Group produces DVDs in Taiwan, South Korea and the United States. The Group believes that demand for DVDs will continue to rise with the increasing popularity and the decreasing prices of DVD players and other DVD playback devices.

• The Group believes it is well-positioned to take advantage of this growth:

• It is one of the top five DVD replicators worldwide by capacity and by production volume.

• It has the capacity to produce approximately 180 million DVDs per year.

• It intends to add new production lines for pre-recorded storage media products in Toronto, Canada, El Paso, Texas and Los Angeles, California.

• Its customers include major movie studios and their production contractors, including The Columbia House Company, Eagle Rock Entertainment, General Mills Operation Inc, Goodtimes Home Entertainment, Lions Gate Films Corporation, Logistics Inc., Metro-Goldwyn-Mayer Home Entertainment, Inc., Platinum Disc Corp., Saturn Home Entertainment, LLC (dba Spartan Home Entertainment), Sony Music and Columbia TriStar Home Entertainment, Standard Product Co., Warner Home Video, Universal Music Group and Victory Sense Ltd.

Blank Storage Media Products

The Group currently manufactures CD-R and CD-RW. The Group produces CD-R and CD-RW in South Korea and CD-RW in Taiwan. The Group’s facilities in Taiwan and South Korea have the capacity to produce 6.5 million CD-Rs and 2.5 million CD-RWs per month. Global demand for CD-Rs and CD-RWs is expected to increase by 15.0% and 32.9%, respectively, in 2003 according to the Japan Recording Media Industries Association. In order to meet this expected growth in demand, the Group intends to add new production facilities for CD-R in South Korea and CD-RW in Taiwan.

The global market for recordable DVDs, although still relatively small, is also growing rapidly. According to the Japan Recording Media Industries Association, the global market for recordable DVDs is expected to increase by 179.5% in 2003. The Group also anticipates significant growth in the market for recordable DVDs.

The Group has developed DVD-Recordable and DVD-Rewritable, and expects to commence commercial production of these products in the second half of 2003. These products will be manufactured in Taiwan and South Korea.

Services

The Group also provides distribution and other post-production logistics services to its customers in North America and Europe for pre-recorded storage media products. The Group’s North American distribution centers are located in Reno, Nevada, El Paso, Texas, Louisville,

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Kentucky and Toronto, Canada. The Group’s European distribution facilities are located in Renchen, Germany. The Group’s ability to handle all aspects of home video entertainment delivery is an important requirement of the Group’s customers in the pre-recorded storage media industry.

Location of Operations

The Company operates in Taiwan and, through subsidiary companies, in the North America, South Korea and Germany. In this regard, the Group’s operations in Taiwan have decreased over the last two years, as the Group has moved manufacturing operations to the United States and South Korea, in order to be closer to its customers in those jurisdictions. The Group accelerated its worldwide expansion activities in 2000, when it established subsidiaries and facilities in South Korea and Germany. Currently, the Group has production facilities in Chung Ho City, Taiwan, Kyungki, South Korea and El Paso, Texas. The Group intends to establish additional facilities in Toronto, Canada and Los Angeles, California, which are expected to commence operations in late 2003.

In North America, the Group produces and distributes pre-recorded storage media products, including DVDs and VHS videocassettes, for the North American market. In Taiwan, the Group produces and distributes pre-recorded DVDs for markets in North America, audio CDs for the Taiwan market and CD-RW for markets in Asia, Europe and North America. In South Korea, the Group produces and distributes pre-recorded DVDs and CD-Rs for the South Korean and other markets. The Group is the largest producer of CD-Rs in South Korea. In Germany, the Group engages in packaging and distribution services for markets in Europe.

Acquisition of Mediacopy

In January 2001, the Company acquired Mediacopy, a company based in the United States engaging in producing and distributing VHS videocassettes. The Company acquired Mediacopy in order to take advantage of its well-established customer base and distribution network in the United States. However, because of static demand for VHS products, the Group has refocused the United States facilities from producing primarily VHS videocassettes to DVDs. To this end, in 2001, the Group reduced the number of production lines devoted to VHS production and relocated DVD replication lines from the Group’s operations in Taiwan to the United States in addition to investing in new production lines in the United States. In order to further streamline production, the Group relocated all of the United States operations to El Paso, Texas and closed the facilities in San Leandro, California.

Industry Overview

The market for optical storage media has grown substantially over the last several years due to increasing demand for data storage and decreasing prices of optical storage drives and media products. The market for optical storage media, which also includes VHS videocassettes, is divided into two primary categories: pre-recorded and recordable.

Strategy

As a leading DVD producer, the Group intends to further expand its customer base in the home video industry and to develop new sources of revenues from other audiovisual storage media applications. To that end, the Group intends to implement the following strategies:

Reinforce relationships with existing studio and blank storage customers and broaden customer base by forging relationships with new customers

The Group intends to continue to reinforce its existing relationships and to attract new direct relationships with major studio customers for their replication and distribution needs in the United States and in other countries, in order to decrease its reliance on off-load DVD replication orders.

The Group also intends to broaden its customer base into other types of pre-recorded storage media products, such as software, video games, and educational, corporate and promotional storage media products and blank storage products such as CD-R, DVD-Recordable and DVDRewritable.

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Strengthen the Group’s one-stop solution to the pre-recorded as well as blank storage media industry

By further focusing and developing its already extensive distribution network and fulfillment capabilities, the Group will concentrate on providing an integrated one-stop solution, both in terms of product types and in terms of distribution and logistics services.

Continue to focus on geographical and capacity expansion

The Group intends to further develop its manufacturing capability in Taiwan and in international locations. With respect to pre-recorded storage media products, the Group seeks to establish new manufacturing facilities, or move operations, in geographic locations that are closer to its customers. The Group has plans in various stages of development to establish an additional manufacturing facility in Taiwan and a manufacturing, packaging and distribution facility in Toronto, Canada, and to build a technical center, which will also have manufacturing capability, in Los Angeles, California. With respect to blank storage media products, the Group intends to expand its production capacity of blank storage media products, including CD-R, DVD-Recordable and DVD-Rewritable. The Group intends to expand its production capacity of CD-R in South Korea and expand its production of DVD-Recordable and DVD-Rewritable products in Taiwan and South Korea.

Further streamline production processes

The Group intends to continue streamlining its production processes, including design, engineering, raw material sourcing, manufacturing and quality control, to increase operational efficiency and lower production costs.

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		The Offering
	Issuer:	Infodisc Technology Company Limited
	Initial Bonds:	U.S.$40,000,000 Zero Coupon Convertible Bonds due
		2008 convertible into fully-paid common Shares with a par
		value of NT$10 each of the Company.
	Optional Bonds:	The Company has granted an option	to the Manager (as
		defined herein), which may be exercised in whole or in
		part, to purchase up to an additional U.S.$20,000,000
		aggregate principal amount of Bonds, at any time up to
		and including 60 days following the Closing Date.
	Issue Price:	100%
	The Offering:	The Bonds will not be offered or sold	in the United States
		or the ROC. The Bonds will be offered only in offshore
		transactions in reliance on Regulation S under the
		Securities Act.
	Closing Date:	June 13, 2003
	Maturity Date:	June 13, 2008
	Status:	The Bonds will constitute direct, unconditional, unsecured
		and unsubordinated obligations of the Company and will
		rank at least equally with all other outstanding unsecured
		and unsubordinated obligations of the Company.
	Interest:	No interest will be payable on the Bonds, except in certain
		circumstances where an event of default has occurred.
		See “Terms and Conditions of the Bonds — Events of
		Default”.
	Withholding Tax:	Premium (if any) and interest (if any)	payable on the
		Bonds to non-residents of the ROC is subject to a
		withholding tax in the ROC equal to 20% of the gross
		amount of such premium (if any) and	interest (if any). The
		Company will gross up such amounts as will result in the
		receipt by the Bondholders of the net	amounts after such
		withholding or deduction equal to the	amounts which
		would otherwise have been receivable by them had no
		such withholding or deduction been required.
	Tax Redemption:	The Company may redeem all, but not part, of the Bonds
		at their principal amount in the event	of changes in ROC
		taxation which will result in additional costs to the
		Company to gross up for payment of	principal, or to gross
		up for payments of premium (if any) or interest (if any).
		See “Terms and Conditions of the Bonds — Redemption,
		Purchase and Cancellation”.

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	Negative Pledge:		The Company will not create or permit to subsist security	The Company will not create or permit to subsist security
			for the benefit of holders of any International Investment
			Securities (as defined herein) or for any guarantee thereof
			without granting equivalent security in respect of the
			Bonds. See “Terms and Conditions of the Bonds —
			Negative Pledge”.
	Conversion:		Subject to prior redemption and subject as otherwise
			provided herein, the Bonds are convertible at any time on
			or after July 3, 2003 and prior to the close of business (at
			the place at which the Bond is deposited for conversion)
			on May 14, 2008, except during any Closed Period (as
			defined herein), into Shares at a conversion price (subject
			to adjustment in certain circumstances) (the “Conversion
			Price”) of NT$11.35 per Share, which is equivalent to
			U.S.$0.3272 per Share, determined on the basis of a fixed
			exchange rate of NT$34.687 = U.S.$1.00. The Conversion
			Price will be subject to adjustment for, among other
			things, subdivision or consolidation of Shares, bonus
			issues of Shares, right issues, distributions of stock
			dividends and other dilution events. Fractional Shares will
			not be issued or paid in cash, or by any other means. For
			a fuller description, see “Terms and Conditions of the
			Bonds — Conversion”.
	Conversion Price Reset:		The Conversion Price shall be adjusted downward on the
			120th day after the Closing Date and	then on first, second,
			third and fourth anniversary of such date (the “Reset
			Dates” and each a “Reset Date”) in the event that each of
			the closing prices of the Shares on the Taiwan Stock
			Exchange (“TSE”) translated into U.S. Dollars at the then
			prevailing exchange rate for 20 consecutive Trading Days
			immediately prior to the Reset Dates	is lower than the
			Conversion Price, converted into U.S. Dollars at the fixed
			exchange rate of NT$34.687 = U.S.$1.00; provided that
			the Reset Price (as defined herein) (on a cumulative
			basis, if applicable) shall not be less than 80% of the
			initial Conversion Price after anti-dilution adjustments, if
			any. See “Terms and Conditions of the Bonds —
			Conversion — Conversion Price Reset”.
	Alternative Conversion Price
	Reset:		The Company may, at its discretion, on the date (the
			“Alternative Reset Date”) 30 business days prior to each
			Put Date (as defined in Conditions 8(C), 8(E) and 8(F))
			and June 13, 2008 (but taking into account the Conversion
			Period in Condition 6(A)), elect to choose an alternative
			Conversion Price equal to 90.9% of the lowest among the
			average Closing Prices for the 10, 15 and 20 Trading
			Days immediately preceding the Alternative Reset Date.
			The alternative Conversion Price will	be applicable during
			a period of seven business days starting four business
			days after the Alternative Reset Date, and the Conversion
			Price will be applicable after the said	period has expired.
			See “Terms and Conditions of the Bonds — Conversion —
			Alternative Conversion Price Reset”.

5

	Final Redemption:		Unless previously redeemed, converted or repurchased	Unless previously redeemed, converted or repurchased
			and cancelled in the circumstances referred to in “Terms
			and Conditions of the Bonds”, the Bonds will be redeemed
			at their principal amount in U.S. Dollars on June 13, 2008.
			See “Terms and Conditions of the Bonds — Redemption,
			Purchase and Cancellation”.
	Redemption at the Option of
	the Company:		The Company may, having given not	less than 30 nor
			more than 60 days’ notice to the Bondholders, redeem all,
			or part only, of the Bonds on or at any time after June 13,
			2004 at their principal amount in the event that the
			Closing Price (as defined herein) of the Shares on the
			Taiwan Stock Exchange in U.S. Dollars, calculated at the
			prevailing exchange rate, for each of	the 30 consecutive
			Trading Days, the last of which occurs not more than
			seven days prior to the date upon which notice of such
			redemption is published, is at least 140% of the
			Conversion Price in effect on each such Trading Day
			translated into U.S. Dollars at the fixed exchange rate of
			NT$34.687 = U.S.$1.00. The Company may at any time,
			having given notice, redeem the outstanding Bonds in
			whole, but not in part, at their principal amount in the
			event that 90% of the Bonds have been previously
			redeemed, repurchased and cancelled or converted. See
			“Terms and Conditions of the Bonds — Redemption,
			Purchase and Cancellation — Redemption at the Option
			of the Company”.
	Redemption at the Option of
	Bondholders:		Until and unless previously redeemed, converted or
			repurchased and cancelled, the Company will, at each
			Bondholder’s option, redeem all or part of the
			Bondholder’s Bonds on December 13, 2004, June 13,
			2006 and June 13, 2007 at the principal amount. See
			“Terms and Conditions of the Bonds — Redemption,
			Purchase and Cancellation — Redemption at the Option
			of Bondholders”.
	Repurchase in the Event of
	Delisting:		In the event the Shares cease to be listed or admitted to
			trading on the TSE for a period exceeding five consecutive
			Trading Days or are suspended from	trading on the TSE
			for a period of 30 or more consecutive Trading Days, a
			Bondholder may at its option require	the Company to
			repurchase all or part of such Bondholder’s Bonds on the
			20th business day following notice of	such event, at a
			price equal to their aggregate principal amount.
	Repurchase in the Event of
	Change of Control:		If at any time a change of control occurs with respect to
			the Company, a Bondholder may at its option require the
			Company to purchase all or part of such Bondholder’s
			Bonds on the date set by the Company, which shall not be
			less than 30 nor more than 60 days following the date the
			Company informs the Trustee of the change of control.
			The repurchase price will be equal to	the aggregate
			principal amount of the Bonds.

6

	Form and Registration of	Form and Registration of
	the Bonds:		The Bonds will be issued, without coupons, in
			denominations of U.S.$1,000 and integral multiples
			thereof. The Bonds will be represented by a global
			certificate (the “Global Certificate”) deposited with The
			Bank of New York, as common depositary for, and
			registered in the name of a nominee for, Euroclear Bank
			S.A./N.V as operator of the Euroclear System
			(“Euroclear”) and Clearstream Banking, socie´te´ anonyme
			(“Clearstream, Luxembourg”). Beneficial interests in the
			Global Certificate will be shown on, and transfers thereof
			will be effected only through, records	maintained by
			Euroclear and Clearstream, Luxembourg and their
			participants. Except as described herein, certificates for
			Bonds will not be issued in exchange for beneficial
			interests in the Global Certificate. See “The Global
			Certificate”.
	Governing Law:		The laws of England.
	Trustee:		The Bank of New York.
	Use of Proceeds:		The Company will use the net proceeds for the expansion
			of the Group’s North American operations, for the payment
			of some of the Group’s existing long term debt and for
			other working capital purposes, including the procurement
			of raw materials.

7

Summary Audited Consolidated Financial Data

The following selected audited consolidated financial data have been derived from the Company’s audited consolidated financial statements as of and for the years ended December 31, 2002, 2001 and 2000 included elsewhere in this Offering Circular. These financial statements have been audited by Diwan, Ernst & Young, independent certified accountants. The Company’s audited consolidated financial statements are prepared and presented in accordance with reporting requirements of the “Regulations Governing the Preparation of Financial Statements of Issuers of Securities” and other applicable ROC laws and regulations and in accordance with ROC GAAP, which differs in certain respects from U.S. GAAP. See “Summary of Significant Differences between ROC GAAP and U.S. GAAP”. You should read the following selected audited consolidated financial data in conjunction together with the Company’s audited consolidated financial statements and the notes to those statements included elsewhere in this Offering Circular, and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Consolidated Statement of Income Data: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Minority interest in (income) loss . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Per Share Data: Earnings (loss) per share(1) . . . . . . . . . . . . . . . . .		**Year **	ended December 31,	ended December 31,	ended December 31,	ended December 31,
		2002 2001 2000 (Expressed in thousands of New Taiwan Dollars except for earnings per Share) $7,674,974 $ 4,677,762 $3,889,186 6,223,131 4,591,346 2,609,893 1,451,843 86,958 1,279,203 188,052 359,115 65,262 1,005,017 1,166,094 289,471 30,595 34,464 39,169 228,179 (1,472,715) 885,301 674,173 534,041 324,680 725,807 626,046 191,515 176,545 (1,564,720) 1,018,466 15,090 421,345 22,701 (7,362) 71,516 —			2000
						1,279,203 65,262 289,471 39,169
						885,301 324,680 191,515
						1,018,466 22,701 —
		$ 184,273 0.58		$(1,071,859) (6.18)		$1,026,778
						4.99

(1) Based on the weighted average number of Shares outstanding during the relevant period, which were 303,225,000 in 2002, 253,345,000 in 2001 and 204,087,000 in 2000.

8

		Year ended December 31,	Year ended December 31,	Year ended December 31,
		2002	2001	2000
		(Expressed in thousands of New Taiwan
		Dollars except for earnings per Share)
	Consolidated Balance Sheet Data:
	Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20,501,513	17,967,517	13,893,176
	Cash and cash equivalents . . . . . . . . . . . . . . . .	3,309,525	290,603	1,756,762
	Short-term investments, net . . . . . . . . . . . . . . .	—	—	130,259
	Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .	6,447,886	4,814,772	2,709,535
	Short-term loans (including current portion
	of long-term debt) . . . . . . . . . . . . . . . . . . . . .	3,613,338	2,926,989	1,301,031
	Short-term notes and bills payable . . . . . . . . . . . .	184,874	168,960	399,909
	Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . .	1,199,843	1,821,926	1,340,177
	Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .	378,841	2,758,812	12,994
	Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .	12,474,943	8,572,007	9,830,470
	Other Consolidated Data:
	Cash Flow:
	Cash provided by (used in) operating activities	(725,055)	2,185,679	625,070
	Cash provided by (used in) investing activities .	987,825	(7,031,642)	(5,763,752)
	Cash provided by financing activities . . . . . . . .	2,767,131	3,379,804	6,809,290
	Net cash flow . . . . . . . . . . . . . . . . . . . . . . . . . .	3,018,922	(1,466,159)	1,670,608
	Gross profit margin . . . . . . . . . . . . . . . . . . . . . . .	18.9%	1.9%	32.9%
	Operating margin . . . . . . . . . . . . . . . . . . . . . . . . .	3.0%	—	22.7%
	Net margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2.4%	—	26.4%

9

RISK FACTORS

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

Risks Relating to the Group’s Business

The Group has recently experienced operating and net losses and such losses may continue in the future

Although the Group had operating income of NT$228.2 million and net income of NT$184.3 million in 2002, the Group experienced operating and net losses in 2001, primarily because of increases in costs of goods sold and operating expenses related to the acquisition of Mediacopy on January 2, 2001 and a general global business downturn in the storage media and VHS media market. Despite the Group’s recent profitability and although the restructuring of the Group’s North American business and operations has been largely completed, there is no assurance that losses will not occur again or worsen in the current period or future periods. In addition, Mediacopy had a net loss in 2002. There is no assurance that Mediacopy will become profitable or that losses at Mediacopy will not worsen in the current or future periods.

If capital resources required for the Group’s expansion plans are not available, it may be unable to successfully implement its business strategy

Historically, the Group has relied on equity and debt financings and long-term borrowings to finance its capital expenditures, as cash flow from operations has not be sufficient, however, to funds all of these expenditures. The Group’s ability to expand will continue to depend largely on its ability to source external funding. The Group expects to make substantial capital expenditures in connection with the expansion of its production capacity, including spending NT$2,361.5 million (which includes the amount paid in 2003 for the acquisition of Mediacopy) for new equipment and new facilities to be constructed in Taiwan, South Korea, Los Angeles, California, El Paso, Texas and Toronto, Canada.

The Group plans to finance approximately 85% of the capital expenditures required for the new equipment and facilities, with the exception of new equipment and facilities in South Korea, from the proceeds of this Offering and the Company’s offering of convertible bonds in 2002. These amounts will not be sufficient, however, to finance the planned capital expenditure for the Group’s South Korean operations. The Group depends on additional debt and equity financing or loans to finance the South Korea and any further expansion, as internal sources of liquidity will likely not be sufficient to implement the Group’s expansion plan. The Company may not be able to secure any required additional financing on commercially reasonable terms, or at all. If the Company fails to obtain sufficient funding on commercially reasonable terms, it may not be able to carry out its scheduled expansion plans, which may materially and adversely affect its ability to successfully implement its business strategy and compete effectively and grow its business. This may result in a deterioration of customer relationships and a drop in sales revenue. This could in turn materially and adversely affect the Group’s business and financial condition. In addition, if the Company fails to secure financing for the South Korea expansion, it may be forced to use its available cash and cash equivalents and other internal sources of liquidity for the expansion. This may cause a drain of the Company’s cash position and other sources of liquidity, which may also materially and adversely affect the Group’s business and financial condition.

10

In addition, the Company cannot assure you that any anticipated benefit from expansion will occur or that the expansion plan will be successful. Further, the Group’s actual capital expenditures could exceed its planned expenditures for a variety of reasons, including changes in:

• the Group’s expansion plan;

• manufacturing processes and product technologies;

• market conditions;

• prices of machinery and equipment; and

• interest rates.

The Group has in the past substantially increased its outstanding indebtedness and will further increase outstanding indebtedness as a result of this offering and may need to seek further financing to repay its indebtedness before carrying out further capital expenditures and investment activities

From December 31, 2001 to December 31, 2002, the Group’s aggregate short-term and long-term indebtedness increased from NT$4,917.9 million to NT$4,998.1 million. As a result of the sale of the Bonds, the Group will incur U.S.$40,000,000 of additional indebtedness (or up to U.S.$60,000,000 of additional indebtedness if the Optional Bonds are issued), increasing the debt-to-equity ratio (expressed as a percentage) from 64.3% as of December 31, 2002 to approximately 75.5% (or up to 81.1% if the Optional Bonds are issued) after the offering (on an as adjusted basis after giving effect to the sale of the Bonds). Group indebtedness presents risks to investors, including the possibility that the Group may be unable to generate sufficient cash to pay the principal and interest on its indebtedness. In particular, the Group will need to generate sufficient cash from its operations or obtain external funds to repay the indebtedness if and when all or substantially all of the holders of the Bonds exercise their put options 18 months after the date of issue of the Bonds to require the Group to repurchase their Bonds at the principal amount. The Group’s ability to make principal and interest payments on its indebtedness will depend on its future performance, which depends on a number of factors, many of which are beyond the Group’s control.

If the Group does not have sufficient resources to repay its indebtedness when it becomes due and payable, the Group may find it necessary to refinance its indebtedness before making any further investments. Such refinancing may not be available, or may not be available on commercially reasonable terms. Although the Group has a substantial amount of short-term lines of credit, which are renewable annually and maintained with domestic and international banks, there is no assurance that these short-term lines of credit will be renewed each year on favorable terms, or at all. Additionally, the Group’s indebtedness could have a material adverse effect on its operating performance and may reduce the funds available for purposes other than the payment of indebtedness. The inability to obtain additional financing for working capital expenditure, acquisitions or general and corporate purposes will place the Group at a competitive disadvantage and may limit the Group’s ability to expand or adjust to changing market conditions.

The Group may experience liquidity problems if there is insufficient cash at hand to meet its short-term obligations and the Group may face cash flow problems if the Company’s short-term working capital facilities are withdrawn by the Company’s lenders

Due to seasonality and cyclicality inherent in the Group’s business, the Group may not be able to generate sufficient cash flow in prosperous periods to meet its cash requirements in slow periods. If this occurs, the Group will face liquidity problems if there is insufficient cash at hand to meet its short-term obligations, and the Group will have to arrange for higher cost replacement financing.

The Company maintains short-term working capital facilities with domestic and international banks. These short-term working capital facilities may be withdrawn by the Company’s lenders at their complete and absolute discretion, without prior notice to, or consultation with, the Company. Given the Group’s intended expansion of its production facilities, if the Company’s short-term working capital facilities are withdrawn by the Company’s lenders, the Company may not have

11

sufficient short-term working capital or operating cash flow to finance the purchase of its raw materials and to meet other short term commitments, and this will have material and adverse effect on the Group’s results of operations and the financial condition.

The credit facilities available to the Group are subject to satisfaction of certain conditions and may not be readily available when required

The Group currently maintains credit facility arrangements with certain domestic and international banks, as mentioned above. There is no assurance that the conditions under this and other credit facility arrangements will be satisfied or the amount that may be drawn by the Group will be readily available when required by the Group.

The operating results of the Group depend on many factors, some of which are beyond the Group’s control

The operating results of the Group can vary depending on many factors, including the success of movie releases in DVD format and in cinemas in any given year, unexpected customer demand or new requirements, new product introductions, change of standards for the Group’s products, development and production delays, raw material price fluctuations and shortages, piracy issues in Taiwan and elsewhere, cost control issues, technological and production process changes, timing of orders and shipment delays. Unfavorable changes in these or other factors can materially and adversely affect the Group’s results of operations or financial condition. In 2001, the Company’s financial performance was negatively affected by a decrease in demand for the Group’s products as a result of an overall downturn in the optical storage media industry. In addition, the Company’s operating results may be below the expectations of public market analysts and investors in some future periods. In this event, the price of the Bonds and the Shares of the Company may fall.

The Group depends on certain key customers for a significant portion of its revenue and a loss of some of these customers would result in the loss of a significant portion of the Group’s business, revenue and profit

During 2002, 2001 and 2000, the Group’s five largest non-affiliate customers accounted for approximately 35.5%, 64.0% and 62.5%, respectively, of its net sales. The Group substantially depends on its movie studio customers, particularly MGM and Warner Home Video (including off load DVD orders from an affiliate of Warner Home Video, WEA Manufacturing, Inc., d/b/a Warner Advance Media Operations (“WAMO”) in its pre-recorded DVD and VHS home video business. In 2002 and 2001, the two largest Group customers, MGM and WAMO, accounted for 19.3% and 12.8% of the Group’s consolidated net sales. Warner Home Video alone accounted for approximately 14.8% of the Group’s consolidated pre-recorded DVD sales in 2002. The Company currently plans to increasingly target its sales to large studio customers, which could lead to greater concentration of its core customer base. In addition, the Group’s contract with MGM, which is the Group’s largest customer, expires in March 2004. Although the Group expects to commence discussions with MGM in due course to bid this contract, there is no assurance that the Group will be able to continue to win its contract with MGM following the expiration of the contract. In addition, there are some other competitors who possess more advanced order fulfillment systems and more financial resources to compete in the bidding process. Should it fail to do so, and should the Group fail to replace the contract with MGM with another of the major movie studios, the Group’s business, financial condition and results of operations would be materially adversely affected. While most of the Group’s contracts with its other studio customers do not expire until 2005, the Group has a contract with WAMO with respect to Region 3 DVD products that expires in 2003.

The DVD and VHS videocassette order levels of studio customers may vary significantly depending on whether that studio customers’ title issues are popular and successful in any given year. There is no assurance that any of the Group’s studio customers will not cancel orders or that they will continue to place orders with the Group in the future or at the same levels as in previous periods. Although the Group plans to secure more contracts with other major studio customers, there is no assurance that such goal will be realized. Failure to do so may cause the Group’s financial condition and results of operations to be materially adversely affected.

12

The Group is vulnerable to cyclical and seasonal downturns in the storage media industry

The storage media industry is highly cyclical and seasonal. Economic downturns historically have reduced demand for the Group’s products and resulted in low capacity utilization and production over-capacity. For example, since the beginning of 2001, the storage media industry has been adversely impacted by the sudden and rapid decline in worldwide demand for electronic products such as PCs, PC peripherals, consumer electronics and other communications devices. Also, the average selling prices of both the Group’s pre-recorded and blank storage media products declined from 1999 to 2002. However, prices have recovered somewhat beginning in late 2002. The Group’s gross margin decreased from 32.9% in 2000 to 1.9% in 2001 before improving to 18.9% in 2002. This decline seriously harmed the Group’s operating results in 2001. The Group is susceptible to cyclical downturns, which may adversely affect the Group’s product prices, sales volumes and margins, and the Group’s business, financial condition and results of operations may be materially and adversely affected accordingly.

The Group’s pre-recorded DVD and VHS audiovisual home video business is largely driven by orders placed by its major studio customers. These customers’ movie title releases may or may not be successful in any given year, depending on marketing and the public’s reception to particular film title releases. Furthermore, the more anticipated movie releases are targeted for the North American summer and Christmas, and not throughout the year. Demand for DVDs and videotapes generally follow the trend of the cinema movie releases. As a result, the pre-recorded DVD and VHS home video business is highly cyclical, seasonal and to a certain extent, unpredictable.

The Group’s business requires significant fixed costs for factory premises and manufacturing equipment and the Group requires a high capacity utilization rate for its equipment. In addition, because a substantial portion of the Group’s expenses represent fixed costs, a decrease in net sales will have an adverse impact on the Group’s net income

The Group’s business requires significant fixed costs for factory premises and manufacturing equipment. Depreciation is one of the Group’s largest operating costs. In order to cover these depreciation costs, the Group’s operations have to be run very efficiently. A high utilization rate for the automated DVD production machines is required for the Group to be profitable. The Group may not be able to regularly maintain a high utilization rate for its equipment, particularly during the Group’s low production seasons. In the event the Group is unable to maintain high utilization rates for its manufacturing equipment, the Group’s financial condition and results of operations may be substantially and adversely affected. A substantial portion of the Group’s expenses, including salaries, investment in equipment and depreciation, represent fixed costs, meaning that such expenses do not vary proportionately with the amount of sales made by the Group. Accordingly, a decrease in net sales could result in a proportionately higher decrease in net income.

The Group’s growth and the expansion of its production facilities in 2003 is a direct response to and is driven by the Group’s customers’ (especially MGM’s and Warner Home Video’s) DVD forecast for 2003, which may or may not be accurate

The Group’s expansion of its North America production facilities in 2003 is a direct response to and is significantly driven by the Group’s customers’ (especially MGM’s and Warner Home Video’s) DVD forecast requirements for 2003. The Group’s studio customers are not committed in anyway to purchase any excess capacity over and above that actually required by these studio customers, save for certain exceptions. Normally, the Group’s studio customers typically only place orders for DVDs with the Group closer to the time of the expected DVD release, and often in reaction to that particular movie’s success with cinema audiences. To meet these customer forecasts, the Group plans to expand its present production volume in the U.S. from 7.5 million DVDs per month in 2002 to 11 million DVDs per month. This planned increase in production will require significant funding, and the Company expects to use substantial amounts of the Bond proceeds, together with its internal resources, to finance the North America product expansion. The accuracy of the forecasts from the Group’s studio customers, including MGM, have varied historically from year to year, and may not be accurate for 2003. If these forecasts are inaccurate and the Group’s studio customers overestimate the amount of DVDs required by them, the Group may be faced with significant overcapacity, and the Group would already have incurred the capital expenditure required to meet previously forecasted DVD sales volume. This overcapacity will have material and adverse effects on the Group’s results of operations and the financial condition.

13

The Group’s business is and will continue to be adversely affected by the piracy of pre-recorded media products

Piracy is a prevailing problem in Asia. According to the Motion Picture Association in 2002, the Hollywood studios lost an estimated U.S.$640 million to Asian criminal syndicates employing sophisticated technology to produce and export illegal DVD and VCD copies of major films. Movie pirates are able to consistently replicate and manufacture large quantities of cheap and varying quality pre-recorded media products (such as DVDs, audio CDs, VCDs and VHS videocassettes), which are marketed freely and openly at very steep discounts to licensed pre-recorded media products in certain parts of Asia. Pirated pre-recorded media products are occasionally released prior to the official cinema movie release. This affects the cinema industry and the sale of licensed pre-recorded media products. Licensed DVDs are normally released approximately three months after a movie’s cinema release.

Piracy is also a problem in Taiwan. Taiwan’s music and film industry sales have steadily declined since 1995 as a result of piracy. This piracy has also caused a loss of business for the pre-recorded storage media industry. As a result of intellectual property piracy and breach of copyright issues in Taiwan, in 2001 the international intellectual property alliance (“IIPA”), a coalition of six trade associations representing 1,000 United States-based copyright companies, placed Taiwan on the Special 301 Priority Watch List due to its failure to enact and effectively implement comprehensive regulations to control and curtail the illegal manufacture storage media products in Taiwan, and the failure of the Taiwan governmental authorities to close known commercial pirates and curtail growing online piracy. The continued failure of a country to adopt and/or enforce adequate laws regarding piracy can result in the imposition of trade retaliation measures by the United States government. Taiwan remained on the Special 301 Priority Watch List in 2002.

If piracy remains unregulated and continues to prevail in Taiwan and elsewhere in certain parts of Asia, the sale of the Company’s pre-recorded storage media products in Asia and elsewhere will be adversely affected, as studios may require less production volume due to decreased demand for the Group’s products as a result of the availability of substantially cheaper pirated products in the market. With the increasing sophistication of pirated products, the audiovisual quality of pirated pre-recorded media products will differ less and less compared to licensed pre-recorded media products and consumers may choose to purchase more pirated products compared to licensed pre-recorded media products, directly affecting demand for the Group’s properly licensed DVDs, audio CDs VCDs and VHS videocassettes. Pirated movies may now also be viewed, shared and distributed freely on the Internet. Peer to peer sharing of pirated movies remains an ambiguous legal enforcement area, and in certain jurisdictions is not illegal. The effect of piracy could materially and adversely affect the Group’s business and financial condition.

If the Group is unable to manage its growth, its expansion plans and competitive position could suffer

The Group intends to substantially expand its production capacity, customer base, product and geographical scope, and expects to continue expanding operations, in accordance with its customers’ projections, forecasts and expectations. The Group intends to construct a manufacturing and distribution facility in Toronto, Canada, a manufacturing facility in Taoyuan, Taiwan and a manufacturing and technical center in Los Angeles, California and also intends to expand its production capacity in El Paso, Texas, Taiwan and South Korea. The Group wants to target more studio customers for its pre-recorded media storage products and develop and produce new blank storage media products, including DVD-Rewritable and DVD-Recordable, in Taiwan and South Korea.

The planned expansion of the Group’s business will put pressure on financial, managerial, technical, production, operation and other Group resources. The planned expansion will require the Group to efficiently manage production and distribution, increase Group product expertise and increase its ability to monitor the quantity and quality of production output. The Group will also need to enhance financial and quality control systems and recruit additional staff in certain areas.

Although the Group believes it has adequately managed its growth to date, there is no assurance that it will be able to manage its future expansion effectively and in a cost-efficient manner. Future expansion may result in production problems due to integration problems with

14

existing production systems, capacity constraints, constraints in other resources, construction delays, or difficulties in upgrading or expanding production facilities. Furthermore, the Group cannot assure you that expansion will be successful or that any anticipated benefit from the expansion will necessarily occur.

Competition may adversely affect the Group’s financial performance

The markets for the Group’s products are highly competitive and rapidly changing, both in the ROC and abroad. The Group expects competition in the storage media industry to persist and intensify, which could result in price reductions, reduced gross margins and loss of market share for Group products due to rapid technological changes, new market entrants and oversupply of products.

For the Group’s pre-recorded media products, the Group competes with a number of foreign companies, such as WAMO, Sony, Technicolor and Cinram International Inc. For the Group’s blank media products, the Group competes primarily with local companies, such as Ritek Corporation and CMC Magnetics Corporation.

Many of the Group’s competitors and potential competitors have greater financial, marketing, manufacturing, research and development and technological resources, broader product lines, greater brand name recognition and larger customer bases. In addition, some of these competitors are also the Group’s customers.

As a result of existing or increased competition, the Group could encounter significant pricing pressures. These pricing pressures could result in significantly lower average selling prices for the Group’s products. The Group may not be able to offset the effects of any price reductions with an increase in the number of its customers, cost reductions or otherwise. The Group cannot assure you that it can successfully compete with any of its existing or future competitors. Should it fail to do so, the Group’s results of operations and financial condition could suffer.

Further, the Group may lose existing customers to other competitors as a result of competition. For example, the Group lost its contract with Atlantic Alliance in Canada, which accounted for approximately 3.2% of the Group’s consolidated sales in 2002. If the Group loses more existing customers and is unable to gain new customers to compensate for the loss of such existing customers, the business and financial condition of the Group may be adversely affected.

Increasing industry consolidation in the optical storage media industry could harm the Group

In the last few years, there has been an increasing trend in the optical storage media industry towards industry consolidation. The Group expects this trend to continue in the future. Although the Group is one of the top five DVD replicators worldwide by capacity and by production volume certain of its competitors, such as Cinram International Inc., WAMO and Technicolor, are substantially larger in terms of capacity and production volume than the Group. Should these competitors merge with one another, their size in comparison to the Group would be magnified. As the Group’s competitors become relatively larger in comparison to the Group, their greater financial, marketing, manufacturing, research and development and technological resources will become commensurately greater. As a result, the Group may not be able to compete effectively against its competitors and its business, financial condition and results of operations could be materially and adversely affected.

The Company’s Chairman is under indictment for violation of the ROC Securities Law, and if he is convicted the Company could be materially adversely affected

Criminal charges were brought in district court in Taiwan against Mr. David Lu, the Chairman of the Company and Ms. Hui-jen Chen, Mr. Lu’s spouse, who is also a Director and a manager of the Company, on February 25, 2003 on the grounds of alleged insider trading in violation of Section 157-1 of the ROC Securities Law. The indictment alleges that Mr. Lu and Ms. Chen traded in the securities of the Company while in possession of non-public information likely to have a material impact on the Company’s Share price. The Company is not a party to these proceedings.

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The indictment relates to sales of a total of approximately 7.5 million Shares, for a total of NT$1,269 million, during a period in 2000 in which the Company issued a number of revised projections for its 2000 results.

Mr. Lu has contested the charges but it is not possible at this time reasonably to assess the final outcome of these proceedings.

If Mr. Lu were to be found guilty of the crimes alleged in a final judgment, he could be subject to incarceration and/or be barred from serving as a Director or officer of the Company. If the Company were to lose the services of Mr. Lu, it could suffer damage to its business and the business relationships that depend on him, which could have a material adverse effect on the Company’s results of operations. In addition, the ROC Securities and Futures Commission may prohibit the Company from issuing securities in Taiwan for a period of up to three years after the indictment or a final judgment. The Company’s plans to maintain and expand its business will require significant capital expenditures. Accordingly, any such restrictions on the Company’s access to sources of funding could have a material adverse effect on the Company’s ability to implement its strategic plan and on its financial position.

If convicted, Mr. Lu and the other defendants could be also subject to fines, which could be as high as three times the gain realized or loss avoided. Moreover, they could be subject to civil claims for damages.

There can be no assurance that Mr. Lu will not be subject to other such actions or claims in the future. Although the Company is not named in the indictment and is not a party to the proceedings, there is no assurance that proceedings may not be brought against the Company in relation to the matters contained in the indictment.

If the Group loses one or more of its key personnel, its operations and business may suffer

The Group’s business depends on its ability to attract and retain highly qualified personnel in the optical storage media manufacturing business. The Group competes for such personnel with other companies, academic institutions and government entities and cannot assure you that it will be successful in hiring or retaining such qualified personnel. The inability to hire or retain such qualified personnel can materially and adversely affect the Group’s business, results of operation and financial condition. In particular, the Group is heavily dependent on its founders, Mr. David Lu, the Company’s Chairman and CEO, and Mr. Frank Tien, the Company’s President, in relation to the relationships cultivated by them between the Group and its most important customers. Mr. David Lu’s or Mr. Frank Tien’s departure from the Group could materially adversely affect the Group’s business, financial condition and results of operations.

The Group is vulnerable to intellectual property claims of others that could materially and adversely affect its business and operating results

The Group has occasionally received communications alleging that its products or processes infringe product or process technology rights held by others. The Group may continue to receive such communications. If the products or manufacturing processes are found to infringe such third party rights, the Group may be subject to significant liabilities and be required to change its production processes or products. This could restrict the Group from making, using, selling or exporting some of its products, which could in turn materially and adversely affect its business and financial condition. In addition, any patent litigation could materially and adversely affect operating results because of management attention required and legal costs incurred.

The Group may have liability for pre-recorded content

During the VHS tape duplication or DVD disc replication process, content may be misplaced or mislabeled. Although the Company has established quality control procedures in various stages of the production process, there can be no assurance that such misplacements or mislabeling will not occur at some point in time. In the event of such errors, the costs involved in product recall, remanufacture and redistribution may be significant and the Group’s results of operations may be adversely affected. The Group’s reputation and its relationship with customers may also be adversely affected. Furthermore, the Group may be subject to claims from its customers or the viewers regarding such misplaced content.

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In addition, the Group may incur liability for the content of data storage media if such content is regulated or prohibited by the laws of the jurisdiction in which the stampers or the resultant storage media are produced, located or accessed or the data is decoded or otherwise processed. The Group does not currently maintain any insurance in respect of liability arising from the content of its products and services and any significant liability claim would have a material adverse effect on the Group.

The Group is dependent on license agreements for some of its core products

The Group has entered into patent and intellectual property license agreements with third parties, some of which require one-time or periodic royalty payments. In the future, the Group may need to obtain additional patent licenses or to renew existing license agreements. The Group cannot assure investors that these license agreements can be obtained or renewed on favorable or competitive terms. If they cannot, the Group’s business and future operating results could be materially and adversely affected.

The Group’s business may be materially and adversely affected if the Group cannot develop or acquire advanced manufacturing technologies

Storage media products generally have short product cycles. New products, like DVDRewritable and DVD-Recordable, are constantly being introduced, and technology and industry standards evolve quickly, resulting in steep price decreases in the advance stages of a product’s life cycle. To satisfy consumer needs and to remain competitive, the Group must continually develop or acquire advanced manufacturing technologies that lower production costs and enable timely release of new products. If the Group fails to do so, its results of operations and its financial condition may be materially and adversely affected.

The Group may be adversely affected if it fails to anticipate market demand and manufacture insufficient quantities of commercially successful products

New products are developed in anticipation of future demand and technology. The Group’s delay in the development of commercially successful products to be used with evolving technology, or its failure to manufacture sufficient quantities of such products to meet market demand may adversely affect the Group’s business. The Group cannot assure you that the launch of any new product will be successful, or that it would be able to produce sufficient quantities of these products to meet market demand.

The Group’s business is accordingly affected by the amount and timing of orders placed by the Group’s major studio customers. Historically, the Group receives the most orders and generates the most revenue during the second half of the year, particularly during the fourth quarter, due to the large number of Christmas orders from its studio customers. Orders during the Group’s high season are usually placed on an urgent basis and in large volumes. The Group is expanding its manufacturing capacities in light of the Groups’ customers’ forecast for 2003 production, particularly MGM’s forecast. There is no assurance that the Group will always be able to manufacture its products within the timeframe and according to the specifications required by its customers, given the unpredictable and seasonal nature of the pre-recorded audiovisual storage media industry.

The Group’s manufacturing processes are complex and potentially vulnerable to disruptions that can increase its production costs, cause delivery delays and reduce output

The Group’s manufacturing processes are highly complex and require specialized, advanced and costly equipment and are continually being modified to improve manufacturing yields and product performance. The Group is subject to the risk of production difficulties such as capacity constraints, difficulties in changing its manufacturing technology and delay in the delivery of necessary equipment. The manufacturing processes are also potentially vulnerable to disruptions that can increase its production costs, cause delivery delays and reduce output, which may have a material adverse effect on its results of operations and financial condition.

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If the Group is unable to obtain raw materials in a timely manner, the Group’s production schedules could be delayed and the Group may lose customers

The Group depends on a reliable supply of raw materials from third parties in its manufacturing process. As a result, it faces the risk of its suppliers failing to meet the Group’s orders on a timely basis, or limiting their supply to the Group or increasing their prices (which the Group may not be able to pass-through to its customers), any of which could materially and adversely affect its results of operations and financial condition.

In addition, the Group’s manufacturing process requires significant quantities of electricity and water. While the Group has not in the past experienced material interruptions due to water shortages, its production in Taiwan has been interrupted on several occasions by power outages. The Group does not maintain any power conservation or back-up generating devices at any of its manufacturing facilities to cope with any electricity shortages. The Company cannot provide any assurance that interruptions to such utility supplies will not occur in the future.

If the Group violates environmental regulations, it may be subject to fines or restrictions that could cause its operations to be delayed or interrupted and its business to suffer

The Group must comply with regulations relating to storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes resulting from its manufacturing processes. Although the Group has not suffered material environmental claims before and believe it complies with current applicable environmental regulations in all material respects, the Group’s operations can expose it to the risk of environmental claims. Any environmental claims could result in damages awarded or fines imposed against it, which could materially and adversely affect the Group’s results of operations and financial condition.

The Group believes its future cost of compliance with environmental regulations, or potential exposure to liability for environmental claims, will not have a material adverse effect on its business or financial condition. However, any future changes to existing regulations or unknown contamination of its sites, including contamination by prior owners and operators, may give rise to additional compliance costs. These may materially and adversely affect the Group’s results of operations and financial condition.

The financial forecasts reported by the Company from time to time pursuant to the requirements of the Taiwan Stock Exchange should not be relied upon

The Company cautions that the forecasts published by the Company from time to time pursuant to the requirements of the Taiwan Stock Exchange should not be relied upon as such forecasts are based upon a number of estimates and assumptions regarding the Company’s industries, investments and general market, political and economic conditions, many of which are beyond the Company’s control, and are inherently subject to significant uncertainties and contingencies. None of the information included in this Offering Circular has formed or will form the basis of the Company’s future forecasts. The Company does not undertake any obligation to update these forecasts, except as required by applicable laws and regulations.

Internally prepared annual financial information published by the Company from time to time pursuant to requirements of the Taiwan Stock Exchange may be inaccurate and incomplete

The Taiwan Stock Exchange requires companies listed on the Taiwan Stock Exchange that publish financial forecasts to report to the Taiwan Stock Exchange and publish by the end of January each year certain internally prepared unaudited unconsolidated information regarding the realization of the financial forecasts made by such companies during the prior fiscal year. The Company has complied with this requirement and the Company intends to continue to comply with this requirement. The information published in response to this requirement will not be subject to the same review and scrutiny, including internal auditing procedures and review by independent auditors, to which the Company subjects quarterly financial information published by the Company from time to time pursuant to the requirements of the Taiwan Stock Exchange, or to the Company’s audited semi-annual or annual financial statements. Further, because this information is unaudited and unconsolidated, it may vary from the audited consolidated ROC GAAP financial statements for the same period. Any such variance may be material and adverse.

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The Group operates at various international locations and is vulnerable to local political and economic risks, particularly in South Korea, that may seriously disrupt the Group’s operations

The Group’s products are produced primarily in Taiwan and in the United States and South Korea. Further, for cost considerations and other strategic reasons, the Group might in the future establish in, or move operations to, new geographic locations that offer cost savings or access to a larger market. For example, the Group intends to build a distribution facility and manufacturing plant in Toronto, Canada to better serve customers in Canada and customers located along the east coast of the United States. The Group will also establish a technical center and manufacturing facility in Los Angeles, California to accelerate disc checking response time for its major studio customers on the west coast of the United States.

As a result, the Group’s future performance will depend in large part on future economic growth in these jurisdictions. Adverse developments in the economies of these countries or in their political or social conditions may have an adverse effect on the Group’s business and its results of operations. In addition, a deterioration of economic, political or social conditions in any of these countries could have an adverse effect on the prices of the Company’s Shares. The Group is also susceptible to currency devaluation risks and changes in foreign investment regulations.

In particular, tensions between the Democratic People’s Republic of Korea, or North Korea, and South Korea could have an adverse effect on the Group and the prices of the Company’s Shares. Relations between South Korea and North Korea have been tense throughout most of South Korea’s history. The level of tension between South Korea and North Korea has fluctuated and may increase or change abruptly as a result of current developments, including renewed contacts at the highest levels of the governments of South Korea and North Korea and increased hostility between North Korea and the United States, and future events that cannot be foreseen at this time. Any increase in the tension, which may occur, for example, if these contacts break down or military hostilities occur, could have a material adverse effect on the Group’s results of operations and the price of the Company’s Shares.

The recent outbreak of Severe Acute Respiratory Syndrome (“SARS”) in the Greater China and neighboring areas may affect the Company’s business operations and sales

SARS, an atypical pneumonia of unknown etiology, was first reported at the end of February 2003 in Hanoi, Vietnam. Scientists and the World Health Organization (“WHO”) believe that SARS was originated from Guangdong Province, the PRC. Cases of SARS have been reported from eight countries since February 2003. As of May 5, 2003, 6,234 suspected, probable and confirmed cases of SARS (including 435 deaths and 2,702 recovered) had been reported to the WHO. Local transmission of SARS has been confirmed in Canada, Hong Kong, Singapore, Taiwan, Vietnam and the PRC.

As Beijing, Guangdong Province, Hong Kong, and Taiwan are currently being announced by the WHO as affected areas and new cases of SARS are continuously being reported in these areas, many multinational companies, including the Company’s customers and suppliers, have established travel ban policies to and from such areas. In addition, a number of companies require visitors or employees returning from affected areas to be subject to a 7- to 14-day quarantine period before they return to work. Inconvenience caused by such travel bans and quarantine policies may have an adverse impact on the Company’s business and operations.

The Company’s manufacturing facility in Taiwan is located in an affected area. To date, none of the Company’s employees at any of its manufacturing facilities has reported any case of SARS. However, there can be no assurance that any of the Company’s employees will not be infected by SARS. As the Taiwan governmental authorities have adopted a strict quarantine policy with respect to SARS, if any employee of the Company’s manufacturing facilities in Taiwan is infected by SARS, such affected facilities may be subject to up to 14 days of quarantine. In such a situation, the Company’s business, operation, sales and financial results will be adversely affected. In addition, any media coverage of any such possible SARS cases is likely to affect the Company’s Share price.

If SARS becomes a prolonged problem, it is also likely to have adverse impact on the general economy in the Greater China region by causing a reduction in consumer spending and business activities. These adverse economic conditions could materially and adversely affect the Company’s business, results of operations and financial condition.

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Taiwan is susceptible to earthquakes and other natural disasters that could disrupt the normal operation of the Company’s business and adversely affect earnings

Taiwan is susceptible to natural disasters, such as typhoons and earthquakes. On March 31, 2002, June 11, 2000, and September 21, October 22 and November 2, 1999, 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 Company did not experience major structural damage to its facilities or major disruptions to its operations. In 2001, a typhoon hit Taiwan, which resulted in flooding and damaged some of the Group’s inventories. Currently, Taiwan is experiencing water shortages, which may have an adverse effect on the Group’s production capabilities. The Group’s operations and those of its customers and suppliers depend on the ability to avoid damages from earthquakes, floods, typhoons, droughts, power losses and similar events that affect Taiwan. The occurrence of any of these events could interrupt the Group’s operations and adversely affect its financial condition.

The Company’s business may be harmed, and the price of the Bonds or Shares may be adversely affected, by changes in general economic and business conditions resulting from terrorist attacks or other international military actions

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

In addition, PC resin is an essential raw material for the manufacturing of the Company’s products. As PC resin prices closely follow petroleum prices, if a war in the Middle East breaks out, the price of PC resin is likely to increase with price of petroleum, which will significantly increase the Group’s cost of production.

Risks Relating to the ROC

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

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

In particular, under ROC GAAP, the distribution of employee stock bonuses is treated as an allocation from retained earnings in the period that shareholders’ approval is obtained, and the amount charged against retained earnings is based on the per value of the shares issued. The Company is not required to, and does not, charge the value of the employee stock bonuses to income. Under U.S. GAAP, however, employee bonus expense is initially accrued when services are rendered. When bonuses are approved by shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the par value and the fair market value of the shares granted to employees. Correspondingly the Company’s net income and income per Share if they had been calculated in accordance with U.S. GAAP, would be significantly reduced. The Company has not quantified or identified the impact of the difference between ROC GAAP and U.S. GAAP.

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The Company faces substantial political risks in doing business in Taiwan, particularly due to the tense relationship between Taiwan and the People’s Republic of China

The ROC has a unique international political status. Both the ROC and the People’s Republic China, or the PRC, assert sovereignty over all of China, i.e., Taiwan, certain other islands and all of mainland China. The PRC government does not recognize the legitimacy of the ROC government. Although significant economic and cultural relations have been established in the past decade between the ROC and the PRC, the PRC has refused to renounce the possibility that it may at some point use force to gain control over Taiwan if Taiwan declares independence or a foreign power interferes in Taiwan’s domestic affairs. Relations between the ROC and the PRC may adversely affect the securities market in Taiwan and elsewhere, as well as the Company’s business and the market prices of the Shares and the Bonds.

The value of the Bonds and Shares may be adversely affected by the volatility of the ROC securities market

The ROC securities market is smaller and more volatile than the securities markets in the United States, Europe and certain other countries. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices of listed securities and has shown particular volatility following certain political events, market events and scandals. In recent years, the Taiwan Stock Exchange has experienced a certain degree of volatility as a result of the ongoing disputes between the PRC and the ROC and this has led the ROC government to intervene in the stock market in order to provide some form of support for the Taiwan Stock Exchange Index. In addition, there are currently limits on the range of daily price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange Index (the “TSE Index”) peaked at 12,495.34 in February 1990 and subsequently fell to a low of 2,560.47 in October 1990. For the year 2002, the TSE Index peaked at 6,462.30 on April 22, 2002 and reached a low of 3,850.04 on October 11, 2002. The daily closing values of the Shares, which are listed on the Taiwan Stock Exchange, ranged from NT$33.9 per Share to NT$14 per Share over the same period. The Taiwan Stock Exchange has experienced problems such as market manipulation, insider trading, payment default and other irregularities. The recurrence of these or similar problems and restrictions on price movements could adversely affect the market price and liquidity of the securities of ROC companies, including the Shares and the Bonds, in both the domestic and international markets.

Currency fluctuations could increase costs relative to revenues, which could adversely affect profitability

Most of the Group’s purchases and sales are denominated in U.S. Dollars, and to a smaller extent, New Taiwan Dollars, Korean Won and Euros. As a result, changes in the exchange rates of these currencies can significantly affect the Group’s gross and operating margins and may result in exchange losses. The Company has occasionally engaged in exchange-rate hedging activities and may continue to do so. However, the Company cannot assure you that this will successfully remove any exchange rate risks.

ROC exchange controls may adversely affect the ability of a holder to receive proceeds from the sale of the subscription rights for the Company’s Shares

Under existing ROC law, a holder of the Bonds, after becoming a holder of Shares, must obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT Dollars into other currencies in respect of the proceeds from the sale of subscription rights for newly issued Shares if the proceeds is in excess of U.S.$100,000 per remittance. Although such approvals have been routinely granted in the past, there can be no assurance that in the future any such approval will be obtained in a timely manner or at all.

The Company operates mainly in Taiwan and is vulnerable to any adverse changes in ROC regulations

A substantial portion of the Company assets are located and a substantial part of the Company revenues derive from operations in Taiwan. Accordingly, the financial condition and results of operations 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 that are not within control of the Company. For example, the government of the

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ROC experienced political instability due to changes in its policy on the construction of a new nuclear plant, among other events, in 2000. As a result, many local business conglomerates have announced their intention of moving at least part of their production facilities outside Taiwan, particularly in the PRC. The Company cannot assure you that it will continue to have access to necessary credit, at commercially reasonable rates of interest or at all.

The banking sector in Taiwan tightly controls the extension of credit, limiting the capital the Company may obtain from domestic borrowing

The banking sector in Taiwan has been seriously harmed by a high ratio of non-performing loans. Taiwanese financial institutions are therefore cautious in providing credit. Lending institutions generally place a limit on the amount of funds they may lend to businesses in a certain sector of the economy so as to avoid exposure if that sector of the economy should perform unfavorably. The Company does not know if the banking sector in Taiwan has extended a level of credit to manufacturers of optical storage media products at or near their limits. If it has, or if it does in the future, the Company may not have access to domestic credit at commercially reasonable rates of interest or at all.

Risks Relating to the Offering

There are limitations on your ability to exercise conversion rights

You will not be able to exercise your conversion rights during the Closed Periods (as defined in “Terms and Conditions of the Bonds”). Under current ROC law, regulations and policy, PRC persons are not permitted to convert the Bonds or to register as the shareholders.

Shares eligible for future sale by the current shareholders may adversely affect the value of your investment

The market price of the Bonds or Shares could decline as a result of sales of a large number of Shares after this offering or the perception that such sales could occur. The Company and certain of its principal shareholders have agreed for a limited period, subject to certain exceptions, to certain restrictions on the ability to sell or otherwise dispose of Shares without the prior written consent of the Sole Bookrunner. Except for such restrictions, there is no restriction on the Company’s ability to issue, sell or otherwise dispose of, and the shareholders’ ability to sell or otherwise dispose of Shares and the Company cannot assure you that it will not issue, sell or otherwise dispose of, or that any of its principal shareholders will not sell or otherwise dispose of Shares. If the principal shareholders sell a large number of Shares after this offering, the market price of the Bonds or Shares could be depressed and the value of your investment could substantially decrease.

A market for the Bonds is not likely to develop, and the market for the Shares may not be liquid

Prior to this offering, there has been no market for the Bonds, and there has been no market for the Shares outside the ROC. The only trading market for the Shares is the Taiwan Stock Exchange, on which the Shares have been listed since September 2001. The Bonds will not be listed on any securities exchange. Accordingly, an active trading market for the Bonds is not likely to develop. Neither the Bonds nor the Shares have been registered under the securities laws of the United States or elsewhere and cannot be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where such registration may be required. The Bonds may not be publicly offered or sold, directly or indirectly, in the ROC.

Upon your conversion of the Bonds you will be required to appoint a tax guarantor and a local agent in Taiwan

Any non-ROC person (other than PRC persons who, under current ROC law, regulations and policy, are not permitted to convert the Bonds or to register as the Group’s shareholder) exercising conversion rights will be required to appoint an agent in the ROC for filling tax returns and making

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tax payments. Such agent, or tax guarantor, will be required to meet the qualifications set by the Ministry of Finance of the ROC and to act as the guarantor of the converting bondholder’s tax payment obligations. You might not be able to appoint and obtain approval for a tax guarantor in a timely manner.

In addition, under current ROC law, in exercising your conversion right, you will be required to appoint a local agent in the ROC to, among other things, open a securities trading account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. Furthermore, you must appoint a local bank to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without satisfying these requirements, you would not be able to sell or otherwise transfer the Shares on the Taiwan Stock Exchange.

Further issues of the Shares, including those issued pursuant to employee stock bonuses, could dilute the holdings and associated rights with respect to the Shares.

Companies in the ROC generally pay employee dividends in the form or cash or stock. The Company’s articles of incorporation provide that (after certain deductions and provisions) employees should receive bonuses of at least 5% to 10% of its distributable retained earnings if the Company decides to distribute the earnings. If the Company distributes stock dividends to its employees, it will effectively dilute the holdings and associated rights of holders of the Bonds who convert the Bonds to Shares. In addition, further issuances of Shares would also dilute the holdings and associated rights with respect to the Shares.

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USE OF PROCEEDS

The net proceeds from the offering will be approximately U.S.$39.1 million, which may be increased to up to US$58.6 million if the Manager exercises the option to purchase the Optional Bonds. The Company will use the net proceeds for the expansion of the Group’s operations, for the payment of some of the Group’s existing debt and for other working capital purposes.

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CAPITALIZATION

The following table sets forth as of December 31, 2002 the Company’s consolidated shortterm debt and capitalization, as adjusted to reflect the issuance of the Bonds in this offering (assuming that the Optional Bonds are not issued).

There has been no material change in the Company’s capital since December 31, 2002.

Short-term debt, including current portion of long-term debt(1) . . . . . . . . . . . . . . . . . . . . . Short-term notes and bills payable . . . . . . . . . Long-term debt (net of current portion): Bonds due 2005 and 2007 payable(3) . . . . . Bonds due 2008 payable . . . . . . . . . . . . . . . Long-term loans. . . . . . . . . . . . . . . . . . . . . . Capital lease liabilities . . . . . . . . . . . . . . . . . Total long-term debt . . . . . . . . . . . . . . . . . Shareholders’ equity: Capital stock: NT$10 par value; Authorized: 7,000 million Shares; Issued and outstanding: 4,685 million Shares . . . . . . . . . . . . . . . . . . . . . . . . . Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings. . . . . . . . . . . . . . . . . . . . . . Legal reserve. . . . . . . . . . . . . . . . . . . . . . . . Unappropriated earnings . . . . . . . . . . . . . . . Cumulative transaction adjustments . . . . . . . . Total shareholder’s equity . . . . . . . . . . . . . . Total capitalization(4) . . . . . . . . . . . . . . . .		As of December 31, 2002(5)	As of December 31, 2002(5)	As of December 31, 2002(5)	As of December 31, 2002(5)	As of December 31, 2002(5)	As of December 31, 2002(5)	As of December 31, 2002(5)
		Actual As Adjusted NT$(2) U.S.$ NT$(2) U.S.$ (audited) (in millions) 3,613 104 3,613 104 185 5 185 5 7 0.2 7 0.2 — — 1,396 40 921 26 921 26 272 8 272 8 1,200 34.2 2,596 74.2 4,685 135 4,685 135 7,478 215 7,478 215 — — — — 187 5.4 187 5.4 125 3.6 125 3.6 12,475 359 12,475 359			As Adjusted
		NT$(2) 3,613 185 7 — 921 272 1,200 4,685 7,478 — 187 125 12,475						U.S.$
								104 5 0.2 40 26 8 74.2 135 215 — 5.4 3.6 359
		13,675		393.2		15,071		433.2

• (1) Includes short-term loans and current portion of long-term loans and capital lease liabilities.

• (2) New Taiwan Dollar amounts have been translated into U.S. Dollars (and the principal amount of the Bonds has been translated into New Taiwan Dollars) using the exchange rate published by Bank of Taiwan at December 31, 2002 of NT$34.635 = U.S.$1.00, solely for the convenience of the reader.

• (3) Represents the Company’s zero coupon convertible bonds in two tranches due 2005 and 2007 in the aggregate amount of U.S.$110 million issued by the Company in 2002.

• (4) Includes long-term debt (net of current portion), total shareholders’ equity at December 31, 2002 and, as adjusted, the Bonds (now being issued).

• (5) As at March 31, 2003, the Group had: (i) short-term loans, including current portion of long-term debt outstanding of NT$2,934 million; (ii) short-term notes and bills payable outstanding of NT$282 million; (iii) zero coupon convertible bonds due 2005 and 2007 payable of NT$3 million; (iv) long-term loans outstanding of NT$1,295 million; and (v) capital lease liabilities outstanding of NT$576 million.

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THE COMPANY

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

Overview

The Group manufactures and distributes pre-recorded optical storage media products, including DVDs, audio CDs and VHS videocassettes, for major motion picture studio customers and other content providers in principal markets worldwide. The Group also manufactures blank optical storage media products, including CD-R and CD-RW, and, commencing in the second half of 2003, DVD-Recordable and DVD-Rewritable.

Pre-recorded Storage Media Products

Pre-recorded storage media products, including DVDs, audio CDs and VHS videocassettes, are currently the Group’s most important product category, representing 74.4% and 73.8% of the Group’s sales in 2002 and 2001 respectively. The Group has focused its operations on DVD products. The Group produces DVDs in Taiwan, South Korea and the United States. The Group believes that demand for DVDs will continue to rise with the increasing popularity and the decreasing prices of DVD players and other DVD playback devices.

• The Group believes it is well-positioned to take advantage of this growth:

• It is one of the top five DVD replicators worldwide by capacity and by production volume.

• It has the capacity to produce approximately 180 million DVDs per year.

• It intends to add new production lines for pre-recorded storage media products in Toronto, Canada, El Paso, Texas and Los Angeles, California.

• Its customers include major movie studios and their production contractors, including The Columbia House Company, Eagle Rock Entertainment, General Mills Operation Inc, Goodtimes Home Entertainment, Lions Gate Films Corporation, Logistics Inc., Metro-Goldwyn-Mayer Home Entertainment, Inc., Platinum Disc Corp., Saturn Home Entertainment, LLC (dba Spartan Home Entertainment), Sony Music and Columbia TriStar Home Entertainment, Standard Product Co., Warner Home Video, Universal Music Group and Victory Sense Ltd.

Blank Storage Media Products

The Group currently manufactures CD-R and CD-RW. The Group produces CD-R and CD-RW in South Korea and CD-RW in Taiwan. The Group’s facilities in Taiwan and South Korea have the capacity to produce 6.5 million CD-Rs and 2.5 million CD-RWs per month. Global demand for CD-Rs and CD-RWs is expected to increase by 15.0% and 32.9%, respectively, in 2003 according to the Japan Recording Media Industries Association. In order to meet this expected growth in demand, the Group intends to add new production facilities for CD-R in South Korea and CD-RW in Taiwan.

The global market for recordable DVDs, although still relatively small, is also growing rapidly. According to the Japan Recording Media Industries Association, the global market for recordable DVDs is expected to increase by 179.5% in 2003. The Group also anticipates significant growth in the market for recordable DVDs.

The Group has developed DVD-Recordable and DVD-Rewritable, and expects to commence commercial production of these products in the second half of 2003. These products will be manufactured in Taiwan and South Korea.

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Services

The Group also provides distribution and other post-production logistics services to its customers in North America and Europe for pre-recorded storage media products. The Group’s North American distribution centers are located in Reno, Nevada, El Paso, Texas, Louisville, Kentucky and Toronto, Canada. The Group’s European distribution facilities are located in Renchen, Germany. The Group’s ability to handle all aspects of home video entertainment delivery is an important requirement of the Group’s customers in the pre-recorded storage media industry.

Location of Operations

The Company operates in Taiwan and, through subsidiary companies, in the North America, South Korea and Germany. In this regard, the Group’s operations in Taiwan have decreased over the last two years, as the Group has moved manufacturing operations to the United States and South Korea, in order to be closer to its customers in those jurisdictions. The Group accelerated its worldwide expansion activities in 2000, when it established subsidiaries and facilities in South Korea and Germany. Currently, the Group has production facilities in Chung Ho City, Taiwan, Kyungki, South Korea and El Paso, Texas. The Group intends to establish additional facilities in Toronto, Canada and Los Angeles, California, which are expected to commence operations in late 2003.

In North America, the Group produces and distributes pre-recorded storage media products, including DVDs and VHS videocassettes, for the North American market. In Taiwan, the Group produces and distributes pre-recorded DVDs for markets in North America, audio CDs for the Taiwan market and CD-RW for markets in Asia, Europe and North America. In South Korea, the Group produces and distributes pre-recorded DVDs and CD-Rs for the South Korean and other markets. The Group is the largest producer of CD-Rs in South Korea. In Germany, the Group engages in packaging and distribution services for markets in Europe.

Acquisition of Mediacopy

In January 2001, the Company acquired Mediacopy, a company based in the United States engaging in producing and distributing VHS videocassettes. The Company acquired Mediacopy in order to take advantage of its well-established customer base and distribution network in the United States. However, because of static demand for VHS products, the Group has refocused the United States facilities from producing primarily VHS videocassettes to DVDs. To this end, in 2001, the Group reduced the number of production lines devoted to VHS production and relocated DVD replication lines from the Group’s operations in Taiwan to the United States in addition to investing in new production lines in the United States. In order to further streamline production, the Group relocated all of the United States operations to El Paso, Texas and closed the facilities in San Leandro, California.

Industry Overview

The market for optical storage media has grown substantially over the last several years due to increasing demand for data storage and decreasing prices of optical storage drives and media products. The market for optical storage media, which also includes VHS videocassettes, is divided into two primary categories: pre-recorded and recordable. The markets for pre-recorded and recordable optical storage media, and the market for VHS videocassettes, are discussed below.

Optical Pre-recorded Storage Media

The market for optical pre-recorded storage media includes audio CDs, VCDs and DVDs. The market for pre-recorded optical storage media is highly fragmented. Large media content owners like software companies, music producers and major movie studios provide content and typically contract out the production to contract manufacturers.

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Within this market, demand for pre-recorded DVDs has grown rapidly. According to a report prepared by Ernst & Young on behalf of the DVD Entertainment Group, an industry trade group, approximately 685.0 million units of DVD software were delivered in North America in 2002, a 88.0% increase over 2001. According to the DVD Entertainment Group, in 2002 DVD retail sales in the United States were U.S.$8.7 billion, an increase of 61.0% over 2001. DVDs are quickly replacing VHS videocassettes as the storage media of choice for feature-length movies. According to DVD Entertainment Group, DVDs represented approximately 57.0% of home video consumer spending in 2002.

Optical Recordable Storage Media

Major optical recordable storage media include CD-Rs, CD-RWs and recordable DVDs (including DVD-Rewritable). Currently, the market for optical recordable storage media is largely dominated by CD-R. According to a November 25, 2002 report of the Japan Recording Media Industries Association, the global demand for CD-Rs for data use is expected to be 7,030 million units in 2003, an increase of 15.0% over 2002. The same report forecasts that the global demand for CD-RWs is expected to be 477 million units in 2003, an increase of 32.9% over 2002.

The global market for recordable DVDs, although still relatively small, is growing rapidly. As the prices of recordable DVD drives fall, this trend is expected to continue and the market for recordable DVDs is expected to grow in importance. According to the Japan Recording Media Industries Association, the global market for recordable DVDs is expected to be 192 million units in 2003, an increase of 179.5% over 2002. Within the category of recordable DVDs, the global market for DVD-Rewritable is expected to be 56 million units in 2003, an increase of 146.7% over 2002. According to a February 25, 2003 report of Fujiwara-Rothchild Ltd, an optical storage media research firm, in 2002, there were 5.2 million recordable DVD drives produced for use in personal computers and 1.7 million recordable DVD drives produced for use in household DVD recorders. There is also growing acceptance by end-users of a common standard relating to the recording of content onto blank DVDs as a result of the recent development of all-in-one multi DVD drive readers.

VHS Products

Although the global market for VHS videocassettes has shown a general trend of decline, it is widely considered that the global market for blank VHS videocassettes will continue to be significant as it will take time for post VCR devices, such as DVD recorders, to fully penetrate the market. According to a November 25, 2002 report of the Japan Recording Media Industries Association, the global market for blank VHS videocassettes is expected to be 1.0 billion units in 2003, a decrease of 5% from 2002.

Strategy

As a leading DVD producer, the Group intends to further expand its customer base in the home video industry and to develop new sources of revenues from other audiovisual storage media applications. To that end, the Group intends to implement the following strategies:

Reinforce relationships with existing customers and broaden customer base by forging relationships with new customers

Currently, most of the Group’s customers are movie studios or their agents for pre-recorded DVDs and VHS videocassettes. The Group intends to continue to reinforce its existing relationships and to attract new direct relationships with major studio customers for their replication and distribution needs in the United States and in other countries, in order to decrease its reliance on off-load DVD replication orders.

The Group also intends to broaden its customer base into other types of pre-recorded storage media products, such as software, video games, and educational, corporate and promotional storage media products. The Group intends to target as customers for these products, movie studios, music producers, publishers, software and video game developers and corporations producing promotional storage media products. One of the Group’s purposes in expanding its

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customer base is to reduce seasonality by increasing production during the Group’s off-peak production seasons. The Group believes that, with one of the most extensive home video (DVD and VHS) distribution networks in the United States, the Group is well positioned to provide comprehensive services for movie studios, as well as these other potential customers.

Strengthen the Group’s one-stop solution to the pre-recorded storage media industry

By further focusing and developing its already extensive distribution network and fulfillment capabilities, the Group will concentrate on providing an integrated one-stop solution, both in terms of product types and in terms of distribution and logistics services. Currently, the Group offers its one-stop solution to movie studio customers and will seek to attract other types of customers as well for its one-stop solution. Once receiving a movie title or other content from customers, the Group is capable of handling pre-mastering, mastering, replicating, printing, packaging, and distributing pre-recorded storage media products, as well as handling logistical fulfillment services. This responsive one stop solution enables customers to outsource almost all aspects of the home video business, other than content creation.

Continue to focus on geographical and capacity expansion

The Group has devoted significant resources to develop new and expand its existing manufacturing facilities in domestic and international locations. The Group currently has manufacturing facilities in Taiwan, South Korea and El Paso, Texas. The Group intends to further develop its manufacturing capability in Taiwan and in international locations.

With respect to pre-recorded storage media products, the Group seeks to establish new manufacturing facilities, or move operations, in geographic locations that are closer to its customers. The Group has plans in various stages of development to establish an additional manufacturing facility in Taiwan and a manufacturing, packaging and distribution facility in Toronto, Canada, and to build a technical center, which will also have manufacturing capability, in Los Angeles, California. For example, the manufacturing, packaging and distribution plant planned in Toronto, Canada is intended to better serve customers in Canada and customers located along the east coast of the United States, where the Group does not currently have operations. The planned technical center and manufacturing facility in Los Angeles, California is intended to accelerate the disc checking response time for, and reduce the time required to prepare new or sample products and the response time of inquires from its major studio customers on the west coast of the United States.

With respect to blank storage media products, the Group intends to expand its production capacity for blank storage media products, including CD-R, DVD-Recordable and DVD-Rewritable. Currently, the Group has CD-R production lines in South Korea and CD-RW production lines in Taiwan. The Group intends to expand its CD-R production capacity in South Korea to take advantage of two developments in the CD-R market. First, the Group believes that CD-R prices have recently stabilized and there is increasing demand for CD-R. Second, there has been a significant decrease in the cost of CD-R manufacturing equipment. Savings from depreciation expenses, which is the largest component of production costs for CD-R, is expected to give the Group a cost advantage against competitors that heavily invested in CD-R when equipment was more expensive. The Group believes it will be able to expand its CD-R production in South Korea, where the Group believes it has the largest market share for CD-R products.

The Group also intends to expand its production capacity of DVD-Recordable and DVDRewritable to take advantage of two factors affecting the market for DVD-Recordable and DVD-Rewritable — falling prices of DVD recorders and a common DVD recording standard. The Group believes that these two factors will substantially increase demand for DVD-Recordable and DVD-Rewritable products. The Group intends to expand its production of DVD-Recordable and DVD-Rewritable products in Taiwan and South Korea in order to take advantage of the expected growth in demand of these products.

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Further streamline production processes

The Group intends to continue streamlining its production processes, including design, engineering, raw material sourcing, manufacturing and quality control, to increase operational efficiency and lower production costs. For example, since November 1998, the Company has been replacing gold with silicon, and since August 2002, the Company has taken significant steps to replace gold with silver, in the sputtering process for DVD-9 production. The Company is seeking domestic suppliers of raw materials and has set up packaging plants in close proximity to shipment destinations to reduce freight costs. The Company believes that such “cost down” production measures, combined with greater utilization of the Company’s production capacity, will decrease its production costs.

History and Corporate Milestones

The Company was founded in Taiwan on April 14, 1995 by Mr. David Lu and Mr. Frank Tien, who are currently the Chairman and President, respectively, of the Company. The Company has emerged as a leading optical storage media manufacturer, distributor and post production solutions provider in just over eight years.

The shares of the Company have been traded on the GreTai Securities Market in Taiwan since February, 2000 and on the Taiwan Stock Exchange since September 2001. On June 3, 2003, the reported last sale price of the Shares of the Company on the Taiwan Stock Exchange was NT$12.15 per Share, with a market capitalization for the Company of NT$5,694.3 million (U.S.$164.2 million). As of December 31, 2002, Infodisc had total shareholders’ equity of approximately NT$12,475 million (U.S.$360.2 million). The Company’s registered office is located at 36 Li Yen Street, Chung Ho, Taipei, ROC. The Company’s website address is www.infodisc.com.tw.

The key developmental milestones of the Group are as follows:

April 1995 ....................	Company was incorporated with a capital of NT$60	million
	(U.S.$1.83 million)
April 1996 ....................	Commenced 24-hour production of CDs
September 1996 .............	Developed and manufactured the first DVD stamper	in Asia
	excluding Japan
May 1997 ....................	Incorporated first United States subsidiary Awarded ISO
	9002 certification
July 1997 .....................	Became member of International Federation	of the
	Phonographic Industry
October 1997 ................	Commenced mass production of DVD-5 and DVD-10
March 1998 ..................	Became member of the DVD Forum and signed copyright
	protection system contracts with Macrovision Corporation
	and CSS Japan
July 1998 .....................	Signed contract with Warner Home Video and became its
	only priority authorized DVD manufacturer in ex-Japan Asia
August 1998 .................	Commenced commercial production of CD-RW
July 1999 .....................	Commenced commercial production of CD-R
August 1999 .................	Commenced DVD-RAM research and development
February 2000 ...............	Company shares commenced trading on the Taiwan over-
	the-counter market

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June 2000 ....................	Established manufacturing subsidiary in South Korea
August 2000 .................	DVD manufacturing capacity reached 12.25 million per
	month
September 2000 .............	Established packaging subsidiary in Germany
January 2001 ................	Acquired Mediacopy in the United States
March 2001 ..................	Developed production capability for DVD-14 and DVD-18;
	relocated certain DVD production lines from Taiwan to the
	United States
June 2002 ....................	Developed and manufactured the first DVD-Rewritable disc

Group Structure

The following diagram shows the corporate structure of the Company and its subsidiaries, as well as the jurisdiction (included in parentheses) and the Company’s ownership interest of each company.

Infodisc Technology Company Limited (Taiwan)

==> picture [435 x 248] intentionally omitted <==

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

100% 100% 99.97%
Infodisc Technology USA Global Solutions Holdings Ltd. Hua Xun Venture Investment Co.
(California) (BVI) (Taiwan)
0.39% 85.89% 100% 100%
Infodisc Technology Korea Ltd. Infodisc Global Holdings Inc. Infodisc Technology Gmbh Ltd.
(South Korea) (Delaware) (Germany)
100% 100% 100%
Mediacopy Mediacopy Holdings Inc. Mediacopy L.L.C.
(California) (Delaware) (Nevada)
100%
Mediacopy Texas, Inc.
(Delaware)
100%
Infodisc Technology Canada Ltd.
(New Brunswick)
----- End of picture text -----

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Products

The Group produces and sells a broad range of pre-recorded and blank optical discs and pre-recorded VHS videocassettes. The Group’s main products are pre-recorded digital versatile discs (DVDs), compact discs-recordable (CD-R), compact discs-rewritable (CD-RW) and prerecorded compact discs (CDs) such as audio CDs.

Presently, DVDs are the leading source of revenue for the Group. In 2002, DVDs accounted for over 57.5% of the Group’s total revenue, up from 25.6% in 2001.

The following table sets out the Group’s sales by product category for the years ended December 31, 2002, 2001, and 2000:

Description CD . . . . . . . . . . . . . CD-R . . . . . . . . . . . CD-RW. . . . . . . . . . DVD . . . . . . . . . . . . VHS . . . . . . . . . . . . Others(1). . . . . . . . . Total . . . . . . . . . . . .	Description CD . . . . . . . . . . . . . CD-R . . . . . . . . . . . CD-RW. . . . . . . . . . DVD . . . . . . . . . . . . VHS . . . . . . . . . . . . Others(1). . . . . . . . . Total . . . . . . . . . . . .	Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,
	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(consolidated) (amounts in NT$ millions, except percentage figures)
		2002	% 3.5 6.1 10.8 57.5 12.1 10.0	2001	% 12.0 11.0 7.9 25.6 36.2 7.3	2000
		Total Sales 272,482 469,306 833,502 4,439,303 931,395 772,239		Total Sales 569,016 525,107 375,816 1,217,841 1,724,834 347,280		Total Sales 423,711 246,059 185,606 3,003,859 — 113,544	%
							10.6 6.2 4.7 75.6 — 2.9
		���7,718,227	100%	���4,759,894	100%	���3,972,779	100%

• (1) Others means revenues generated from other services, including packaging, distribution and other postproduction logistics services as well as stamper and mastering services.

DVDs

The Group began commercial production of pre-recorded DVDs in October 1997. Sales of pre-recorded DVDs accounted for 57.5%, 25.6% and 75.6% of the Group’s total sales for 2002, 2001 and 2000, respectively. The Group has capacity to produce approximately 180 million pre-recorded DVDs per year.

DVDs have faster data transfer rates and larger data storage capacity compared to CDs. DVDs are used as a storage medium for video, audio and computer software applications and video games. DVD discs can store from 4.7 gigabytes (GB) to 17.0 gigabytes (GB) with the following configurations and capacities:

• 4.7 GB (single sided, single layer), referred to as DVD-5

• 8.5 GB (single sided, dual layer), referred to as DVD-9

• 9.4 GB (double sided, single layer), referred to as DVD-10

• 13.2 GB (double sided, single layer on one side and dual layer on the other), referred to as DVD-14

• 17.0 GB (double sided, dual layer), referred to as DVD-18

Each layer of data on a DVD disc allows up to approximately 133 minutes of full motion MPEG-2 video. This amount of playing time allows for 95% of all movies to be contained on one disc side. DVD supports variable bit data rates, which efficiently increase digital video playback quality. DVD players and drives are capable of seamless switching between the two layers of information on each disc side. The Group began mass production of DVD-14 and DVD-18 in July, 2001.

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There are five versions of DVD blank media: DVD-R, DVD-RAM, DVD-RW, DVD+R and DVD+RW. Two versions, DVD-R and DVD+R (collectively, “DVD-Recordable”), can record data once. Two other versions, DVD-RW and DVD+RW, can be rewritten over one thousand times. DVD-RAM can be rewritten over 100,000 times (DVD-RW, DVD+RW and DVD-RAM are collectively called “DVD-Rewritable”).

Currently, these recordable/rewritable DVDs are not generally used for home video recording because DVD players with recording functions have not reached a retail price generally acceptable to consumers. The Group expects market demand for DVD blank media to increase substantially over the next several years as more manufacturers produce DVD recorders. The Group will commence full scale commercial production of DVD-Recordable and DVD-Rewritable in the second half of 2003

CD-R and CD-RW

The Group manufactures CD-R, CD-RW and pre-recorded compact discs such as audio CDs and CD-ROMs. The Group began commercial production of audio CDs and CD-ROMs in April 1996, CD-RW in August 1998, and CD-R in July 1999.

A CD can store a minimum of 650 MB of data. The different types of recordable CDs vary in the number of times the data can be erased and rewritten. A CD-R can record data only once, whereas CD-RW can be rewritten over 1,000 times. CD-R are mostly used for high quality digital sound recording and high capacity data storage for computers. They may also be used as a master recording for testing and evaluation prior to mass production of pre-recorded CDs. As CD-R are not erasable, they are often used for official or other permanent record storage. CD-RW are mainly used for date storage.

VHS Videocassettes

The Group, through Mediacopy, produces pre-recorded VHS videocassette tapes. The Group can produce 4.5 million VHS videocassettes each month.

Customers

For 2002, 2001 and 2000, the Group’s five largest non-affiliate customers accounted for approximately 35.5%, 64.0% and 62.5%, respectively, of net sales. For 2002, 2001 and 2000, the Group’s single largest non-affiliate customer accounted for approximately 11.7%, 28.4% and 51.4%, respectively, of net sales.

A discussion of the Group’s major customers by product category is as follows:

DVDs

The Group’s customers for DVDs include major Hollywood movie studios. In 2002, movie studios constituted approximately 34.0% of the Group’s net DVD sales.

MGM is the pre-recorded storage media industry’s second largest DVD issuer after Warner Home Video. In 2002, MGM accounted for approximately 16% of the Group’s consolidated net sales of pre-recorded products. The Group is very dependent on MGM in its pre-recorded DVD and VHS home video business. The Group, through Mediacopy, has maintained a close relationship with MGM for the past 15 years.

Warner Home Video is also one of the Group’s largest pre-recorded DVD customers. In 2002, approximately 14.8% of the Group’s DVD sales came from Warner Home Video.

In addition to MGM and Warner Home Video, the Group has more than 100 DVD customers. These customers include The Columbia House Company, Eagle Rock Entertainment, General Mills Operation Inc, Goodtimes Home Entertainment, Lions Gate Films Corporation, Logistics Inc., Metro-Goldwyn-Mayer Home Entertainment, Inc., Platinum Disc Corp., Saturn Home Entertainment, LLC (dba Spartan Home Entertainment), Sony Music and Columbia TriStar Home Entertainment, Standard Product Co., Warner Home Video, Universal Music Group and Victory Sense Ltd. Other than offload orders from Warner Home Video, currently only a small number of the DVDs replicated by the Group is for distribution outside of Region Three.

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Pre-recorded Audio CDs

The Group has over 50 customers for pre-recorded CDs, which include audio CDs. The Group’s top five customers constituted 31.8% of the Group’s net sales of pre-recorded CDs in 2002, the largest of them being Sony Music Entertainment (Taiwan ) Limited and Dream Team Japan.

Blank Media

Memorex is a leading distributor of storage media in North America and Europe and, together with its affiliates and agents, is the Group’s largest CD-R and CD-RW customer for the production of Memorex brand blank optical storage media, constituting 11.7% of the Group’s sales of CD-R and CD-RW in 2002.

VHS Videocassettes

The Group has approximately 80 customers for VHS videocassettes; however, approximately 50% of the Group’s VHS videocassette revenue has historically been generated from sales to MGM.

Sales and Marketing

The Group focuses its sales and marketing efforts in the United States, where its major movie studio customers are located. Developing customer relationship with movie studios requires time as the worldwide home video industry is dominated by a few major Hollywood studios, which place orders with only a small group of home video replicators. The Group believes that its track-record as a supplier to the movie studios and its distribution expertise and long standing relationships with its movie studio customers enhance the Group’s sales and marketing efforts.

The Group’s sales and marketing team consists of 62 full time employees, of which 29 are based in Taiwan, 18 in North America, 11 in South Korea and four in Germany. The team maintains regular contact with the Group’s existing customers and promotes and pursues new Group customers.

The Group generates sales in different geographic regions, which is determined to a large extent by the product category. For example, pre-recorded DVD and VHS products are sold entirely in North America, while pre-recorded CDs are sold entirely in Taiwan. On the other hand, blank storage media products are sold in Asia, Europe and North America. The Group generates the majority of its sales from North America.

The Group sells its products pursuant to long-term contracts and purchase orders. A portion of the Group’s purchase orders constitute “off-load” orders. In off-load arrangements, a manufacturer, which does not have sufficient manufacturing capacity to meet its customer’s order, provides the Group with a portion of its manufacturing order.

Quality Control

The Company obtains certification from certain laboratories for its products. This certification provides recognition of product quality and standards. Infodisc will work with Philips to obtain certification for the Company’s DVD-Rewritables. The Company received ISO 9001 certification in 2000 and received ISO 9002 certification in 2002.

The Group inspects every step of the production process, regardless of order size. Department heads are required to be familiar with the regulation and criteria set forth in quality control procedure books and manuals. Every member of the lnfodisc team is required to follow the standards and procedures for quality control. After management reviews, internal quality checkups, and production procedure reviews, a written report is produced and filed.

The Group’s quality control and quality assurance systems include the following: (a) incoming quality control, or IQC, which covers all raw materials required for production such as polycarbonate, target, and UV lacquer; (b) in-process quality control, or IPQC, which controls the electrical properties, mechanical properties, and content of the disc products; and (c) outgoing quality control, or OQC, which is the final check of the products before shipment. OQC includes visual and parametric inspection. Statistical process control is also applied to production.

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Research and Development

The Company has a research and development team of 15 people, of whom 11 hold post-graduate degrees. The Company will continue to recruit chemical engineers, mechanical engineers, and engineers with more than five years manufacturing research experience. The Company’s senior engineers have been with the Company for more than four years. The Company believes that its research and development department’s management style allows the engineers freedom and room for original and productive research. Incentives such as bonus rewards are also provided if the invention or discovery is successfully patented or certified by major organizations. The research and development staff have all signed confidentiality and non-competition agreements with the Company.

Generally, the Company focuses its research and development on:

• product innovation, including upgrading of products and development of specialized products;

• raw material innovation, to develop cheaper and more efficient raw materials; and

• process innovation, to reduce manufacturing costs and achieve higher yields and production volume.

The Company works closely with its raw material vendors and equipment suppliers to develop and manufacture raw material and equipment which suits the Company’s specific needs and specifications. For instance, the manufacturing machines for DVD 14 and DVD 18 were codeveloped by the equipment supplier and the Company’s research and development department.

Significant research and development projects completed by the Company to date include:

• development of CD-R (format: 1X-32X, capacity: 74 minutes and 80 minutes) for consumer use or professional stereo system use;

• development of stampers of DVD-RAM (capacity: 4.7GB);

• production of DVD-9 by in-line process;

• development of DVD-14 and DVD-18;

• development of CD-RW (format: 4X-12X, 24X and ultra speed); and

• development of silicon and silver alloy to replace gold for DVD production. Using silver instead of gold for production of DVD 5, DVD 9 and DVD 10 saves the Group substantial production costs. Silicon is expected to replace silver as a production material in mid-2003 and this is expected to substantially lower the Group’s production cost.

The Company’s significant ongoing research and development projects include the development of CD-RW (format: 32X and up) and the production of DVD-Rewritable, DVDRecordable, DVD-RAM, DVD+R and DVD+RW.

Research and development activities are funded by the Company or by ROC government funding programs. In 2002, the Company’s budget for research and development was approximately 1.1% of sales revenue, which is approximately NT$2.5 million per month. From 2003, this budget will be increased to approximately 1.2% of sales revenue in order to fund research into higher speed DVD-Recordable and DVD+RW. For 2002, 2001 and 2000, research and development expenditures amounted to NT$30.6 million, NT$34.5 million and NT$39.2 million, respectively.

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Production Capacity and Facilities

The Group has production facilities in Chung Ho City, Taiwan, Kyungki, South Korea and El Paso, Texas. The following table sets forth selected data relating to the Group’s manufacturing facilities:

Facility Chung Ho, Taiwan . . . . . . . . . . . . . . . . . . . . . . . Kyungki, Korea . . . . . . . . . . . . . . . . . . . . . . . . . . El Paso, Texas, USA . . . . . . . . . . . . . . . . . . . . .	Product DVD CD CD-RW DVD CD-R VHS videocassette DVD	Monthly Capacity
		(million units) 5.8 7.7 1.9 2.0 6.0 4.5 7.2

The Group is also in the process of expanding its production and distribution facilities and building new production facilities in several jurisdictions. The Group intends to expand its existing facilities in South Korea, and build new facilities in Taoyuan, Taiwan, Toronto, Canada and Los Angeles, California. In Los Angeles, California, the Group also intends to establish a technical center, in order to be closer to its major studio customers. This technical center will focus on providing technical services. It will be capable of mastering DVDs and, because it will be able to provide customers with samples of stamper masters for mass DVD replication on a same-daybasis, will be able to respond more quickly to the Group’s customers.

Distribution and fulfillment

The Group provides distribution and other post-production logistics services to its customers in North America and Europe for pre-recorded storage media products. The Group engages in these services in the United States through Mediacopy. Mediacopy has a sophisticated home video distribution and fulfillment system. Videos can usually reach 98% of wholesalers, merchandisers and retailers in the United States within 48 hours after completion of production. Mediacopy has distribution centers located in El Paso, Texas, Reno, Nevada and Louisville, Kentucky. Through another subsidiary, the Group also provides packaging and distribution services in Toronto, Canada. The Group also has a European packaging and distribution center located in Renchen, Germany.

The Group’s suite of logistical fulfillment services includes warehousing, inventory management, online order status checking, refurbishing and returns processing, customized assembly services, comprehensive reporting and tracking, customer service, retailer-specific customization and transportation management.

Production Process

Optical Storage Media Products: CDs and DVDs

The production processes for CDs and DVDs are similar except that DVDs are subject to an additional bonding process. Moreover, additional testing and the handling of much smaller physical features and specifications are required for the production of DVDs. The following sections summarize CD production and highlight the differences and additional steps required for DVD production.

Compression, Authoring and Pre-mastering

The starting point of CD or DVD production is receiving audiovisual data recorded in analogue or digital format from the customer. The data may then be compressed and stored, usually in a CD-R or DLT (digital linear tape) to be used as a “source” for replication through a process called pre-mastering. Pre-mastering is the creation of a Universal Disc Format (UDF) disc image that replicators can use for DVD replication.

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Authoring is the process to encode audio and video data and develop a digital application. Authoring requires the gathering and creation of source materials, including all video assets, audio assets, menu content, still pictures, video stills, sub-pictures, and subtitle text. Information for video title set, video management, presentation control and data searching needs to be formulated. Functionality is determined and embedded into the menus, sub-pictures, program chain information files and video objects in this stage.

Mastering

Mastering is the process of creating the pit and land structures on a glass substrate. Mastering includes taking the disc image from the source media and formatting, encoding, and processing it into a modulated data signal. When the glass is loaded on the mastering equipment it is exposed or “cut” with a laser. The signal from the encoder modulates the laser, which in turn exposes a pit and land pattern onto the photo-resist. The glass substrate spins and the signal is laid out from the center of the disc in a spiral pattern.

The mastering process for DVD requires changes in the mastering optics and laser to create a smaller exposed area. This smaller area is needed to create smaller pit geometry that is about half the size of the CD pit geometry. Tighter jitter specifications (a measure of the consistency of pit and land size) makes mastering more difficult.

With the use of a UV laser beam recorder, it takes only one command for the Group to switch from CD to DVD laser spot and perform track pitch adjustment.

Electroforming

Electroforming is the process by which stampers are made. Because a stamper becomes an integral part of a mold that holds information, it needs to be robust to withstand the stress involved in the molding process. Once the glass master is metalized, it is electrically conductive. The metalized glass master is placed in a galvanic tank with nickel sulphamate, a nickel electrolyte solution. The glass master is connected to the anode (negative terminal) of an electrical circuit and from the cathode (positive terminal) a relatively thick nickel layer is electroplated onto the glass master. The nickel is then separated from the glass, cleaned, punched, trimmed and polished. This process is repeated as necessary. DVD electroforming is conceptually the same as CD electroforming, but there is a significant need for tighter quality controls.

Label Printing

Label printing for DVD-5 and DVD-9 can be the same as for CDs. For DVD-10 and DVD-18, the print area is limited to the inner hub of the discs (approximately three millimeters wide annular ring) and any unused data areas in the outer diameter areas of the discs.

The dual substrate nature of DVDs leads to the possibility of other printing formats. These include reverse printing, “Pit Art”, and colored polycarbonate. Reverse printing is on the inner side of the blank substrate leading to a high gloss finished look. Pit Art is a design created by the master laser during the mastering process. These mastered designs are molded into the discs and then bonded. Because the blank substrate is not used in DVD-5, colored polycarbonate can be used for a decorative effect.

According to the authorized specifications of Warner Home Video, the enhanced Pit Art procedure with Nimbus special exposure unit produces more reliable and valuable DVDs. A German six-color screen printer is used to implement the Warner Home Video DVD Double Sided Identification Ring procedure to make the so called “donut label” on DVD-10, DVD-14 and DVD-18.

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The following diagram illustrates the stamper manufacturing steps.

==> picture [361 x 344] intentionally omitted <==

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Molding

Once the electroformed stamper is loaded into a molding machine, hot molten polycarbonate is injected into the mold cavity which comprises the stamper, with all the information on one side and a mirror block on the other side. The molten polycarbonate is injected under several tons of pressure to cause the resin to conform to the pit and land geometry of the stamper in order to form a replica, in reverse image, of the stamper. There are many challenges to molding the polycarbonate into flat, optically and geometrically faithful replicas of the stamper. These challenges are magnified considerably with the small DVD geometry versus CD geometry.

The DVD-ROM injection molding process is illustrated below.

==> picture [277 x 327] intentionally omitted <==

Metalizing

DVD-5 discs have the same metalizing requirements as a CD. DVD-10 has the same metalizing requirements as DVD-5 except metalizing is required on both 0.6 millimeter substrates.’

DVD-9 and DVD-18 require a more complex application of a semi-reflective metal layer. DVD-9 and DVD-18 require a semi-transparent/reflective metal layer applied to the lower layer of the dual substrate. These discs also contain fully reflective metal layers on the upper layer. The readout laser will read these discs by focusing through the semi-reflective layer to read the second layer of information, or on the semi-reflective layer itself.

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Bonding

Bonding is the most sensitive step of the DVD production process, especially for the production of DVD-9, DVD-14 or DVD-18. Bonding is required to combine the two 0.6 mm thick substrates into one 1.2 mm thick DVD. Bonding can currently be accomplished with a hot melt adhesive or an ultra violet cured adhesive.

Correct bonding produces a very flat disc, thus reducing individual substrate tilt. Improper bonding can create discs that are warped, unbalanced, improperly aligned or have bubbles, leading to out-of-specification discs that will not play. Trouble in this process leads to lower production yields and higher costs.

VHS Videocassettes

The production process, from the handling of raw material to the shipment of the final product to market, for VHS videocassettes is set forth below. The following describes the tasks, materials and expertise required to complete an order.

Receiving

The receiving clerk logs the number of packages, cartons or pallets. Date, P.O. number, vendor part number, description, quantity received and any discrepancy is logged. A receiving transaction is performed. All inbound materials are subject to statistical quality control (“QC”) sampling. Shells (cassettes) are sampled and screened for JVC license specifications and a tape pancake is evaluated for dropout results, and video and audio signal-to-noise parameters. Components are then stored in a warehouse location.

Master Tapes/Master Vault

Customer supplied master tapes are stored in the master vault. Based on the production schedule, master tapes are pulled from the vault and staged in a secure area of the control room. Upon completion of a scheduled pass, masters are returned to the vault.

Tape Loading

Tape loading is a process that loads bulk blank, unrecorded tapes into a VHS cassette. Materials approved by QC are pulled from the warehouse and staged for use by the loading function. The loaded tapes are checked for ink jet accuracy and legibility. The tapes are then staged on carts before being moved into the duplication area.

Duplication

Loaded tapes are staged in the duplication lab into the VCR autoloaders. Once duplication starts, the control room operator’s responsibility includes continuous monitoring of the status of the recording process. Every VCR is polled every 20 milliseconds by the machine control system. Any recording status change is displayed on the control room screen, identifying the specific machine address. Any VCR that fails to start upon record command execution or stops prior to recording termination will sound an audible alarm. If a tape ends prior to the conclusion of the program, the system automatically ejects the tape and sounds the alarm. Once the recording process is complete, all tapes are ejected and lab staging personnel begins the process of collecting all recorded cassette tapes.

Quality Control

Recorded tapes are inspected to ensure that all physical product counts are correct and correspond to the posted cart sheet information. Cassette tape ink jet markings are also verified against production information on the cart sheets. A sample is drawn and tapes are reviewed at various points throughout the duration of the program as well as at the tail end to ensure the successful termination of programming and that adequate blank tape is provided. The QC stations provide both on screen and audio review of the video material. Upon completion of the inspection process, all final results are tabulated and posted on the cart sheet.

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Pre-Pack Vault

Pre-pack vault is a catch-all verification of the preceding production stages. Tapes are physically inspected and reconciled against all process targets prior to packaging. Tapes are reviewed for their ink jet information. Once all tape counts are reconciled, all QC bank rejects are isolated and sent to be degaussed. Pre-pack personnel print and review the on line bill of materials (“BOM”).

Packaging

The packaging lines provide for the application of face labels, addition of any inserts, insertion into sleeve packaging, application of a security seal, price stickers, and shrink wrapping. In preparation of the above, the palletized kit is moved into the packaging area from the pre-vault area. The line supervisors review the BOM, the packaging materials provided, and all corresponding product identification. A sample package is produced, reviewed, and checked by supervisors. Packaged products are inserted into master cartons and independently checked and verified prior to being sealed. Boxed products are then palletized, stretch wrapped, and further prepared for transportation to the finished goods warehousing environment. Custom packaging is provided for various customers. This basically consists of packaging the product in predetermined count trays that will be used to display the product by retailers.

Returns

This process is initiated with the receipt of returned material. A receiving document is created that includes a return authorization (“RA”) number, number of boxes received, date of receipt, and the customer name. This receiving document is then matched against an open RA file. The RA data and receiving document information are entered into the RA system. RA information and authorized return quantities by catalogue number are entered into the stock balancing report (“SBR”). The returns area receives the SBR, title by title, and performs a piece by piece count. It also determines the type of return and disposition. Once physical counts are completed, completed SBRs are submitted to data entry to update actual quantity received against a RA. Reusable products are then moved to on-hand finished goods. The returns department distributes RA and SBR documents to customer service, accounting, and the returns department files.

Competition

The storage media industry is highly competitive and has been characterized by rapid technological changes and declining average product selling prices.

The major movie studios, who dominate the market for creative content, are the Group’s primary customers for pre-recorded DVDs and VHS videocassettes. As a result, competition among manufacturers of DVDs and VHS videocassettes focuses on either obtaining long-term contracts with major movie studios or becoming off-load manufacturers for manufacturers that do have long-term contracts with major movie studios. A relatively small number of manufacturers account for the majority of DVDs and VHS videocassettes produced and distributed by the movie studios.

The Group believes that as the home video market evolves, competition will exist not only with respect to the price and quality of products, but also with respect to the ability to offer postproduction services to home video customers. These post-production services include distribution, fulfillment, inventory management, returns processing, and other logistics support.

The Group’s main competitors for DVD products are WAMO (a subsidiary of Warner Home Video), Sony, Technicolor and Cinram International Inc., a Canadian company. Warner Home Video and WAMO are also major customers of the Group. The Group’s primary competitors for VHS videocassettes are Technicolor and Cinram. The Group’s competitors for blank storage media products include CMC Magnetics Corporation and Ritek Corporation. Many of these competitors are the Group’s customers (including WAMO and Warner Home Video) and have significantly greater financial, technical, manufacturing and marketing resources, broader product lines, greater brand recognition and larger established customer bases than the Group and may be able to expand the applications for their products and capture a greater share of the market.

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Raw Materials and Equipment

Raw Materials

The main raw materials for the production of DVDs and CDs are polycarbonate (PC) resin, gold, lacquers, aluminum targets, oil ink and glue (for bonding). Of these, gold is the costliest, comprising approximately 40% of the material cost per unit, while PC resin constitutes approximately 35% to 50% of the material cost per unit and glue constitutes 10-15% of the material cost per unit. The PC resin needed for production of DVDs is similar to that needed for CD production. The main raw materials for the production of blank discs are similar to those used in pre-recorded discs, plus silver and dye.

Gold is used as the semi-reflective layer between the two outer layers of a DVD. Gold is borrowed from Nova Scotia Bank on credit. From the end of 2000, the Group has, where possible, been replacing gold with silver alloy as the semi-reflective layer in its optical disks. This has resulted in a 60% cost savings of the gold portions of the optical discs.

The Group generally sources its raw materials from suppliers in Taiwan, Europe, the United States and Japan. The Group believes it has a stable supply of raw materials. In the past, the Group has not experienced any material shortage of raw materials, other than PC resin.

The PC resin price generally follows the price of petroleum and differs from region to region. The Group could face DVD and CD production shortages if PC resin is in short supply. However, the risk of PC resin shortage has been reduced by an increase in the number of PC resin suppliers, including suppliers in Taiwan, such as Formosa Plastic and Chimei. The Company believes that the demand for PC resin used for DVD and CD production can be met by current PC resin suppliers. The Company also keeps a one month reserve of PC resin in its inventory.

Selection of the Group’s suppliers is mainly based on price, product quality and a proven history of timely and efficient delivery. The Group has not entered into any long-term supply contracts with any of its suppliers and the Group currently maintains a flexible inventory system. Raw materials are currently sourced by Infodisc’s individual operating subsidiaries. In 2003, sourcing and procurement of raw materials will be centralized.

The Group’s manufacturing process requires significant quantities of electricity and water. While the Group has not in the past experienced material interruptions due to water shortages, its production in Taiwan has been interrupted on several occasions by power outages. The Group does not maintain any power conservation or back-up generating devices at any of its manufacturing facilities to cope with any electricity shortages. If the Group is unable to obtain raw materials in a timely manner, its production schedule could be delayed and it could lose customers.

Equipment

Machinery and equipment for DVD production is imported mostly from Germany, Japan, Switzerland and the United Kingdom. The major types of equipment required for the design, assembly and installation of production lines for the Group’s optical storage media products are injection molding equipment, initializer, sputtering equipment, downstream systems, checking systems, and printing, dye-coating and testing equipment.

The Group negotiates with its equipment suppliers for better payment terms by bundling the purchase price of the new machinery and equipment with the provision by the equipment suppliers to the Group of new technology and know-how. Equipment can be used for production once it has been successfully instaled, tested and certified, either by the Group or by the equipment suppliers.

The Group purchases from Unaxis Taiwan Ltd. and Unaxis Balzers Ltd. the equipment for the Group’s production of DVD+RW and DVD-Rewritable. It usually takes three months to place a purchase order, install, test and operate the equipment. The Group will state the specifications required for the equipment to be delivered. Payments are normally made in several installments. Payment of the final installment is subject to satisfactory testing and certification of the purchased equipment. The equipment is usually covered by a one-year warranty. Provision of spare parts may be guaranteed for a period of up to ten years.

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An alternative to purchasing new equipment is adjusting existing equipment. Unaxis has previously assisted Infodisc by adjusting existing CD-RW production lines to manufacture DVDRewritable. Machinery and equipment is currently depreciated over a course of seven years. Infodisc has applied to the ROC SFC for an extension of the depreciation life of its machinery and equipment from seven to 10 years. If approved, this extension should reduce the Group’s annual depreciation expense. Certain equipment is leased from leasing companies by way of a sale and leaseback arrangement.

Most of the Group’s repair and maintenance needs are handled internally by the Group’s repair and maintenance departments. External repair services are used if required. The Group maintains a small inventory of spare parts, which occasionally requires replacements.

Geographic Jurisdictions

The Group has operations in Taiwan, North America, Canada, South Korea and Germany. The operations of the Group in each of these jurisdictions is more fully set out below.

Taiwan Operations

In Taiwan, the Group currently focuses on producing audio CDs, CD-RW and pre-recorded DVDs. If the South Korea or United States production centers cannot fulfill orders for pre-recorded DVDs during the Group’s peak season, these excess orders are offloaded to the production center in Taiwan. The Company absorbs the shipment costs for these offloaded products.

In 2000, the Company acquired land in Taoyuan, Taiwan as the site for a new DVD-Recordable and DVD-Rewritable manufacturing plant. The Company will be required to make additional capital expenditures to purchase new equipment for the facility. The Company expects to commence DVD-Recordable and DVD-Rewritable production when there is sufficient demand for this product in the market-place. CD-RW machines can be modified to manufacture DVD-Rewritable products without major complications.

North American Operations

The Company acquired Mediacopy in January, 2001 for U.S.$100 million through the Company’s wholly owned subsidiary, lnfodisc Global Holdings, Inc.

Before being acquired by the Company, Mediacopy’s operations consisted of high-volume, pre-recorded VHS videocassette duplication and distribution. Mediacopy is now focused principally on DVD replication, although it still maintains its VHS business. Mediacopy’s DVD and VHS duplication lines are located in El Paso, Texas. In 2001, the Group relocated its U.S. business from San Leandro, California to El Paso, Texas in order to lower production costs and to increase DVD production capacity.

In addition, Mediacopy has full service distribution centers for the distribution of VHS and DVD products to specified retail sales and rental locations. The Group’s U.S. distribution centers are located in Reno, Nevada, El Paso, Texas, and Louisville, Kentucky.

The major customers of Mediacopy are movie studios. Other customers include corporations that need to distribute training material, marketing material and educational programs to a selected network or customer base. The Group’s U.S. customers include Columbia House, Eagle Rock Entertainment, General Mills, Good Times House Video, Lion’s Gate, Logistics Inc., MGM, Platinum Disc Corp., Saturn Home Entertainment, Sony/Columbia TriStar, Standard Product Co., Warner Home Video, UMG Manufacturing and Victory Sense Ltd.

The Group has discontinued operations in Mexico and its former subsidiaries in Mexico, including Mediacopy Mexico, Mediacopy Servicios and Mediacopy L.L.C, have been dissolved accordingly.

The Group’s operations in Canada are currently focused on providing packaging and distribution services to the Canadian pre-recorded DVD market. The Group intends to establish production lines in Canada in the second half of 2003.

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South Korea Operations

The Group’s operations in South Korea cover pre-recorded DVDs, DVD-Recordable and CD-R. The Group has established its own CD-R brand name in South Korea. The Group’s South Korea subsidiary, Infodisc Technology Korea Limited, has the largest CD-R market share in South Korea, and maintains close relationships with key customers, such as Samsung Electronics Co., Ltd. and LG Electronics Inc.

In the South Korea pre-recorded DVD market, the Group supplies pre-recorded DVDs to six of the seven major movie studios — Warner Home Video, MGM, Fox, Paramount, Universal and Sony Columbia Tri-Star — for distribution in South Korea.

The Group intends to significantly increase its CD-R production capacity in South Korea. This expansion will be funded from the proceeds of bank borrowings.

Germany Operations

Operations in Germany are currently limited to packaging and distribution services. Because products imported into Germany from outside the European Union are subject to high tariffs, the Group may expand operations in Germany in the future to include the manufacture of pre-recorded DVDs, but it currently has no definitive plans to do so.

Intellectual Property

Licenses from Patent Holders

CD-R. The Group has entered into a license agreement with Philips in November, 2002 with respect to its production and sale of CD-R products.

CD-RW. The Group has entered into a license agreement with Philips in July 2001 in respect of its production and sale of CD-RW products.

DVDs. The Group entered into a license agreement with Hitachi, Ltd, Matsushita Electric Industrial Co., Ltd, Mitsubishi Electric Corporation, Time Warner Inc., Toshiba Corporation and Victor Company of Japan Ltd (the so-called 6-C) in November, 2000. The Group has also entered into a license agreement with Philips in June, 2002.

DVD-Recordable/DVD-Rewritable. The Group is currently negotiating license agreements covering the manufacture of blank DVD products. The Group will need to obtain licenses from Philips and/or other intellectual property rights holders for the production of these products.

VHS Videocassettes. Mediacopy pays a fixed annual fee of U.S.$100,000 to Victor Company of Japan, Limited (JVC), the patent holder of the VHS duplication process, for the production of VHS videocassettes.

Technology Transfer

Pursuant to the Affiliate Agreement, the Company receives know-how for DVD production from Warner Home Video.

Trademarks

The Company has registered “INFODISC TECHNOLOGY” and its logo in Taiwan in the categories relating to laser discs, optical discs, audio and video discs, interactive discs, and photo discs. The Company has pending applications to register “INFODISC TECHNOLOGY” and its logo in various foreign countries. “MEDIACOPY” is a registered trademark in the United States.

Patent Filings

In 2001, the Group filed five patent applications in Taiwan relating to industrial processes for pre-recorded optical media production. Two other patent applications were filed in 2002.

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Legal Proceedings

Except as described below, no member of the Group is aware of any pending or threatened, or is involved in any material litigation or other materials proceedings that might, individually or taken as a whole, materially adversely affect the financial position and results of operations of the Group.

Criminal charges were brought in district court in Taiwan against Mr. David Lu, the Chairman of the Company and Ms. Hui-jen Chen, Mr. Lu’s spouse, who is also a Director and a manager of the Company, on February 25, 2003 on the grounds of alleged insider trading in violation of Section 157-1 of the ROC Securities and Exchange Law. The indictment alleges that Mr. Lu and Ms. Chen traded in the securities of the Company while in possession of non-public information likely to have a material impact on the Company’s Share price. The Company is not a party to these proceedings.

The indictment relates to sales of a total of approximately 7.5 million Shares, for a total of NT$1,269 million, during a period in 2000 in which the Company issued a number of revised projections for its 2000 results.

Mr. Lu has contested the charges but it is not possible at this time reasonably to assess the final outcome of these proceedings.

If Mr. Lu were to be found guilty of the crimes alleged in a final judgment, he could be subject to incarceration and/or be barred from serving as a Director or officer of the Company. If the Company were to lose the services of Mr. Lu, it could suffer damage to its business and the business relationships that depend on him, which could have a material adverse effect on the Company’s results of operations. In addition, the ROC Securities and Futures Commission may take action to prohibit the Company from issuing securities to the public in Taiwan for a period of up to three years after the indictment or a final judgment. The Company’s plans to maintain and expand its business will require significant capital expenditures. Accordingly, any such restrictions on the Company’s access to sources of funding in Taiwan could have a material adverse effect on the Company’s ability to implement its strategic plan and on its financial position.

If convicted, Mr. Lu and the other defendants could be also subject to fines, which could be as high as three times the gain realized or loss avoided. Moreover, they could be subject to civil claims for damages.

There can be no assurance that Mr. Lu will not be subject to other such actions or claims in the future. Although the Company is not named in the indictment and is not a party to the proceedings, there is no assurance that proceedings may not be brought against the Company in relation to the matters contained in the indictment.

Three of the Company’s former employees (the “Former Employees”) initiated employment related legal proceedings against the Company on August 16, 2000 for wrongful termination, seeking compensation for wages in the amount of approximately NT$3 million together with interest, and their purported allocation from a distribution of Company shares from the Company’s rights offering and employee stock bonus from 1997 to 2000 of approximately 79,000 Company shares in aggregate. Banqiao District Court in Taiwan ruled on October, 22, 2002 that the Company was not required to issue any Company shares to any of the Former Employees but that the Company was required to pay wages in the amount of NT$1.9 million to two of the three Former Employees. The Company is in the process of appealing the judgment of the Banqiao District Court for payment of wages to these two Former Employees.

In addition, various lawsuits, claims and proceedings are pending against certain of the Company’s subsidiaries in the United States. The most significant of these are discussed below.

On February 28, 2002, Mediacopy and affiliated companies were named as defendants in a complaint filed in the United States District Court for the Central District of California. The complaint seeks U.S.$2,414,849 plus interest in damages for the unpaid purchase price of goods sold by the plaintiff to the defendants.

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The Company has settled an outstanding lawsuit previously filed against the Mediacopy and others in the United States Bankruptcy Court for the Northern District of California on February 25, 2002. The lawsuit had alleged claims for breach of fiduciary duty, to recover alleged preferential and fraudulent transfers, for an accounting and had sought equitable subordination of claims.

On February 6, 2003, Mediacopy filed a lawsuit alleging breach of contract against Hit Entertainment (USA) Inc. and others in the Los Angeles Superior Court, which was removed to the United States District Court for the Central District of California on March 13, 2003. One of the defendants, Lyrick Corp., asserted a counterclaim against Mediacopy alleging breach of contract, intentional misrepresentation/fraudulent inducement of contract, negligent misrepresentation and seeking an order for declaratory relief. Lyrick Corp. is seeking compensatory and punitive damages and Mediacopy is seeking compensatory damages.

On March 13, 2003, Lyrick filed a lawsuit against Mediacopy in the United States District Court for the Eastern District of Texas, alleging the same causes of action and damages as the cause of action brought in the United States District Court for the Central District of California.

The Company and certain of its subsidiaries are also the subjects of various lawsuits filed in the United States in connection with the ordinary course of its business.

It is not possible at this time reasonably to assess the final outcome of these lawsuits or reasonably to estimate the possible loss or range of loss with respect to these lawsuits. If the Company and its subsidiaries were not to prevail in final, non-appealable determinations of these matters, the impact could be material.

Further, in addition to the pending lawsuits, claims and proceedings described above, the Company has entered into settlement agreements with respect to a claim made by Saehan Media America, Inc. for breach of contract and a rental dispute with respect to office and warehouse property formerly rented by Mediacopy in San Leandro, California. Under the settlement agreements, the Company has agreed to make payments in monthly installments in an aggregate amount of approximately U.S.$4.0 million from June 2003 through July 2004.

Insurance

The Company maintains insurance policies with independent third parties to cover all risks in respect of building, machinery, equipment and inventories. The Company believes that the Group’s insurance coverage is adequate and in accordance with customary industry practice in the relevant locations in which it has operations.

Environmental Matters

The Group’s manufacturing processes produce air pollution and wastewater. The Group outsources the disposal of its industrial wastes to companies that are licensed by the Environmental Protection Administration Government of Taipei County to dispose of these wastes.

The Group has acquired all governmental permits, licenses and approvals required to be obtained under environmental protection laws and regulations in each of the jurisdictions in which it operates in connection with the use of the Group’s facilities. Industrial waste produced by the Group’s facilities is treated before discharge in compliance with environmental protection laws and regulations in each of the jurisdictions in which it operates. The Group has not been subject to any material fines or legal action involving non-compliance with any relevant environmental regulations.

Employees

As of March 31, 2003, the Group had 525 employees in Taiwan, 185 employees in South Korea, 31 employees in Germany, 12 full time employees in Canada and 849 full time employees in the United States. The Group also has temporary employees. The number of temporary employees varies over the course of the year based on fluctuating production demands.

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The Group

The Group reviews the salaries of employees annually. It adjusts salaries based on industry standards, inflation and individual performance. As an incentive, the Group has the discretion to pay additional bonuses to employees based on performance. The Group also provides additional benefits to employees, such as accident or medical insurance.

The Group periodically provides training to employees. The training is to ensure that employees are equipped with the requisite knowledge to carry out their job responsibilities. New workers usually require several days’ training before beginning work on production lines.

None of the workforce of the Group’s subsidiaries is unionized. None of the Group’s employees is subject to collective bargaining agreements. The Group has not experienced any strike or labor disputes which have damaged the Group’s relationship with its employees.

The Company

The Company’s employees are entitled under the Company’s articles of incorporation to participate in Company profits. Pursuant to the articles of incorporation, the Company’s employees are entitled to receive bonuses of 5% to 10% of its net income after payment of taxes, deductions for prior year’s loss, contribution to legal reserve and other adjustments. In addition, ROC law requires that the Company give employees the pre-emptive right to subscribe between 10% to 15% of any shares offered under a rights issue.

In compliance with ROC law, the Company has a retirement plan covering all regular employees. Benefits under this plan are calculated based on length of service and average monthly pay for the six months before retirement. The Company currently contributes 2% of the aggregate monthly salaries of the employees each month to the Central Trust of China, an agency of the ROC government, as required by ROC law.

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Subsidiaries and Associated Companies

The following table sets forth certain information about the Company’s subsidiaries and other companies in which it has at least a 10% equity interest as of March 31, 2003.

Company Main business Holding company subsidiaries Infodisc Technology USA, Inc. Optical Disc Sales and Marketing Global Solutions Holdings Ltd. Investment Holding Hua Shuen Venture Capital Ltd. Venture Capital Infodisc Global Holdings Inc. Investment Holding Mediacopy Holdings Inc. Investment Holding Mediacopy L.L.C. Optical Disc and VHS Tape Manufacture, Packing and Sales Principal operating subsidiaries Infodisc Technology Korea Ltd. Optical Disc Manufacture, Packing and Sales Infodisc Technology Gmbh Ltd. Optical Disc Packing and Sales Marketing Mediacopy Texas Inc. Optical Disc and VHS Tape Manufacture, Packing and Sales Infodisc Technology Canada Ltd. Optical Disc Sales and Marketing Investee companies Pan-Pacific Venture Capital Co., Ltd. Venture Capital Champion Consulting Corporation Venture Capital	Jurisdiction of incorporation California British Virgin Islands Taiwan Delaware Delaware Nevada Korea Germany Delaware New Brunswick Taiwan Taiwan	Paid up capital* 142 6,448 199 4,275 5,481 — 1,189 1 5,495 1 110 600	Ownership interest
			100.00% 100.00% 99.97% 100.00% 100.00% 100.00% 87.27% 100.00% 100.00% 100.00% 8.33% 6.67%

* amounts in millions of NT Dollars

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Transactions with Related Parties

The Company and certain of its subsidiaries and affiliates may, in the ordinary course of business, enter into transactions with each other from time to time. These related parties include Infodisc Technology USA, Inc., a wholly owned subsidiary company, Global Solution Holding, Ltd., a wholly owned subsidiary company, Hua Shuen Venture Capital Ltd., a 99.97% subsidiary company, Digital Information Systems Corp., a company in which Global Solution Holding, Ltd. has an equity interest, and Mediacopy Texas, Inc., an indirect subsidiary company.

The Company generally engages in two types of transactions with its subsidiaries and affiliates. First, it engages in off-load arrangements with its subsidiaries and affiliates. In these arrangements, if a subsidiary company (or the Company) cannot fulfill orders for pre-recorded DVDs or other products in times of high demand, these excess orders are offloaded to the Company (or to a subsidiary company). The Company sells to and purchases from its related parties at prices that are comparable to those applicable to unrelated customers, but the Company may extend longer payment terms to its related parties. The Company also purchases materials and equipment for its subsidiaries from time to time.

Second, the Company also makes loans to its subsidiary companies from time to time. At December 31, 2002, the Company had an outstanding loan in the principal amount of NT$70.8 million made to Infodisc Technology USA, Inc. The loan has a five-year term and bears interest at a rate of 4.25% per annum. For other transactions the Company entered into with related parties, and for more details on the Company’s related party transactions, please see note 25 to the Company’s consolidated financial statements.

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MANAGEMENT

Directors and Supervisors

The ROC Company Law and the Company’s articles of incorporation provide that the Company’s board of directors (the “Board of Directors”) are to be elected by the Company’s shareholders at a shareholders’ meetings at which a quorum, consisting of holders of a simple majority of all the issued and outstanding shares in issue, is present. The Chairman is a director elected by the Board of Directors. The Board of Directors is responsible for the management of the business of the Company.

The articles of incorporation of the Company provide for seven directors (the “Directors”) and two supervisors (the “Supervisors”). In accordance with ROC Company Law, Supervisors are elected by the shareholders of the Company and cannot concurrently serve as Directors or officers of, or in staff positions with, the Company. The duties and powers of the Supervisors include, among other things, investigating the financial condition of the Company, inspecting corporate records, verifying statements prepared by the Board of Directors prior to the Company’s annual general shareholders’ meetings, calling shareholders’ meetings, representing the Company in negotiations with its Directors and notifying, when appropriate, the Board of Directors to cease acting in contravention of applicable law or regulations or in contravention of the Company’s articles of incorporation or beyond the Company’s scope of business.

The term of office for the Directors and Supervisors is three years from the date of election or until the next election, whichever is later. They may serve any number of consecutive terms and may be removed from office at any time for cause by a resolution adopted at a meeting of the Company’s shareholders.

In accordance with ROC law, each of the Company’s Directors and Supervisors owes fiduciary duties to all of the Company’s shareholders. Of the current Directors and Supervisors, none were nominated by corporate entities.

The Company’s Board of Directors currently comprises five Directors and two Supervisors. Of the five board seats, one is occupied by an independent director. Directors will be deemed “independent” only if, for at least one year prior to their election, they:

• are not employed by the Company or its affiliates and are not directors or supervisors of its affiliates;

• do not directly or indirectly hold over 1% of the Company’s issued and outstanding Shares and are not ranked among the top ten individual shareholders of the Company;

• are not married or related within the second degree of employees of the Company or its affiliates, directors and supervisors, holders (directly or indirectly) of over 1% of the Company’s Shares or shareholders who are ranked among the top 10 individual shareholders of the Company;

• are not directors, supervisors or employees of corporate shareholders that directly hold more than 5% of the Company’s Shares or ranked among the top five corporate shareholders of the Company;

• are not directors, supervisors, managers or holders of more than 5% of the shares of a company or institution with which the Company has a financial or business relationship; and

• are not, or a spouse of, a partner, director, supervisor or manager of a provider of financial, commercial or legal services to the Company or its affiliates.

In addition, to be deemed “independent”, directors and supervisors must be elected in their individual capacities and have five years of experience in business, legal or financial matters or in the Company’s business, do not serve as independent directors or supervisors of five or more other companies, and provide proof of attending at least three hours of legal, financial or accounting training each year.

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The following table sets forth certain information relating to the Directors and Supervisors.

Name David Lu . . . . . . . . . . . . . Frank Tien. . . . . . . . . . . . Hui-jin Chen . . . . . . . . . . Cliff Chen . . . . . . . . . . . . Jerry Tsao . . . . . . . . . . . . Ming-tsan Tsai. . . . . . . . . Cheng-chun Chen . . . . . .	Position Chairman Director Director Director Director Supervisor Supervisor	Has been a Director since April 14, 1995 April 14, 1995 May 22, 1999 April 12, 2002 April 12, 2002 September 23, 1999 September 23, 1999	Number of Shares held directly as of April 30, 2003 39,922,720 1,943,941 1,641,720 — 18,016 764,482 1,580,346	Percentage of total Shares outstanding as of April 30, 2003
				8.52% 0.41% 0.35% — — 0.16% 0.34%

Set forth below is a short biography of each of the Directors and Supervisors of the Company.

Biography of the Directors and Supervisors of the Company

Board of Directors

David Lu, Chairman. Mr. Lu assumed the position of Chairman of the Company as of September 23, 1999. He currently also serves on the Board Directors of D&W Investment Co., Ltd. and Hsun-Fu Investment Co., Ltd. He is also a Supervisor of New Taipei Construction Inc. Mr. Lu graduated from University of Southern California.

Frank Tien, Director. Mr. Tien served as the General Manager of the Company from January 1, 1995 and has been a member of the Board of Directors from September 23, 1999. He is also the Chairman of Jinyuan Investment Inc. Mr. Tien graduated from Columbia University, the Institute of Industrial Engineering.

Hui-jin Chen, Director. Ms. Chen assumed the position of Public Relations Manager of the Company from January 1, 1995 and has been a member of the Board of Directors from September 23, 1999. Ms. Chen graduated from California State University and is the spouse of Mr. David Lu.

Cliff Chen, Director. Mr. Chen graduated from University of Concordia with a degree in MIS.

Jerry Tsao, Director. Mr. Tsao graduated from Academy of art college, San Francisco with a master degree in computer art in new media.

Supervisors

Ming-tsan Tsai, Supervisor. Mr. Tsai started serving as a Supervisor of the Company from September 23, 1999. He graduated from Tamkang Vocational School with an English major. He is also the Chairman of Ideal Group.

Cheng-chun Chen, Supervisor. Mr. Chen started serving as a Supervisor of the Company from September 23, 1999. He is also the Supervisor of Nanya Farming Co., Ltd., a Director of Chiao-de Co., Ltd. and the Chairman of Atone Chemical (Union) Co., Ltd. Mr. Chen graduated from Tamkang Vocational School with a major in engineering and is the brother of Hui-jin Chen.

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Executive Officers

The following table sets forth certain information relating to the executive officers of the Company.

Name Frank Tien. . . . . . . . . . . . . . . . . . . . . . Hong-nan Chang. . . . . . . . . . . . . . . . . Da-huei Cheng . . . . . . . . . . . . . . . . . . Hui-jin Chen . . . . . . . . . . . . . . . . . . . . Tim Yu. . . . . . . . . . . . . . . . . . . . . . . . . Chung-yi Yu . . . . . . . . . . . . . . . . . . . . Sophia Tseng . . . . . . . . . . . . . . . . . . .	Position President Vice President Vice President Public Relations Manager Financial Manager Special Assistant of President Legal Manager	Year of appointment
		January 1, 1995 August 16, 1995 August 16, 1996 January 1, 1995 July 10, 2000 July 9, 2001 July 2, 2001

Set forth below is a short biography of each of the Company’s executive officers.

Biography of the Company’s executive officers

Frank Tien, President. Mr. Tien served as the General Manager of the Company from January 1, 1995 and has been a member of the Board of Directors from September 23, 1999. He is also the Chairman of Jinyuan Investment Inc. Mr. Tien graduated from Columbia University, the Institute of Industrial Engineering.

Hong-nan Chang, Vice President. Mr. Chang joined the Company on August 16, 1995 and assumed the position of Vice President on January 1, 2000. He graduated from Tamkang University, Taiwan with a degree in chemical engineering.

Da-huei Cheng, Vice President. Mr. Cheng joined the Company on August 16, 1996 and assumed the position of Vice President on June 1, 2002 His was a manager at Tailung Steel and Iron Co., Ltd. Mr. Cheng graduated from Keelung High School.

Hui-jin Chen, Public Relations Manager. Ms. Chen assumed the position of Public Relations Manager of the Company from January 1, 1995 and has been a member of the Board of Directors from September 23, 1999. Ms. Chen graduated from California State University and is the spouse of Mr. David Lu.

Tim Yu, Financial Manager. Mr. Yu assumed the position of Financial Manager of the Company on July 10, 2000. Mr. Yu previously worked with China-America Petro-Chemical Co., Ltd. Mr. Yu graduated from Kansas State University with a major in management of business administration.

Chung-yi Yu, President’s Special Assistant. Mr. Yu assumed the position of President’s Special Assistant on July 9, 2001. Mr. Yu had previously worked for MasterLink Securities Corporation. He graduated from National Taiwan University with a master’s degree in economics.

Sophia Tseng, Legal Manager. Ms. Tseng assumed the position of Legal Manager of the Company on July 2, 2001. She was formerly in-house counsel for Honghai Precision Industry Co., Ltd. Ms. Tseng graduated from National Taiwan University with a bachelor’s degree in law and obtained her master’s degree in law from Boston University and New York University.

Share Ownership and Compensation

As of April 29, 2003, the members of the Board of Directors, the Supervisors and the executive officers of the Company, together with members of their immediate families, owned approximately 46 million Shares, or approximately 9.85% of the total outstanding Shares of the Company.

The aggregate remuneration paid and benefits in kind granted by the Company to Directors, Supervisors and executive officers of the Company in their capacity as such from January 1, 2002 through December 31, 2002 was approximately NT$34 million. There are no outstanding loans granted by the Company to any of the Directors, Supervisors or executive officers and there are no outstanding guarantees provided by the Company for the benefit of any of the Directors, Supervisors or executive officers. The Company has not engaged in any transactions with its Directors, Supervisors or executive officers which are unusual in their nature or conditions.

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PRINCIPAL SHAREHOLDERS

The names of the 10 largest shareholders of record of the Company and their share ownership as at April 29, 2003 are as follows:

Name David Lu(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directorate General of Postal Remittances and Saving Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pan Gow Tso. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maw Chong Investment Corporation . . . . . . . . . . . . . . . . . . . . . . Liu Pai Tsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lu Tsi Su Gean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wu Hsiao Tsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Wen Jen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Frank Tien(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chen Jen Lean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		Number of Shares held 39,922,720 17,689,500 12,000,000 7,197,000 5,303,000 3,100,000 3,000,000 2,221,216 1,943,941 1,753,949 94,131,326	Percentage of total Shares outstanding	Percentage of total Shares outstanding
				8.52% 3.77% 2.56% 1.54% 1.13% 0.66% 0.64% 0.47% 0.41% 0.37% 20.07%

(1) David Lu is the Chairman, and Frank Tien is the President and a Director, of the Company.

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SELECTED AUDITED CONSOLIDATED FINANCIAL DATA

The following selected audited consolidated financial data have been derived from our audited consolidated financial statements as of and for the years ended December 31, 2002, 2001 and 2000 included elsewhere in this Offering Circular. These financial statements have been audited by Diwan, Ernst & Young, independent certified accountants. Our audited consolidated financial statements are prepared and presented in accordance with reporting requirements of the “Regulations Governing the Preparation of Financial Statements of Issuers of Securities” and other applicable ROC laws and regulations and in accordance with ROC GAAP, which differs in certain respects from U.S. GAAP. See “Summary of Significant Differences between ROC GAAP and U.S. GAAP”. You should read the following selected audited consolidated financial data in conjunction together with our audited consolidated financial statements and the notes to those statements included elsewhere in this Offering Circular, and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Consolidated Statement of Income Data: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Minority interest in (income) loss . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Per Share Data: Earnings (loss) per share(1) . . . . . . . . . . . . . . . . .		**Year **	ended December 31,	ended December 31,	ended December 31,	ended December 31,
		2002 2001 2000 (Expressed in thousands of New Taiwan Dollars except for earnings per Share) $7,674,974 $ 4,677,762 $3,889,186 6,223,131 4,591,346 2,609,893 1,451,843 86,958 1,279,203 188,052 359,115 65,262 1,005,017 1,166,094 289,471 30,595 34,464 39,169 228,179 (1,472,715) 885,301 674,173 534,041 324,680 725,807 626,046 191,515 176,545 (1,564,720) 1,018,466 15,090 421,345 22,701 (7,362) 71,516 —			2000
						1,279,203 65,262 289,471 39,169
						885,301 324,680 191,515
						1,018,466 22,701 —
		$ 184,273 0.58		$(1,071,859) (6.18)		$1,026,778
						4.99

(1) Based on the weighted average number of Shares outstanding during the relevant period, which were 303,225,000 in 2002, 253,345,000 in 2001 and 204,087,000 in 2000.

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Consolidated Balance Sheet Data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . Short-term investments, net . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans (including current portion of long-term debt) . . . . . . . . . . . . . . . . . . . . . Short-term notes and bills payable . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . Other Consolidated Data: Cash Flow: Cash provided by (used in) operating activities Cash provided by (used in) investing activities . Cash provided by financing activities . . . . . . . . Net cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit margin . . . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . Net margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

**Year **

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

This discussion and analysis should be read in conjunction with the consolidated financial statements of the Group included elsewhere in this Offering Circular. Those financial statements have been prepared in accordance with ROC GAAP, which differ in certain material respects from U.S. GAAP. See “Summary of Significant Differences between ROC GAAP and U.S. GAAP”. The Group has not quantified the effect of the differences that would arise in the event its financial condition and results of operations were restated or reconciled to U.S. GAAP; however, some of these differences could be material. See “Risk Factors — Risks Relating to the ROC — Financial reporting and accounting standards in the ROC differ from other countries”.

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

Overview

The Group manufactures and distributes pre-recorded optical storage media products, including DVDs, audio CDs and VHS videocassettes, for major motion picture studio clients and other content providers in principal markets worldwide. The Group also manufactures blank optical storage media products, including CD-R and CD-RW, and, commencing in the second half of 2003, DVD-Recordable and DVD-Rewritable.

Consolidation

Under ROC GAAP, the Company is required to consolidate the financial results of any subsidiary whose total assets or net sales exceed 10% of the Company’s unconsolidated total assets or net sales, as the case may be. In addition, the ROC Securities and Futures Commission, or the ROC SFC, requires the Company to consolidate the financial statements of each subsidiary whose total assets or net sales exceeded 3% of the Company’s unconsolidated total assets or net sales, if the total assets or net sales of all such unconsolidated subsidiaries exceeds 30% of the Company’s unconsolidated total assets or net sales, as the case may be. For 2002, the Company’s consolidated subsidiaries were: Infodisc Technology Gmbh Ltd, Infodisc Technology Korea Ltd., Global Solutions Holdings Ltd. and Infodisc Global Holding Inc. and subsidiaries of Global Solutions Holdings Ltd. and Infodisc Global Holding Inc. These subsidiary companies included Mediacopy, Mediacopy Holding Inc., Mediacopy Texas Inc., Mediacopy LLC, Mediacopy de Mexico S. de R.L. de C.V., Mediacopy Servicios S. de R.L. de C.V. and Infodisc Technology Canada Ltd.

Consistent with ROC GAAP, the Company recognized in its statements of income all the gains and losses generated by its unconsolidated subsidiaries, as well as its other investments, as investment income and investment loss.

Acquisition of Mediacopy

In January 2001, the Company acquired Mediacopy, a company based in the United States engaging in producing and distributing VHS videocassettes, from the sole shareholder of Mediacopy in a cash for stock transaction. The Company views the acquisition as a strategic step toward the Group’s global expansion. The driving force behind the acquisition of Mediacopy is the numerous synergies of the combined DVD and VHS videocassette manufacturing and distribution capabilities. The aggregate purchase price for Mediacopy was U.S.$100 million, of which the Group paid U.S.$62.5 million in cash in June 2002, which was paid from the proceeds of the Company’s convertible bond offering in 2002. The Company announced on April 1, 2003 that it had reached an agreement with the seller of Mediacopy to reduce the remaining amount payable for the acquisition from U.S.$37.5 million to U.S.$17.5 million. The Company has already paid the full amount of the U.S.$17.5 million outstanding.

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Description of Net Sales and Cost Items

Total Sales

The Group generates its sales primarily from manufacturing, distributing and providing other post-production logistics services in relation to pre-recorded and blank optical storage media products. Since the acquisition of Mediacopy in 2001, the Group has also generated sales from manufacturing, selling and providing post-production services in relation to VHS-related products.

Pre-recorded and blank optical storage media products are sold under long-term contracts with customers or purchase orders. The Group recognizes sale of its products upon shipment of manufactured products or upon delivery of products in retail stores under drop-shipment fulfillment contracts.

Sales from manufacture of pre-recorded storage media products accounted for 73.1%, 73.8% and 86.3% of the Group’s total sales in 2002, 2001 and 2000, respectively. Pre-recorded DVD sales constituted 57.5%, 25.6% and 75.6% of the Group’s total sales for 2002, 2001 and 2000, respectively. Sales from pre-recorded VHS products, which business was acquired in 2001 from the acquisition of Mediacopy, accounted for 12.1% and 36.2% of total sales in 2002 and 2001, respectively. Sales from manufacture of blank storage media products, including CD-R and CD-RW, accounted for 16.9%, 18.9% and 10.9% of the Group’s total sales in 2002, 2001 and 2000 respectively. Sales from other services, including distribution, packaging, and stamper mastering services, accounted for 10.0%, 7.3% and 2.9% of the Group’s total sales in 2002, 2001 and 2000, respectively.

The Group generates sales in different geographic regions, which is determined to a large extent by the product category. For example, pre-recorded DVD and VHS products are sold entirely in North America, while pre-recorded CDs are sold entirely in Taiwan. On the other hand, blank storage media products are sold in Asia, Europe and North America. The Group generates the majority of its sales from North America.

The Group’s sales exhibit some seasonality and the Group considers the third and the fourth quarters to be its strongest sales quarters. However, the Group’s sales and operating results have in the past fluctuated, and may in the future continue to fluctuate, from quarter to quarter. The degree of fluctuation depends largely on a number of factors, including the timing and amount of orders placed by movie studio customers, other DVD replicators and other customers, and the popularity of movie title releases. See “Risk Factors - Risks Relating to the Group’s Business”.

Cost of Goods Sold

The Group’s cost of goods sold consists principally of:

• direct labor costs;

• depreciation;

• production overhead, including maintenance of machinery and equipment, indirect labor costs, utilities and royalties; and

• costs of raw materials, such as PC resin, gold, silver or silicon.

Operating Expenses

The Group’s operating expenses consist of the following:

• Selling expenses. Selling expenses consist primarily of salary expenses, and related personnel expenses, bad debt expenses, fees for professional services and other marketing expenses.

• Administrative expenses. Administrative expenses consist primarily of salaries for its management, administrative, accounting, finance and human resources personnel, goodwill amortization, acquisition cost, shipping and delivery, and depreciation expenses for office buildings and other facilities.

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• Research and development expenses. Research and development expenses consist primarily of salaries, bonuses and related costs for product and technology development, and depreciation on the equipment and various materials used in research and development processes.

Gross Margin

The markets for the Group’s products are highly competitive and the Group has experienced price and margin pressures. With respect to pre-recorded storage media products, including DVDs and audio CDs, average selling prices declined from 1999 to 2002, with average selling prices declining by approximately 40% from 2000 to 2001. Beginning in 2002, however, average selling prices of pre-recorded storage media products have stabilized, due to stronger demand. With respect to blank storage media products, including CD-R and CD-RW, average selling prices also declined from 1999 to 2002. Since the fourth quarter of 2002, however, average selling prices of blank storage media products have increased significantly.

From 2001 to 2002, on a consolidated basis, gross margin increased from 1.9% to 18.9%, primarily due to an improved product mix. From 2000 to 2001, on a consolidated basis, the Group’s gross margin shrank from 32.9% to 1.9% because of a substantial increase in cost of goods sold, as well as relatively lower net sales due to depressed market conditions.

Going forward, the Company’s operations, on an unconsolidated basis, will consist primarily of blank media production. Because blank media products offer lower gross margins than prerecorded media products, going forward, the Company’s gross margins, on an unconsolidated basis, may be lower than the Group’s gross margins on a consolidated basis.

Recent Developments

Recent Accounting Change

In 2003, the ROC Government changed the accounting treatment of depreciation, to extend the average time period for depreciation from seven years to nine years. This change will have the effect of extending the useful life of the Group’s equipment and facilities and will reduce the amount of the Group’s annual depreciation expense.

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Unaudited Unconsolidated Financial Information

The following table sets forth certain unaudited unconsolidated income and balance sheet data as of and for the three months ended March 31, 2003 and 2002, reported pursuant to requirements of the Taiwan Stock Exchange.

Unconsolidated Statement of Income Data: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . . . . Income tax (expenses) benefit . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconsolidated Per Share Data: Earnings (loss) per share(1) . . . . . . . . . . . . . . . . . . . . Unconsolidated Balance Sheet Data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . Long-term investments, net . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans (including current portion of long-term debt) . . . . . . . . . . . . . . . . . . . . . . . . Short-term notes and bills payable . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .	Three months ended March 31,	Three months ended March 31,	Three months ended March 31,	Three months ended March 31,
	2003 2002 (Expressed in thousands of New Taiwan Dollars except for earnings per Share) (unconsolidated) (unaudited) $ 567,367 $ 469,329 405,835 432,889 161,532 36,440 28,741 11,822 48,827 47,243 5,575 6,779 78,241 (34,321) 53,096 66,948 86,569 363,590 44,768 (330,963) (9,683) 62,480		2002
		$ 35,085 0.07 16,729,166 2,437,796 5,893,872 3,208,336 2,574,592 179,704 875,475 131,722 12,513,363		$ (268,483) (1.06) 13,210,024 117,481 4,823,469 3,271,436 2,383,550 159,721 1,473,742 152,931 8,311,915

(1) Based on the weighted average number of shares outstanding during the relevant period, which were 303,225,000 in 2002 and 253,345,000 in 2001.

Information the Company reports to the Taiwan Stock Exchange, including comparisons to previously reported forecasted financial information, can be found at the Taiwan Stock Exchange’s website, www.tse.com.tw. The information on the Taiwan Stock Exchange’s website is not under the Company’s control and the Company expressly disclaims any responsibility for inaccuracies, errors in, or omissions of any of the information or data the Company reports to the Taiwan Stock Exchange that appears on its website. The information on the Taiwan Stock Exchange’s website is

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not a part of this Offering Circular. In addition, this information is unaudited and unconsolidated and may vary from the Company’s audited, consolidated ROC GAAP financial statements for the same period. As a result, the Company cannot provide any assurance regarding the accuracy of this information, and the Company urges you not rely on it.

Results of Operations

The following table sets forth the Group’s results of operations data as a percentage of consolidated net sales for the periods ended December 31, 2002, 2001 and 2000:

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of goods sold . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Sales and marketing expenses . . . . . . . . . . . . . General and administrative expenses . . . . . . . . Research and development expenses . . . . . . . . Total operating expenses. . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . Net non-operating income (loss) . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . Income tax benefit (expense) . . . . . . . . . . . . . . . . Minority interest (income) loss . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .		**Year **	ended December 31,	ended December 31,	ended December 31,	ended December 31,
		2002 2001 (consolidated) (audited) 100.0% 100.0% 81.1 98.1 18.9 1.9 2.4 7.7 13.0 24.9 0.4 0.7 15.9 33.4 3.0 (31.5) (0.6) (1.9) 2.3 (33.5) 0.2 9.0 (0.1) 1.5				2000
						100.0% 67.1 32.9 1.7 7.4 1.0 10.1 22.7 3.4 26.2 0.6 —
		2.4		(22.9)		26.4

Consolidated Operating Results

2002 Compared to 2001

Net Sales

Net sales increased from NT$4,677.8 million in 2001 to NT$7,675.0 million in 2002 on a consolidated basis. The increase was due primarily to increased sales of DVDs and other products and services. DVD sales during this period increased from NT$1,217.8 million, or 25.6% of total sales, in 2001 to NT$4,439.3 million, or 57.5% of total sales, in 2002. The increase in DVD sales was due to a shift in the production mix from DVD 5 and 10 to DVD 9, 14 and 18 at higher unit prices and to an increase in sales volumes. Sales from blank media products also increased, from NT$900.9 million, or 18.9% of total sales, in 2001 to NT$1,302.8 million, or 16.9% of total sales, in 2002. VHS sales accounted for 12.1% of total sales in 2002 compared to 36.2% of total sales in 2001.

Cost of Goods Sold and Gross Profit Margin

Cost of goods sold increased from NT$4,591.3 million in 2001 to NT$6,223.1 million in 2002. The increase was due primarily to increased sales in 2002. In addition, cost savings were realized by the substitution of silicon for gold and silver for DVD 9, 14, and 18 since the second half of 2002. Further, PC resin costs fell in 2002.

Gross profit margin increased from 1.9% in 2001 to 18.9% in 2002. The increase in gross margin was due primarily to: (1) an improved product mix and better margins for DVD 9, 14 and 18; and (2) an increase in sales volumes and higher capacity utilization rates, resulting in improved economies of scale.

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Operating Expenses and Operating Income (Loss)

Operating expenses decreased from NT$1,559.7 million in 2001 to NT$1,223.7 million in 2002. The decrease was due primarily to lower selling expenses in 2002 than in 2001. The Company had selling expenses of NT$359.1 million in 2001, compared to NT$188.1 million in 2002. Selling expenses in 2001 reflected significant bad debt expenses arising from a charge of NT$177.8 million in relation to accounts receivable from the Company’s distributor in Hong Kong and China, which did not recur in 2002.

In 2001, the Company incurred an operating loss of NT$1,472.7 million. In 2002, the Company recorded operating income of NT$228.2 million. The improvement was primarily because of increased sales and margins in 2002 and lower bad debt expense write-offs in the same year.

Non-operating Income

Non-operating income increased from NT$534.0 million in 2001 to NT$674.2 million in 2002 primarily because of an increase in other non-operating income. Other non-operating income increased from NT$176.6 million in 2001 to NT$328.5 million in 2002. Other non-operating income in 2002 included the receipt of insurance proceeds from losses due to a typhoon in 2001 and a reversion of bad-debt expense of NT$177 million written off in 2001. The increase in non-operating income was also due to gains on disposal of property, plant and equipment, which reflected the sale of fully depreciated VHS production equipment by Mediacopy to unrelated third parties. The increase in non-operating income was partially offset by a decrease in foreign exchange gains from NT$280.6 million in 2001 to NT$158.4 million in 2002. Interest income also decreased from NT$64.5 million in 2001 to NT$47.9 million in 2002 due to a decrease in interest rates.

Non-operating Expenses

Non-operating expenses increased from NT$626.0 million in 2001 to NT$725.8 million in 2002 primarily because an increase in other non-operating expenses. Other non-operating expenses in 2002 included costs relating to the Company’s issuance of U.S.$110 million in zero coupon convertible bonds in June 2002, costs relating to severance of employees and termination of leases associated with the dissolution and liquidation of the Company’s Mexican subsidiaries, inventory write-off costs, refinancing of Mediacopy in connection with obtaining financing from Bank of America and other costs. The increase in other non-operating expenses was partially offset by decreases in interest expenses, as the Company was able to pay down debts following the convertible bond offering in 2002.

Net Income (Loss)

As a result of the foregoing factors, the Group had net income of NT$184.3 million in 2002, compared to a net loss of NT$1,071.9 million in 2001.

2001 Compared to 2000

Net Sales

Despite generally depressed market conditions in 2001, net sales increased from NT$3,889.2 million in 2000 to NT$4,677.8 million in 2001 on a consolidated basis, largely due to a significant contribution to net sales by VHS sales, arising from the acquisition of Mediacopy. VHS sales represented 36.2% of total sales in 2001. Further, sales originating from South Korea operations increased after the Group relocated four DVD replication lines and 11 CD-R production lines to South Korea in 2001 to expand its production capacity. Sales from DVDs decreased substantially from NT$3,003.9 million, or 75.6% of total sales, in 2000 to NT$1,217.8 million, or 25.6% of total sales, in 2001 largely because DVD production lines were offline while being relocated from Taiwan to the United States and South Korea. In addition, DVD sales fell because of reduced purchase orders and negative market conditions. Further, selling prices of DVD 5 and 10 fell substantially in 2001 compared to 2000. However, sales from blank media products, including CD-R and CD-RW, grew from NT$431.7 million, or 10.9% of total sales, in 2000 to NT$900.9 million, or 18.9% of total sales, in 2001 because of increased production capacity of blank media products.

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Cost of Goods Sold and Gross Profit Margin

Cost of goods sold increased from NT$2,609.9 million in 2000 to NT$4,591.3 million in 2001 due largely to significant decreases in capacity utilization rates and increases in the costs of direct labor, production overhead, depreciation and raw materials. Labor cost increases were primarily related to VHS production by Mediacopy in the United States as VHS production is more labor intensive and labor costs are higher in the United States than in Taiwan. In addition, headcount increased overall as a result of the Group relocating DVD production lines to the United States and South Korea, although the number of employees devoted to VHS production in the United States was reduced. The Group expects that its headcount is likely to increase as it expands its operations. Production overhead costs increased as a result of increases in indirect labor costs, as well as increased equipment maintenance costs. Depreciation increased significantly due to the addition of new DVD and CD-R production lines and equipment. The increase in raw material costs was due to the increases in raw materials in 2001 required for the production of VHS products, as a result of the Mediacopy acquisition in 2001.

As a result, gross profit margin decreased from 32.9% in 2000 to 1.9% in 2001.

Operating Expenses and Operating Income

Operating expenses increased from NT$393.9 million in 2000 to NT$1,559.7 million in 2001. The increase was due primarily to a substantial increase in administrative expenses from NT$289.5 million in 2000 to NT$1,166.1 million in 2001. The increase in administrative expenses resulted from the Group’s acquisition of Mediacopy in 2001, including amortization of goodwill, acquisition costs, costs incurred in relocating DVD replication lines to the United States and fees paid to a consultant of Mediacopy. Selling expenses also increased significantly, from NT$65.3 million in 2000, to NT$359.1 million in 2001. Selling expenses reflected significant bad debt expenses arising from a charge of NT$177.0 million in relation to accounts receivable from the Company’s distributor in Hong Kong and China.

Despite the slight increase in net sales from 2000 to 2001, the Group incurred an operating loss of NT$1,472.7 million because the increase in net sales was offset by the substantial increases in both cost of goods sold and operating expenses.

Non-operating Income

Non-operating income increased from NT$324.7 million in 2000 to NT$534.0 million in 2001. The increase was due primarily to the increase in other non-operating income from NT$27.2 million in 2000 to NT$176.6 million in 2001. The increase was also due to foreign exchange gains, which increased from NT$217.6 million in 2000 to NT$280.6 million in 2001 as a result of foreign exchange rate fluctuations during this period.

Non-operating Expenses

Non-operating expenses increased from NT$191.5 million in 2000 to NT$626.0 million in 2001 largely due to a significant increase in interest expense from NT$134.2 million in 2000 to NT$446.3 million in 2001. The increase in interest expense reflected expenses from the acquisition of Mediacopy, short-term and long-term loans borrowed to finance working capital and capital expenditures necessary for the Group’s expansion of operations in the United States, and interest paid on the remaining unpaid balance of the purchase price for the acquisition of Mediacopy, U.S.$37.5 million. The increase in non-operating expenses was also attributable to a write-off in the amount of NT$19.9 million for uninsured inventory loss as a result of typhoon flooding in Taiwan in September 2001.

Net Loss

As a result of the foregoing factors, which was partially offset by the benefit of a deferred tax credit of NT$421.3 million recognized by the Group in 2001, the Group incurred a net loss of NT$1,071.9 million in 2001 compared to net income of NT$1,026.8 million in 2000.

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Liquidity and Capital Resources

The Group’s principal sources of cash have been operating activities, bank borrowings and debt and equity financings. The primary uses of cash have been working capital and capital expenditures made in connection with the acquisition of Mediacopy and production capacity expansion for pre-recorded and blank media products. As of December 31, 2002, the Group had, on a consolidated basis, NT$3,309.5 million of cash and cash equivalents.

Cash Flows

Operating Activities

Net cash provided by (used in) operating activities amounted to approximately (NT$725.1 million), NT$2,185.7 million and NT$625.1 million, in 2002, 2001 and 2000, respectively, on a consolidated basis. Cash flow from operating activities in 2002 decreased from 2001 primarily because of a substantial increase in accounts receivable and a decrease in other payables-related parties. The increase in accounts receivable in 2002 was due to an increase in net sales in 2002. The decrease in other payables-related parties was primarily due to offsetting loans made to a non-consolidated subsidiary against other receivables from the non-consolidated subsidiary. The increase in net cash from operating activities in 2001 was due primarily to a substantial increase in depreciation and amortization, as well as a substantial decrease in accounts receivable and an increase in accounts payable. The decrease in accounts receivable in 2001 was due to shortening the period for payment from customers and the increase in accounts payable was due to extending the period for payment to creditors. These actions were done partially in order to preserve cash in order to finance the acquisition of Mediacopy.

Investing Activities

Net cash provided by (used in) investing activities was NT$987.8 million, (NT$7,031.6 million) and (NT$5,763.8 million) in 2002, 2001 and 2000, respectively. Cash from investing activities improved in 2002 from 2001 primarily due to reduced purchases of property, plant and equipment, the sale of fully-depreciated VHS production equipment, and amortization of goodwill and a deduction in the purchase price for Mediacopy. Net cash provided by investing activities in 2002 was offset by purchases of property, plant and equipment of NT$680.0 million, which comprised purchases of DVD production lines and printing and packaging machines for the United States operations. Net cash used in investing activities in 2001 primarily reflected net cash used for capital expenditures for property, plant and equipment of NT$4,890.4 million and an increase in goodwill of NT$4,357.6 million, mostly related to the acquisition of Mediacopy.

The Group’s investing activities in 2002 were reflected in an increase in cash and cash equivalents and a decrease in goodwill. The Group’s investing activities in 2001 were reflected in the addition of NT$4,067.1 million of goodwill following the Mediacopy acquisition in January 2001. Net property, plant and equipment increased from NT$7,541.4 million as of December 31, 2000 to NT$8,250.6 million as of December 31, 2001. The acquisition of Mediacopy did not significantly contribute to the growth in fixed assets in 2001 because most of its VHS production equipment was fully depreciated and most of the DVD replication lines were relocated from the Company to Mediacopy.

Financing Activities

Net cash provided by financing activities was NT$2,767.1 million, NT$3,379.8 million and NT$6,809.3 million in 2002, 2001 and 2000, respectively. Net cash provided by financing activities in 2002 reflected the issuance of U.S.$110 million zero coupon convertible bonds in 2002 and an increase in short-term loans for the Group’s United States and South Korea operations. The increase was partially offset by a decrease in other payables, comprising a payment of U.S.$12.5 million in connection with the acquisition of Mediacopy, which reflected a U.S.$16.5 million discount in the purchase price of Mediacopy and a decrease in capital lease liabilities and long-term loans payable, due to the scheduled repayment of debt. Net cash provided by financing activities in 2001 reflected an increase in short-term loans, capital lease liabilities and other payables. Net cash provided by financing activities in 2000 primarily reflected the rights offering of NT$6,525.0 million by the Group in an effort to finance the acquisition and working capital of Mediacopy. The Group incurred short-term loans of NT$2,512.1 million and long-term loans of NT$920.6 million in 2002.

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As a result of these financing activities, total liabilities and shareholders’ equity increased from NT$13,893.2 million at December 31, 2000 to NT$17,967.5 million at December 31, 2001 to NT$20,501.5 million at December 31, 2002. This reflected an increase of total liabilities from NT$4,062.7 million at December 31, 2000 to NT$9,395.5 million at December 31, 2001, and a further decrease in total liabilities to NT$8,026.6 million at December 31, 2002. The decrease in total liabilities in 2002 was due primarily to a decrease in other payables from NT$1,747.5 million at December 31, 2001 to NT$178.8 million at December 31, 2002, reflecting the payment to the founder of Mediacopy in 2002. The increase in total liabilities in 2001 was due to financing incurred for the Mediacopy acquisition. Long-term loans and capital lease liabilities increased from NT$1,340.2 million at December 31, 2000 to NT$1,821.9 million at December 31, 2001, and decreased to NT$1,192.8 million at December 31, 2002. Shareholders’ equity decreased from NT$9,830.5 million at December 31, 2000 to NT$8,572.0 million at December 31, 2001, and increased to NT$12,474.9 million at December 31, 2002. The increase in shareholders’ equity in 2002 was due to the conversion of convertible bonds into Shares of the Company. The decrease in shareholders’ equity in 2001 was due to the net loss incurred in 2001.

Current liabilities increased from NT$2,709.5 million at December 31, 2000 to NT$4,814.8 million at December 31, 2001 to NT$6,447.9 million at December 31, 2002. The increase in current liabilities from 2001 to 2002 reflected primarily: (1) an increase in short-term loans from NT$2,076.4 million at December 31, 2001 to NT$2,512.1 million at December 31, 2002, which were incurred for working capital of Infodisc Korea; (2) an increase in other payables of zero at December 31, 2001 to NT$608.1 million at December 31, 2002, reflecting a payable to the seller of Mediacopy; and (3) an increase in accrued expenses from NT$531.3 million at December 31, 2001 to NT$819.6 million at December 31, 2002, due to an increase in accrued royalties payable for DVDs and an increase in accrued customer allowances. The increase in current liabilities from 2000 to 2001 reflected primarily an increase in short-term loans from NT$840.7 million in 2000 to NT$2,076.4 million in 2001. These short-term loans were incurred to finance working capital of Mediacopy and Infodisc Korea. Short-term loans, short-term bills payable-net and notes payable increased from NT$1,240.6 million at December 31, 2000 to NT$2,245.3 million at December 31, 2001 to NT$2,697.0 million at December 31, 2002. Accounts payable increased from NT$477.1 million at December 31, 2000 to NT$868.4 million at December 31, 2001, to NT$993.1 million at December 31, 2002. The increase from 2000 to 2001 and to 2002 largely reflected the Group’s efforts to lengthen the credit period and to obtain additional financing for its worldwide expansion activities.

Long-term liabilities increased from NT$1,340.2 million at December 31, 2000 to NT$1,821.9 million at December 31, 2001, and decreased to NT$1,199.8 million at December 31, 2002. The decrease in long-term liabilities from 2001 to 2002 reflected a decrease of long-term loans. Capital lease liabilities were 272.1 million at December 31, 2002, NT$499.0 million at December 31, 2001 and none at December 31, 2000.

Other liabilities increased from NT$13.0 million at December 31, 2000 to NT$2,758.8 million at December 31, 2001, and decreased to NT$378.8 million at December 31, 2002. The decrease in other liabilities in 2002 was due primarily to the payment in 2002 of amounts due in connection with the acquisition of Mediacopy as well as a discount in the purchase price of Mediacopy.

As a result of these activities, cash and cash equivalents decreased from NT$1,756.8 million as of December 31, 2000 to NT$290.6 million as of December 31, 2001, and increased to NT$3,309.5 million as of December 31, 2002 . The decrease in cash and cash equivalents from 2000 to 2001 reflected the acquisition of Mediacopy and purchases of fixed assets and capital equipment. The significant increase in cash and cash equivalents since December 31, 2001 reflects improvements in operations and the issuance of the zero coupon convertible bonds in 2002. See “— Borrowings”.

Cash generated from these activities were used to acquire Mediacopy and purchase fixed assets and capital equipment.

The Group believes that existing cash, cash equivalents and short-term investments, together with cash generated by operations, the Group’s available borrowing capacity, the 2002 convertible bond offering and this offering will provide sufficient funds to meet the Group’s operating and capital

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requirements over the next 12 months. Thereafter, if cash flow from operations is inadequate to fund growth, the Group may issue additional debt or equity securities or obtain other additional credit facilities. There is no assurance that additional financing, if needed, will be available or, if available, that such financing can be obtained on commercially reasonable terms.

Capital Expenditures

Since 1999, the Group has made a substantial amount of capital expenditures for international and production capacity expansion. In 2002, 2001 and 2000, the Group made capital expenditures of NT$2,730.0 million, NT$5,411.7 million and NT$2,107.0 million, respectively. In 2003, the Group has budgeted capital expenditures of NT$2,361.5 million for a new facility in Taoyuan, Taiwan, new equipment and facilities in North America (including installation of Oracle software for its United States operations), amounts due and outstanding for the acquisition of Mediacopy and new equipment and facilities in South Korea.

The following table sets forth capital expenditures for the periods indicated by total amount and purpose:

			Capital Expenditures	Capital Expenditures
	2000	2001	2002	2003	2004	Total
		(amounts in millions of New Taiwan Dollars)
Taiwan
New equipment and facilities in
Chung Ho City . . . . . . . . . . . . . . . .	1,322.0	221.0	—	—	215.0	1,758.0
New facility in Taoyuan . . . . . . . . . . .	785.0	132.7	124.0	728.0	1,092.0	2,861.7
North America
Acquisition of Mediacopy . . . . . . . . .	—	825.0	420.0	730.0	—	1,975.0
New equipment and facilities in
North America . . . . . . . . . . . . . . . .	—	3,740.0	2,170.0	556.0	347.5	6,813.5
South Korea
New equipment and facilities. . . . . . .	—	493.0	16.0	347.5	347.5	1,204.0
Total . . . . . . . . . . . . . . . . . . . . . . . . .	2,107.0	5,411.7	2,730.0	2,361.5	2,002.0 14,612.2

The Group expects to fund capital expenditures planned for 2003 and 2004 from:

• this offering and the 2002 offering of U.S.$110 million zero coupon convertible bonds;

• cash flow from operating activities; and

• bank borrowings.

There is no assurance that the Group will have sufficient funds for anticipated capital expenditures, or that financing will be available for anticipated capital expenditures, on commercially reasonable terms or at all. In addition, the amounts budgeted for capital expenditures may vary from the actual amount of capital expenditures for a variety of reasons, including changes in market conditions, changes in interest rates and other factors. Other than the capital requirements stated above, the Group does not anticipate other business or activities that would require significant capital expenditures for the next 12 months.

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Borrowings

From December 31, 2000 to December 31, 2001, the Group increased its aggregate indebtedness substantially. However, in 2002 the Group reduced its aggregate indebtedness slightly. As of December 31, 2002, the Group’s total liabilities were NT$8,026 million. This is compared to total liabilities, on a consolidated basis, of NT$9,395.5 million as of December 31, 2001, and NT$4,062.7 million as of December 31, 2000.

In June 2002, the Company issued U.S.$110 million of zero coupon convertible bonds in two tranches due 2005 and 2007. Approximately U.S.$50 million of the proceeds of the June 2002 convertible bond offering was used to pay a portion of the purchase price for Mediacopy, purchase equipment and raw materials, provide working capital for the operations of subsidiaries and to finance further expansion in Taiwan. The remaining U.S.$60 million of the proceeds were used to fund the purchase of equipment for blank media products in Taiwan (U.S.$43 million) and to fund North American operations (U.S.$17 million). The bonds are convertible into the Company’s Shares. As of April 30, 2003, approximately NT$3,361 million in aggregate principal amount of the bonds have been converted into Company Shares and approximately NT$3.5 million of the bonds remained outstanding. The increase in shareholders’ equity since December 31, 2001 is a result of the conversion of this substantial portion of the bonds.

As at March 31, 2003, on a consolidated basis, the Group had total borrowing of NT$4,366 million, consisting of short-term loans, short-term bills and notes payable, long-term loans and capital lease liabilities. The components of the Group’s total borrowing are discussed below.

As at March 31, 2003, the Group had short-term loans outstanding of NT$2,206 million on a consolidated basis, borrowed from domestic and foreign financial institutions. The interest rates of these short-term loans ranged from 1.00% to 8.25%. Approximately NT$1,700 million of the short-term loans were secured loans. These loans were secured by the Group’s property, plant and equipment, cash and cash equivalents and long-term investments. The Group also maintains lines of credit with domestic and foreign financial institutions from which the Group is able to draw funds within its credit limits to finance the Group’s capital needs. The banks providing the credit lines reserve the right to terminate such credit lines solely at their discretion. As of March 31, 2003, the Group had available short term credit lines on a consolidated basis of NT$3,200 million, of which approximately NT$2,200 million had been drawn down.

The Group’s outstanding short-term loans included NT$362 million borrowed pursuant to a gold financing agreement. On January 18, 2001, the Company entered into a gold financing agreement with Bank of Scotia Macatta pursuant to which the Company may borrow gold or silver, in amounts up to U.S.$20 million, in order to finance the acquisition of gold or silver for its manufacturing operations. The borrowed gold or silver may be returned either in kind or currency. The gold financing agreement permits the Group to hedge against volatility in gold and silver prices. The gold financing agreement is secured by bank deposits and standby letters of credit issued by foreign banks. The borrowings under the gold financing agreement incur interest at a rate of 1.65%.

As at March 31, 2003, the Group had, on a consolidated basis, short-term notes and bills payable outstanding of NT$282 million, representing primarily commercial paper. The interest rates of these short-term notes and bills payable ranged from 2.40% to 3.40%. The short-term notes and bills payable had maturities of less than 90 days.

As at March 31, 2003, the Group had, on a consolidated basis, long-term loans outstanding of NT$1,295 million borrowed from domestic and foreign financial institutions. Of the Group’s long-term loans, loans payable within two to five years represented the entire amount of this NT$1,295 million in total long-term loans outstanding. The Group had no loans payable after five years as of March 31, 2003. The interest rates of these long-term loans ranged from 5.40% to 9.75%. These long-term loans were secured by the Group’s property, plant and equipment.

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As at March 31, 2003, the Group had outstanding, on a consolidated basis, capital lease liabilities of NT$576 million. These capital lease obligations were entered into with domestic and foreign financial institutions. The capital lease obligations are for terms of one to three years. The interest rates of these capital lease obligations ranged from 5% to 9%.

Commitments and Contingencies

As of March 31, 2003, the Group had, on a consolidated basis, commitments and contingent liabilities of NT$2,316 million outstanding, which includes guarantees issued and outstanding of NT$1,998 million. These commitments and contingent liabilities consisted of unused and standby letters of credit, performance bonds, guarantees, promissory notes issued to secure bank loans and leasing equipment, and equity securities of subsidiaries and other invested companies pledged as security for certain loans and other obligations of the Group.

In addition, pursuant to settlement agreements entered into with claimants with respect to legal proceedings against the Company, the Company has agreed to make payments in monthly installments from June 2003 through July 2004.

As of March 31, 2003, unused letters of credit represented NT$103 million of the total amount. These letters of credit were denominated in various currencies, including NT dollars, Japanese yen, U.S. dollars, Swiss francs and Euros. At the same date, the Group also had standby letters of credit in the amount of U.S.$6.3 million outstanding. Further, at this date, the Group had guarantees issued and outstanding of NT$1,998 million. The amount of equity securities pledged as security for the Group’s obligations represented NT$10 million as of March 31, 2003.

Foreign Exchange Exposure

The Group’s primary use of foreign currency is to purchase equipment and raw materials. Since the Group maintains operating subsidiaries in the United States, Canada, South Korea and Germany, the principal foreign exchange exposure is the NT dollar in relation to the foreign currencies in these countries. The Group, however, has historically not been adversely affected by foreign exchange fluctuations because a majority of the Group’s revenues received from its customers are denominated in United States Dollars. In recent years, and particularly during the years from 1999 to 2001, the NT dollar has depreciated against the United States Dollar. As a result, the Group recognized net foreign exchange gains of NT$158.4 million in 2002, NT$280.6 million in 2001 and NT$217.6 million in 2000 on a consolidated basis.

The Group evaluates its foreign exchange exposure from time to time to determine whether derivative instruments are needed to hedge against foreign exchange risks. Currently, the Group does not have derivative agreements to hedge against foreign exchange volatility risks. The Group may, however, enter into such agreements in the future.

Inventories and Receivables

Inventories represent mostly raw materials. The Group’s inventories of NT$424.4 million in 2002 was a slight decrease compared to NT$453.6 million in 2001, which was an increase compared to NT$402.4 million in 2000.

Accounts receivable were NT$2,179.5 million in 2002, NT$969.5 million in 2001 and NT$1,782.9 million in 2000. The changes reflected an increase of sales in 2002 and a drop of sales in 2001. The Company continued to tighten its accounts receivable level in Taiwan for 2002. However, during the same period, the Company’s accounts receivable increased substantially as pre-recorded DVD sales improved. In 2001, following the acquisition of Mediacopy and the occurrence of a NT$177 million bad debt write-off relating to a distributor for the Group in China and Hong Kong, the Group strengthened its control over collection of debts in an effort to tighten the use of working capital and reduce bad debt exposure.

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Taxation

Since the Company engages in a business which is qualified as high technology in Taiwan, the Company was granted exemptions from ROC income taxes for income attributable to capital increases for the purpose of purchase of equipment for the Company’s operations for a period of five years following each such capital increase. The tax savings as a result of such tax holidays were approximately zero, zero and NT$34 million, respectively, for 2002, 2001 and 2000 on a consolidated basis. The Company continues to receive similar tax holidays for newly purchased equipment.

The Company also benefits from other tax incentives generally available to ROC companies, including tax credits up to 35% for certain research and development and employee training expenses, and credits ranging from 5% to 20% for investment in automation equipment and technology. The tax savings from such programs were approximately NT$46 million, NT$19 million and NT$63 million for 2002, 2001 and 2000, respectively, on a consolidated basis.

Principally as a result of these factors and the Company’s loss incurred in 2001, the Company paid no taxes in 2002, 2001 and 2000.

The Company had unused tax credits for research and development and employee training expenses and investments in automation equipment and technology, on a consolidated basis, of NT$187.5 million as of December 31, 2002, which are valid for use until December 31, 2006. As of December 31, 2002, the Company also had, on a consolidated basis, unused tax loss carry forwards of NT$438.2 million, which are valid for use until December 31, 2006.

In 1997, the ROC Legislative Yuan passed an amendment to the ROC Income Tax Law to integrate corporate income tax and shareholder dividend tax. Under this amendment, all retained earnings generated from January 1, 1998 and not distributed to shareholders as dividends for the year in which the retained earnings were generated will be assessed a 10% tax. If the Company subsequently distributes any undistributed retained earnings to its shareholders, its shareholders will be entitled to offset their proportionate shares of the assessed tax paid by the Company against their dividend income tax. See “Taxation — ROC Taxation”. As a result, if the Company does not distribute all of its annual retained earnings as dividends in the future, the effective tax rate will exceed the ROC corporate income tax rate.

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DIVIDEND POLICY

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

Year ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Aggregate number of Shares outstanding on record date(1) 19,900,000 55,100,000 82,864,400 253,345,200 364,139,400(2) 468,666,800(3)	Stock dividend per Share NT$ 0.26 0.21 0.41 0.50 — —	Cash dividend per Share
			NT$ — — — 0.50 — —

• (1) The numbers set forth in this column denote the aggregate number of Shares outstanding on the record date falling during the specified year for the dividend paid in respect of the prior year.

• (2) As of December 31, 2002.

• (3) As of the record date, April 29, 2003.

It has also been the Company’s practice 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 its shareholders at the annual general meeting of shareholders. The form, frequency and amount of future dividends on the Shares will depend upon the Company’s earnings, financial condition and other factors. Accordingly, the Company cannot assure you that it will continue to pay dividends on its Shares or that future dividends will be comparable to historical dividends.

Under the Company’s articles of incorporation, it is required under certain circumstances to allocate 5% to 10% of its annual net income to employee bonuses and 3% as Directors’ and Supervisors’ bonuses. A portion of these bonuses are paid in the form of Shares. The amount of Shares issued as a bonus is obtained by dividing the cash value of the bonus by the par vale of the Shares. Therefore, the actual value of a stock bonus is in excess of the value of the bonus had it been paid in cash. In addition, the distribution of employee bonus Shares may, subject to the number of Shares to be distributed, dilute the shareholdings of the Company’s shareholders. In 2002, 2001 and 2000, the Company issued 0 Shares, 9,168,327 Shares and 945,735 Shares respectively, as employee bonus shares. The Company does not plan to issue any Shares as employee bonus shares in 2003.

Except in limited circumstances, under the ROC Company Law, the Company is not permitted to distribute dividends or make other distributions to shareholders in respect of any year in which it did not record net income. The ROC Company Law also requires that 10% of annual net income (less prior years’ losses and outstanding tax) be set aside as a legal reserve until the accumulated legal reserve equals the Company’s paid-in capital.

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MARKET PRICE INFORMATION

The Shares have been listed on the Taiwan Stock Exchange since September 2001. The following table sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the Shares and the high and low of the daily closing values of the Taiwan Stock Exchange index.

2001 Fourth Quarter (beginning October 1) . . . . . 2002 First Quarter . . . . . . . . . . . . . . Second Quarter. . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . 2003 January . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . March . . . . . . . . . . . . . . . . . . . April . . . . . . . . . . . . . . . . . . . . May . . . . . . . . . . . . . . . . . . . .	Closing price per share High Low NT$ NT$ 29.60 17.00 32.60 22.50 31.20 15.30 18.30 14.45 27.80 15.90 18.60 16.20 19.20 16.30 18.60 14.15 13.55 10.65 10.90 10.00	Average daily trading volume (in thousands of shares) 11,244.13 12,535.22 7,617.24 8,278.08 26,828.57 16,679.79 18,908.25 9,028.71 15,727.27 20,038.22	Taiwan Stock Exchange Index	Taiwan Stock Exchange Index
	High NT$ 29.60 32.60 31.20 18.30 27.80 18.60 19.20 18.60 13.55 10.90		High 5,551.24 6,242.64 6,462.30 5,416.50 4,823.67 5,078.80 4,833.58 4,599.25 4,658.30 4,555.90	Low
				3,446.26 5,488.33 5,071.76 4,185.95 3,850.04 4,524.87 4,432.46 4,260.45 4,139.50 4,187.82

Source: Taiwan Stock Exchange, Bloomberg

On June 3, 2003, the closing sale price per share of the Shares on the Taiwan Stock Exchange was NT$12.15.

The performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange.

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CHANGES IN ISSUED SHARE CAPITAL

The following table shows the changes in the issued common share capital of the Company as at April 30, 2003 since its incorporation in April 1995, are set out below:

Record date April, 1995. . . . . . . . . . . . . . . December, 1996 . . . . . . . . . . December, 1997 . . . . . . . . . . May, 1998 . . . . . . . . . . . . . . . December, 1998 . . . . . . . . . . July, 1999 . . . . . . . . . . . . . . . August, 2000 . . . . . . . . . . . . October, 2001 . . . . . . . . . . . October, 2002 . . . . . . . . . . . . January, 2003 . . . . . . . . . . . . April, 2003. . . . . . . . . . . . . . .	Type of issue Cash Cash Cash Retained earnings Cash Retained earnings Cash Cash Retained earnings Employee bonus Additional paid-in capital Cash Retained earnings Employee bonus Additional paid-in capital Retained earnings Employee bonus Additional paid-in capital Conversion of a portion of the 2002 U.S.$110 million convertible bond offering into shares Conversion of a portion of the 2002 U.S.$110 million convertible bond offering into shares Conversion of a portion of the 2002 U.S.$110 million convertible bond offering into shares	Number of Shares issued 6,000,000 6,000,000 1,440,000 6,460,000 20,000,000 5,174,000 10,026,000 16,000,000 6,061,000 193,400 5,510,000 45,000,000 17,401,600 945,700 16,572,900 7,162,500 916,800 976,700 110,794,200 104,322,100 205,400	Number of Shares outstanding after issue
			6,000,000 12,000,000 19,900,000 45,074,000 55,100,000 82,864,000 162,785,000 253,345,000 364,139,000 468,461,000 468,667,000

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TERMS AND CONDITIONS OF THE BONDS

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

The issue of an aggregate of up to U.S.$60,000,000 principal amount of Zero Coupon Convertible Bonds, due 2008 (including U.S.$40,000,000 principal amount of Zero Coupon Convertible Bonds (the “Initial Bonds”) and up to U.S.$20,000,000 of Zero Coupon Convertible Bonds (the “Optional Bonds” and together with the Initial Bonds, “the “Bonds”) of INFODISC TECHNOLOGY COMPANY LIMITED (the “Company”) was authorized by a resolution of the board of directors of the Company adopted on December 4, 2002. The Bonds are issued pursuant to a Trust Deed (the “Trust Deed”) dated as of June 13, 2003 (the “Closing Date”) and made between the Company and The Bank of New York (the “Trustee”), which term includes any successor trustee under the Trust Deed for the holders of the Bonds (the “Bondholders”). The Company has also entered into a paying and conversion agency agreement (the “Agency Agreement”) dated as of June 13, 2003 with the Trustee, The Bank of New York as the registrar (the “Registrar”) and the principal paying, transfer and conversion agent (the “Principal Agent”) relating to the Bonds. The Registrar, the Principal Agent and any paying agents, conversion agents or transfer agents appointed under the Agency Agreement are together referred to as the “Agents”. The terms and conditions described in this section (“Conditions”) include summaries of, and are subject to, the detailed provisions of the Trust Deed. Copies of the Trust Deed and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, being the date hereof at 101, Barclay Street, 21st Floor West, New York, NY 10286, U.S.A., and at the specified offices of each of the Agents. The Bondholders are entitled to the benefit of the Trust Deed and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

1. Status

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

2. Form, Denomination and Title

(A) Form and Denomination

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds will be offered and sold in principal amounts of U.S.$1,000 or integral multiples thereof and will be transferable in principal amounts of U.S.$1,000 or integral multiples thereof. The Bonds are not issuable in bearer form. The Bonds will initially be represented by a global certificate or global certificates (collectively, the “Global Certificate”) for the principal amount of up to U.S.$60,000,000 due 2008 (including the Initial Bonds and the Optional Bonds) deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, socie´te´ anonyme (“Clearstream, Luxembourg”).

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

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(B) Title

The Bonds will be registered instruments, title to which will pass only by transfer and registration in the register of Bondholders. The registered holder of any Bond will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the Bond) and no person will be liable for so treating the holder. In these Conditions, “Bondholder” and (in relation to a Bond) “holder” mean the person in whose name a Bond is registered.

3. Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Trust Deed) or any amount is due under or in respect of any Bond or otherwise under the Trust Deed, the Company shall not, and shall ensure that none of its Principal Subsidiaries (as defined in Condition 10) will, create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance (each an “Encumbrance”) upon the whole or any part of its, or, as the case may be, any such Principal Subsidiary’s, undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as hereinafter defined) (i) payment of any sum due in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities without in any such case at the same time according to the Bonds, either the same security as is granted to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or other like obligation or such other security as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders.

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

4. No Interest

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

5. Transfers of Bonds; Issue of Certificates

(A) Transfers

Subject to Condition 5(D) below, a Bond may be transferred upon the surrender at the specified office of any Transfer Agent of the individual Definitive Certificate in respect of the Bond to be transferred, together with the form of transfer endorsed thereon (if such Definitive Certificate has been issued) or, in the case of a Bond represented by the Global Certificate, delivery at such office of a form of transfer obtainable from any of the Transfer Agents (the “Form of Transfer”), duly completed and executed and any other evidence that such Transfer Agent may reasonably require. In the case of a transfer of only part of a holding of Bonds in respect of which a Certificate is issued, a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. The Form of Transfer is available at the specified office of the Transfer Agent.

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(B) Delivery of New Certificates

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

(C) Formalities Free of Charge

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

(D) Restricted Transfer Periods

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

(E) Regulations

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

6. Conversion

(A) Conversion Right

• (i) Conversion Period : Each Bondholder has the right during the Conversion Period (as hereinafter defined) to convert any Bond into Shares (defined below), credited as fully paid and non-assessable (the “Conversion Right”). Subject to and upon compliance with the provisions of this Condition, the Conversion Right attaching to any Bond may be exercised, at the option of the holder thereof and as and to the extent provided herein, at any time on or after July 3, 2003 and prior to the close of business (at the place where the Conversion Notice (as defined in Condition 6(B)) and the individual Definitive Certificate in respect of such Bond (if issued) are deposited for conversion) on May 14, 2008 or, if such date shall not be a business day, on the immediately preceding business day at such place (but in no event thereafter), or, if such Bond shall have been called for redemption prior to that date, then up to the close of business (at the place aforesaid) on the date seven days prior to the date fixed for redemption thereof (or if such day shall not be a business day at such place on the immediately preceding business day at such place) (the “Conversion Period”); provided, however, that the Conversion Right during any Closed Period shall be suspended and the Conversion Period shall not include any such Closed Period. “Closed Period” shall mean any period during which under the laws of the ROC the Company is not permitted to effect conversion of the Bonds or any period during which the Company shall close

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its shareholders register, which period includes 60 days prior to the date of the annual meeting of shareholders (“AGM”), 30 days prior to an extraordinary shareholders’ meeting, five days prior to a record date for determination of shareholders entitled to receive annual dividend distributions or other rights or benefits, three business days prior to the notification by the Company to the Taiwan Stock Market for determination of shareholders’ entitlement to receive annual dividend distribution and the rights issue, or such other periods determined by ROC law applicable from time to time. The Company shall procure that the Bondholders are given not less than 7 nor more than 60 days’ prior notice of any Closed Period in accordance with the provisions of the Trust Deed.

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

• (ii) Number of Shares issuable on Conversion : The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT Dollars at the fixed rate NT$34.687 = U.S.$1.00) by the Conversion Price (as hereinafter defined) in effect on the Conversion Date.

If a Certificate or Certificates in respect of more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds in respect of which the Certificate(s) were so deposited. Fractions of Shares will not be issued on conversion, and cash adjustments will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of a consolidation or reclassification of Shares by operation of law or otherwise occurring after June 13, 2003, the Company will upon conversion of the Bonds pay in U.S. Dollars a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share not issued as aforesaid if such sum exceeds U.S.$10. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 6(A)(ii).

• (iii) Initial Conversion Price : The price at which Shares will be issued upon conversion (the “Conversion Price”) will initially be NT$11.35 per Share (the “Initial Conversion Price”), which is equivalent to U.S.$0.3272 per Share based on a fixed exchange rate of NT$34.687 = U.S.$1.00, (the “Fixed Exchange Rate”) but will be subject to adjustment in the manner provided in Conditions 6(C) and 6(D).

• (iv) Revival on Default : Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption prior to May 14, 2008, on the date fixed for redemption thereof, the Conversion Right attaching to such Bond will continue to be exercisable up to and including the close of business (at the place where the relevant individual definitive Certificate in respect of such Bond (if issued) and the Conversion Notice (as defined in Condition 6(B)) are deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the Bondholders.

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(B) Conversion Procedure

• (i) Exercise Procedure : To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at his own expense between 9:00 a.m. and 3:00 p.m. (local time at the specified office referred to below) on any business day (as defined below) during the Conversion Period at the specified office of a Conversion Agent outside the ROC at which the individual Definitive Certificate in respect of a Bond (if issued) is presented for conversion, a notice of conversion (a “Conversion Notice”) in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant individual Definitive Certificate (if issued) and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located and any amount to be paid by the Bondholder.

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

In this Condition 6(B)(i), “business day” means a day (other than a Saturday or Sunday) on which commercial banks are open for business in London and in the place where the Conversion Agent with whom the individual Definitive Certificate (if issued) and the Conversion Notice are deposited is open for business save that for the purpose of the preceding paragraph, “business day” means a day (other than a Saturday or Sunday) on which commercial banks are open for business in Taiwan, ROC. “Trading Day” means a day when there is trading on the Taiwan Stock Exchange (“TSE”).

• (ii) Taxes and Expenses; Deposit Date and Conversion Date : As conditions precedent to conversion, together with the Conversion Notice, the Bondholder must pay to the relevant Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares on conversion of Bonds and all charges of the Conversion Agents in connection therewith as provided in the Trust Deed and Agency Agreement. The date on which any Certificate and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law or a relevant deposit agreement (if applicable), are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the “Deposit Date”. The “Conversion Date” applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day and occurs during the Conversion Period.

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

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• (iv) Delivery of Shares : On the Conversion Date, the Company will register the converting Bondholder (or its designee) in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days after the Conversion Date, there be delivered to the local agent appointed by the converting Bondholder (if Shares are to be received by the converting Bondholder), and/or to the relevant custodian, a certificate or certificates for the relevant Shares, registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

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

• (vi) Conversion Agents : The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to appoint further or other Conversion Agents; provided that the Company will at all times maintain a Conversion Agent having specified offices in London, the United Kingdom. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents will be given promptly by the Company to the Bondholders in accordance with Condition 15.

(C) Adjustments to Conversion Price

The Conversion Price will be subject to adjustment in the manner set forth in the Trust Deed upon the occurrence of certain events set out in the Trust Deed, including:

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

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

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

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

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

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• (vi) the issue of securities (other than the Bonds, and those mentioned in (iv) above) convertible into or exchangeable for Shares at less than the then Current Market Price or of rights or warrants (other than those mentioned in (iv) above) to subscribe for or purchase Shares at less than the then Current Market Price or to subscribe for or purchase securities convertible into or exchangeable for Shares at less than the then Current Market Price;

• (vii) the issue of Shares (other than Shares issued on conversion of convertible bonds, including the Bonds, or in any of the circumstances described above) at less than the then Current Market Price;

• (viii) the making of a tender offer or exchange offer by the Company or any subsidiary of the Company at a consideration per Share that exceeds the then Current Market Price as of the expiration date of the tender or exchange offer;

• (ix) the distribution of Shares to its employees under any employee bonus or profit-sharing arrangements; and

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

• in accordance with the formulas stipulated in the Trust Deed.

The Trustee will not be obliged to monitor whether any event has occurred which might fall within the events giving rise to adjustment to the Conversion Price as set out in the Trust Deed or (i) to (x) above and, until it has actual knowledge by way of express notice in writing from the Company to the contrary, shall assume that none has; provided however, that even if the Trustee has actual knowledge of any event or circumstance which requires or may require an adjustment to the Conversion Price under the Trust Deed or pursuant to the Conditions, the Trustee shall not be liable to the Bondholders for any loss arising from the nature, extent or correctness of any adjustment of the Conversion Price made by the Company. The Trustee shall not be obliged to consider whether any adjustments of the Conversion Price is appropriate as a result of an event or circumstances in (x) above unless it has been requested so to do in writing by a Bondholder and it has been indemnified to its satisfaction against any cost it may incur.

(D) Conversion Price Reset

If each of the Closing Prices (as defined in Condition 8(B) below) of the Shares on the TSE, translated into U.S. Dollars at the then Prevailing Rate (defined below) for 20 consecutive Trading Days immediately prior to the 120th day after the Closing Date and then on the first, second, third and fourth anniversary of such date (each of the above, a “Reset Date”), is less than the then prevailing Conversion Price in effect on the relevant Reset Date, then the Conversion Price shall be adjusted downward such that it is equivalent to the average Closing Prices for the period of 20 Trading Days (the “Average Closing Price”) translated into United States Dollars at the then Prevailing Rate for 20 consecutive Trading Days (the “Adjusted Conversion Price”) in accordance with the following formula:

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

Such Adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.01, provided that:

• (i) any adjustment to the Conversion Price pursuant to this Condition 6(D) shall be limited so that the Conversion Price adjusted in accordance with this Condition 6(D) shall not be less than 80 percent of the Initial Conversion Price (as adjusted to reflect any adjustments required under Condition 6(C) above, which may have occurred prior to the relevant Reset Date);

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• (ii) the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to ensure that appropriate adjustments shall be made to any Closing Price to reflect any adjustments made to the Conversion Price in accordance with Condition 6(C) during the period of calculation of the Adjusted Conversion Price; and

• (iii) for the avoidance of doubt any adjustments to the Conversion Price made pursuant to this Condition 6(D) shall only be downward adjustments.

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

Any such adjustment shall become effective as of the relevant Reset Date and shall be notified to the Bondholders within five days of the relevant Reset Date in accordance with Condition 15.

(E) Alternative Conversion Price Reset

On the date (the “Alternative Reset Date”) 30 business days prior to each Put Date (as defined in Conditions 8(C), 8(E) and 8(F) below) and June 13, 2008 (but taking into account the Conversion Period in Condition 6(A)), the Company may, at its discretion, elect to choose an alternative Conversion Price equal to 90.9 percent of the lowest among the average Closing Prices for the 10, 15 and 20 Trading Days immediately preceding the Alternative Reset Date. The alternative Conversion Price will be notified to Bondholders in accordance with Condition 15.

The alternative Conversion Price will be applicable during a period of 7 business days starting 4 business days after the Alternative Reset Date, and the Conversion Price will be applicable after the said period has expired.

(F) Mergers; Disposals

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

7. Payments

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

Payment of principal, premium (if any) and interest (if any) will be made by transfer to the registered account of the Bondholder or by U.S. Dollar check drawn on a bank in New York City, mailed to the registered address of the Bondholder if it does not have a registered

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account provided that the Principal Agent shall have received the funds in full from the Company in accordance with the Agency Agreement. Payments of principal and premium (if any) will only be made after surrender of the relevant individual Definitive Certificate (if issued) at the specified office of any Agent.

(B) Registered Accounts

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

(C) Fiscal Laws

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

(D) Payment Initiation

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

(E) Payment Delay

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

(F) Business Days

In this Condition, “business day” means a day (other than a Saturday or Sunday) on which commercial banks are open for business in New York City and London and, in the case of the surrender of a Certificate, in London and in the place where the Certificate is surrendered.

(G) Partial Payments

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

Distribution of payments with respect to the Global Certificate held through Euroclear or Clearstream, Luxembourg will be made to the holders holding through participants of Euroclear or Clearstream, Luxembourg, as the case may be, to the account of The Bank of New York, as common depositary for Euroclear and Clearstream, Luxembourg and will be credited by Euroclear or Clearstream, Luxembourg, as the case may be, to the cash accounts of the participants of Euroclear or Clearstream, Luxembourg, in accordance with the relevant system’s rules and procedures, to the extent received by the common depositary. None of the Trustee, the Company or any Agent will be responsible for any payment or failure to make such payment by Euroclear or Clearstream.

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8. Redemption, Purchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will redeem the Bonds on June 13, 2008 at their principal amount in U.S. Dollars on the fifth anniversary of their issue date. The Bonds may be redeemed in whole or in part prior to that date only as provided in paragraphs (B), (C), (D), (E), (F) and (G) below (but without prejudice to Condition 10).

(B) Redemption at the Option of the Company

• (i) On or at any time after one year from the date of the issue of the Bonds, the Company may, having given not less than 30 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(K) and 15 (which notice will be irrevocable), redeem all or from time to time some only of the Bonds at their principal amount if the Closing Price of the Shares translated into U.S. Dollars at the prevailing exchange rate of the Shares for each of the 30 consecutive Trading Days, the last of which occurs not more than 7 days prior to the date upon which notice of such redemption is published, is at least 140 percent of the Conversion Price then in effect, translated into U.S. Dollars at the fixed exchange rate of NT$34.687 = U.S.$1.00, on each such Trading Day. If there shall occur an event giving rise to a change in the Conversion Price during any such 30 Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the Closing Price for such days. If the Closing Price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 30 Trading Day period.

• (ii) The Company may, having given not less than 30 nor more than 60 days notice to the Bondholders in accordance with Conditions 8(K) and 15 (which notice will be irrevocable), redeem all but not some only of the Bonds issued at their principal amount if 90 percent of the Bonds so issued have been previously redeemed, repurchased and cancelled, or converted. Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which such notice relates at the price aforesaid applicable at the date fixed for redemption.

The term “Closing Price” for any Trading Day means the last reported transaction price or, if no transaction takes place on such day, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE or the stock market on which the Shares are then traded as selected from time to time by the Company for the purpose.

(C) Redemption at the Option of Bondholders

The Company will, at the option of the holder of any Bond, redeem the Bonds on December 13, 2004, June 13, 2006 and June 13, 2007 (being the dates 18 months, 36 months and 48 months from the date of the issue of the Bonds at their aggregate principal amount.

Each such date mentioned in this Condition 8(C) shall each be referred to as a “Put Date”.

To exercise such option the holder must deposit the individual Definitive Certificate in respect of such Bond (if issued) with any Agent and a duly completed redemption notice in the form obtainable from any of the Agents, not more than 60 nor less than 30 days prior to each relevant Put Date. No Definitive Certificate so deposited may be withdrawn without the prior written consent of the Company. Not less than 30 nor more than 45 days’ notice of the commencement of the period for the deposit of individual Definitive Certificates for redemption (if issued) and the redemption notice pursuant to this paragraph (C) shall be given to the Bondholders by the Company in accordance with Condition 15. The exercise of the Bondholders’ option under this Condition 8(C) shall override any exercise of the Company’s right under Condition 8(B).

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(D) Redemption for Taxation Reasons

At any time, the Company may, having given not less than 30 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(K) and 15 (which notice shall be irrevocable) redeem all but not some only of the Bonds at their principal amount, if (i) the Company satisfies the Trustee immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 9 as a result of any change in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after June 13, 2003 and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such additional amounts were a payment in respect of the Bonds then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate signed by two directors of the Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedents set out in (ii) above, in which event it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of redemption has been given under Condition 8(B) and Condition 8(C) shall not be affected by any notice given subsequently under this Condition 8(D).

(E) Repurchase of Bonds in the Event of Delisting

In the event that the Shares of the Company cease to be listed or admitted to trading on the TSE for a period exceeding five consecutive Trading Days or are suspended from trading for a period of 30 or more consecutive Trading Days (each, a “Delisting”), each Bondholder will have the right (the “Delisting Put Right”), at such Bondholder’s option, to require the Company to repurchase such Bondholder’s Bonds, in whole but not in part, on the 20th business day after the Trustee mails to the Bondholders a notice regarding the Delisting referred to under Condition 8(G) below (the “Delisting Put Date”), at a price equal to their aggregate principal amount (the “Delisting Put Price”).

(F) Repurchase of Bonds in the Event of Change of Control

If a Change of Control, as defined below, occurs with respect to the Company, each Bondholder will have the right (the “Change of Control Put Right”), at such Bondholder’s option, to require the Company to repurchase such Bondholder’s Bonds, in whole or in part, on the date set by the Company for such repurchase (the “Change of Control Put Date”), which shall be not less than 30 nor more than 60 days following the date on which the Company notifies the Trustee of the Change in Control, at a price equal to their aggregate principal amount on the Change of Control Put Date (the “Change of Control Put Price”).

The definitions of certain terms used in this section are listed below.

The term “Control” as used in this section means the right to appoint and/or remove all or the majority of the members of the Company’s board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise.

• A “Change of Control” occurs when:

• (i) any Person or Persons acting together acquires Control of the Company if such Person or Persons does not or do not have, and would not be deemed to have, Control of the Company on June 13, 2003;

• (ii) the Company consolidates with or merges into or sells or transfers all or substantially all of the Company’s assets to any other Persons, unless the consolidation, merger, sale or transfer will not result in the other Person or Persons acquiring Control over the Company or the successor entity;

• (iii) one or more other Persons acquires the legal or beneficial ownership of all or substantially all of the Company’s capital stock; or

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• (iv) during any one-year period, any three or more individuals who at the beginning of such period were members of the Company’s board of directors, cease for any reason to be directors of the Company or during any consecutive two-year period, individuals who at the beginning of such period constituted the board of directors of the Company cease for any reason to constitute a majority of the board of directors then in office.

However, a Change of Control will not be deemed to have occurred if the Closing Price (as defined in Condition 8(D)) for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the Change of Control or the public announcement of the Change of Control equals or exceeds 115% of the Conversion Price in effect on each of those five Trading Days.

“Person” means any individual, limited liability company, corporation, company, firm, partnership, joint venture, tribunal, undertaking, association, organization, trust, government or political subdivision or agency or instrumentality thereof or any other entity or organization, in each case whether or not being a separate legal entity.

A “Person” as used in this section does not include (i) the Company’s board of directors or any other governing board or (ii) the Company’s wholly owned direct or indirect subsidiaries.

(G) Repurchase Procedures

Promptly after becoming aware of a Delisting or a Change of Control, the Company will provide sufficient information to the Trustee in sufficient time to permit the Trustee to give to each Bondholder a notice in accordance with Condition 15 regarding such Delisting Put Right or Change of Control Put Right, as the case may be, which notice shall state, as appropriate:

• (i) the Delisting Put Date or the Change of Control Put Date, as the case may be (each, a “Purchase Date”);

• (ii) in the case of a Delisting, the date of such Delisting and, briefly, the events causing such Delisting;

• (iii) in the case of a Change of Control, the date of such Change of Control and, briefly, the events causing such Change of Control;

• (iv) the date by which the Bondholder Purchase Notice (as defined below) must be given;

• (v) the Closing Price of the Shares on the most recent practicable Trading Day for which such closing price can be provided;

• (vi) the Delisting Put Price or the Change of Control Put Price, as the case may be, and the method by which such amount will be paid;

• (vii) the names and addresses of all paying agents;

• (viii) briefly, the Conversion Right (as defined below) of the Bondholders of the Bonds and the then current Conversion Price;

• (ix) the procedures that Bondholders must follow and the requirements that Bondholders must satisfy in order to exercise their repurchase rights and Conversion Right; and

• (x) that a Bondholder Purchase Notice, once validly given, may not be withdrawn.

To exercise its right to require the Company to purchase its Bonds, the Bondholder must deliver a written irrevocable notice of the exercise of such right (a “Bondholder Purchase Notice”), together with the applicable Bonds (if a Certificated Bond) to any paying agent on any business day prior to the close of business at the location of such paying agent on such day and which day is not less than 10 business days prior to the Purchase Date.

Payment of the Delisting Put Price upon exercise of the Delisting Put Right or Change of Control Put Price upon exercise of the Change of Control Put Right for a Certificated Bond for which a Bondholder Purchase Notice has been delivered is conditioned upon delivery of such Certificated Bond (together with any necessary endorsements) to any paying agent on any

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business day on or after the delivery of such Bondholder Purchase Notice and will be made promptly following the later of the Purchase Date and the time of delivery of such Certificated Bond. If the paying agent holds on the Purchase Date money sufficient to pay the Delisting Put Price or the Change of Control Put Price, as the case may be, of Bonds for which Bondholder Purchase Notices have been delivered in accordance with the provisions of the Trust Deed upon exercise of such right, then, whether or not such Bond is delivered to the paying agent, on and after such Purchase Date: (i) such Bond will cease to be outstanding; (ii) such Bond will be deemed paid; and (iii) all other rights of the Bondholder shall terminate (other than the right to receive the Delisting Put Price or the Change of Control Put Price, as the case may be).

(H) Purchase

The Company and its Subsidiaries may at any time and from time to time purchase Bonds in the open market or otherwise. Bonds so purchased may be held, resold or surrendered for cancellation.

(I) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(B)(i), where individual Definitive Certificates have been issued, the Bonds to be redeemed will be selected individually by lot by the Principal Agent, in such place as the Trustee shall approve and in such manner as the Trustee shall deem to be appropriate and fair not more than 60 days and not less than 25 days prior to the date fixed for redemption or in accordance with the rules of the relevant clearing system when the Bonds are represented by a Global Certificate.

(J) Cancellation

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

(K) Redemption Notices

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

9. Taxation

• (A) All payments of principal, premium (if any) and interest (if any) by the Company will be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law.

• (B) Where such withholding or deduction is in respect of ROC withholding tax on premium or interest payments at the rate of up to and including 20 percent, the Company will increase the amount of premium (if any) or interest (if any) paid by it to the extent required so that the net amount of premium (if any) or interest (if any) received by Bondholders (without prejudice to Condition 7) would be equal to the amounts which would have been receivable in the absence of any such withholding or deduction.

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• (C) In the event that any such withholding or deduction in respect of principal or any additional withholding or deduction in excess of 20 percent in respect of interest (if any) or premium (if any) is required, the Company will pay such additional amounts by way of principal, premium (if any) and interest (if any), as will result in the receipt by the Bondholders of the amounts which would have been receivable in the absence of any such withholding or deduction, except that no such additional amounts shall be payable in respect of any Bond:

• (i) to, or on behalf of, a holder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal in respect of the Bond; or

• (ii) if the individual Definitive Certificate in respect of such Bond (if issued) is surrendered more than 30 days after the relevant date except to the extent that the holder would have been entitled to such additional amount on surrendering the relevant Certificate for payment on the last day of such 30 day period. For this purpose, the “relevant date” in relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full amount of the monies payable on such due date has not been received by the Trustee or the Principal Agent on or prior to such due date) the date on which notice is duly given to the Bondholders that such monies have been so received.

• (D) References in these Conditions to principal, premium or interest shall be deemed also to refer to any increased or additional amounts which may be payable in respect thereof under this Condition or any undertaking given in addition to or substitution for it under the Trust Deed.

10. Events of Default

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

• (i) there is failure to pay the principal of or any premium on any of the Bonds within 15 business days after the same shall become due and payable in accordance with these Conditions; or

• (ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay principal or premium (if any) in respect of the Bonds) set out in the Bonds or the Trust Deed which default is incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy but not in the opinion of the Trustee remedied within 30 days (or such longer time as the Trustee may consider appropriate in relation to the jurisdiction concerned) after written notice of such default shall have been given to the Company by the Trustee; or

• (iii) any other present or future indebtedness of the Company, or any of its Principal Subsidiaries, for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company or any of its Principal Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred and is continuing equals or exceeds U.S.$12,000,000 or its equivalent in any other currency (determined as

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provided below), and provided further that where two or more of the Company and/or its Principal Subsidiaries are liable for the payment of the same relevant indebtedness or guarantee (whether liable jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be counted once only; or

• (iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its Principal Subsidiaries and in any such case is not discharged or stayed within 60 days (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned) of having been so levied, sued out, commenced or issued, unless the Company or such Principal Subsidiary is contesting such proceedings in good faith by appropriate proceedings; or

• (v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance upon the whole or any substantial part of the assets or revenues of the Company or any Principal Subsidiary; or

• (vi) the Company or any of its Principal Subsidiaries becomes bankrupt or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by the Trustee or an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company or any of its Principal Subsidiaries or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company or any of its Principal Subsidiaries or the Company or any of its Principal Subsidiaries stops or suspends payment of all or a material part of (or of a particular type of) its debts; or

• (vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed by the Company or any of its Principal Subsidiaries for the winding-up or dissolution of the Company or any of its Principal Subsidiaries (except for the purpose of and followed by a solvent reconstruction, merger, consolidation, amalgamation or other similar arrangement the terms of which are approved by the Trustee or an Extraordinary Resolution of the Bondholders); or

• (viii) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company or any of its Principal Subsidiaries; or

• (ix) proceedings shall have been initiated against the Company or any of its Principal Subsidiaries under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall not have been discharged or stayed within a period of 60 days (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned); or

• (x) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Trust Deed, (ii) ensure that those obligations are legally binding and enforceable (subject to the qualifications set out in the legal opinion issued in connection therewith) and (iii) make the Bonds and the Trust Deed admissible in evidence in the courts of the ROC is not taken, fulfilled or done, and such case is incapable of remedy or, if in the opinion of the Trustee is capable of remedy, is not in the opinion of the Trustee remedied within such period (being not less than 30 days) as the Trustee may consider reasonable; or

• (xi) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

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

Upon any such notice being given to the Company, the Bonds will immediately become due and payable at 100 percent of their principal amount, and overdue interest on the amounts due, from the date on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of 4 percent per annum.

For the purpose of this Condition, “Subsidiary” in relation to any person means any corporation or other business entity more than 50 percent of the outstanding voting stock of which is for the time being owned directly or indirectly by such person, and “Principal Subsidiary” means any Subsidiary of the Company (i) whose total revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has Subsidiaries) of such Subsidiary at the time that event of defaults occurs, are at least 10 percent of the total revenues of the Company and its Subsidiaries as shown by the latest audited accounts of the Company or (ii) whose gross assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has Subsidiaries) of such Subsidiary are at least 10 percent of the gross assets of the Company and its Subsidiaries as shown by the latest audited accounts of the Company.

A certificate of the auditors of the Company as to whether or not a Subsidiary is a Principal Subsidiary shall be conclusive and binding on all parties in the absence of manifest error.

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

11. Prescription

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

12. Enforcement

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

13. Meetings of Bondholders, Modification and Waiver

(A) Meetings

The Trust Deed contains provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Bonds or the provisions of the Trust Deed. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons holding or representing over 50 percent in principal amount of the Bonds for the time being outstanding or, at any such meeting which has been adjourned, two or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity date of

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the Bonds, (ii) to reduce or cancel the amount of principal, premium or interest (if any) payable in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify or cancel the right to convert the Bonds into Shares (except in accordance with Condition 6(B) and 13(B)) or to modify the circumstances in which the Bonds may be redeemed or converted at the option of the Company or to shorten the Conversion Period, (v) to modify the provisions relating to the resetting of the Conversion Price, (vi) to modify the provisions concerning the quorum required at any meeting of the Bondholders or the majority required to pass an Extraordinary Resolution or sign a resolution in writing, in which case the necessary quorum for passing an Extraordinary Resolution will be two or more persons holding or representing over two-thirds, or at any adjourned such meeting over one-third, in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are present at the meeting, and will be conclusive and binding upon all future Bondholders.

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

(B) Modification of Conversion Right

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

(C) Other Modifications and Waivers

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

(D) Exercise of Trustee’s Functions

In connection with the exercise of its functions, powers, trusts, authorities or discretions (including but not limited to those in relation to any proposed modification, authorization or waiver) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders. No Bondholder will be entitled to claim, from the Company or the Trustee, any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders.

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14. Replacement of Certificates

If any Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company or the Registrar may reasonably require (which terms will require, inter alia , that if such Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company on demand such costs at the fixed exchange rate of NT$34.687 for each U.S.$1.00 of the principal amount of such Bond). Mutilated or defaced Certificates must be surrendered before replacements will be issued.

15. Notices

In addition to the provisions set forth in the Global Certificate, if applicable, all notices to Bondholders shall be validly given if in writing in English and mailed to them at their respective addresses in the register of Bondholders maintained by the Registrar.

Any such notice shall be deemed to have been given on the seventh day after being so mailed. All costs and expenses incurred on such publication shall be borne by the Company.

16. Indemnification

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce payment unless indemnified to its satisfaction. The Trustee is entitled to enter into business transactions with the Company, its Subsidiaries or any entity related to the Company without accounting for any profit generated therefrom.

17. Agents

The names of the initial Agents and Registrar and their specified offices are set out at the end of this document. The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of further or other Agents, provided that the Company will at all times maintain Agents having specified offices in London. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly by the Company to the Bondholders and the Trustee.

18. Governing Law and Jurisdiction

(A) Governing Law

The Trust Deed and the Bonds are governed by and shall be construed in accordance with English law.

(B) Jurisdiction

The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed or the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed or the Bonds (“Proceedings”) may be brought in such courts. The Company has in the Trust Deed, for the benefit of the Trustee and the Bondholders, irrevocably submitted to the jurisdiction of such courts.

(C) Agent for Service of Process

The Company has irrevocably appointed Law Debenture Corporate Services Limited as its authorized agent for service of process in England in any Proceedings.

(D) Third Party Rights

No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999.

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THE GLOBAL CERTIFICATE

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

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

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

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

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates in respect of their interests in the Bonds except in limited circumstances.

The holder of a registered Bond in definitive certificated form may transfer or exchange such Bond by surrendering it at the office or agency maintained by the Company for such purpose in London , which offices will initially be the corporate trust offices or such other offices as may be notified by the Trustee from time to time and the offices of the Paying Agent, respectively.

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

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EXCHANGE RATE INFORMATION

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

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

1998 . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . 2002 January . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . March . . . . . . . . . . . . . . . . . . . . . April . . . . . . . . . . . . . . . . . . . . . . . May . . . . . . . . . . . . . . . . . . . . . . . June. . . . . . . . . . . . . . . . . . . . . . . July . . . . . . . . . . . . . . . . . . . . . . . August . . . . . . . . . . . . . . . . . . . . . September . . . . . . . . . . . . . . . . . . October . . . . . . . . . . . . . . . . . . . . November . . . . . . . . . . . . . . . . . . December . . . . . . . . . . . . . . . . . . 2003 January . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . March . . . . . . . . . . . . . . . . . . . . . April . . . . . . . . . . . . . . . . . . . . . . . May . . . . . . . . . . . . . . . . . . . . . . .	Average 33.47 32.27 31.23 33.80 35.02 35.06 35.01 34.90 34.44 33.96 33.39 33.96 34.56 34.95 34.70 34.85 34.60 34.78 34.71 34.82 34.71	High 35.02 33.24 33.20 35.16 35.10 35.13 35.09 35.00 34.63 34.16 33.87 34.24 34.99 35.17 34.86 34.95 34.81 34.85 34.79 34.94 34.80	Low 31.97 31.46 30.28 32.27 34.89 34.96 34.92 34.72 34.02 33.53 32.94 33.66 34.11 34.76 34.41 34.75 34.44 34.74 34.60 34.76 34.62	At period-end
				32.21 31.46 33.08 34.95 34.96 35.11 35.00 34.72 34.13 33.53 33.75 34.24 34.92 34.76 34.81 34.75 34.69 34.75 34.75 34.85 34.71

Source: Bank of Taiwan

On June 3, 2003, the closing rate between the NT Dollar and the U.S. Dollar was NT$34.687 = U.S.$1.00.

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DESCRIPTION OF THE SHARES

The following is a summary of certain provisions of Infodisc’s articles of incorporation, ROC Company Law, the ROC Securities and Exchange Law and the regulations promulgated thereunder.

The ROC Company Law and the ROC Securities and Exchange Law provide that any change in the authorized share capital of a public company, such as the Company, requires the approval of its board of directors, and amendment to its articles of incorporation (which requires shareholder approval), and the approval of the SFC and the MOEA. The rights attaching to Infodisc’s shares are described below.

General

Infodisc was incorporated on April 14, 1995 as a company limited by shares under ROC Company Law. As of March 31, 2003, Infodisc’s authorized share capital was NT$7,000,000,000 consisting of 700,000,000 shares or NT$10 par value each, of which 468,461,444 shares were issued and outstanding. Infodisc does not have any other equity in the form of preference shares or otherwise outstanding as of the date of this Offering Circular.

Dividends and Distributions

Except in limited circumstances under ROC Company Law, Infodisc is not permitted to distribute dividends or make other distributions to shareholders in respect of any year in which Infodisc did not record net income. The ROC Company Law also requires that 10% of annual net income (less prior years’ losses and any taxes due) be set aside as a legal reserve until the accumulated legal reserve equals a company’s paid-in capital. In addition, Infodisc’s articles of incorporation provide that 5% to 10% of the remaining portion of its net income, less prior years’ losses, taxes due, the legal reserve and any special reserve, will be distributed to employees as bonuses.

At each annual general meeting of Infodisc’s shareholders, Infodisc’s Board of Directors submits to the shareholders for their approval Infodisc’s financial statements for the preceding fiscal year and any proposal for the distribution of a dividend or the making of any other distribution to shareholders from Infodisc’s net income (subject to compliance with the requirements mentioned above) for the preceding fiscal year. All shares outstanding and fully paid as of the relevant record date are entitled to share equally in any dividend or other distribution approved through this process. Dividends may be distributed in cash, in the form of shares or a combination thereof, as determined by the shareholders. The ROC SFC requires that each of the companies whose shares are listed on the Taiwan Stock Exchange shall adopt in its articles of incorporation a dividend policy. Infodisc’s articles of incorporation provide that the cash dividend distributed in each year shall not be lower than 50% of the total dividends distributed in that year where Infodisc can obtain sufficient funds from outside source to meet Infodisc’s capital needs for the current year.

In addition to permitting dividends to be paid out of net income, ROC Company Law permits Infodisc to make distributions to Infodisc’s shareholders of additional shares by capitalizing reserves (including the legal reserve, any special reserve and capital surplus). However, the capitalized portion payable out of Infodisc’s legal reserve is limited to 50% of the total accumulated legal reserve and a capitalization of this type can only be effected when the accumulated legal reserve exceeds 50% of Infodisc’s paid-in capital.

Any issuance of stock dividends to shareholders is subject to the approval of the SFC.

Changes in Share Capital and Pre-emptive Rights

The ROC Company Law and the ROC Securities and Exchange Law provide that any change in the authorized share capital of a company limited by shares, such as the Company, requires an amendment to its articles of incorporation (which requires approval at a shareholders’ meeting) and the registration with the MOEA. Authorized but unissued shares may be issued at such times and, subject to the provisions of ROC Company Law and the ROC Securities and Exchange Law mentioned below, upon such terms as the board of directors of the company may determine.

Under ROC Company Law, when an ROC company issues new shares for cash, existing shareholders who are listed on the shareholders’ register as of the record date have pre-emptive

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rights to subscribe for the new issue in proportion to their existing shareholdings, while a company’s employees, whether or not they are shareholders of the company, have rights to subscribe for 10% to 15% of the new issue. Any new shares that remain unsubscribed at the expiration of the subscription period may be offered by the company to the public or privately placed. The pre-emptive rights provisions, however, do not apply to shares issued upon conversion of convertible bonds or exercise of warrants or stock options.

In addition, in accordance with the ROC Securities and Exchange Law, a public company, such as the Company, that intends to offer new shares for cash must offer to the public at least 10% of the shares to be sold. This percentage can be increased by a resolution passed at a shareholders’ meeting, so as to reduce the number of new shares that are subject to the pre-emptive rights of existing shareholders.

Meetings of Shareholders

General meetings of shareholders may be ordinary or extraordinary. Ordinary meetings of Infodisc’s shareholders are generally held in Chungho, Taiwan, within six months following the end of each fiscal year. Extraordinary meetings may be convened by resolution of Infodisc’s Board of Directors or by Infodisc’s Board of Directors upon the written request of any shareholder or shareholders who have held 3% or more of Infodisc’s outstanding shares for more than one year. Extraordinary meetings of shareholders may also be convened by a Supervisor. Notice in writing of general meetings of shareholders, stating the place, time and purpose thereof must be dispatched to each shareholder at least 30 days (in the case of ordinary meetings) and 15 days (in the case of extraordinary meetings) prior to the date set for each such meeting.

Voting Rights

The Company’s articles of incorporation provide that a shareholder has one vote for each share it holds. Infodisc have cumulative voting for the election of members of Infodisc’s Board and Supervisors. Except as otherwise provided by law, a resolution can be adopted by the holders of at least a majority of the shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding shares are present. Under ROC Company Law, however, in order to approve certain major corporate actions, including any amendment to Infodisc’s articles of incorporation (which is required for, among other things, any increase in authorized share capital), the dissolution or amalgamation of a company, the transfer of the whole or an important part of its business, the taking over of a whole of the business of any other company, or the distribution of any stock dividend, a meeting of the shareholders must be convened with a quorum of holders of at least two-thirds of all issued and outstanding shares at which the holders of at least a majority of the shares represented at the meeting vote in favor thereof. Alternatively, ROC Company Law provides that in the case of a public company, such as the Company, resolutions of these types may be adopted by the holders at least two-thirds of the shares represented at a meeting of shareholders at which holders of at least a majority of issued and outstanding shares are present.

A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy form is delivered to Infodisc five days prior to the commencement of the ordinary or extraordinary meeting.

Register of Shareholders and Record Dates

Infodisc’s share registrar, Grand Cathay Securities Corp., maintains Infodisc’s register of shareholders at its offices in Taipei, Taiwan, and enters transfers of shares in this register upon presentation of, among other documents, certificates in respect of the shares transferred. Under ROC Company Law, Infodisc may, by giving advance public notice, set a record date and close the register of shareholders for a specified period (60 days, 30 days and five days immediately before each ordinary meeting of shareholders, extraordinary meeting of shareholders and relevant record date, respectively) in order for Infodisc to determine the shareholders or pledges that are entitled to certain rights pertaining to Infodisc’s shares. The settlement of trading of shares is normally carried out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.

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Annual Financial Statements

At least 10 days before Infodisc’s annual ordinary meeting of shareholders, Infodisc’s annual financial statements must be available at Infodisc’s principal office and at Infodisc’s share registrar in Taipei for inspection by shareholders.

Acquisition of Shares by Infodisc

With minor exceptions, Infodisc may not acquire Infodisc’s shares under the ROC Company Law. However, under the ROC Securities and Exchange Law, Infodisc may, by a board resolution adopted by majority consent at a meeting with two-thirds of Infodisc’s directors present, purchase Infodisc’s shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the procedures prescribed by the ROC SFC, for the following purposes:

• to transfer shares to Infodisc’s employees;

• to satisfy Infodisc’s obligations to provide Infodisc’s shares upon exercise or conversion of any warrants, convertible bonds or convertible preferred shares or certificates of warrants; or

• if necessary, to maintain Infodisc’s credit and Infodisc’s shareholders’ equity (such as for the purpose of supporting the trading price of Infodisc’s shares during market dislocations), but shares purchased for this purpose must be cancelled.

The Company is not allowed to purchase more than 10% of Infodisc’s total issued and outstanding shares. In addition, Infodisc may not spend more than the aggregate amount of Infodisc’s retained earnings, premium from stock issuances and the realized portion of Infodisc’s capital reserve to purchase Infodisc’s shares.

The Company may not pledge or hypothecate any purchased shares. In addition, Infodisc may not exercise any shareholders’ rights attached to those shares. If Infodisc purchases Infodisc’s shares on the Taiwan Stock Exchange, Infodisc’s affiliates, directors, supervisors, managers and their respective spouses, minor children and nominees are prohibited from selling any of Infodisc’s shares during the period in which Infodisc purchase Infodisc’s shares.

Effective from November 14, 2001 under the revised ROC Company Law, Infodisc’s subsidiaries may not acquire Infodisc’s shares. This restriction does not affect any acquisition occurring prior to November 14, 2001.

Liquidation Rights

In the event of Infodisc’s liquidation, its assets remaining after payment of all debts, liquidation expenses and taxes will be distributed pro rata to the shareholders in accordance with ROC Company Law and Infodisc’s articles of incorporation.

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FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The Company has extracted from various governments and other publicly available publications the information presented in this section. Please note that citizens of the PRC and entities organized in the PRC are subject to special ROC laws, rules and regulations, which are not discussed in this section.

General

Historically, foreign investments in the securities market of Taiwan were restricted. However, beginning in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market. Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan listed securities market. Since March 1, 1996, overseas Chinese, non-resident foreign institutional and individual investors (other than qualified foreign institutional investors), called “general foreign investors”, are permitted to make direct investments in the Taiwan listed securities market.

Qualified Foreign Institutional Investors

The Executive Yuan, the cabinet of the ROC government, has approved guidelines for direct investment in listed securities on the Taiwan Stock Exchange or traded on the GTSM by qualified foreign institutional investors. Qualified foreign institutional investors include:

• banks that hold securities assets of at least U.S.$100 million;

• insurance companies that hold securities assets of at least U.S.$100 million;

• fund management institutions that manage securities assets of at least U.S.$100 million;

• offshore fund management companies of which more than 50% of their capital is owned by a Taiwan securities investment trust enterprise; provided that the funds to be invested cannot be derived from sources in Taiwan or mainland China or be owned by these offshore fund management companies;

• general securities firms that have a net worth of at least U.S.$50 million;

• offshore subsidiary securities firms that are more than 50% owned by a Taiwan securities firm, or such securities firms that are wholly-owned by these offshore subsidiary securities firms;

• offshore subsidiary securities firms that are wholly-owned by a Taiwan securities firm, or such securities firms that are more than 51% owned by these offshore subsidiary securities firms;

• foreign government-owned investment institutions; provided, however, that the source of fund must come from such foreign government;

• pension funds;

• mutual funds, unit trusts or investment trusts that have assets of at least U.S.$100 million provided that the application is filed by the trustee of the fund disclosing the name of the fund;

• trust companies that hold securities assets of at least U.S.$100 million in trust;

• academic or charitable institutions; provided, however, that their charter documents allow investment and they have retained outside investment manager to handle the investment; and

• any other institutional investors that hold securities assets of at least U.S.$100 million.

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Each qualified foreign institutional investor wishing to invest directly in the Taiwan securities market is required to apply for an investment permit from the ROC SFC. If the investment amount exceeds U.S.$50 million, an approval from the CBC is also required. The application to the ROC SFC requires among others:

• the appointment of a local agent and custodian;

• proof of qualification;

• a copy of the custodian contract; and

• other documents required by the ROC SFC.

Generally, qualified foreign institutional investors who receive a permit may invest up to U.S.$3 billion and are required to remit the full amount into Taiwan within two years of receiving the investment permit. Capital remitted into Taiwan by the qualified foreign institutional investors may be repatriated at any time. Capital gains and income on investments may also be repatriated at any time.

General Foreign Investors

In addition to qualified foreign institutional investors, general foreign investors meeting qualifications set by the ROC SFC may generally invest in Taiwan Stock Exchange-listed securities or securities traded on the GTSM up to a limit of U.S.$50 million if they are institutional investors and U.S.$5 million if they are individual investors after obtaining approval issued by Taiwan Stock Exchange.

Foreign Investment Approval

Other than:

• qualified foreign institutional investors;

• general foreign investors; and

• investors in overseas convertible bonds and depositary receipts,

foreign investors who wish to make direct investments in the shares of Taiwan companies may submit a “foreign investment approval” application to the Investment Commission of the ROC MOEA or other government authority for enjoyment of benefits granted under the Regulations Governing Investments by Foreigners. The Investment Commission or other government authority reviews each foreign investment approval application and approves or disapproves the application after consultation with other governmental agencies. Any non-Taiwan person possessing a foreign investment approval may repatriate annual net profits and interests and cash dividends attributable to an approved investment. Stock dividends, investment capital and capital gains attributable to the investment may be repatriated with approval of the Investment Commission or other government authority.

In addition to the general restrictions against direct investment by non-Taiwan persona in Taiwan companies, non-Taiwan persons are currently prohibited from investing in prohibited industries in Taiwan under the Negative List for Investment by Overseas Chinese and Foreign Nationals promulgated by the Executive Yuan from time to time. The prohibition on direct foreign investment in the prohibited industries in the Negative List is absolute. Under the Negative List, some other industries are restricted so that non-Taiwan persons may directly invest only up to a specified level and with the specific approval of the relevant authority responsible for enforcing the legislation that the Negative List is intended to implement.

Depositary Receipts

In April 1992, the ROC SFC began allowing Taiwan companies listed on the Taiwan Stock Exchange to sponsor the issuance and sale of depositary receipts evidencing shares of its capital stock. In December 1994, the ROC MOF began allowing companies whose shares are traded on the GTSM also to sponsor the issuance and sale of depositary receipts evidencing depositary

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shares representing shares of its capital stock. Approvals for these issuances are still required. On October 24, 2002, the ROC SFC began allowing public companies that are not listed on the Taiwan Stock Exchange and the GTSM to sponsor the issuance and sale of depositary receipts by way of private placement outside the ROC.

Commencing three months (if the deposited shares are new shares) or immediately (if the deposited shares are existing shares) after the issuance of a depositary receipt, a holder of the depositary receipt may request the depositary to cause the underlying shares to be sold in Taiwan and to distribute the proceeds of the sale to or to withdraw the shares and deliver the shares to the depositary receipt holder. A citizen of the PRC is not permitted to withdraw and hold the shares of an ROC company.

A depositary receipt holder wishing to withdraw shares represented by depositary receipts is required to appoint a qualified local agent to, among other things, open a securities trading account with a local securities brokerage firm, open a bank account, remit funds and exercise shareholders’ rights. In addition, the withdrawing holder is also required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmations, settle trades and report all relevant information. Without making this appointment and the opening of accounts, the withdrawing holder would be unable to subsequently hold or transfer the shares withdrawn from a depositary receipt facility on the Taiwan Stock Exchange or otherwise. The withdrawing holder is also generally required to appoint a tax guarantor as guarantor for the withdrawing depositary receipt holder’s ROC tax payment obligations.

No deposits of shares may be made in a depositary receipt facility and no depositary receipts may be issued against deposits without specific ROC SFC approval, unless they are:

• stock dividends or free distributions of shares;

• due to the exercise by the depositary receipt holder of pre-emptive rights in the event of capital increases for cash; or

• due to the direct purchase by depositary receipt holders of shares or the purchase through the depositary on the Taiwan Stock Exchange or the GTSM for deposit in the depositary receipt facility, but subject to the following two conditions:

• (1) issuances may only be made to the extent that previously issued depositary receipts withdrawn by non-ROC holders have been cancelled and the underlying shares have been sold on the Taiwan Stock Exchange or the GTSM; and

• (2) the applicable deposit agreement and custody agreement must specifically provide for such issuances.

A depositary receipt holder or the depositary, without obtaining further approvals from the CBC or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, in respect of:

• the proceeds of the sale of common shares represented by depositary receipts or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and

• any cash dividends or distributions received from the common shares.

In addition, the depositary may also convert foreign currencies into NT dollars incoming payments for subscription of new shares in respect of rights offering and purchases of common shares for deposit in the depositary receipt facility against the creation of additional depositary receipts. If a depositary receipt holder withdraws his or her common shares underlying the depositary receipts and becomes a holder of the issuer’s common shares, the holder may convert into NT dollars subscription payment for rights offerings. The depositary may be required to obtained foreign exchange payment 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 of new common shares. Although it is expected that the CBC will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.

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Overseas Corporate Bonds

Since 1989, the ROC SFC has approved a series of overseas bond offerings by ROC companies listed on the Taiwan Stock Exchange. The relevant regulations also permit the companies whose shares are listed on the GTSM to issue and offer overseas corporate bonds. On October 24, 2002, the ROC SFC began allowing public but unlisted companies to issue and offer overseas bonds by way of private placement outside the ROC. Under current ROC law, these overseas corporate bonds are convertible or exchangeable into shares in ROC companies. The regulations also permit public companies to issue corporate debt in offerings outside the ROC. Proceeds from sale of shares converted from overseas convertible bonds may be used for reinvestment in shares listed on the Taiwan Stock Exchange or the GTSM, subject to the limitations and restrictions applicable to qualified foreign institutional Investors or general foreign investors described above.

Under current ROC law, a non-ROC converting bondholder, when exercising his conversion right to convert bonds into shares, must appoint a local agent with such qualifications specified by the ROC SFC to open a securities trading account with a local brokerage firm, and to act as custodian for the securities, pay ROC taxes, make confirmations and settlement, remit funds, exercise shareholders’ rights and perform such other matters as may be designated by the converting bondholder on behalf of and as its agent.

A ROC company may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT dollars to other non-ROC currencies, including U.S. dollars, for making payments in respect of redemption of bonds or repayment of principal of and interest on bonds. A non-ROC converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert into foreign currencies net proceeds realized from the sale of converted shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such shares, as well as inward remittance of subscription payments in respect of rights offerings.

Overseas Share Offerings

In June 1997, the ROC government promulgated regulations permitting ROC companies whose shares ate listed on the Taiwan Stock Exchange or traded on the GTSM to offer shares directly to non-ROC persons overseas, without utilizing depositary receipt facilities. On October 24, 2002, the ROC SFC began allowing public but unlisted companies to issue and offer shares directly to non-ROC persons through private placement outside the ROC.

Exchange Controls

Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle foreign exchange transactions by the ROC MOF and by the CBC. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

Aside from trade-related foreign exchange transactions, Taiwan companies and residents may remit to and from Taiwan foreign currencies of up to U.S.$50 million (or its equivalent) and U.S.$5 million, (or its equivalent) respectively in each calendar year. These limits apply to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to register all medium and long-term foreign debt with the CBC.

In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to U.S.$100,000 per remittance without obtaining prior approval or permit if required documentation is provided to Taiwan authorities. This limit applies only to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.

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THE SECURITIES MARKET OF THE ROC

The Company has extracted the information presented in this section from publicly available documents.

The Taiwan Stock Exchange

In 1961, the ROC SFC established the Taiwan Stock Exchange to provide a marketplace for securities trading. The Taiwan Stock Exchange is a corporation owned by government-controlled entities and private banks and enterprises. The Taiwan Stock Exchange is independent of entities transacting business through it, each of which pays a user’s fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders and securities firms must be made through the Taiwan Stock Exchange.

The Taiwan Stock Exchange commenced operations in 1962. During the early 1980’s, the ROC SFC actively encouraged new listings on the Taiwan Stock Exchange, and the number of listed companies grew from 119 in 1983 to 639 as of March 31, 2003. As of March 31, 2003, the market capitalization of companies listed on the Taiwan Stock Exchange was NT$8,842 billion.

Historically, Taiwan companies have listed only shares and bonds on the Taiwan Stock Exchange. However, the ROC SFC has encouraged companies to list other types of securities. In 1988, the ROC SFC permitted the issuance of Taiwan’s first exchangeable bonds that are exchangeable at the option of the bondholders for shares in other companies owned by the issuer. 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 bonds issued by the Asian Development Bank and other foreign banks are also listed on the Taiwan Stock Exchange.

The ROC SFC’s regulations also permit foreign issuers to list their equity securities directly on the Taiwan Stock Exchange or through the use of depositary receipts. Currently only four non-Taiwan companies are listed on the Taiwan Stock Exchange through the use of depositary receipts in accordance with these regulations.

The Taiwan Stock Exchange requirements for listing are based on:

• the number and distribution of stockholders of a company;

• length of time the company has been in existence;

• amount of capital;

• profitability; and

• capital structure.

However, special listing criteria apply to technology companies and key businesses engaging in national economic development.

The Company, as a public company in Taiwan, are obligated to make the following reports to the ROC SFC and the Taiwan Stock Exchange, including without limitation:

• regular reports regarding monthly sales revenues; quarterly, semi-annual and annual financial information; public financial forecasts; annual reports; minutes of shareholders’ meetings; regular reports regarding solicitations of proxies; the execution of internal audits; and statements of internal controls; and

• special reports regarding events which have had a significant impact on shareholders’ rights or the price of the Company’s securities; resolutions of the Company’s board of directors related to a merger; prospectuses for approved issuances of securities; material changes that have been made regarding cash injections and corporate bond issuances; financial forecasts; approvals of changes of accounting principles; details of the issuance of overseas depositary receipts; revisions to procedures for acquiring or selling assets; and revisions to operating procedures for making third-party loans.

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The GreTai Securities Markets

To complement the Taiwan Stock Exchange, an over-the-counter, or OTC, market was established in September 1982 on the initiative of the ROC SFC to encourage trading of securities of companies that do not qualify for listing on the Taiwan Stock Exchange. The OTC market was limited to unlisted equity securities, bank and corporate bonds and debentures and government bonds. As trading volume on the OTC market was minimal, the GreTai Securities Markets (formerly known as the ROC Over-the-Counter Securities Exchange), or the GTSM, was established in 1994 to take over the previous OTC market. Since the GTSM instituted a reformed trading system in 1995, the trading volume on the GTSM has grown more rapidly. The GTSM has used the Taiwan Stock Exchange’s method of trading as a model, and aims to reform the GTSM trading to the point where few differences exist between the two markets systems. As of March 31, 2003, 415 companies had equity securities listed on the GTSM. In addition, the Emerging Stock Trading System of the GTSM was established on January 1, 2002 on the initiative of the ROC SFC to encourage trading of securities of companies that are public companies but not qualified for listing on the Taiwan Stock Exchange or the GTSM.

Taiwan Stock Exchange Index

The Taiwan Stock Exchange 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 Taiwan Stock Exchange Index is compiled by dividing the market value by the base day’s total market value for the index shares. The Taiwan Stock Exchange Index is the oldest and most widely quoted market index in Taiwan.

The weighting of stocks in the index is fixed as long as the number of shares outstanding remains constant. When the total number of shares outstanding changes, the weight of each stock is adjusted. Stock splits and stock dividends are adjusted automatically. Cash dividends are not included in the calculation.

The following table shows for the periods indicated information relating to the Taiwan Stock Exchange Index.

Period ended, December 31, 1990 . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . 2003 (through March 31). . . . . . . . .	Number of listed companies at the period-end 199 221 256 285 313 347 382 404 437 462 531 584 638 639	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 6,484.93 4,599.25	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 3,446.25 3,845.76 4,260.45	Index at 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 4,321.22

Source: Status of Securities Listed on Taiwan Stock Exchange, Bloomberg

As indicated above, the performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility.

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Price Limits, Commissions, Transaction Tax anti Other Matters

The Taiwan Stock Exchange has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots, that is 500,000 shares, or more must be registered and executed under Taiwan Stock Exchange block trade guidelines. Fluctuations in the price of securities traded on the Taiwan Stock Exchange 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. However, the ROC Ministry of Finance has modified these restrictions from time to time based on market conditions.

Effective from July 1, 2000, brokerage commission can be in any rates not exceeding 0.1425% of the transaction price.

A securities transaction tax of 0.3% of the transaction price is payable by the seller of equity securities. This securities transaction tax is withheld at the time of the transaction.

Sales of shares of listed companies on the Taiwan Stock Exchange 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 those sales.

National Financial Stabilization Fund

In response to recent declines and volatility in the securities markets in Taiwan, the government recently formed the National Financial Stabilization Fund, which has purchased and may from time to time purchase shares of Taiwan companies to support these markets. The details of the transactions of the National Financial Stabilization Fund have not been made public. In addition, the government’s Labor Insurance Fund and other funds associated with the government have in the past purchased, and may from time to time purchase, shares of Taiwan companies on the Taiwan Stock Exchange or other markets.

Regulation and Supervision

The ROC SFC has extensive regulatory authority over public companies. Under current ROC law, any company, after approval by a resolution of its board of directors, may register with ROC SFC as a public company. A public company must offer a certain percentage of its shares to the public. Public companies arc generally required to obtain approval from, or registration with, the ROC SFC for all securities offerings. The ROC SFC requires periodic reporting of financial and operating information by all public companies. In addition, the ROC SFC establishes standards for financial reporting and carries out licensing and supervision of securities firms and other participants in the Taiwan securities market.

The ROC SFC has responsibility for implementing the Securities and Exchange Law and for overall administration of governmental policies in the Taiwan securities market. It has extensive regulatory authority over the offering, issuing and trading of securities. In addition, the Securities and Exchange Law specifically empowers the ROC SFC to promulgate necessary rules.

The 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 spouses, minor children and nominees of these parties, and stockholders together with their spouses, minor children and nominees holding 10% or more stocks of the issuer. The 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 spouses, minor children and nominees of these parties, and stockholders together with their spouses, minor children and nominees holding 10% or more of the issuing company;

• any person who has learned material, non-public information due to an occupational or controlling relationship with the Company’s 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.

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The Securities and Exchange Law also imposes criminal liability on certified public accountants and lawyers who intentionally make false certifications in their examination and audit of an issuer’s contracts, reports and other documents related to securities transactions. The ROC SFC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

In addition, the Securities and Exchange Law provides for, among other things:

• regulations relating to public offering, issuance and trading of securities;

• more stringent regulation of the securities activities of officers, supervisors, directors and major stockholders of issuers;

• regulations regarding securities firms and securities exchanges;

• civil liability for material misstatements or omissions made by issuers; and

• regulations regarding tender offers.

The ROC SFC does not have criminal or civil enforcement powers under the 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 SFC is empowered to curb abuses and violations of laws and regulations only through administrative measures.

In addition to providing a market for securities trading, the Taiwan Stock Exchange reviews applications by Taiwan issuers to list securities on the Taiwan Stock Exchange. If issuers of listed securities violate laws and regulations or encounter significant difficulties, the Taiwan Stock Exchange may, with the approval of the ROC SFC, delist securities of these issuers.

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TAXATION

ROC Taxation

The following is a summary of certain ROC tax considerations that may be relevant to holders of the Bonds or the Company’s shares who are (i) not citizens of the ROC and who are not physically present in the ROC for 183 days or more within a calendar year (“Non-ROC Individuals”) or (ii) corporations incorporated and non-corporate bodies established outside the ROC for profit which do not have a permanent establishment in the ROC (“Non-ROC Entities”, collectively with Non-ROC Individuals, “Non-ROC Holders”). The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Bonds and is based on tax laws of the ROC in effect on the date of this Offering Circular, which are subject to change. You should consult your own advisors concerning the tax consequences of an investment in the Bonds or the Company’s shares.

Bonds

Premium/Possible Interest Payment. Payments of premium or interest, if any, on the Bonds to a Non-ROC Holder are subject to ROC withholding tax, currently at a rate of 20%, at the time of payment. The Company has agreed to pay additional amounts in respect of such withholding tax on the payments of premium, if any. See “Terms and Conditions of the Bonds”.

Sale. There is no securities transaction tax imposed on the sale of convertible bonds. Gains on sale of property in the ROC are generally subject to ROC income tax. Under current ROC law, however, capital gains from the sale of securities issued by ROC companies are exempt from income tax. This exemption applies to capital gains derived from the sale of the Bonds. The reintroduction of a capital gains tax requires the Legislative Yuan to engage in the full legislative process for the amendment of the ROC Income Tax Law.

Conversion. ROC law currently provides no specific provisions regarding the ROC income tax consequences of a conversion of the Bonds into the Company’s shares. Without clarification from the ROC tax authorities, it is impossible to conclude definitively that gains on conversion of the Bonds into the Company’s shares will not be deemed as taxable gains, additional interest income — which is subject to the 20% withholding tax — or otherwise subject to other ROC taxes. The Company has agreed to pay additional amounts in respect of such tax on conversion, if any. See “Terms and Conditions of the Bonds”. There is no ROC stamp, issue or registration tax imposed on the issuance of the Company’s shares upon conversion of the Bonds.

Shares

Dividends. Dividends, whether in cash or stock, declared by the Company out of retained earnings and distributed to a Non-ROC Holder in respect of the Company’s shares are subject to ROC withholding tax, 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. Currently, distributions of stock dividends out of capital reserves are not subject to ROC withholding tax.

Sale. Securities transaction tax is payable and withheld by the seller at the rate of 0.3% of the transaction price upon a sale of the Company’s shares. Under current ROC law, capital gains on transactions in shares issued by ROC companies are exempt from income tax. This exemption applies to capital gains derived from the sale of the Company’s shares.

Subscription Rights

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

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Inheritance Tax and Gift Tax

ROC inheritance tax is payable on any property within the ROC of a deceased Non-ROC individual, and ROC gift tax is payable on any property within the ROC donated by any such person. Inheritance tax is payable at rates ranging from 2% of the first NT$0.6 million to 50% of amounts over NT$100 million. Gift tax is payable at rates ranging from 4% of the first NT$0.6 million donated to 50% of amounts over NT$45 million. Under ROC Inheritance and Gift Tax Law, shares issued by ROC companies are deemed located in the ROC irrespective of the location of the owner.

Tax Treaties

At present, the ROC has entered into income tax treaties with Singapore, Australia, Indonesia, New Zealand, South Africa, Gambia, the Netherlands, Swaziland, Malaysia, Macedonia and Vietnam.

Tax Reform

In order to increase Taiwan’s competitiveness, an amendment to the ROC Income Tax Law was enacted on January 1, 1998, to integrate the corporate income tax and the shareholder income tax with respect to dividend income with the aim of eliminating the double taxation effect for resident shareholders of Taiwanese corporations.

According to the amendment, a 10% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 that are not distributed in the following year. The retained earnings tax so paid will thus reduce the retained earnings available for future distributions. When the Company declares dividends out of those retained earnings, up to a maximum amount of 10% of the net dividend received will be credited against the 20% withholding tax imposed on Non-ROC Holders of the Company’s shares.

Tax Guarantor

Holders of the Bonds, being either individuals or legal entities, who are non-ROC persons, upon exercising their conversion right, will be required to appoint an agent in the ROC for filing tax returns and making tax. The agent will be required to meet the qualifications set by the ROC Ministry of Finance and to act as the guarantor of the holder’s tax payment obligations.

Under current ROC law, holders repatriating profits from sales of securities that take place within the ROC must submit evidence of the appointment of a tax guarantor to, and approval of the appointment by, the tax authority or submit tax clearance certificates to the tax authority so long as the capital gains from securities transactions are exempt from ROC income tax.

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

The financial statements of the Company are prepared and presented in accordance with ROC GAAP, which differ in certain material respects from United States GAAP (“U.S. GAAP”). Certain differences between ROC GAAP applicable to the Company and U.S. GAAP are summarized below. This summary should not be construed as being exhaustive. In making an investment decision, investors must rely upon their own examination of the Company, the terms of the offering and the Company’s financial information. Potential investors should consult their own professional advisors for an understanding of the differences between ROC GAAP and U.S. GAAP, and how these differences might affect the financial information herein. Additionally, no attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions and events are presented in the financial statements or notes thereto. Further, no attempt has been made to identify future differences between ROC GAAP and U.S. GAAP as a result of prescribed changes in accounting standards. Regulatory bodies that promulgate ROC GAAP and U.S. GAAP have significant projects ongoing that could affect future comparisons such as this one. Finally, no attempt has been made to identify all future differences between ROC GAAP and U.S. GAAP that may affect the Company’s financial information as a result of transactions or events that may occur in the future.

Subject

ROC GAAP U.S. GAAP

Presentation of Nonconsolidated Financial Statements

Under ROC Securities and Futures Commission (“SFC”) requirements, nonconsolidated financial statements of a parent company are presented as the primary financial statements and consolidated financial statements as supplemental financial statements.

Under U.S. GAAP, parentcompany-only nonconsolidated financial statements are not allowed to be presented as the primary financial statements.

Consolidation

Under ROC GAAP, a company is required to include in its annual consolidated financial statements only those subsidiaries which are directly or indirectly owned by the company for over 50% of the ownership. For directly-owned subsidiaries (i) with total assets and total net sales less than 10% of a company’s nonconsolidated total assets and total net sales, or (ii) which are in a negative equity position, except when the loan of the subsidiary is guaranteed by the parent company or the negative equity position is deemed temporary and there is sufficient evidence

Under U.S. GAAP, consolidation is generally required when one of the companies in a group directly or indirectly has a controlling financial interest in the other companies. The usual condition for a controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule ownership by one company, directly or indirectly, for over fifty percent of the outstanding voting shares of another company is a condition pointing towards Consolidation of majorityowned subsidiaries is required in the preparation of

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Subject

ROC GAAP

U.S. GAAP

Acquisition of Business

indicating that the subsidiary will return to profitability in the near future, a company has the option of whether or not to consolidate such subsidiaries. Under ROC SFC requirements, beginning in 1995, if the combined total net sales or total assets of all such unconsolidated subsidiaries equal to or exceed 30% of a company’s unconsolidated total assets and total net sales, then each individual subsidiary with total assets or total net sales greater than 3%, including 3%, of a company’s respective unconsolidated amounts shall be included in the consolidated financial statements thereafter, unless the percentage of the combined total assets or total net sales for all such subsidiaries decreases to less than 20%, including 20%, of a company’s respective unconsolidated amounts.

For purposes of consolidated financial statements under ROC GAAP, prior periods’ consolidated financial statements are restated to include or exclude the financial results of subsidiaries whose ownership interest has increased to greater than 50% or decreased to 50% or less during the current year, respectively.

Under ROC GAAP, a company may account for the difference between purchase consideration and historical net assets acquired as a deferred debit or credit which is amortized to income over five to twenty years.

consolidated financial statements, unless (i) control is considered temporary or (ii) control does not rest with the majority owner.

Under U.S. GAAP, prior periods’ financial statements generally are not restated for changes in control. The subsidiary would be consolidated from the date the controlling interest was acquired.

Under U.S. GAAP, generally, the excess of the purchase consideration over the sum of the amounts assigned to assets acquired less liabilities assumed, is accounted for as goodwill. In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, and No. 142,

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Subject

ROC GAAP

U.S. GAAP

“Goodwill and Other Intangible Assets”. Among other things, Statement 141 includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill. Statement 142 requires that goodwill be reviewed for impairment at least annually. Statement 142 is effective for the Company beginning January 1, 2002. Goodwill recorded prior to June 30, 2001 is amortized through December 31, 2001 based on its estimated useful life. Goodwill recognized after June 30, 2001 is not amortized. Costs assigned to assets to be used in a particular research and development project and that have no alternative future use are charged to expense upon consummation of the acquisition. In a business combination in which the fair value of the identifiable net assets acquired exceeds the cost of the acquired business, the excess over cost (i.e., negative goodwill) should reduce, on a pro rata basis, amounts assigned to all of the acquired assets, including purchased research and development be written off, with the exception of financial assets (other than investments accounted for by the equity method), assets to be disposed of by sale, assets, prepaid assets related to pension or other postretirement benefit plans, and any other current assets.

Any remaining “negative goodwill” is recognized as an extraordinary gain.

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Subject

ROC GAAP

U.S. GAAP

Transfer of Assets and Transactions between Entities Under Common Control

Under ROC GAAP, transfer of assets and transactions between entities under common control are related party transactions, and the nature of the relationship as well as the types of transaction and elements of the transaction should be disclosed. There is no specific guidance on accounting for transfer of assets between entities under common control.

U.S. GAAP generally defines entities under common control as entities with common majority ownership by an individual, a family or a control group. Common control in different companies often exist when one shareholder owns more that 50% of the voting ownership of each company.

Generally, U.S. GAAP requires transfer of assets, except for routine transfers, and transactions between companies under common control or between a parent and its subsidiary to be accounted for at historical cost basis in the separate financial statements of each entity that is a party to the transaction.

Land, Property, Plant Under ROC GAAP, land, and Equipment property, plant and equipment Revaluation may be carried at revalued amounts less any subsequent accumulated depreciation and impairment losses. Any increase in valuation is credited to assets revaluation reserve. Capitalization of Under ROC GAAP, interest Interest Costs expenses incurred in the period when such fixed assets are in construction or installation are capitalized. There is only a general guidance on the calculation of such capitalized interest expenses.

Under U.S. GAAP, land, property, plant and equipment are stated at cost less accumulated depreciation and are subject to provision for impairment loss. Upward revaluations are not permitted.

Under U.S. GAAP, interest shall be capitalized for (a) Assets that are constructed or otherwise produced for an enterprise’s own use (including assets constructed or produced for the enterprise by others for which deposits or progress payments have been made); (b) Assets intended for sale or lease that are

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Subject

ROC GAAP

U.S. GAAP

constructed or otherwise produced as discrete project; and (c) Investments (equity, loans and advances) accounted for by the equity method while the investee has activities in progress necessary to commence its planned principal operations provided that the investee’s activities include the use of funds to acquire qualifying assets for its operations.

Investment income earned on the temporary investment income of funds pending their expenditure on the qualifying assets can be deducted from the amount of eligible borrowing cost to be capitalized.

Netting of investment income earned on the temporary investment income of funds pending their expenditure on the qualifying assets with interest is not permitted.

In addition, U.S. GAAP has specific guidelines on calculating the average amount of accumulated expenditures for a qualifying asset during an accounting period, and compounding of interest capitalized.

Gain on Disposal of Under ROC GAAP, gains and Under U.S. GAAP, the Fixed Assets losses from the disposal of reclassification of the gain fixed assets are both from retained earnings is not recognized in the statement of permitted. operations, with gains reclassified from retained earnings to capital reserve. However, according to amendments in ROC Company Law, such transfer of gains to capital reserve shall no longer be required with effect on January 1, 2001.

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Subject

ROC GAAP

U.S. GAAP

Impairment of LongLived Assets and LongLived Assets to be Disposed of

ROC GAAP has no specific standards which address impairment of long-lived assets and certain identifiable intangibles; normally such assets would be carried at cost less accumulated depreciation or amortization.

U.S. Statement of Financial Accounting Standards No.121 (U.S. SFAS No.121), “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In assessing the recoverability, the entity estimates the future cash flows, un-discounted and without interest charges, expected to result from the use of the asset and its eventual disposal. If the sum of such expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized; otherwise it is not.

U.S. SFAS 121 also requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell.

In August 2001, the FASB issued SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes SFAS No.121. SFAS No.144 retains the fundamental provisions of SFAS No.121 for recognition and measurement of the impairment of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. Among other matters, SFAS No.144 addresses certain implementation issues related to SFAS No.121.

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Subject ROC GAAP U.S. GAAP Employee Under ROC GAAP, employee U.S. GAAP requires that all Compensation bonuses and directors and such bonuses and supervisors remuneration paid remuneration be recorded as in accordance with the ROC compensation expense when Company Law, applicable to earned by the recipient, when the distribution of earnings, are payment is probable and the recorded as an appropriation amount can be reasonably from retained earnings in the estimated. In addition, if the period shareholder approval is employee bonuses are paid in obtained for the distribution of the form of shares, the fair the Company’s earnings (as value of the shares issued is opposed to the year the used to determine the amount earnings are recognized). If of the expense. employee bonuses are settled through the issuance of shares of the company, the amount transferred from retained earnings is based on the par value of the shares issued. The remuneration to directors and supervisors must be paid in cash and may not be settled through the issuance of shares. Stockholders Bonuses Stockholders bonuses (also Stock dividends less than 20known as stock dividends) are 25% of the common shares recorded as a reduction to outstanding at the time of the retained earnings for the par dividend declaration are value of the shares issued, recorded as a reduction to and a like amount recorded to retained earnings based on the the common stock account. fair value of the shares issued, with the par value recorded in the capital stock account and the excess of fair value over the par value being recorded as additional paid-in capital account. Stock dividend must be paid out of retained earnings, not additional paid-in capital. If a stock dividend is paid out of additional paid-in capital, it will be considered as a “liquidating dividend”. Intercompany Intercompany gains or losses Intercompany gains or losses Transactions arising from sales of property, arising from sales of property, plant and equipment to plant and equipment are either subsidiaries and investee wholly eliminated, or partially companies may be deferred eliminated to the extent of the and amortized over the gain or loss which relates to remaining economic life of the the investor’s ownership respective assets. interest in the investee.

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Subject

ROC GAAP

U.S. GAAP

Depreciation of Fixed Assets

ROC SFC regulations applicable to public and listed companies require that when fixed assets have been fully depreciated over the prescribed service life and the underlying asset continues to be used, the remaining unamortized value (i.e. the salvage value portion) is depreciated over the asset’s remaining economic life.

Accounting for Prior to January 1, 1996, Pensions compulsory contributions to the government designated retirement fund were made based on certain percentages of salaries and wages, ranging from 2% to 15%, and accounted for as current period expenses. Such contribution percentages were not determined based on an actuarial study.

No additional depreciation is provided on fully depreciated assets which continue to be used in the business.

Under U.S. GAAP, the annual pension provision is recognized as a charge to results of operations over the employees’ service period in accordance with SFAS No.87. SFAS No.87 focuses on the plan’s benefit formula as the basis for determining the benefit earned, and therefore the cost incurred, for each year. The determination of the benefit earned is actuarially determined, and includes components for service cost, time value of money, return on plan assets and gains or losses from changes in previous assumptions. In certain cases, a minimum liability is recognized through a direct charge to stockholders’ equity.

ROC Statement of Financial Accounting Standards No.18 (ROC SFAS No.18), “Accounting for Pensions”, was adopted by the Company as of December 31, 1995. Effective January 1, 1996, the company accounts for the net periodic pension costs in its statement of earnings systematically over the service lives of the employees covered by the pension plan. In determining the net periodic pension costs, ROC SFAS No.18 is similar in certain respects in U.S. GAAP.

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Subject

ROC GAAP

U.S. GAAP

Equity Investment of less than 20%

Long-term investments in listed equity securities that represent less than 20% of the investee’s common stock ownership are stated at the lower of cost or market value, and unrealized losses are deducted from stockholders’ equity. Investments in nonlisted equity securities that represent less than 20% of the investee’s common stock ownership are stated at cost, subject to a permanent impairment test.

Investments in equity securities that have readily determinable fair values are classified in one of two categories: trading, or available-for-sale. Marketing equity securities classified as trading securities are reported at fair value with unrealized gains and losses included in earnings; and marketable equity securities classified as available-for-sale securities are reported at fair value with unrealized gains and losses reported in a separate component of stockholders’ equity.

Fair value is the product of the number of trading units times the quoted market price (i.e., generally the closing price at the balance sheet date).

Investments in equity securities that do not have readily determinable fair values are recorded at cost, unless there has been a decline in value which is judged to be other than temporary.

Stock dividends received are recorded as an increase in the number of shares owned and not as investment income.

Shares received as a result of stock dividends do not constitute revenue to the recipient.

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Subject

ROC GAAP

U.S. GAAP

Equity Investment of more than 20%

Under ROC GAAP, equity investments where the company has an ownership interest of at least 20% are generally required to be accounted for under the equity method, however, when the company has not received the audited financial statements of the equity-method investee company in time to recognize its equity in the investee company’s income/(loss), the company may delay the recognition of its equity in the investee company’s income/(loss) if the company’s ownership interest is less than 50% until the subsequent year, except to public and listed companies meeting the following criteria, in which case no delay in recognition is possible: (i) the beginning balance of the company’s longterm investment balance exceeds NT$50 million and five percent of the investor company’s paid-in capital, (ii) direct ownership of the investee company exceeds 30%, or direct ownership plus indirect ownership through directors, supervisors, and management exceeds 50%, and (iii) the investor company is one of the top three shareholders of the investee company or the investee company’s chairman or general manager was appointed by the investor company.

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

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Subject

ROC GAAP

U.S. GAAP

With respect to intercompany transactions between an investor company and an unconsolidated investee affiliate, ROC GAAP provides that any resulting profit on such transactions be eliminated in the investor company’s financial statements. In general, net intercompany profit on such transactions is deferred and offset against the long term investment account, with the deferred net intercompany profit amortized to income over future periods based on the nature of the transaction which gave rise to the deferred intercompany profit.

• Accounting for Changes Under ROC GAAP, when an in Ownership Interests investee issues additional in Investee Affiliates shares and the investor’s ownership interest changes as a result, any resulting difference between the investor’s investment balance and proportionate share of investee net equity is adjusted to its investment account with an offsetting entry to the investor’s capital reserve or retained earnings. 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 recorded on disposal.

Compensated ROC GAAP has no specific Absences accounting practice regarding compensated absences.

Under U.S. GAAP, the gross impact as well as the net intercompany profit arising from intercompany transactions between an investor company and an unconsolidated investee affiliate are generally eliminated in the investor company’s financial statements. This elimination is either complete, or partial to the extent of the investor company’s ownership interest in the investee affiliate.

Under U.S. GAAP, when an investee sells additional shares of stock at a price different from 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 the investee net equity is accounted for as either (i) a gain or loss or (ii) paid-in-capital. Once an election is made, the method is to be applied consistently thereafter.

Compensated absences must be accrued based on the liability for employees’ rights to receive compensation for future absences when certain conditions are met.

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Subject

ROC GAAP

U.S. GAAP

Inventories

Comprehensive Income

Under ROC GAAP, inventories are stated at the lower of cost and net realizable value after allowances for obsolete or slow-moving items and the inventory valuation loss is classified as non-operating expenses. A new assessment is made of net realizable value in each subsequent period. When the circumstances which previously caused inventories to be written down below cost no longer exist, the amount of the write-down is reversed so that the new carrying amount is the lower of the cost and the revised net realized value.

• ROC GAAP has no specific accounting practice regarding comprehensive income.

Under U.S. GAAP, inventories shall be stated at cost. However, if the utility of the inventory is impaired by damage, deterioration, obsolescence, changes in price levels, or other causes, a loss shall be reflected as a charge against the revenues of the period in which it occurs. The measurement of such loss shall be accomplished by applying the rule of pricing inventories at cost or market, whichever is lower and the resulting valuation loss is classified as cost of sales. After such loss is recognized, the reduced amount of the asset is accounted for as its new cost.

Under U.S. GAAP, SFAS No.130, “Other Comprehensive Income”, requires that all changes in equity of a business enterprise during a period arising from transactions and other events and circumstances from nonowner sources be recognized and reported on the financial statements. The total balance of comprehensive income for each period, which includes net income and other comprehensive income, should be disclosed separately in the equity section of the statement of financial position, in the statement of changes in equity, the statement of income or in notes to the financial statements.

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U.S. GAAP

Subject Convertible Debt Securities Deferred Taxation 10% Additional Income Tax on Undistributed Earnings

ROC GAAP

When convertible bonds are issued, ROC GAAP does not recognize or account for any beneficial or conversion feature embedded in the securities. Under ROC GAAP, deferred taxation is provided under the liability method at the current tax rate for timing differences between profit as computed for taxation purpose and profit as stated in the profit and loss account, except where it is considered that no liability will arise in the foreseeable future. A deferred tax asset is not recognized unless the related benefits are expected to be realized in the foreseeable future beyond a reasonable doubt. Under the current tax regulations, current year’s earnings, on tax basis, not distributed in the following year are subject to a 10% additional income tax. This 10% additional income tax is recognized as a tax expense in the following year when the amount is determined.

Under U.S. GAAP, convertible securities with beneficial conversion features or contingently adjustable conversion ratios are 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 into which the security is convertible, multiplied by the number of shares into which the security is convertible.

Under U.S. GAAP, deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Future tax benefits in respect of tax losses carried forward are also required to be recognized in full. Deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets will not be realized.

Under U.S. GAAP, the 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, using the tax rate that includes the tax on undistributed earnings.

117

Subject Employee Stock Option Plan Investments in parent company’s shares Rights Issues and Earnings Per Share	ROC GAAP ROC GAAP has no specific accounting provisions for employee stock option plans. Under ROC GAAP, purchase of parent company’s listed securities shall be treated the same as purchases of other listed equity securities. Under ROC GAAP, earnings per share is retroactively adjusted for shares issued for employee bonus. Under ROC GAAP, there are no requirements under ROC GAAP to adjust earnings per share arising from the bonus element of a rights issue.	U.S. GAAP
		U.S. GAAP requires the Company to account for options granted to employees in accordance with Accounting Principles Board Opinion No.25 (APB 25), “Accounting for Stock Issued to Employees”, or SFAS No.123, “Accounting for Stock Based Compensation”. Under APB 25, the compensation expense is recorded for the difference between the fair value of shares at date of grant and the option price. Compensation determined shall be accrued as a charge to expense over the vesting period. Under SFAS No.123, the compensation expense is recognized over the vesting period based on the fair value at grant date calculated from an option pricing model. Under U.S. GAAP, purchase of parent company’s securities shall be treated as purchase of treasury stock. Under U.S. GAAP, shares issued for employee bonus will affect the current year’s earnings per share only. Under U.S. GAAP, a rights issue with exercise price less than the fair value of the stock contains a bonus element that is similar to the stock dividend and is accounted for as such accordingly. As a result, the basic and diluted earnings per share shall be adjusted retroactively for the bonus element for all periods presented.

Management has not quantified the effects of the aforementioned differences between ROC GAAP and U.S. GAAP. Accordingly, there can be no assurance on the effects on balance sheet, net income and stockholders’ equity reported in accordance with ROC GAAP if determined in accordance with U.S. GAAP.

118

SUBSCRIPTION AND SALE

FB Gemini Limited (the “Sole Bookrunner” or the “Manager”) has, pursuant to a Subscription Agreement to be dated June 3, 2003, (the “Subscription Agreement”), agreed with the Company to take all such reasonable steps to subscribe, or to use such reasonable effort in the circumstances to procure the subscription of, the Bonds at the issue price of 100% of their principal amount less the combined management and underwriting commission on the aggregate principal amount of the Bonds.

The Company has granted to the Manager an option, exercisable for 60 days from the Closing Date, to purchase up to U.S.$20,000,000 additional aggregate principal amount of Bonds at the issue price less the combined management and underwriting commission.

The Company has agreed in the Subscription Agreement to indemnify the Sole Bookrunner from certain liabilities in connection with the offering of the Bonds.

The Company has agreed in the Subscription Agreement that, for a period of 180 days from the date of the Subscription Agreement, neither it nor any person acting on its behalf will, without the prior written consent of the Manager, offer or sell any debt or equity securities, or any securities convertible or exchangeable for equity securities, or any rights, warrants or options to subscribe for equity securities of the Company, or announce plans or otherwise make public an intention to do any of the foregoing other than such pursuant to employee benefits plans or distributions of dividends or employee bonuses in the form of Shares and conversion of the Bonds

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

Selling Restrictions

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

United States

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

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

United Kingdom

The Manager has represented and agreed that:

• (1) it has not offered or sold and prior to the date six months after the issue of the Bonds will not offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offer of Securities Regulations 1995;

119

• (2) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of any Bonds in circumstances in which section 21(1) of the FSMA does not apply to the Company; and

• (3) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.

The ROC

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

Hong Kong

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

Japan

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

Singapore

The Manager has acknowledged and agreed that this Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore (the “MAS”) under the Securities and Futures Act 2001 (Act 42 of 2001) of Singapore (the “Securities and Futures Act”). Accordingly, the Manager has acknowledged and agreed that it has not offered or sold or made the subject of an invitation for subscription or purchase nor circulated or distributed this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the Bonds nor will it offer, sell or make the subject of an invitation for subscription or purchase or distribute this Offering Circular or any other document or material in connection with the subscription or purchase of the Bonds whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person falling within Section 274 of the Securities and Futures Act, (ii) to a sophisticated investor (as defined in Section 275 of the Securities and Futures Act) and in accordance with the conditions specified in Section 275 of the Securities and Futures Act or (iii) pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.

120

GENERAL INFORMATION

Registered Office and Principal Place of Business

The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 89380545. The Company’s registered office is located at 36 Li Yen Street, Chung Ho, Taipei, Taiwan, R.O.C.

Company Confirmation

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

Authorizations

The offering of the Bonds was authorized and approved by the Company’s board of directors on December 4, 2002 and by the ROC SFC on April 30, 2003.

Documents Available

Copies (and certified English translations where the documents are not in English) of the following documents may be inspected and freely obtainable at the specified office of the Principal Agent:

• the Company’s articles of incorporation;

• a copy of the annual reports of the independent accountants, containing the audited financial statements of the Company as at and for the years ended December 31, 2002, 2001 and 2000;

• the Subscription Agreement relating to the Bonds; and

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

In addition, copies of this Offering Circular and the most recent annual financial statements of the Company and the Company’s quarterly and semi-annual financial statements (in each case in English), will be available at the specified office of Principal Agent free of charge.

No Material Adverse Change

Except as disclosed herein, there has been no material adverse change in the financial position of the Company and its consolidated subsidiaries since December 31, 2002, the date of the latest audited consolidated financial statements contained herein.

Governing Law

The Subscription Agreement, the Paying and Conversion Agency Agreement and the Trust Deed in connection with the offering are governed by the laws of England.

121

Clearance

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

Common Code ........... 016970336 ISIN ....................... XS0169703369

Litigation

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

122

INDEX TO FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . Consolidated Income Statements for the years ended December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Page
	F-3 F-4 F-6 F-8 F-9 F-12

F-1

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F-2

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders Infodisc Technology Co., Ltd. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Infodisc Technology Co., Ltd. and Subsidiaries as of December 31, 2002, 2001 and 2000, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Subsidiaries, Infodisc Technology Korea Ltd., Infodisc Technology Gmbh Ltd. and Infodisc Global Holding Inc. with their subsidiaries were audited by other auditors. Our opinion insofar as it related to their total assets are NT$9,967,735 thousand, NT$8,080,464 thousand and NT$897,443 thousand as of December 31, 2002, 2001 and 2000, and the total revenues of such Subsidiaries are NT$5,367,220 thousand, NT$2,878,196 thousand and NT$789,534 thousand for the years then ended December 31, 2002, 2001 and 2000, which are included in the financial statements are solely based on the reports of the other auditors. Besides, Infodisc Technology Co., Ltd. and Subsidiaries’ equity investees, Hua Shuen Venture Capital Limited, Infodisc Technology USA, Incorporation, and Digital Information Systems Corporation were audited by other auditors. Our opinion insofar as it related to the amounts included for such said investees, is based on the reports of the other auditors. As of December 31, 2002, 2001 and 2000, the balance of long-term investments was NT$180,030 thousand, NT$256,790 thousand and NT$247,392 thousand. The total investment loss was NT$12,060 thousand, NT$58,638 thousand and NT$40,308 thousand for years ended December 31, 2002, 2001 and 2000.

We conducted our audits in accordance with “Guidelines for Certified Public Accountants’ Examination and Reporting on Financial Statements” and auditing standards generally accepted in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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 consolidated financial position of Infodisc Technology Co., Ltd. and Subsidiaries as of December 31, 2002, 2001 and 2000, and the consolidated results of their operations and their cash flows for years then ended, in conformity with “Guidelines for Preparation of Financial Statements by Securities Issuers” and accounting principles general accepted in the Republic of China.

As stated in the financial statements of Infodisc Technology Co., Ltd. and Subsidiaries, the Company had net loss in 2001. As of December 31, 2001, the current liabilities of the Company in the amount of NT$4,814,772 thousand was NT$2,245,303 thousand higher than its current assets in the amount of NT$2,569,469 thousand, and its debt to total assets ratio was 52.29%.

Taipei, Taiwan Republic of China April 2, 2003

Notice to Readers

The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practice to audit such financial statements are those generally accepted and applied in the Republic of China.

F-3

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents . . . . . . . . . Short-term investments — net . . . . . . . Notes receivable — net . . . . . . . . . . . . Accounts receivable — net . . . . . . . . . Due from related parties . . . . . . . . . . . Inventories — net . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . Deferred income tax assets . . . . . . . . . Restricted cash and cash equivalents . Total Current Assets . . . . . . . . . . . . . LONG-TERM INVESTMENTS — NET . . PROPERTY, PLANT AND EQUIPMENT — NET Land . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . Transportation equipment . . . . . . . . . . Furniture and fixtures. . . . . . . . . . . . . . Leased equipment . . . . . . . . . . . . . . . . Miscellaneous equipment . . . . . . . . . . Sub-total. . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation . . . . . Prepayments for land. . . . . . . . . . . . . . Construction-in-progress . . . . . . . . . . . Prepayments for equipment. . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . INTANGIBLE ASSETS Goodwill. . . . . . . . . . . . . . . . . . . . . . . . OTHER ASSETS Refundable deposits . . . . . . . . . . . . . . Deferred charges. . . . . . . . . . . . . . . . . Other receivables — related parties . . Deferred income tax assets . . . . . . . . . Non-operating assets. . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . Total Other Assets . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . .	Notes	2002	2001	2000
	3 and 5 3 and 6 3 and 7 3 and 7 3, 7 and 25 3 and 8 3, 11 and 24 3 and 22 26 3, 9, 25, 26 and 27 3, 4, 10, 25, 26 and 27 3 3 25 3 and 22 3 and 10	$ 3,309,525 — 50,847 2,179,534 — 424,440 272,746 334,784 41,925 373,409 6,987,210 450,980 410,974 1,686,549 5,738,237 16,344 135,536 1,039,863 70,065 9,097,568 (1,747,567) — 87,017 14,257 7,451,275 3,222,564 16,356 250,142 80,304 758,374 975,030 309,278 2,389,484	$ 290,603 — 49,487 969,466 2,222 453,551 115,927 77,050 29,389 257,608 2,245,303 561,086 410,974 1,619,480 5,845,184 16,127 145,169 1,138,160 67,414 9,242,508 (1,332,288) — 299,984 40,356 8,250,560 4,067,103 126,571 302,154 640,261 755,820 975,030 43,629 2,843,465	$ 1,756,762 130,259 38,030 1,782,924 53,445 402,355 30,083 72,120 44,278 186,882
				4,497,138
				619,188
				410,974 1,228,049 4,329,270 12,360 29,944 46,922 42,326
				6,099,845 (802,698) 800,784 309,129 1,134,381
				7,541,441
				—
				6,769 88,137 496,200 264,532 328,614 51,157
				1,235,409
		$20,501,513	$17,967,517	$13,893,176

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

F-4

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars)

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term loans . . . . . . . . . . . . . . . . . Short-term bills payable — net . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . Due to related parties . . . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . Payables for equipment purchased . . . Current portion of long-term loans . . . . Current portion of capital lease liabilities . . . . . . . . . . . . . . . . . . . . . . Other current liabilities. . . . . . . . . . . . . Total Current Liabilities. . . . . . . . . . . LONG-TERM LIABILITIES Bonds payable. . . . . . . . . . . . . . . . . . . Long-term loans. . . . . . . . . . . . . . . . . . Capital lease liabilities . . . . . . . . . . . . . Total Long-term Liabilities . . . . . . . . OTHER LIABILITIES Other payables . . . . . . . . . . . . . . . . . . Accrued pension liabilities . . . . . . . . . . Other payables — related parties . . . . Deferred credits . . . . . . . . . . . . . . . . . . Minority interest . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Liabilities . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . SHAREHOLDERS’ EQUITY Capital stock . . . . . . . . . . . . . . . . . . . . Capital reserve Additional paid-in capital . . . . . . . . . Gain on disposal of assets . . . . . . . . Donated assets . . . . . . . . . . . . . . . . Retained earnings Legal reserve . . . . . . . . . . . . . . . . . . Unappropriated earnings . . . . . . . . . Cumulative translation adjustments . . . Total Shareholders’ Equity . . . . . . . . TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY. . . . . . . . .	Notes	2002	2001	2000
	11 and 26 12 25 3 and 22 27 and 29 25 15 and 26 13 3 and 14 15 and 26 13 27 3 and 16 25 3 17 18 19 20 3	$ 2,512,129 129,810 55,064 993,055 — 9,430 819,617 608,125 71,461 698,606 402,603 147,986 6,447,886 7,053 920,642 272,148 1,199,843 178,802 9,599 885 23,519 160,469 5,567 378,841 8,026,570 4,684,614 7,441,701 — 36,119 — 186,995 125,514 12,474,943	$ 2,076,375 139,492 29,468 868,375 — 48,769 531,330 — 40,753 535,075 315,539 229,596 4,814,772 — 1,322,931 498,995 1,821,926 1,747,500 3,182 704,603 150,162 137,423 15,942 2,758,812 9,395,510 2,533,452 7,013,560 2,722 36,119 139,395 (1,217,528) 64,287 8,572,007	$ 840,702 333,319 66,590 477,049 995 121,314 322,705 — 77,012 412,683 47,646 9,520
				2,709,535
				— 1,340,177 —
				1,340,177
				— 3,276 — 542 — 9,176
				12,994
				4,062,706
				1,627,846 7,111,231 2,722 8,614 36,759 1,035,571 7,727
				9,830,470
		$20,501,513	$17,967,517	$13,893,176

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

F-5

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars Except for Earnings Per Share)

OPERATING REVENUE Sales . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Sales return and allowance . . . . Net sales . . . . . . . . . . . . . . . . . . . . . . . OPERATING COST Cost of goods sold. . . . . . . . . . . . . . . . OPERATING PROFIT . . . . . . . . . . . . . . . Less: Unrealized intercompany profit. . Add: Realized intercompany profit . . . . GROSS PROFIT . . . . . . . . . . . . . . . . . . . OPERATING EXPENSES Selling expenses . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . Research and development expenses . Total Operating Expenses . . . . . . . . OPERATING INCOME (LOSS) . . . . . . . . NON-OPERATING INCOME Interest income . . . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment . . . . . . . . . . . . . . . . . Gain on disposal of short-term investments . . . . . . . . . . . . . . . . . . . Gain on disposal of long-term investments . . . . . . . . . . . . . . . . . . . Foreign exchange gain . . . . . . . . . . . . Gain from recovery of inventory. . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . Total Non-Operating Income. . . . . . . NON-OPERATING EXPENSES Interest expenses . . . . . . . . . . . . . . . . Investment loss . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . . . . . . . . . . . . . Loss on valuation of inventory . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . Total Non-Operating Expenses. . . . .	Notes		2002	2001		2000
	3, 21 and 25 25 3 3 25 3 25 3 25 11 3 and 9 3 8 and 28		$7,718,227 (43,253) 7,674,974 6,223,131 1,451,843 — — 1,451,843 188,052 1,005,017 30,595 1,223,664 228,179 47,873 139,355 — — 158,430 — 328,515 674,173 431,337 12,060 3,009 27,421 251,980 725,807	$ 4,759,894 (82,132) 4,677,762 4,591,346 86,416 — 542 86,958 359,115 1,166,094 34,464 1,559,673 (1,472,715) 64,468 1,519 1,219 1,854 280,621 7,722 176,638 534,041 446,261 58,638 3,110 30,607 87,430 626,046		$3,972,779 (83,593) 3,889,186 2,609,893 1,279,293 (542) 452 1,279,203 65,262 289,471 39,169 393,902 885,301 78,883 562 — 431 217,597 — 27,207 324,680 134,172 40,308 239 7,722 9,074 191,515

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

F-6

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars Except for Earnings Per Share)

INCOME (LOSS) BEFORE INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME TAX BENEFIT . . . . . . . . . . . . . INCOME BEFORE MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . MINORITY INTEREST IN (INCOME) LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . PREACQUISITION INCOME. . . . . . . . . . NET INCOME (LOSS) . . . . . . . . . . . . . . . EARNINGS (LOSS) PER SHARE INCOME (LOSS) BEFORE INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME (LOSS) . . . . . . . . . . . . . . . DILUTED EARNINGS PER SHARE INCOME BEFORE INCOME TAX . . . . . . NET INCOME . . . . . . . . . . . . . . . . . . . . .	Notes 3 and 22 23		2002 $176,545 15,090 191,635 (7,362) — $184,273 $ 0.58 $ 0.61 $ 0.53 $ 0.54	2001 $(1,564,720) 421,345 (1,143,375) 71,516 — $(1,071,859) $ (6.18) $ (4.23) $ — $ —		2000
						$1,018,466 22,701 1,041,167 — 14,389 $1,026,778 $ 4.99 $ 5.03 $ — $ —

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

F-7

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars)

			Retained earnings	Retained earnings	Cumulative
of January 1, 2000 . . . crease in cash and m . . . . . . . . . . . . . . n of earnings for 1999 eserve . . . . . . . . . . . for board of directors . . ees’ bonus . . . . . . . . ividends . . . . . . . . . d assets . . . . . . . . . reserve transferred to tal stock . . . . . . . . . . osal of property, plant ment transferred as serve . . . . . . . . . . . . ranslation adjustments. n 2000 . . . . . . . . . . of December 31, 2000 n of earnings for 2000 eserve . . . . . . . . . . . ees’ bonus . . . . . . . . ividends. . . . . . . . . . ividends . . . . . . . . . d assets . . . . . . . . . reserve transferred to tal stock . . . . . . . . . . of capital reserve and arnings accounted for ity method . . . . . . . . ranslation adjustments. 001 . . . . . . . . . . . . of December 31, 2001 n of earnings for 2001 ulated deficits made up gal reserve. . . . . . . . ulated deficits made up apital reserve . . . . . . of convertible bonds . . . . . . . . . . . . . . . ranslation adjustments. gain of disposal of plant and equipment . . n 2002 . . . . . . . . . .	Capital stock $ 828,644 450,000 — — 9,458 174,015 — 165,729 — — — 1,627,846 — 91,683 — 716,252 — 97,671 — — — 2,533,452 — — 2,151,162 — — —	Capital reserve $ 1,205,266 6,075,000 — — — — 7,609 (165,729) 421 — — 7,122,567 — — — — 27,505 (97,671) — — — 7,052,401 — (1,078,133) 1,506,274 — (2,722) —	Legal reserve $ 16,012 — 20,747 — — — — — — — — 36,759 102,636 — — — — — — — — 139,395 (139,395) — — — — —	Unappropriated earnings $ 219,109 — (20,747) (5,675) (9,458) (174,015) — — (421) — 1,026,778 1,035,571 (102,636) (91,683) — (716,252) (27,505) — (161,771) — (1,071,859) (1,136,135) 139,395 1,078,133 — — 2,722 184,273	translation adjustments $ (1,734) — — — — — — — — 9,461 — 7,727 — — — — — — — 56,560 — 64,287 — — — 61,227 — —	Total
						$ 2,267,297 6,525,000 — (5,675) — — 7,609 — — 9,461 1,026,778
						9,830,470 — — — — — — (161,771) 56,560 (1,071,859)
						8,653,400 — — 3,657,436 61,227 — 184,273

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

F-8

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Expressed in Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interest in income (loss) . . . . . . . . . . . . . . . . Preacquisition income . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net cash: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment loss — equity method. . . . . . . . . . . . . . Gain on disposal of short-term investments . . . . . . Gain on disposal of long-term investments. . . . . . . Loss on disposal of property, plant and equipment. Gain on disposal of property, plant and equipment. Net changes in operating assets and liabilities: Notes receivable — net. . . . . . . . . . . . . . . . . . . . Accounts receivable — net . . . . . . . . . . . . . . . . . Due from related parties . . . . . . . . . . . . . . . . . . . Inventories — net . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . Deferred income tax assets . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . Due to related parties . . . . . . . . . . . . . . . . . . . . . Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . Income tax payable. . . . . . . . . . . . . . . . . . . . . . . Other payables — related parties . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . Accrued pension liabilities. . . . . . . . . . . . . . . . . . Deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002	2001	2000
	$ 184,273 7,362 — 1,098,877 77,451 12,060 — — 3,009 (139,355) (1,360) (1,210,068) 2,222 29,111 (156,819) (257,734) (15,090) 25,596 124,680 — 318,995 (39,339) (703,718) (81,610) 6,417 (10,015) (725,055)	$(1,071,859) (71,516) — 1,005,494 329,754 58,638 (8,406) (1,854) 3,110 (1,519) (11,457) 813,458 51,223 (51,196) (85,844) (4,930) (476,399) (37,122) 639,391 (995) 208,625 (72,545) 704,603 220,076 (94) 47,043 2,185,679	$ 1,026,778 — 14,389 554,372 27,587 40,308 (50,557) (431) 239 (562) (6,865) (1,233,124) (18,562) (216,541) (11,260) (58,401) (143,236) (48,838) 434,895 (10,104) 205,869 99,918 — 18,246 860 90 625,070

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

F-9

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES: Increase in restricted cash and cash equivalents . . . Proceeds from disposal of short-term investments . . Increase in short-term investments . . . . . . . . . . . . . . Increase in long-term investments . . . . . . . . . . . . . . . Proceeds from disposal of long-term investments . . . Purchases of property, plant and equipment . . . . . . . Proceeds from disposal of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) Decrease in goodwill . . . . . . . . . . . . . . . . Increase in refundable deposits. . . . . . . . . . . . . . . . . Increase in deferred charges . . . . . . . . . . . . . . . . . . . (Increase) Decrease in other receivables — related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in non-operating assets. . . . . . . . . . . . . . . . (Increase) Decrease in other assets . . . . . . . . . . . . . Increase (Decrease) in others . . . . . . . . . . . . . . . . . . Net provided by (used in) investing activities . . . . . CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in short-term bills payable . . . . Increase (Decrease) in short-term loans . . . . . . . . . . Increase (Decrease) in capital lease liabilities. . . . . . Increase (Decrease) in long-term loans payable . . . . Increase (Decrease) in other payables . . . . . . . . . . . Proceed from issuance of convertible bonds . . . . . . . Capital increase in cash and premium. . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonus for board of directors . . . . . . . . . . . . . . . . . . . Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . Effect of exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS AT END OF THE YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002	2001	2000
	$ (115,801) — — (70,950) 113,595 (680,006) 516,760 844,539 110,215 (14,460) 559,957 — (265,649) (10,375) 987,825 (9,682) 435,754 (139,783) (238,758) (960,573) 3,664,489 — — — 15,684 2,767,131 (10,979) 3,018,922 290,603	$ (70,726) 2,088,245 (1,949,580) (87,645) 98,754 (4,890,415) 3,288,114 (4,357,611) (119,802) (254,793) (144,061) (646,416) 7,528 6,766 (7,031,642) (193,827) 987,608 766,888 105,147 1,747,500 — 47,881 (81,393) — — 3,379,804 — (1,466,159) 1,756,762	$ (55,134) 9,606,972 (9,686,674) (623,541) 21,281 (4,415,028) 234,432 — (2,416) (1,657) (496,200) (328,614) (17,173) —
			(5,763,752)
			204,740 (321,419) 22,425 376,610 — — 6,525,000 — 1,934 —
			6,809,290
			—
			1,670,608 86,154
	$3,309,525	$ 290,603	$ 1,756,762

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

F-10

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Expressed in Thousands of New Taiwan Dollars)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid during the year . . . . . . . . . . . . . . . . . . . Income tax paid during the year . . . . . . . . . . . . . . . . NON-INFLUENCE OF CASH FLOWS FROM INVESTING AND FINANCIAL ACTIVITIES Investment decreased in exchange of equipment . . . Convertible bonds converted into common stock (capital surplus included) . . . . . . . . . . . . . . . . . . . . INVESTING ACTIVITIES PARTIALLY PAID BY CASH Acquisition of property, plant and equipment . . . . . . . Decrease (Increase) in payable for equipment . . . . . Cash paid for acquiring of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		2002 $ 415,856 $ 48,954 $ 74,667 $3,657,436 $ 710,714 (30,708) $ 680,006		2001 $ 449,900 $ 115,522 $ — $ — $4,854,156 36,259 $4,890,415		2000
						$ 270,565 $ 18,926 $ — $ — $4,266,028 149,000 $4,415,028

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

F-11

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

1. ORGANIZATION AND OPERATIONS

Infodisc Technology Co., Ltd. (the “Company”), located in Taiwan, was incorporated under the laws of the Republic of China (“R.O.C.”) on April 14, 1995. The Company is principally engaged in multi-media operations including manufacturing, researching, designing, developing, importing, exporting, programming, and selling read-only-memory discs (DVD, CD-Audio, CD-Video, CDROM, etc.), rewritable discs, and other peripheral products, equipment, and systems. The Company was successfully listed in the market of the R.O.C. Over-The-Counter Securities Exchange on February 21, 2000, and also in the market of the Taiwan Stock Exchange Corporation on September 19, 2001.

2. SUMMARY OF CONSOLIDATION PRINCIPLES

• (1) Parent Company: Infodisc Technology Co., Ltd.

• (2) The Company’s consolidated financial statements include the following subsidiaries:

Name of the subsidiaries	Name of the subsidiaries		**% of **	holding interest	holding interest
		Relationships	2002.12.31	2001.12.31	2000.12.31	Business in nature
Global Solutions Holdings Ltd. (GSHL) Infodisc Technology Gmbh Ltd. Infodisc Technology Korea Ltd. Infodisc Global Holding Inc. and Subsidiaries		The Company’s equity investee GSHL’s equity investee GSHL’s equity investee GSHL’s equity investee	100% 100% 86.27% 100%	100% 100% 86.27% 100%	100% 100% 100% —	Holding Company Producing read- only memory discs Producing read- only memory discs Holding Company and producing read-only- memory discs

Infodisc Global Holding Inc. and its subsidiaries which are 100% held by Global Solutions Holdings Ltd. include Mediacopy, Mediacopy Holding Inc., Mediacopy Texas, Inc., Mediacopy LLC, Mediacopy de Mexico S. de R.L. de C.V., Mediacopy Servicios. S. de R.L. de C.V. and Infodisc Technology Canada Ltd.

• (3) Non-consolidated subsidiaries include the following:

Name of the subsidiaries	Name of the subsidiaries	**% of **	holding interest	holding interest	Reasonsfornotbein
		**2002.12.31 **	**2001.12.31 **	2000.12.31	g consolidated
Infodisc Technology USA, Inc. . . . . . . . Hua Shuen Venture Capital Ltd. . . . . . . Digital Information Systems Corp. . . . .		100% 99.97% —	100% 99.97% —	100% 99.97% 80.40%	The total assets and/or operating revenue do not exceed 10% of those of the Company � �

F-12

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (4) The Company’s “Group Chart” as of December 31, 2002 is described as follows:

==> picture [410 x 273] intentionally omitted <==

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

Infodisc Technology Co., Ltd.
100% 100% 99.97%
Infodisc Technology USA, Inc. Global Solutions Holdings Ltd. Hua Shuen Venture Capital Ltd.
86.27% 100% 100%
Infodisc Technology Korea Ltd. Infodisc Global Holding Inc Infodisc Technology Gmbh Ltd.
100% 100% 100%
Mediacopy Mediacopy Holding Inc. Mediacopy LLC
100%
Mediacopy Texas, Inc.
100% 99%
Mediacopy de Mexico S. 1%
Infodisc Technology Canada Ltd.
de R.L. de C.V.
99%
Mediacopy Servicios S. 1%
de R.L. de C.V.
----- End of picture text -----

• (5) No adjustment has been made to reconcile the different accounting periods adopted by the Company and its subsidiaries. There is no unexpected risk on the operations of offshore subsidiaries.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparing consolidated financial statements

Consolidated financial statements are prepared if the Company owns more than 50% of the investee company’s shares. However, the financial statements of any subsidiary in which shareholders’ equity is negative, or either the “total assets” or “operating revenue” for the current year are less than 10% of those of the Company are not included in the consolidated financial statements. If either the combined “total assets” or “operating revenue” of those subsidiaries, which are not included in the consolidated financial statements, exceed 30% of those of the Company, any of these subsidiaries in which its “total assets” and “operating revenues” exceed 3% of those of the Company are still needed to be included in the consolidated financial statements.

All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Translation of foreign currency transactions

The accounts of the Company and its subsidiaries are maintained in New Taiwan dollars, Korean Wons, German Marks and US dollars. Transactions arising in foreign currencies other than forward exchange contracts during the year are converted into New Taiwan dollars at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at year-end are translated into New Taiwan dollars at

F-13

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

year-end exchange rates. Foreign exchange gains or losses are included in the results of operations for the current period. Other translation differences resulting from foreign longterm equity investments are classified as translation adjustments and deducted from shareholders’ equity.

The foreign currency amounts on hedging forward exchange contracts are translated into New Taiwan dollars using the spot rate at the deal date of the contract. Any differences between the spot rate at the date of the contract and rate provided by the contract are amortized over the life of the contract. Gains or losses on outstanding contracts at the balance sheet date are recorded in the current year income statement based on the spot exchange rate of the particular currency at the balance sheet date.

The financial statements of foreign subsidiaries and investees are translated into New Taiwan dollars, using the spot rate as of each financial statements date for asset and liability accounts, average exchange rate for profit and loss accounts and historical exchange rates for equity accounts. The cumulative translation effects for subsidiaries and investees using functional currencies other than the New Taiwan dollars are included in the cumulative translation adjustment in shareholders’ equity.

Cash and cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near to their maturity that they present insignificant risk of changes in interest rates. Commercial papers, negotiable certificates of deposit, and bank acceptances with original maturity in three months or less are considered to be cash equivalents.

Short-term investments

Short-term investments are recorded at cost. Cost is determined using the weighted-average method during the year and valued at the lower of cost or market value at year end.

Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on estimated collectibility of notes receivable, accounts receivable, and due from related parties.

Inventories

Inventories of the Company, Infodisc Technology Gmbh Ltd. and Infodisc Technology Korea Ltd. are stated at the lower of cost or market value. Cost is determined by the weightedaverage method. The market value for raw materials and supplies are determined based on current replacement cost while finished goods are determined based on net realizable value.

Cost of Infodisc Global Holding Inc. and its subsidiaries is determined by the first-in, first-out method. The market value is determined based on net realizable value.

Long-term investments

Long-term investments are valued by equity method or cost method. Investment income or loss from investing in either listed or unlisted companies is accounted for under equity method provided that the Company owns over 20% of the outstanding shares of the listed or unlisted companies. Dividends issued by the investee company are deemed as recovery of the long-term investment. If the investee company is listed and the Company owns less than 20% of the outstanding shares and has no significant influence on operational decisions of the

F-14

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

listed company’s, such investment is accounted for by the lower of cost or market value method. The unrealized loss resulting from the decline in market value of such investment is deducted from shareholders’ equity. The Company’s investment in a company which is not listed is accounted for under the cost method.

Unrealized intercompany gains and losses are eliminated under the equity method. Profit from sales of depreciable assets between the investee and the Company is amortized and recognized based on the assets’ economic service lives. Profit from other types of intercompany transactions is recognized when realized. When the Company’s proportional interest in an equity investee changes when the latter issues additional shares, the effect of the change in the Company’s holding ratio in the long-term investment is adjusted first to capital reserve. If the capital reserve account is insufficient, the effect is included in retained earnings.

For investments accounted for under the equity method of accounting, investment losses are recognized to the extent of the original investment unless the Company has committed to fund the losses of the investee. In this situation, the additional loss recognized by the Company in excess of its long-term investment balance is first offset against the Company’s receivable balance with the investee. Any remaining loss is recorded as other non-current liability in the accompanying balance sheets.

Property, plant and equipment

Property, plant and equipment are stated at cost. Significant improvements and renewals are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance are expensed as incurred. When assets are retired or disposed of, their cost and related accumulated depreciation are removed from the fixed assets account. Gain or loss on disposal of property, plant and equipment are recorded as non-operating income or expenses in the accompanying statements of income.

Leased assets are recorded at the lower of the present value of purchase price at the end of lease plus rental payments during the lease, or the fair value of the lease asset at the inception of the lease.

Depreciation in the Company is provided on the straight-line basis over the following useful lives:

Buildings	3 to 55 years
Machinery and equipment	5 to 10 years
Transportation equipment	5 years
Furniture and fixtures	5 years
Leased equipment	6 to 50 years
Miscellaneous equipment	5 years

Property, plant and equipment for non-operation use has reclassified to other assets, and are stated at net realizable value.

Depreciation of Infodisc Technology Gmbh Ltd. is provided on the straight-line basis over the following useful lives:

Machinery and equipment	4 to 10 years
Furniture and fixtures	4 to 10 years
Miscellaneous equipment	4 to 10 years

F-15

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

Depreciation of Infodisc Technology Korea Ltd. is provided on the straight-line basis over the following useful lives:

Buildings	50 years
Machinery and equipment	7 years
Furniture and fixtures	5 years
Transportation equipment	5 years

Depreciation of Infodisc Global Holding Inc. and its subsidiaries is provided on the straight-line basis over the following useful lives:

Machinery and equipment	7 to 10 years
Furniture and fixtures	5 to 7 years
Transportation equipment	5 to 7 years
Leasehold improvements	5 to 10 years

Deferred charges

Deferred charges, including leasehold improvements, computer software, designing charges, stumper, royalty, copyright, and issuance cost of convertible bonds are amortized by the straight-line method over five years except for issuance cost of convertible bonds which are amortized over the life of the bonds, copyrights which are amortized over 2 to 10 years and royalties which are amortized over 5 to 10 years.

Deferred charges of Infodisc Technology Korea Ltd. and Infodisc Technology Gmbh Ltd. consist of computer software, are amortized by the straight-line method over 5 years.

Goodwill

Goodwill derives from Infodisc Global Holdings Inc.’s acquisition of Mediacopy and is amortized over 15 years.

Deferred credits — unrealized profit of intercompany transactions

The recognition of profits derived from sales of inventories and depreciated assets to the Company’s investee companies which are accounted for under equity method will be deferred until the period in which the goods are sold to outsiders.

Pension plan

The Company established a pension fund for its employees. The Company makes monthly contributions to the pension fund at 2% of its total monthly salaries and wages as required by the Labor Standards Laws. The Fund is administrated by the Employees Retirement Fund Committee. Assets of the funds are deposited in the name of the Committee. The percentage of contribution has been reported to and approved by the Labor Bureau of the Taipei City Government.

Effective from 1997, the Company adopted, on a prospective basis, R.O.C. Statement of Financial Accounting Standards No. 18 “Accounting for Pensions”. This Statement requires that the accumulated pension obligation and the pension expense be determined on an actuarial basis.

Accrued pension liabilities of Infodisc Technology Korea Ltd. represent the amount employees and directors with more than one year of service are entitled to receive based on their length of service and rate of pay as of the balance sheet date.

F-16

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

Convertible bonds

When bonds are redeemed before maturity, the excess of the stated redemption price over the par value is recognized as interest expense and accrued compensation interest payable using the effective interest method during the period from the issuance date to the last day of redemption period. However, the right of redemption becomes invalid if the investor failed to exercise his/her redemption right during the redemption period. The balance of the compensation interest payable is amortized over the period from the date following the redemption period to the maturity date using the effective interest method.

The cost method is adopted when an investor exercises his/her conversion right. The book value of bonds is credited to common stock at an amount equal to the par value of the stock and the excess is credited to capital reserve; no gain or loss is recognized on bond conversion.

The related issuance costs for convertible bonds are recorded as deferred assets and are amortized over the life of the bonds.

Revenue recognition

The Company has adopted the R.O.C. Statement of Financial Accounting Standards (“SFAS”) No. 32, “Accounting for Revenue Recognition”. Revenue is not recognized until it is realized or realizable and earned. Gross margins of goods sold to equity investees that were still on hand at balance sheet date was recorded as deferred revenue deducted from operating revenue. Deferred revenue resulting from equity investees was recorded as other liability on the Balance Sheet.

Income tax

The Company adopted the R.O.C. SFAS No. 22 “Accounting for Income Tax”. This Statement requires the interperiod as well as intraperiod income tax allocation. Under this Statement, the tax effects of taxable temporary differences are recognized as deferred income tax liabilities while those of deductible temporary differences, net operating loss, and investment tax credits are recognized as deferred tax assets. A valuation allowance is provided for deferred tax assets to the extent that it is more likely than not that the tax benefits will be realized.

In addition, the Company’s unappropriated earnings is subject to income tax at 10%, which will be recorded as income tax expense at the year that resolution to distribute earnings is made by the shareholders’ meeting.

According to the SFAS No. 12, the Company realized the tax benefit at the year of equipment acquired, or the year of expenditures incurred for research and development.

Earnings per share

Earnings per share is calculated according to the R.O.C. SFAS No. 24. Basic earnings per share are calculated by dividing net income (loss) by weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by taking basic earnings per share into consideration plus additional common share that would have been outstanding if the dilutive share equivalents had been issued. The net income (loss) would also be adjusted for the interest derived from any underlying dilutive share equivalents. The weighted-average outstanding shares are restated for stock dividends and bonus share issuance.

F-17

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

4. THE REASONS AND EFFECT OF CHANGE IN ACCOUNTING

According to the Company Law, gain or loss on disposal of property, plant and equipment was treated as other income or loss in the current period, and such gain, after tax, was reclassified into additional paid-in capital. As a result of amendments to the Company Law in Republic of China in 2001, the reclassification is no longer required for disposals made in and after 2001. This change in accounting has no effect on net loss in 2001, however, it decreased capital reserve in $29,921 thousand and increased retained earnings in $29,921 thousand as of December 31, 2001.

5. CASH AND CASH EQUIVALENTS

• (1) Cash and cash equivalents consist of the following:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . Cash in bank . . . . . . . . . . . . . . . . . . . . . . . . . Cash equivalent — Bonds. . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31,	As of December 31,	As of December 31,	As of December 31,	As of December 31,
	2002 $ 211 3,308,912 402		2001 $ 280 290,314 9		2000
					$ 317 1,756,445 —
	$3,309,525		$290,603		$1,756,762

• (2) Time deposits, which were restricted for use, were transferred to the appropriate account. Please refer to Note 26 for “assets pledged as collateral”.

6. SHORT-TERM INVESTMENTS

Short-term investments consist of the following:

Unsecured convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . Debenture fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for loss on decline in market value . . . . . . . . . . Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		December 31, 2000	December 31, 2000	December 31, 2000
		Cost $ 53,000 77,259 130,259 —	Market Value
				$ 53,421 77,376 $130,797
		$130,259

F-18

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

7. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable and accounts receivable consist of the following:

Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . Notes receivable — net. . . . . . . . . . . . . . . . . . . . . Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . Accounts receivable — net . . . . . . . . . . . . . . . . . . Accounts receivable under pledge . . . . . . . . . . . . Less: Loans secured by accounts receivable . . . . Accounts receivable under pledge — net . . . . . . . Accounts receivable — net . . . . . . . . . . . . . . . . . .	As of December 31,	As of December 31,	As of December 31,	As of December 31,	As of December 31,
	2002 $ 50,847		2001 $ 49,487 —		2000
					$ 38,030 —
	$ 50,847 $2,216,508 (36,974) 2,179,534 — — — $2,179,534		$ 49,487		$ 38,030 $1,819,101 (36,177) 1,782,924 — — — $1,782,924
			$952,765 (67,706) 885,059 109,412 (25,005) 84,407		$1,819,101 (36,177
					1,782,924
					— —
					—
			$969,466

As of December 31, 2001, accounts receivable in the amount of $109,412 thousand was pledged for borrowings.

The Company’s accounts receivables from Twentieth Century Fox Inc. (“Twentieth Century”) in the amount of $177,795 thousand was written off since the Twentieth Century had suffered financial difficulties and the Company considered the possibilities of collection was remote. The copyrights and issuance right of Twentieth Century were pledged as the collateral of accounts receivables.

Due from related parties . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . Due from related parties . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,	As of December 31,
		2002 $ — —		2001 $ 4,109 (1,887)		2000
						$ 56,667 (3,222)
		$ —		$ 2,222		$ 53,445

F-19

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

8. INVENTORIES

• (1) Inventories consist of the following:

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw material in transit . . . . . . . . . . . . . . . . . Inventories in transit . . . . . . . . . . . . . . . . . . . Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for loss on obsolescence and decline in market value. . . . . . . . . Inventories — net . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,	As of December 31,
		2002 $192,312 7,712 26,649 65,422 108,928 26,426 1,848 429,297 (4,857)		2001 $264,607 2,995 50,026 122,566 448 45,041 2,021 487,704 (34,153)		2000
						$328,554 7,595 374 77,769 — 641 — 414,933 (12,578)
		$424,440		$453,551		$402,355

• (2) The Company’s insurance amount for inventories was $70,000 thousand, $54,000 thousand and $103,000 thousand as of December 31, 2002, 2001 and 2000, respectively.

• (3) The Company was suffered from flood that lead to damaged on inventories in the amount of $19,928 thousand on September 17, 2001 due to a typhoon. This damage has been recognized as other loss.

9. LONG-TERM INVESTMENTS

• (1) Long-term investments consist of the following:

As of December 31, 2002

Investee Companies	Percentage of Ownership	Basis of Valuation		Amount
Infodisc Technology USA, Inc. . . . . . . . . . Hua Shuen Venture Capital Ltd. . . . . . . . . Pan-Pacific Venture Capital Co., Ltd. . . . . Taiwan Fixed Network Corporation . . . . . . Champion Consulting Corporation . . . . . . Formosa Epitaxy Inc. . . . . . . . . . . . . . . . . Prepaid Investment — Infovision . . . . . . .	100% 99.97% 8.33% 0.05% 6.67% 2.98%	Equity Method Equity Method Cost Method Cost Method Cost Method Cost Method		$ — 180,030 110,000 50,000 40,000 69,750 1,200
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .				$450,980

F-20

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

As of December 31, 2001

Investee Companies	Percentage of Ownership	Basis of Valuation		Amount
Infodisc Technology USA, Inc. . . . . . . . . . Hua Shuen Venture Capital Ltd. . . . . . . . . Integrated Memory Technology, Inc. . . . . . Pan-Pacific Venture Capital Co., Ltd. . . . . Taiwan Fixed Network Corporation . . . . . . Aetas Technology Inc. . . . . . . . . . . . . . . . . Champion Consulting Corporation . . . . . .	100% 99.97% 0.94% 12.50% 0.05% 3.30% 12.50%	Equity Method Equity Method Cost Method Cost Method Cost Method Cost Method Cost Method		$ 69,298 187,492 6,156 165,000 50,000 33,140 50,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .				$561,086

As of December 31, 2000

Investee Companies	Percentage of Ownership	Basis of Valuation		Amount
Infodisc Technology USA, Inc. . . . . . . . . . Hua Shuen Venture Capital Ltd. . . . . . . . . Integrated Memory Technology, Inc. . . . . . Pan-Pacific Venture Capital Co., Ltd. . . . . Taiwan Fixed Network Corporation . . . . . . Aetas Technology Inc. . . . . . . . . . . . . . . . . Champion Consulting Corporation . . . . . . Formosa Epitaxy Inc. . . . . . . . . . . . . . . . . Digital Information Systems Corp.. . . . . . .	100% 99.97% 0.94% 12.50% 0.05% 5.50% 12.50% 6.00% 80.40%	Equity Method Equity Method Cost Method Cost Method Cost Method Cost Method Cost Method Cost Method Equity Method		$ 42,274 200,339 6,156 165,000 50,000 33,140 50,000 67,500 4,779
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .				$619,188

• (2) The long-term investment income (loss) under equity method recognized by the Company based on the audited financial statements of the investee companies are as follows:

Infodisc Technology USA, Inc. . . . . . . . . . . . Digital Information Systems Corp.. . . . . . . . . Hua Shuen Venture Capital Ltd. . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		2002		2001		2000
		$ (8,873) — (3,187)		$(34,531) (6,985) (17,122)		$(50,942) 10,235 399
		$(12,060)		$(58,638)		$(40,308)

Those financial statements were audited by other auditors.

F-21

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (3) Infodisc Technology USA, Inc., Hua Shuen Venture Capital Ltd. and Digital Information Systems Corp. was not included in the consolidated financial statements because neither their total assets or operating revenue exceeds 10% of those of the Company.

• (4) Please refer to Note 26 for “assets pledged as collateral”.

10. PROPERTY, PLANT AND EQUIPMENT

• (1) The Company’s insurance amount for property, plant and equipment was $4,574,312 thousand, $4,648,000 thousand and $5,240,342 thousand as of December 31, 2002, 2001 and 2000, respectively.

• (2) Total interests capitalized in 2002, 2001 and 2000 was $3,399 thousand, $53,100 thousand and $110,431 thousand, respectively.

• (3) As of December 31, 2002 and 2001, the Company’s land and prepayments on land for non-operating use in the amount of $898,932 thousand and $76,098 thousand, respectively were transferred to other assets.

• (4) As of December 31, 2000, the Company’s machinery and equipment prepared to be sold in the amount $328,614 thousand was transferred to other assets.

• (5) Please refer to Note 26 for “assets pledged as collateral”.

11. SHORT-TERM LOANS

• (1) Short-term loans consist of the following:

Description Secured loans . . . . . . . . . . . . . . . . . . Unsecured loans . . . . . . . . . . . . . . . . L/C financing. . . . . . . . . . . . . . . . . . . Usance L/C financing . . . . . . . . . . . . Gold financing . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . .	Description Secured loans . . . . . . . . . . . . . . . . . . Unsecured loans . . . . . . . . . . . . . . . . L/C financing. . . . . . . . . . . . . . . . . . . Usance L/C financing . . . . . . . . . . . . Gold financing . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,
	oans . . . . . . . . . . . . . . . . . . d loans . . . . . . . . . . . . . . . . ing. . . . . . . . . . . . . . . . . . . C financing . . . . . . . . . . . . cing . . . . . . . . . . . . . . . . .		2002 $1,203,173 679,915 10,555 261,482 357,004		2001 $1,012,091 558,276 21,185 236,758 248,065		2000
							$335,000 60,000 200,544 245,158 —
		$2,512,129 1.00%-8.62%		$2,076,375 1.00%-8.25%		$840,702 1.158%-9.25%

• (2) Please refer to Note 26 for “assets pledged as collateral”.

• (3) The Company signed a gold financing contract with Bank of Nova Scotia due to gold usage in production lines. As of December 31, 2002 and 2001, the Company deposited $140,525 thousand and 0 thousand, respectively in Bank of Nova Scotia, furnished a standby L/C issued by Credit Lyonnais by pledging a time deposit in USD2,500 thousand, and 0 thousand, respectively, and deposited $133,093 thousand and $117,599 thousand, respectively in UPS Capital Global Trade Finance for another standby L/C furnished by ABN-AMRO Bank. For the years ended December 31, 2002 and 2001, the interest expense incurred from the gold financing was $5,831 thousand and $4,423 thousand respectively.

F-22

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

12. SHORT-TERM BILLS PAYABLE

Short-term bills payable consist of the following:

Description Commercial papers . . . . . . . . . . . . . . . . . . Less: Commercial papers discount . . . . . . Short-term bills payable — net . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . . . . . . Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Description Commercial papers . . . . . . . . . . . . . . . . . . Less: Commercial papers discount . . . . . . Short-term bills payable — net . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . . . . . . Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,
	ial papers . . . . . . . . . . . . . . . . . . mercial papers discount . . . . . .		2002 $130,000 (190)		2001 $140,000 (508)		2000
							$340,000 (6,681)
		$129,810 1.825%-2.52% 49-90 days		$139,492 2.70%-3.50% 11-179 days		$333,319 4.90%-6.35% 90-180 days

13. CAPITAL LEASE LIABILITIES

• (1) Liabilities under capital leases consist of the following:

Description Liabilities under capital leases . . . . . . . . . Less: current portion . . . . . . . . . . . . . . . . . Liabilities under capital leases . . . . . . . . .	Description Liabilities under capital leases . . . . . . . . . Less: current portion . . . . . . . . . . . . . . . . . Liabilities under capital leases . . . . . . . . .		**As **	**As **	of December 31,	of December 31,
	under capital leases . . . . . . . . . ent portion . . . . . . . . . . . . . . . . .		2002		2001 $ 814,534 (315,539)		2000
			$ 674,751 (402,603)				$ 47,646 (47,646)
			$ 272,148		$ 498,995		$ —

• (2) As of December 31, 2002, rental payments (including interest expenses) during the lease terms in the future are summarized as follows:

Year 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$446,314 255,853
	$702,167

14. BONDS PAYABLE

First unsecured convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second unsecured convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31, 2002	December 31, 2002
		$ — 7,002 51
		$ 7,053

F-23

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (1) The terms and conditions of the first unsecured convertible bonds:

• A. Principal amount

The Company issued zero coupon unsecured Euro convertible bonds amounting to USD50 million at June 12, 2002, and issued additional USD10 million at July 18, 2002. The total amount of the bond issuance as of December 31, 2002 is USD60 million.

• B. Term

Three years from June 12, 2002 to June 11, 2005.

• C. Final redemption

Unless previously redeemed, repurchased, cancelled or converted, the bonds will be redeemed at 100% of their principal amount at June 11, 2005.

D. Conversion period

Converting to the shares, on or after June 27, 2002 up to and including May 12, 2005.

E. Conversion price

• (a) The initial conversion price will be NT$19 per share, the applicable conversion price will be subject to adjustment for, among other things, subdivision or consolidation of shares, including bonus issuances, right issuances, distributions of cash and stock dividends and other dilutive events.

The Company set a new conversion price NT$16.2 per share at September 20, 2002.

• (b) The Company may set a new conversion price that cannot be less than 80% of original price, on every 3 month from June 12, 2002, if the market price of the shares, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, is less than the conversion price.

• F. Redemption at the option of the Company

• (a) The Company may redeem the bonds, in whole or in part, in principal amount thereof, on or after June 12, 2003 at their principal amount, if the market price of the shares, translated into US dollars at the prevailing exchange rate, for a period of 30 consecutive trading days is at least 140% of the conversion price then in effect translated into US dollars.

• (b) The Company may also redeem the bonds, in whole, but not in par at their principal amount of at least 90% in principal amount of the bonds has already been converted, redeemed or purchased, or cancelled.

• G. Redemption at the option of the bondholders

The Company will, at the option of the bondholders, redeem such bonds on June 12, 2003 and June 12, 2004 at its principal amount.

F-24

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (2) The terms and conditions of the second unsecured convertible bonds:

• A. Principal amount

The Company issued zero coupon unsecured domestic convertible bonds amounting to USD35 million at June 27, 2002, and additional issued USD15 million at July 18, 2002. The total amount of the bond issuance is USD50 million as of December 31, 2002.

• B. Period

Five years from June 27, 2002 to June 26, 2007.

• C. Final redemption

Unless previously redeemed, repurchased, cancelled or converted, the bonds will be redeemed at 107.7% of their principal amount at June 26, 2007.

• D. Conversion period

Converting to the shares, on or after July 12, 2002 up to and including May 26, 2007.

• E. Conversion price

• (a) The initial conversion price will be NT$19 per share, the applicable conversion price will be subject to adjustment for, among other things, subdivision or consolidation of shares, including bonus issuances, right issuances, distributions of cash and stock dividends and other dilutive events.

• (b) The company set a new conversion price NT$16.6 per share at September 27, 2002.

• (c) The Company may set a new conversion price that cannot be less than 80% of original price, on every 3 month from June 27, 2002, if the market price of the shares, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, is less than the conversion price.

• F. Redemption at the option of the Company

• (a) The Company may redeem the bonds, in whole or in part, in principal amount thereof, on or after June 12, 2003 at their principal amount, if the market price of the shares, translated into US dollars at the prevailing exchange rate, for a period of 30 consecutive trading days is at least 140% of the conversion price then in effect translated into US dollars.

• (b) The Company may also redeem the bonds, in whole, but not in par at their principal amount of at least 90% in principal amount of the bonds has already been converted, redeemed or purchased, or cancelled.

• G. Redemption at the option of the bondholders

The Company will, at the option of the bondholders, redeem such bonds on December 27, 2003, June 27, 2005, and June 27, 2006, at its principal amount with compensation interest (the rates are 2.25%, 4.5% and 6%).

F-25

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (3) As of December 31, 2002, $3,694,052 thousand of the unsecured domestic convertible bonds were converted into common shares in 215,116,232 shares. The premium between the net amount (face value of convertible bonds and interest compensation payable) for common shares in $1,506,274 thousand was transferred to additional paid-in capital.

15. LONG-TERM LOANS PAYABLE

• (1) Long-term loans consist of the following:

Creditors Taiwan Cooperative Bank . . . . . . . . . Chiao Tung Bank, Commercial Bank of China, and Chinatrust Commercial Bank (syndicated loans). . . . . . . . . . . . . . . . . . . . . . . CitiBank . . . . . . . . . . . . . . . . . . . . . . Hua Nan Commercial Bank . . . . . . . . Land Bank of Taiwan. . . . . . . . . . . . . Bank of Panhsin . . . . . . . . . . . . . . . . Ministry of Economic Affairs . . . . . . . Rabobank Singapore Branch . . . . . . Five Star Real Estate . . . . . . . . . . . . Otari Corporation . . . . . . . . . . . . . . . United Capital . . . . . . . . . . . . . . . . . . Pacific Financial . . . . . . . . . . . . . . . . Bank of the West. . . . . . . . . . . . . . . . Singulus Technologies GA . . . . . . . . Bank of America . . . . . . . . . . . . . . . . Shinhan Bank . . . . . . . . . . . . . . . . . . Korea Exchange Bank. . . . . . . . . . . . Korea Development lease Co., Ltd. . Total . . . . . . . . . . . . . . . . . . . . . . . . . Less: Current portion . . . . . . . . . . . . Total long-term loans. . . . . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . . Period . . . . . . . . . . . . . . . . . . . . . . . .	Creditors Taiwan Cooperative Bank . . . . . . . . . Chiao Tung Bank, Commercial Bank of China, and Chinatrust Commercial Bank (syndicated loans). . . . . . . . . . . . . . . . . . . . . . . CitiBank . . . . . . . . . . . . . . . . . . . . . . Hua Nan Commercial Bank . . . . . . . . Land Bank of Taiwan. . . . . . . . . . . . . Bank of Panhsin . . . . . . . . . . . . . . . . Ministry of Economic Affairs . . . . . . . Rabobank Singapore Branch . . . . . . Five Star Real Estate . . . . . . . . . . . . Otari Corporation . . . . . . . . . . . . . . . United Capital . . . . . . . . . . . . . . . . . . Pacific Financial . . . . . . . . . . . . . . . . Bank of the West. . . . . . . . . . . . . . . . Singulus Technologies GA . . . . . . . . Bank of America . . . . . . . . . . . . . . . . Shinhan Bank . . . . . . . . . . . . . . . . . . Korea Exchange Bank. . . . . . . . . . . . Korea Development lease Co., Ltd. . Total . . . . . . . . . . . . . . . . . . . . . . . . . Less: Current portion . . . . . . . . . . . . Total long-term loans. . . . . . . . . . . . . Yield rate. . . . . . . . . . . . . . . . . . . . . . Period . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,
	Cooperative Bank . . . . . . . . . ung Bank, Commercial Bank na, and Chinatrust ercial Bank (syndicated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n Commercial Bank . . . . . . . . nk of Taiwan. . . . . . . . . . . . . Panhsin . . . . . . . . . . . . . . . . of Economic Affairs . . . . . . . nk Singapore Branch . . . . . . r Real Estate . . . . . . . . . . . . rporation . . . . . . . . . . . . . . . apital . . . . . . . . . . . . . . . . . . Financial . . . . . . . . . . . . . . . . the West. . . . . . . . . . . . . . . . s Technologies GA . . . . . . . . America . . . . . . . . . . . . . . . . Bank . . . . . . . . . . . . . . . . . . xchange Bank. . . . . . . . . . . . evelopment lease Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . urrent portion . . . . . . . . . . . .		2002 $ 432,801 376,580 — 211,750 108,647 13,450 7,580 696 2,427 4,086 5,446 17,375 1,912 112,587 223,944 65,121 6,314 28,532 1,619,248 (698,606)		2001 $ 656,783 473,260 — 282,050 172,234 36,850 10,107 58,368 3,291 15,576 22,940 52,425 2,989 — — 64,713 6,420 — 1,858,006 (535,075)		2000
							$ 880,765 570,180 21,795 154,350 65,520 60,250 — — — — — — — — — — — — 1,752,860 (412,683)
		$ 920,642 5.10%-7.87% May 1996 - May 2012		$1,322,931 6.34%-9.75% May 1996 - May 2012		$1,340,177 6.615%-8.39% May 1996 - May 2012

• (2) Please refer to Note 26 for “assets pledged as collateral”.

F-26

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

16. PENSION PLAN

• (1) The Company has adopted Statement of Financial Accounting Standards No. 18 “Accounting for Pensions”. The net pension cost for 2002, 2001 and 2000 are follows:

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . Estimated return on plan assets . . . . . . . . . . Net amortization and deferral . . . . . . . . . . . . Net pension cost . . . . . . . . . . . . . . . . . . . . . .		2002		2001		2000
		$ 3,511 657 (762) (287)		$ 2,897 936 (711) 156		$ 5,831 849 (357) 299
		$ 3,119		$ 3,278		$ 6,622

• (2) The funding status and accrued pension liability as of December 31, 2002, 2001 and 2000 were reconciled as follows:

Vested benefit obligations . . . . . . . . . . . . . . . Non-vested benefit obligations . . . . . . . . . . . Accumulated benefit obligations . . . . . . . . . . Additional benefits based on future salaries . Projected benefit obligations. . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . Funded status . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net transition obligation . . . . . Unrecognized pension (gain) or loss. . . . . . . Provision for pension during the period. . . . . Prepaid pension cost (Accrued pension liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,	As of December 31,
		2002 $ — (11,128) (11,128) (6,950) (18,078) 22,635 4,557 2,365 (6,407) —		2001 $ — (7,100) (7,100) (7,501) (14,601) 16,942 2,341 2,602 (6,406) —		2000
						$ — (4,398) (4,398) (11,201) (15,599) 11,851 (3,748) 2,838 (2,366) —
		$ 515		$ (1,463)		$ (3,276)

As of December 31, 2002, 2001 and 2000, the amount of reserve for pension deposited in Central Trust of China were $22,635 thousand, $16,942 thousand and $11,851 thousand, respectively.

F-27

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

The funding status of Infodisc Technology Korea Ltd. is stated as follows:

Fair value of plan assets at beginning. . . . . . . . . . . . . . . . . Funding status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment during this year . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets at ending . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,
		2002 $ 1,867 10,222 (2,490)		2001
				$ — 1,813 (94)
		$ 9,599		$ 1,719

(3) The main assumptions for determining the actuarial present value are as follows:

Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . Rate of increase in future compensation level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . . . . .	2002 4.00% 2.00% 4.00%	2001 4.50% 3.00% 4.50%	2000
			6.00% 5.00% 6.00%

17. CAPITAL STOCK

As of January 1, 2000, the Company’s authorized capital was $1,000,000 thousand, divided into 100,000,000 shares at $10 par per share, and the outstanding capital was $828,644 thousand, divided into 82,864,436 shares with $10 par per shares.

Based on the resolution of the shareholders’ meeting on April 19, 2000, the Company issued 45,000,000 new shares with premium at $145 per share, and the total capital increased in the amount of $6,525,000 thousand. In addition, the Company also issued 34,920,154 new shares from the capitalization of retained earnings of $174,015 thousand, employees’ bonus of $9,458 thousand, and capital reserve of $165,729 thousand with the effective date of July 12, 2000. The authorized capital after the increase was $2,800,000 thousand, of which $1,627,846 thousand were issued and outstanding, divided into 162,784,590 shares at $10 par value. The above increase in capital has been approved by the Ministry of Finance.

Based on the resolution of the shareholders’ meeting on May 30, 2001, the Company issued 90,560,622 new shares from the capitalization of retained earnings of $716,252 thousand, employees’ bonus of $91,683 thousand, and capital reserve of $97,671 thousand with the effective date of September 17, 2001. The authorized capital after increase was $4,800,000 thousand, of which $2,533,452 thousand were issued and outstanding, divided into 253,345,212 shares at $10 par value. The above increase in capital has been approved by the Ministry of Finance.

Based on the resolution of the shareholders’ meeting on April 12, 2002, the Company recovered the gain on disposal of property, plant and equipment transferred as capital reserve to retained earnings in the amount of $2,722 thousand, and made up its accumulated deficits by capital reserve amounting $1,078,133 thousand and legal reserve amounting $139,395 thousand.

As of December 31, 2002, $2,151,162 thousand of capital stock was transferred from Convertible Bonds at the conversion price. After the conversion, the issued capital amounted to $4,684,614 thousand.

F-28

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

18. CAPITAL RESERVE

Pursuant to the Company Law, capital surplus can only be used to offset an accumulated deficit or to increase common stock. Capital surplus can not be used to declare cash dividends. Issuance of stock dividends from capital surplus that was derived from paid-in capital in excess of par value can be made only once a year, and cannot be made in the same year that such cash subscription is received. Additionally, the amount of common stock so issued is subject to certain restrictions imposed by the Securities and Futures Commission (“SFC”) in R.O.C.

19. LEGAL RESERVE

The Company Law stipulates that companies must retain at least 10% of their annual earnings, as defined in the Law, until such retention equals the amount of paid-in capital. This retention is accounted as a legal reserve upon approval at the shareholders’ meeting. Once the legal reserve equals one-half of the paid-in capital, 50% of the reserve may be transferred to common stock. The legal reserve cannot be distributed as cash dividends to shareholders; however, it can be used at any time to replenish deficit.

20. DISTRIBUTION OF EARNINGS

According to the Company’s articles of incorporation, the Company’s annual earnings shall be used to offset an accumulated deficit, if any, and be retained at a rate of 10 percent, as defined in the R.O.C. Company Law, except when such retention equals the amount of authorized common stock. After the aforementioned deduction, 5-10 percent of remaining earnings should be distributed as employee bonuses and 3 percent of remaining earnings should be distributed as bonus for board of directors. The distribution of any remaining earnings, after deducting bonuses for employee and board of directors, is subject to the approval of the shareholders.

According to an SFC regulation promulgated in 1999, a publicly listed company in the R.O.C. should retain a special reserve, which is equal to the reduction in shareholders’ equity before distributing annual earnings, which were generated since 1999. If the aforementioned reduction in shareholders’ equity is reversed, the same amount could be removed from special reserve and transferred to unappropriated earnings.

The appropriation of 2002 retained earnings has not yet been recommended by the board of directors as of the date of the report of independent Auditors. Information on board of directors’ recommendations and shareholders’ approvals can be obtained from the “Market Observations Post System” on the website of Taiwan over-the-counter market.

There were no earnings for appropriation due to the accumulated loss in 2001.

F-29

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

21. OPERATING REVENUE — NET

Description		2002	2002		2001		2000	2000
CD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CD-R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CD-RW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DVD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Sales returns and allowances . . . . . . . . . . .		$ 272,482 469,306 833,502 4,439,303 931,395 772,239 7,718,227 (43,253)			$ 569,016 525,107 375,816 1,217,841 1,724,834 347,280 4,759,894 (82,132)		$ 423,711 246,059 185,606 3,003,859 — 113,544 3,972,779 (83,593)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,674,974 $4,677,762 $3,889,186 INCOME TAX AND DEFERRED INCOME TAX (1) Deferred income tax liabilities and assets as of December 31, 2002, 2001 and 2000 are as follows: As of December 31, 2002 2001 2000 Total deferred income tax assets . . . . . . . . . $800,299 $1,025,282 $331,970 Total valuation allowance . . . . . . . . . . . . . . . $ — $ (201,366) $ — Total deferred income tax liabilities . . . . . . . . $ — $ 38,707 $ 23,160 Deferred income tax assets — current . . . . . $ 41,925 $ 62,433 $ 64,807 Valuation allowance . . . . . . . . . . . . . . . . . . . — — — Deferred income tax assets — current (net) 41,925 62,433 64,807 Deferred income tax liabilities — current . . . — (33,044) (20,529) Net deferred income tax assets/(liabilities) — current. . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,925 $ 29,389 $ 44,278 Deferred income tax assets — noncurrent . . $758,374 $ 962,849 $267,163 Valuation allowance . . . . . . . . . . . . . . . . . . . — (201,366) — Deferred income tax assets — noncurrent (net). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758,374 761,483 267,163 Deferred income tax liabilities — noncurrent. — (5,663) (2,631) Net deferred income tax assets/(liabilities) — noncurrent . . . . . . . . . . . . . . . . . . . . . . $758,374 $ 755,820 $264,532
			2002 $800,299 $ — $ —		2001 $1,025,282 $ (201,366) $ 38,707			2000
								$331,970 $ — $ 23,160 $ 64,807 — 64,807 (20,529) $ 44,278 $267,163 — 267,163 (2,631) $264,532
			$ 41,925 — 41,925 —		$ 62,433 — 62,433 (33,044)			$ 64,807 —
								64,807 (20,529
			$ 41,925		$ 29,389
			$758,374 — 758,374 —		$ 962,849 (201,366) 761,483 (5,663)			$267,163 —
								267,163 (2,631
			$758,374		$ 755,820

22. INCOME TAX AND DEFERRED INCOME TAX

F-30

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (2) The temporary differences of deferred tax assets (liabilities), and income tax credits as of December 31, 2002, 2001 and 2000, were summarized as follows:

Deferred income tax assets — current: Allowance for doubtful accounts . . . . . . . . Provision for inventory obsolescence and net realizable value. . Unrealized intercompany profit . . Unrealized exchange (gain) loss — net . . . Others . . . . . . . . . . . Deferred income tax assets — noncurrent: Loss carryforward . . . . Investment tax credits. . Investment loss under equity method . . . . . Others . . . . . . . . . . .			As of December 31,	As of December 31,
	2002 Amount Income tax effect $ 23,454 $ 5,864 4,857 1,214 — — 7,310 1,828 132,076 33,019		2001 Amount Income tax effect $ 232,002 $ 58,000 4,857 1,214 115 29 (115,422) (28,855) (3,996) (999)		2000
	Amount $ 23,454 4,857 — 7,310 132,076		Amount $ 232,002 4,857 115 (115,422) (3,996)		Amount $ 22,343 12,578 542 (68,335) 52,676	Income tax effect
						$ 5,586 3,145 135 (17,084) 52,496
	$ 438,227 187,525 1,478,489 366,680	$ 41,925		$ 29,389		$ 44,278
		$ 109,557 187,525 369,622 91,670	$ — 218,014 890,291 1,260,932	$ — 218,014 222,573 315,233	$ — 235,747 114,041 1,100	$ — 235,747 28,510 275
		$ 758,374		$ 755,820		$ 264,532

• (3) The Components of income tax expenses (benefit) is as follows:

Tax on pre-tax income at statutory tax rate Estimated temporary and permanent differences. . . . . . . . . . . . . . . . . . . . . . . . . Change in investment tax credit . . . . . . . . . . Change in valuation allowance against deferred tax assets . . . . . . . . . . . . . . . . . . Adjustment of prior year’s tax expense . . . . . Tax on interest revenue separately taxed . . . Income tax benefit. . . . . . . . . . . . . . . . . . . . .		For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,	For the years ended December 31,
		2002 $ — (44,727) 40,966 (55,154) 43,658 137		2001 $ 24,853 (449,413) — — 3,215 —		2000
						$ 122,420 (143,236) — — 1,885 —
		$(15,090)		$(421,345)		$ (22,701)

F-31

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (4) Beginning in 1998, an integrated income tax system was implemented in the R.O.C. Under the new tax system, the income tax paid at the corporate level can be used to offset the R.O.C. resident shareholders’ individual income tax. The Company is required to establish an Imputation Credit Account (“ICA”) to maintain a record of the corporate income taxes paid and imputation credit that can be allocated to each shareholder. The credit available to the R.O.C. resident shareholders is calculated by multiplying the dividend by the creditable ratio. The creditable ratio is calculated as the balance of the ICA divided by earnings retained since January 1, 1998.

Information relating to the ICA as of December 31, 2002, 2001 and 2000, is summarized as follows:

Shareholders’ deductible income tax account balance . . . . . . . . . . . . . . . . . . . . Unappropriated earnings in 1997 and before Unappropriated earnings after 1998 . . . . . . . The estimated (actual) deductible tax rate . .	2002 $ 3,397 — 186,995 1.82%	2001 $ 3,911 — — —	2000
			$ 3,911 863 1,034,708 10.42%

• (5) The Company’s income tax returns for the years of 1999 and before were assessed and approved by the Tax Authority.

• (6) As of December 31, 2002, the Company applied for tax deduction of $187,525 thousand for purchasing the pollution preventive equipment, automatic production equipment, and research and development expenditure, the details are as follows:

Total Tax Deduction	Total Tax Deduction		Amount	Year Due
	$ 79,217 142,353 68,278 2,428		$ 79,217 37,602 68,278 2,428	2003 2004 2005 2006
	$292,276		$187,525

• (7) Under the rules of the Income Tax Law, operating loss can be carried forward for 5 years. As of December 31, 2002, the unutilized accumulative loss brought forward amounted to NT$438,227 thousand, which will expire in 2006.

• (8) The tax income (loss) of subsidiaries is estimated at local tax rate.

F-32

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

23. EARNINGS (LOSS) PER SHARE

Outstanding weighted average shares (Thousands) . . . . . . . Income before income tax . . . . . Net income . . . . . . . . . . . . . . Earning per share (New Taiwan dollars) Income before income tax . . . . . Net income . . . . . . . . . . . . . .			As of December 31,	As of December 31,
	2002 Basic Diluted		2001 Basic Diluted		2000
	Basic		Basic		Basic	Diluted
	303,225	369,036	253,345	—	204,087	—
	$ 176,545	$ 196,652	$(1,564,720)	$ —	$1,018,466	$ —
	$ 184,273	$ 199,353	$(1,071,859)	$ —	$1,026,778	$ —
	$ 0.58	$ 0.53	$ (6.18)	$ —	$ 4.99	$ —
	$ 0.61	$ 0.54	$ (4.23)	$ —	$ 5.03	$ —

24. INFORMATION ON DERIVATIVE TRANSACTIONS

As of December 31, 2000, the Company had the following outstanding forward exchange contracts:

Types Foreign Exchange Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Principal Amount December 31, 2000
	USD11,000

(1) Credit risk

Credit risk represents the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. Because the banks, with which the Company has entered into the above contracts are well known in the world, there is no significant credit risk with respect to the above transaction.

(2) Market price risk

The Company enters into derivative transactions to reduce foreign exchange exposures. The profits or losses derived from the fluctuation of exchange rates offset with those derived from hedged accounts. Therefore, the market price risk has minimal effect to the Company.

(3) Liquidity risk, cash flow risk and uncertainty of future cash flow

The amounts of the forward foreign exchange contracts is USD11,000 thousand as of December 31, 2000. The Company engages in these transactions in order to mitigate the probable fluctuations of foreign exchanges when foreign payables are settled. The working capital of the Company is sufficient to meet its future cash flow requirements.

F-33

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (4) As of December 31, 2000, the receivables and payables resulting from the forward exchange contracts are as follows:

Forward exchange contract payable . . . . . . . . . . . . . . . . . . . . . . . . . Forward exchange contract receivable — foreign currency . . . . . . . Deferred unrealized exchange loss. . . . . . . . . . . . . . . . . . . . . . . . . . Premium on forward exchange contract . . . . . . . . . . . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31, 2000	December 31, 2000
		$(364,387) 363,330 1,115 (7)
		$ 51

25. RELATED PARTY TRANSACTIONS

Names and relationships of related parties:

Names of the related parties Infodisc Technology USA, Inc. (“ITUSA”) Hua Shuen Venture Capital Ltd. (“HSVCL”) Digital Information Systems Corp. (“DISC”) Mediacopy Texas, Inc. (“Mediacopy”)	Relationships
	The Company’s equity investee The Company’s equity investee GSHL’s equity investee Affiliated Company

Significant related party transactions:

• (1) Sales:

Name of the related parties ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $ —	2001 $ 25,306	2000
			$ 27,063

The sales terms and collection terms granted to the related parties are the same as those granted to non-related-party customers.

• (2) Purchases:

Name of the related party ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $ —	2001 $ —	2000
			$ 50,721

The purchasing condition and payment terms granted to the related parties are the same as those granted to non-related-party customers.

F-34

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (3) Due from related parties:

Name of the related parties DISC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mediacopy. . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Name of the related parties DISC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mediacopy. . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,	As of December 31,
	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		2002 $ — — —		2001 $ — 4,109 —		2000
							$ 305 25,970 30,392
			$ —		$ 4,109		$ 56,667

The Company acquired Mediacopy in the beginning of the year 2001. At the end of the year 2000, the Company purchased materials on behalf of Mediacopy, so Mediacopy belongs to substantial related party.

• (4) Other receivables — financing activities with related parties:

• a. Loans to related parties:

December 31, 2002

Name of the related parties ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .	Maximum balance during the year $ 70,798	Balance at year end $ 70,798	Interest receivable of the year
			$ 4,626

The Company lent $70,798 thousand to ITUSA, and the borrower shall pay the interest accrued thereon to the Company at the rate of 4.25% per annum.

December 31, 2001

Name of the related party ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .	Maximum balance during the year $640,262	Balance at year end $581,507	Interest receivable of the year
			$ 39,544

The Company lent $581,507 thousand to ITUSA, and the borrower who shall pay the interest accrued thereon to the Company at the rate of 4.75% per annum.

December 31, 2000

Name of the related party ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .	Maximum balance during the year $496,200	Balance at year end $496,200	Interest receivable of the year
			$ —

The Company lent $496,200 thousand dollars to ITUSA, and the borrower shall pay the loan with the interest accrued thereon to the Company at the rate of 6% per annum.

F-35

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• b. Payments on behalf of related parties:

Name of the related parties ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31,	As of December 31,	As of December 31,
	2002 $ 4,880	2001 $ 19,210	2000
			$ —

The Company paid off the expenses related to organization costs and purchase of machineries and materials on behalf of those related parties.

• (5) Due to related parties:

				As of December 31,	As of December 31,
Name of the related parties		2002			2001	2000
ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$		—	$	—	995

The Company outsourced packaging process to ITUSA in 2000.

• (6) Other payables — related parties:

• a. Loans from related parties:

December 31, 2001

Name of the related party ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .	Maximum balance during the year $524,250	Balance at year end $524,250	Interest receivable of the year
			$ 44,866

ITUSA lent 524,250 thousand to Infodisc Global Holding Inc. and the borrower should pay interest at the rate of 4.75% per annum.

• b. Payments on behalf of related parties:

Name of the related parties	Name of the related parties	As of December 31,	As of December 31,	As of December 31,
		2002	2001	2000
ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . .		$ 885	$135,487	$ —

The amount is which ITUSA paid on behalf of related parties.

• (7) Non-operating income — interest income:

Name of the related party ITUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002 $ 2,776	2001 $ 1,849	2000
			$ —

F-36

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (8) The Company purchased materials on behalf of ITUSA in the amount of $1,300 thousand in year 2001.

• (9) The Company sold shares of Integrated Memory Technology, Inc., Pan-Pacific Venture Capital Co., Ltd., Aetas Technology Inc., Champion Consulting Corporation and Formosa Epitaxy Inc., Ampire Co., Ltd. and Auden Technology Mfg. Co., Ltd. to HSVCL in 2002, 2001 and 2000. The proceeds from these disposals were $113,596 thousand, $69,354 thousand and $21,281 thousand.

• (10) As of December 31, 2002, the Company bought 1,550,000 shares of Formosa Epitaxy Inc., from HSVCL in the amount of 69,750 thousand.

• (11) As of December 31, 2000, the Company has provided ITUSA guarantee in the amount of $967,200 thousand.

26. ASSETS PLEDGED AS COLLATERAL

• (1) As of December 31, 2002, 2001 and 2000, the following assets are pledged as collateral:

Descriptions Land, building and equipment . . . . . . . . . . . . Restricted cash and cash equivalents. . . . . . Long-term investment . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Descriptions Land, building and equipment . . . . . . . . . . . . Restricted cash and cash equivalents. . . . . . Long-term investment . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,	As of December 31,	As of December 31,	As of December 31,	As of December 31,
	ing and equipment . . . . . . . . . . . . cash and cash equivalents. . . . . . investment . . . . . . . . . . . . . . . . . .		2002 $3,405,095 330,670 160,000		2001 $2,940,878 215,422 200,000		2000
							$3,843,495 186,882 —
			$3,895,765		$3,356,300		$4,030,377

• (2) Infodisc Global Holding Inc. (“IGHI”) acquired Mediacopy in January 2001. The payment was agreed to be settled in installments. To ensure their rights, the former shareholders of Mediacopy required that the shares of Mediacopy should be pledged as collateral for unsettled installments until IGHI settles all the installments.

27. COMMITMENTS AND CONTINGENT LIABILITIES

• (1) As of December 31, 2002, 2001 and 2000, the Company has the following unused L/Cs (all expressed in thousands):

Currency types JPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EU. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31,	As of December 31,	As of December 31,
	2002 $ 15,324 28 — — 3,400 453 — —	2001 $ 11,245 719 86 — — 632 — 20	2000
			$ 28,000 51 — 2,874 60,003 — — 2,188

F-37

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

• (2) As of December 31, 2002, 2001 and 2000, the Company has the following standby L/Cs (all expressed in thousands):

Currency types	Currency types	As of December 31,	As of December 31,	As of December 31,
		2002	2001	2000
USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		$ 6,330	$ 5,900	$ 32,700

• (3) As of December 31, 2002, the Company has applied for a “dominant new product development plan” to the Industrial Commission Bureau of the Ministry of Economics Affair. In order to obtain the subsidy, the First Commercial Bank offered the Company a performance bond in the amount of $21,000 thousand.

• (4) As of December 31, 2002, the Company has provided stocks of Taiwan Fixed Network Corporation in the shares of 5,000,000 to Pacific Financial Enterprises Corporation (B.V.I) as a collateral to guarantee secured loan of Mediacopy in the amount of USD2,000 thousand. The term is from March 30, 2001 to April 3, 2003.

• (5) As of December 31, 2002, the Company has outstanding contracts amounting to $2,133,175 thousand in equipment purchasing and building construction. The Company has paid $1,260,582 thousand through December 31, 2002.

• (6) As of December 31, 2002, 2001 and 2000, the Company has issued promissory notes in the amount of $1,232,613 thousand, $2,301,233 thousand and $2,425,525 thousand for the purpose of securing bank loans and leasing equipment.

• (7) To strive for globalization, Infodisc Technology Co., Ltd. has invested USD100 million to acquire Mediacopy in the name of its investee company, Infodisc Global Holding Inc. (“IGHI”) on January 2, 2001. The payment was agreed to be settled in four installments, January 2001, June 2001, January 2002, and June 2002. The shares of Mediacopy, as agreed, were fully transferred to IGHI after the first installment made on January 2, 2001.

To ensure their rights, the former shareholders of Mediacopy required that the shares of Mediacopy should be pledged as collateral for the unsettled installments and entrusted to a legal counsel until IGHI settles all the installments. In January and June 2001, the installments were paid punctually, whereas the installments which will be due on January and June 2002 are extended to February 2003, based on the negotiation with the former shareholder of Mediacopy.

After IGHI acquired Mediacopy, the synergy of the merger did not reach to the expectation of the Company. Therefore, the Company and the former shareholders of Mediacopy negotiated to reach a new settlement to reduce the acquisition price from USD100,000 thousand to USD80,000 thousand in March 2003.

• (8) According to other auditor’s report, in relation to the royalty agreement made between Infodisc Technology Korea Limited, Toshiba and Philips, there is a possibility that the actual royalty obligation of Infodisc Technology Korea Limited may differ from the amounts accrued depending on any changes in operation environment of Infodisc Technology Korea Limited, final settlements with licensors and royalty payments by its customers. The ultimate effect of these uncertainties on the financial position and the results of operations of Infodisc Technology Korea Limited as of December 31, 2002 cannot presently be determined and, accordingly, the accompanying financial statements do not include any adjustments that might result from these uncertainties.

F-38

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

28. SIGNIFCANT DAMAGED LOSS

The Company was suffered from flood that lead to damage on inventory in the amount of $19,928 thousand on September 17, 2001 due to a typhoon. This damage has been recognized as other loss.

29. TECHNICAL COOPERATION AGREEMENT

• (1) The Company has entered into a technical-cooperation agreement with Philips for CD-Audio, CD-ROM and CD-Video manufacturing. The contract period is from September 1, 1997 to September 1, 2007.

• (2) The Company has entered into an authorization and manufacturing agreement with WAMO Manufacturing, Inc. for DVD manufacturing. The contract period is from July 4, 1998 to July 3, 2002.

• (3) The Company has entered into a technical-cooperation agreement with Philips of CD-RW manufacturing in July 2001. The contract period is from July 16, 2001 to July 16, 2006.

• (4) The Company has entered into a royalty agreement with WAMO Manufacturing Inc. The contract works on every purchasing agreement after October 30, 2001.

• (5) The Company has entered into a technical cooperation agreement with Philips of DVD manufacturing. The contract period is from June 20, 2002 to June 20, 2012.

• (6) The Company has accrued royalty payable to Philips amounting to $22,421 thousand and to WAMO Manufacturing, Inc. amounting to $12,640 thousand as of December 31, 2002.

F-39

INFODISC TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED)

30. FAIR VALUE OF FINANCIAL INSTRUMENTS

Non-derivative financial instruments:

As of December 31, 2002 2001 2000 Non-derivative Financial Instruments Book Value Fair Value Book Value Fair Value Book Value Fair Value Assets: Cash and cash equivalents . . . . . . . $3,309,525 $3,309,525 $ 290,603 $ 290,603 $1,756,762 $1,726,762 Short-term investments . . . . . . . . . . — — — — 130,259 130,797 Receivables — net. . . . . . . . . . . . . 2,230,381 2,230,381 1,021,175 1,021,175 1,874,399 1,874,399 Restricted cash and cash equivalents . 373,409 373,409 257,608 257,068 186,882 186,882 Long-term investments . . . . . . . . . . 450,980 450,980 561,086 561,086 619,188 619,188 Liabilities: Short-term loans . . . . . . . . . . . . . . 2,512,129 2,512,129 2,076,375 2,076,375 840,702 840,702 Short-term bills payable. . . . . . . . . . 129,810 129,810 139,492 139,492 333,319 333,319 Payables . . . . . . . . . . . . . . . . . . . 1,450,723 1,450,723 1,461,447 1,461,447 592,280 592,280 Current portion of long-term loans payable . . . . . . . . . . . . . . 698,606 698,606 535,075 535,075 412,683 412,683 Bonds payable . . . . . . . . . . . . . . . 7,053 — — — — — Long-term loans payable . . . . . . . . 920,642 — 1,322,931 — 1,340,177 — Capital lease liabilities . . . . . . . . . . 272,148 — 498,995 — — — December 31, 2000 Derivative Financial Instruments Book Value Fair Value Foreign Exchange Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51 $51		As of December 31,	As of December 31,
				2000
						Fair Value
			Book Value $51		Fair Value
					$51

• Note: The market prices of the Company’s long-term equity investment are not available. The methods and assumptions used to estimate the fair value of financial instruments are as follows:

• (1) The fair value of the Company’s short-term financial instruments is based on the book value of those instruments at the reporting date due to the short maturity of those instruments.

• (2) The fair value of the Company’s marketable securities is based on market prices at reporting date if market prices are available. The fair value of Company’s marketable securities is based on financial or any other information if market prices are not available.

• (3) The fair value of the Company’s bonds payable and long-term borrowings is estimated using the book value of the loan at the reporting date.

31. COMPARATIVE FIGURES

Certain comparative figures in 2001 and 2000 have been reclassified to conform which current year presentation.

F-40

REGISTERED OFFICE OF THE COMPANY

Infodisc Technology Company Limited

36 Li Yen Street Chung Ho, Taipei Taiwan, R.O.C.

TRUSTEE

REGISTRAR

The Bank of New York

101 Barclay Street 21st Floor West New York, NY 10286 U.S.A.

The Bank of New York

One Canada Square 48th Floor, London E14 5AL England

PRINCIPAL PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York

One Canada Square 48th Floor, London E14 5AL England

AUDITOR TO THE COMPANY

Diwan, Ernst & Young

9th F1., 333 Keelung Rd., Sec. 1 Taipei 110, Taiwan R.O.C.

ROC LEGAL ADVISOR TO THE COMPANY

LEGAL ADVISOR TO THE MANAGER

Tsar & Tsai Law Firm

8th Floor, 245 Dun Hua S Road Sec. 1 Taipei 106, Taiwan, ROC

Baker & McKenzie

14/F, Hutchison House 10 Harcourt Road Hong Kong

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