GSC - Capital/Financing Update 2014

l reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports l transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports ions[•] debt capital markets Job No.: [•] equity capital markets 9082-1 [•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] finan ancial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial re apital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets • debt capital markets • equity capital markets • annual reports • media placements • quarterly reports • interim reports • financial reports • financial tran l markets[•] Job equity capital markets Name: GIGASTORAGE [•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] orts[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] fin eports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets s[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financ markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] • equity capital markets • annual reports • media placements • quarterly reports • interim reports • financial reports • financial transactions • debt capita eports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets orts[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reportsfinan financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim arterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placem t capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reportsfinancial reports[•] financial transactio ransactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] actions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] finan transactionsCONFIDENTIAL[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets actions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] finan ial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial report ets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt nsactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] fin l reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim repo l transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports ions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financia ancial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial re annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital • debt capital markets • equity capital markets • annual reports • media placements • quarterly reports • interim reports • financial reports • financial tran l markets[•] equity capital markets[•] annual reports[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital market orts[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] fin eports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets s[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financ tal markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] • equity capital markets • annual reports • media placements • quarterly reports • interim reports • financial reports • financial transactions • debt capita eports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets orts[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reportsfinan financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim arterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets[•] annual reports[•] media plac t capital markets[•] equity capital markets[•] annual reports[•] media placements[•] quarterly reports[•] interim reportsfinancial reports[•] financial transactio

eports[•] media placements[•] quarterly reports[•] interim reports[•] financial reports[•] financial transactions[•] debt capital markets[•] equity capital markets

Gigastorage Job: 9082-1 File: 01_cover (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

==> picture [63 x 59] intentionally omitted <==

GIGASTORAGE CORPORATION

US$30,000,000 Zero Coupon Credit Enhanced Convertible Bonds Due 2007 Issue Price: 100%

The US$30,000,000 Zero Coupon Credit Enhanced Convertible Bonds Due 2007 (the ‘‘Bonds’’) will be issued by Gigastorage Corporation (the ‘‘Company’’), a company limited by shares incorporated in Taiwan, Republic of China (‘‘ROC’’ or ‘‘Taiwan’’). Unless previously redeemed, repurchased and cancelled, or converted, the Bonds will be redeemed on [.], 2007 at their principal amount.

The Bonds may be redeemed, in whole or in part, at the option of the Company at any time on or after [.], 2004 and prior to [.], 2007, at their principal amount in US dollars if the Closing Price (as defined herein) of the common shares, par value NT$10 per share, of the Company (the ‘‘Shares’’) on the ~~~~~ Taiwan Stock Exchange (the ‘‘TSE’’) translated into US dollars at the Prevailing Rate (as defined herein) on the same day with respect to such Closing Price for each of the 20 Trading Days (as defined herein) within a period of 30 consecutive Trading Days, is at least 125% of the Conversion Price (as defined herein) of the Bonds then in effect, translated into US dollars at a fixed exchange rate of NT$[.] = US$1.00. The Bonds may also be redeemed, in whole but not in part, at the option of the Company, at their principal amount in US dollars if at least 90% in principal amount of the Bonds has already been redeemed, repurchased and cancelled, or converted. The Bonds may also be redeemed in whole, but not in part, at any time at the option of the Company at their principal amount in the event of certain changes relating to ROC taxation. The Company will, at the option of the holder of any Bond, redeem all (or any portion of the principal amount that is US$1,000 or any integral multiple thereof) of such holder’s Bond on [.], 2005~[and on] [.], 2006 at ~[its][principal][amount.]

The Bonds may be converted (unless previously redeemed, repurchased and cancelled, or converted and except during a Closed Period (as defined herein)) at any time on or after [.], 2004 and prior to the close of business (at the place the Bond is deposited for conversion) on [.], 2007 into Shares. The Conversion Price will initially be NT$[.] per Share and will be subject to adjustment in the manner provided herein. A fixed rate of exchange of NT$[.] = US$1.00 will apply upon conversion of the Bonds. See ‘‘Description of the Bonds — Conversion.’’ The Shares are listed on the ~~~~~ TSE and application will be made to list the Shares to be issued upon conversion of the Bonds on the TSE. On [.], 2004, the closing price of the Shares on the TSE was NT$[.] per Share.

Payments of principal in respect of the Bonds will be supported by an irrevocable standby letter of credit (the ‘‘Letter of Credit’’) to be issued by:

Hua Nan Commercial Bank, Ltd.

Investing in the Bonds involves risks. See ‘‘Risk Factors’’ beginning on page 7.

The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’) or any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act (‘‘Regulation S’’)) unless registered under the Securities Act or an exemption from the registration requirements under the Securities Act is available. The Bonds are being offered and sold pursuant to this Offering Circular only outside the United States to non-US persons in reliance on Regulation S under the Securities Act. For a description of these and certain other restrictions on offers and sales of the Bonds and the Shares to be issued upon conversion of the Bonds, and distribution of this Offering Circular, see ‘‘Transfer Restrictions’’ and ‘‘Plan of Distribution.’’

Hua Nan Securities (H.K.) Limited (the ‘‘Manager’’) expects to deliver the Bonds against payment therefor on or about [.], 2004 (the ‘‘Closing Date’’).

Manager

==> picture [54 x 33] intentionally omitted <==

[.], 2004

Gigastorage Job: 9082-1

File: 01_cover (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

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

The distribution of this Offering Circular and the offering and sale of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company and the Manager 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 ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions.’’ This Offering Circular does not constitute an offer of, or an invitation by or on behalf of, the Company 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 the Company or the Manager. Neither the delivery of this Offering Circular nor any sale made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as at 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 the Closing Date 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’’). Except as described herein, certificates for the Bonds will not be issued in exchange for beneficial interests in the Global Certificate. Interests in the Global Certificate will be subject to certain restrictions on transfer. See ‘‘Transfer Restrictions’’ and ‘‘Summary — The Offering — Form and Denomination of the Bonds.’’

The Bonds and the Shares to be issued upon conversion of the Bonds have not been approved or disapproved by the United States Securities and Exchange Commission, any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Bonds or the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offence in the United States.

Payment of principal on the Bonds will be made after withholding for or on account of certain taxes of the ROC and the Company will pay additional amounts in respect of such withholding to the extent set forth under ‘‘Description of the Bonds — Taxation.’’

In this Offering Circular, references to the ‘‘PRC’’ are to the People’s Republic of China and do not include Hong Kong, Macau or Taiwan. References to the ‘‘ROC’’, ‘‘Taiwan’’ and the Republic of China are to the island of Taiwan and other areas under the effective control of the Republic of China.

The Company has prepared the audited consolidated financial statements as of and for the years ended December 31, 2001, 2002 and 2003 contained herein. These financial statements were prepared in conformity with the ‘‘Rules Governing Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the ROC (together referred to herein as ‘‘ROC GAAP’’) which differ in certain material respects from generally accepted accounting principles in the United States (‘‘US GAAP’’). See ‘‘Summary of Principal Differences between ROC GAAP and US GAAP.’’

Gigastorage Job: 9082-1

File: 01_cover (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

In connection with this issue, to the extent permitted by, and in accordance with, applicable laws and regulations, the Manager may effect transactions with a view to supporting the market price of the Bonds at a level higher than that which might otherwise prevail for a limited period after the Closing Date. However, there is no obligation on the part of the Manager to do this. Such stabilizing, if commenced, may be discontinued at any time, and must be brought to an end after a limited period.

FORWARD-LOOKING STATEMENTS

Certain statements under ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Business’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and elsewhere in this Offering Circular constitute ‘‘forward-looking statements.’’ All statements other than statements of historical facts included in this Offering Circular, including, without limitation, those regarding the Company’s results of operations, financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company’s products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results or performance of the Company, or industry results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Among the important factors that could cause the Company’s actual results or performance to differ materially from those in the forward-looking statements include, among others, conditions affecting the markets for optical storage media products and, in particular, the development of market demand for such products, the ability of the Company to expand its production of such optical storage media products, market supply of and average selling prices for the Company’s principal products and the Company’s ability to reduce unit production costs of its principal products. Additional factors that could cause actual results or performance to differ materially include, but are not limited to, those discussed in ‘‘Risk Factors.’’ These forward-looking statements speak only as of the date of this Offering Circular. The Company expressly disclaims any obligation or undertaking to release publicly updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change of events, conditions or circumstances, on which any such statement was based.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

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

The Company has been advised by Tsar & Tsai, its legal adviser in the ROC, that any final judgment obtained against the Company or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds 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 content and litigation procedures of the judgment are 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, the Company or such persons were legally served within the jurisdiction of such court during reasonable period of time or process was served on the Company 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. Moreover, a party seeking to enforce a foreign judgment in the ROC would, except under limited circumstances, be required to obtain foreign exchange approval from the Central Bank of China (the ‘‘CBC’’) for the remittance out of the ROC of any amounts recovered in respect of such judgment denominated in a currency other than NT dollars (as defined herein).

iii

Gigastorage Job: 9082-1 File: 01_cover (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

TABLE OF CONTENTS

	Page		Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1	The Global Certificate . . . . . . . . . . . . . . . . . .	60
Selected Financial Information . . . . . . . . . . .	3	Exchange Rate Information . . . . . . . . . . . . . .	62
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .	7	Description of The Letter of Credit . . . . . . .	63
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .	15	Description of The Letter of Credit Bank . .	65
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . .	16	Description of The Shares . . . . . . . . . . . . . . .	69
Management’s Discussion and Analysis		Transfer Restrictions . . . . . . . . . . . . . . . . . . .	73
of Financial Condition and Results		ROC Taxation . . . . . . . . . . . . . . . . . . . . . . . . .	75
of Operations . . . . . . . . . . . . . . . . . . . . . . . .	17	Plan of Distribution . . . . . . . . . . . . . . . . . . . .	77
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22	General Information . . . . . . . . . . . . . . . . . . . .	80
Management . . . . . . . . . . . . . . . . . . . . . . . . . .	32	Summary of Principal Differences Between
Market Price of the Shares . . . . . . . . . . . . . .	35	ROC GAAP and US GAAP . . . . . . . . . . . .	81
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36	Index to Financial Statements . . . . . . . . . . . .	F-1
Principal Shareholders . . . . . . . . . . . . . . . . . .	37	APPENDIX A — Foreign Investment and
Related Party Transactions . . . . . . . . . . . . . .	38	Exchange Controls in The ROC . . . . . . . .	A-1
Changes in Share Capital . . . . . . . . . . . . . . . .	40	APPENDIX B — The Securities Market
Description of the Bonds . . . . . . . . . . . . . . . .	41	of The ROC . . . . . . . . . . . . . . . . . . . . . . . . .	B-1

Unless otherwise specified or the context requires, references to ‘‘US dollars’’ and ‘‘US$’’ are to the lawful currency of the United States of America, references to ‘‘New Taiwan dollars’’, ‘‘NT dollars’’ and ‘‘NT$’’ are to the lawful currency of the ROC and references to ‘‘Japanese Yen’’, ‘‘Yen’’ and ‘‘Y=’’ are to the lawful currency of Japan. Unless otherwise specified, where financial information in relation to the Company has been translated into US dollars, it has been so translated, for convenience only, at the exchange rate of NT$33.99 = US$1.00 (the noon buying rate in the City of New York for cable transfer in NT dollars per US dollar as certified for customs purposes by the Federal Reserve Bank of New York (the ‘‘Noon Buying Rate’’) on December 31, 2003). All amounts translated into US dollars as described above are provided solely for the convenience of the reader and no representation is made that the NT dollar or US dollar amounts referred to herein could have been or could be converted into US dollars or NT dollars, as the case may be, at any particular rate or at all. For further information relating to exchange rates, see ‘‘Exchange Rate Information.’’

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

Gigastorage Job: 9082-1 File: 02_main

(X14) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

SUMMARY

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

The Company

The Company manufactures and sells a broad range of optical storage media products. The principal optical storage media products of the Company include compact discs-recordable, or CD-Rs, compact discsrewritable, or CD-RWs and digital versatile discs-recordable, or DVD-Rs. ~[Sales][of][optical][storage][media] products accounted for approximately 90.1% of the Company’s consolidated net operating revenues in 2003. The principal component of the optical storage media sales of the Company was sales of CD-Rs.

The Company’s consolidated net operating revenues grew to NT$2,487.3 million (US$73.2 million) in 2003 from NT$1,778.1 million in 2002 and NT$1,672.0 million in 2001. The Company had consolidated gross profit of NT$635.3 million (US$18.7 million) in 2003 but a consolidated gross loss of NT$59.8 million in 2001 and NT$140.7 million in 2002. The Company’s consolidated net loss was NT$593.0 million and NT$599.4 million, respectively, in 2001 and 2002 and a consolidated net income of NT$199.5 million (US$5.9 million) in 2003. As of December 31, 2003, the Company had consolidated stockholders’ equity of NT$4,059.8 million (US$119.4 million).

The Company was incorporated in the ROC (Registration No. 97178376) on March 26, 1997 under the ROC Company Law. The Company’s registered address is 2 Kuang Fu South Road, Hsinchu Industrial Park, Hsinchu, Taiwan. The Company’s Shares have been listed on the TSE since April 2000.

Strategy

To enhance manufacturing efficiencies by seeking to improve existing manufacturing processes and exploring new cost-reduction opportunities.

The Company believes that manufacturing efficiencies and the ability to lower manufacturing costs have been significant factors in its success. The Company has successfully developed its in-house knowhow in chemical engineering technology such as dye synthesis, which enables it to reduce unit production costs by either manufacturing its own dye or recycling imported dyes and solvents from overseas countries such as Japan. Further, the Company intends to continue to source certain key raw materials, including dyes and solvents for the manufacture of CD-Rs and DVD-Rs, from local suppliers in order to lower its raw material costs. The Company will continue to emphasize its chemical engineering expertise as a means of reduction of production cost and adding value to its existing product ranges.

To provide a comprehensive range of high quality products and services to customers around the world.

The Company intends to continue to strengthen its global sales network in order to provide it with an integrated global franchise and network with close proximity to major customers, especially those in the emerging markets. The Company also intends to establish partnerships with local vendors or distributors in selected markets to expand its business in such markets. Further, the Company intends to continue to enhance its distribution logistics by establishing logistics centers close to key customers and upgrading its information technology systems in an effort to shorten delivery lead time.

To emphasize DVD products.

While broad market acceptance of DVD-Rs has to date been impeded by a number of factors, including the existence of competing DVD formats and issues relating to DVD licensing arrangements, the Company believes that, in the medium term, DVD products and, in particular, DVD recordable products will be an increasingly significant growth area for the Company as the CD-R and CD-RW markets mature. In order to capture this emerging market, the Company is focusing a portion of its capital expenditure on the expansion of its DVD recordable production facilities so that it will be well-positioned to capitalize on the potential growth in the DVD recordable market. In addition, the Company has developed a manufacturing lines conversion procedure, which can convert its CD-R manufacturing facilities into DVD recordable manufacturing facilities in a timely and cost-effective way.

Gigastorage Job: 9082-1 File: 02_main (X14) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

To leverage core technology in optical storage media and diversify into higher growth and higher margin markets.

The Company has, since early 2000, broadened its product lines to include information appliance products. The Company has made efforts to capitalize on the strategic relationships established and technological and manufacturing expertise gained by it as a manufacturer of optical storage media products to diversify into this new business area. For example, the Company has successfully designed key integrated circuit (‘‘IC’’) components, and served as a system integrator, for Hasbro, a major consumer electronics manufacturer in the United States, for the development of its ‘‘Video Now Player’’, a lightweight portable audio device which enables users to play pre-recorded movies in MP3 compression standard. The commercial production of this product commenced in April 2003 and the launch of this product in the United States was in the third quarter of 2003. The Company believes that by entering business of manufacturing information appliance products, it will be able to diversify its revenues and capture new growth opportunities.

Gigastorage Job: 9082-1 File: 02_main (X14) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

Selected Financial Information

The following tables set forth selected financial information derived from the Company’s audited consolidated financial statements as of and for the years ended December 31, 2001, 2002 and 2003. The financial statements of the Company are prepared in conformity with ROC GAAP. ROC GAAP differs in certain material aspects from US GAAP. See ‘‘Summary of Principal Differences between ROC GAAP and US GAAP.’’ The amounts expressed in US dollars do not form part of any of the audited consolidated ~[financial statements of the Company and are provided solely for the convenience of the reader.]

Consolidated Income Statement Data: Net operating revenues. . . . . . . . . . . . . . . . . . . . . Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses. . . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . Income (loss) income tax . . . . . . . . . . . . . . . . . . . Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet Data: Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . . . . . . . . Property, plant and equipment. . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . Total liabilities and stockholders’ equity . . . . . . . .		Year Ended December 31,	Year Ended December 31,	2003 (US$ million) 73.2 (54.5) 18.7 (5.2) (4.7) (2.0) (11.9) 6.8 2.0 (3.1) 5.7 0.2 5.9 2003 (US$ million) 68.9 10.4 82.0 8.9 170.2 26.9 23.8 0.1 50.7 119.4 170.2
	2001 (NT$ million) 1,672.0 (1,731.8) (59.8) (342.8) (174.2) (45.2) (562.2) (622.0) 157.4 (128.4) (593.0) — (593.0)	2002 2003 (NT$ million) (NT$ million) 1,778.1 2,487.3 (1,918.8) (1,852.1) (140.7) 635.2 (173.9) (177.2) (134.7) (162.0) (43.8) (66.6) (352.4) (405.8) (493.1) 229.4 39.2 71.1 (145.5) (106.9) (599.4) 193.6 — 5.9 (599.4) 199.5 As of December 31,
	2001 (NT$ million) 1,974.2 381.1 3,339.6 317.1 6,012.0 902.1 822.1 2.3 1,726.5 4,285.5 ~~~~~ 6,012.0	2002 (NT$ million) 1,782.3 405.5 3,015.2 288.5 5,491.5 1,240.9 591.5 4.1 1,836.5 3,654.9 5,491.5	2003 (NT$ million) 2,342.8 352.5 2,787.3 304.0 5,786.6 912.9 808.9 5.0 1,726.8 4,059.8 5,786.6

Gigastorage Job: 9082-1 File: 02_main (X14) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

The Offering

The following is only a summary and is qualified in its entirety by reference to the ‘‘Description of the Bonds.’’ Capitalized terms used and not defined have the meaning given to them in ‘‘Description of the Bonds.’’

Issuer . . . . . . . . . . . . . .
Issue . . . . . . . . . . . . . . .
Issue Price . . . . . . . . . . .
Closing Date . . . . . . . . .
Status . . . . . . . . . . . . . .
Letter of Credit Bank. . . .
Letter of Credit. . . . . . . .
Conversion . . . . . . . . . . .

Gigastorage Corporation.
US$30,000,000 Zero Coupon Credit Enhanced Convertible Bonds Due 2007.
The Bonds are being offered by the Manager outside the United States in
reliance on Regulation S under the Securities Act.
100%.
[.], 2004.
The Bonds will be direct, unconditional, unsubordinated and, subject to the
provisions set forth under ‘‘Description of the Bonds — Negative Pledge’’,
unsecured obligations of the Company and will rank pari passu without any
preference or priority among themselves shall at all times rank at least
equally
with
all
other
present
and
future
direct,
unconditional,
unsubordinated and unsecured obligations of the Company, except as may
be preferred by mandatory provisions of law.
Hua Nan Commercial Bank, Ltd.
The Letter of Credit Bank has committed to issue the Letter of Credit to
support payments of principal of the Bonds. The Letter of Credit will be
issued on or prior to the Closing Date in favor of the Trustee for the benefit
of the holders of the Bonds. The Letter of Credit will be issued with an
initial face value (not exceeding US$30.0 million) of 100.0% of the principal
amount of the Bonds as of the Closing Date and will be available for
drawings to cover the obligations of the Company to repay the principal
amount in respect of the Bonds upon a failure of the Company to pay such
amount~~~~~
at maturityor upon the Bonds being declared due and payable on the
occurrence of an Event of Default (as defined herein) under the Bonds. See
‘‘The Letter of Credit.’’
The Letter of Credit does not support any other obligations of the Company
under the Bonds, including obligations described under ‘‘Description of the
Bonds
—
Conversion’’,
the
obligations
to
make
payment
of
ROC
withholding tax or the obligation to pay default interest on the Bonds.
Subject to prior permitted redemption and subject as otherwise provided
herein, the Bonds are convertible at any time on or after [.], 2004 and prior
to the close of business (at the place at which the Bond is deposited for
conversion) on [.], 2007, except during any Closed Period, into Shares at a
Conversion Price per Share of NT$[.] (subject to adjustment as described
herein) (the ‘‘Conversion Price’’), determined on the basis of a fixed
exchange rate of NT$[.] = US$1.00. The Company will neither issue
fractions of Shares nor make any cash adjustments in respect of fractions of
Shares. See ‘‘Description of the Bonds — Conversion.’’

Gigastorage Job: 9082-1

File: 02_main (X14) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

Conversion Price Reset . .

The Conversion Price will be adjusted on each of October 25, 2004, October 25, 2005 and October 25, 2006 (each a ‘‘Reset Date’’) in the event that the average closing price of the Shares on the TSE translated into US dollars at the then Prevailing Rate (as defined herein) for the 20 consecutive Trading Days immediately prior to the Reset Date, converted into US dollars at the Prevailing Rate (as defined herein) is less than the Conversion Price then in effect converted into US dollars, at the fixed exchange rate of NT$[.] = US$1.00; provided that, among others, any adjustment to the Conversion Price pursuant to the Conversion Price Reset shall be limited so that the adjusted Conversion Price shall not be less than 80% of the initial Conversion Price (but may be adjusted to reflect any adjustments required under the ‘‘Description of the Bonds’’ which may have occurred prior to the relevant Reset Date). See ‘‘Description of the Bonds — Conversion — Conversion Price Reset.’’

Special Conversion Price After each Special Reset Date (as defined herein), the Company may offer Reset . . . . . . . . . . . . . the holders of the Bonds the option to convert their Bonds for a period of up to seven Business Days, which period shall start on a day selected by the Company but end no later than twelve (12) Business Days prior to the applicable Holders’ Put Date (exclusive of the Holders’ Put Date) or, as the case may be, [.], 2007 (or if such day shall not be a Business Day, the immediately preceding Business Day), at [.]%, [.]% and [.]%, respectively, of the Special Reference Price (as defined herein) on any or all of [.], 2005, [.], 2006 and [.], 2007. See ‘‘Description of the Bonds — Conversion — Special Conversion Price Reset.’’

Negative Pledge . . . . . . . The Company will not, and will not permit any of its Principal Subsidiaries to, create or permit to be outstanding any Security (as defined herein) 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 ‘‘Description of the Bonds — Negative Pledge.’’

Final Redemption . . . . . . Unless previously redeemed, repurchased and cancelled, or converted in the circumstances referred to in ‘‘Description of the Bonds’’, the Bonds will be redeemed at their principal amount in US dollars on [.], 2007. See ‘‘Description of the Bonds — Redemption, Purchase and Cancellation — Redemption at Maturity.’’
Redemption at the Option of The Company may, having given not less than 30 nor more than 60 days’ the Company . . . . . . . . notice to the holders of the Bond, at the option of the Company at any time on or after [.], 2004 and prior to [.], 2007, redeem the Bonds, in whole or from time to time in part (being US$1,000 in principal amount or integral multiples thereof), at their principal amount, if the Closing Price of the Shares, translated into US dollars at the Prevailing Rate on the same day, for each of the 20 Trading Days within a period of 30 consecutive Trading Days, is at least 125% of the Conversion Price then in effect, translated into US dollars at a fixed exchange rate of NT$[.] = US$1.00. The Company may, having given no less than 30 or more than 60 days’ notice to the holders of the Bonds, at the option of the Company at any time, redeem, in whole but not in part, the Bonds at their principal amount, in US dollars, if at least 90% of principal amount of the Bonds has already been redeemed, repurchased and cancelled, or converted. See ‘‘Description of the Bonds — Redemption, Repurchase and Cancellation — Redemption at the Option of the Company.’’

Gigastorage Job: 9082-1

File: 02_main (X14) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

Redemption at the Option of Until and unless previously redeemed, repurchased and cancelled, or Holders of the Bonds . . converted, each holder of the Bonds shall have the right, at such holder’s option, to require the Company to redeem all (or any portion of the principal amount thereof that is US$1,000 or any integral multiple thereof) of such holder’s Bonds on [.], 2005 and on [.], 2006 at the principal amount. See ‘‘Description of the Bonds — Redemption, Repurchase and Cancellation — Redemption at the Option of the Holders.’’ Tax Redemption . . . . . . . The Company may at any time redeem the Bonds, in whole but not in part, at their principal amount, in the event of certain changes in ROC taxation. See ‘‘Description of the Bonds — Redemption, Purchase and Cancellation — Redemption for Taxation Reasons.’’ Form and Denomination of The Bonds will be issued in registered form in the denomination of the Bonds . . . . . . . . . . US$1,000. The Bonds will be offered and sold in principal amounts of US$1,000 or an integral multiple thereof and will be transferable in principal amounts of US$1,000 or an integral multiple thereof.

The Bonds will be represented by beneficial interests in the Global Certificate, which will be registered in the name of a nominee of, and shall be deposited on or about the Closing Date with, The Bank of New York, as common depositary for Euroclear and Clearstream, Luxembourg. Transfer of the Bonds . . . Transfers of interests in the Bonds and the Shares to be issued upon conversion of the Bonds will be subject to certain restrictions. For a discussion of these restrictions, see ‘‘Description of the Bonds — Transfers of the Bonds; Issue of Certificates’’, ‘‘Plan of Distribution’’ and ‘‘Transfer Restrictions.’’ Governing law . . . . . . . . The laws of the State of New York. Trustee . . . . . . . . . . . . . The Bank of New York. Use of Proceeds . . . . . . . The net proceeds of the issue of the Bonds are expected to amount to approximately US$29.9 million. The net proceeds will be used by the Company to purchase raw materials overseas, expand production facilities and purchase machinery and equipment.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

RISK FACTORS

Risks Relating to the Company and its Business

The market for CD-Rs experienced severe downturns during 2000, 2001 and 2002 and may experience further downturns, which would adversely affect the Company.

The Company has depended, and expects to continue to depend, on the optical storage media business, particularly sales of CD-Rs, as its main source of revenue for the foreseeable future. From 2000 to the third quarter of 2002, the worldwide CD-R market experienced sharp declines in average selling prices and profit margins, which were caused by a general market oversupply of CD-Rs. Although the CD-R market has shown signs of recovery since September 2002 and throughout 2003, there can be no assurance that the recovery is sustainable or the CD-R market will not deteriorate further in 2004. There can be no assurance that such price recovery will improve the Company’s profit margin. In order to attempt to maintain its gross margins, the Company has continued to develop or acquire advanced manufacturing technologies or to seek local sources for certain key raw materials to lower its unit production costs, but there can be no assurance that these efforts will enable the Company to manufacture its products on a cost-effective basis.

When CD-R prices have fallen in the past, the Company, like other CD-R manufacturers, has experienced significantly reduced CD-R gross margins and operating margins. One of the factors contributing to the decrease in operating margins is the fact that the royalty payments required to be paid by CD-R manufacturers in connection with their sales of CD-Rs to companies from which such manufacturers license technology are fixed and as a general matter do not fluctuate based on the price at which CD-R manufacturers can sell CD-Rs. There can be no assurance that the Company will achieve CD-R profit margins comparable to those in the past or at all, or that declines in CD-R prices combined with fixed CD-R royalty payments will not further erode operating margins in the future. Any of these factors could have a material adverse effect on the Company’s results of operations and financial condition.

The Company’s results of operations depend on its ability to keep pace with product innovations and changes in technology, which is partly dependent on the Company’s relationships with its major customers.

The optical storage media industry is characterized by rapid changes in design and process technology. Certain optical storage media products have relatively short product lives due to frequent product introductions, rapidly changing technology and evolving industry standards. The Company’s success in these businesses will depend in part on its ability to keep pace with technological developments and emerging industry standards and developing and introducing new products. There can be no assurance that the Company will be able to keep pace with technological developments in the industries in which its businesses operate. Failure to do so could have a material adverse effect on the Company’s results of operations and financial condition.

The Company derives a significant portion of its revenues from a small number of key customers and a loss of one or more of these customers would have a material adverse effect on its business.

During 2001, 2002 and 2003, the five largest customers of the Company accounted for 60.6%, 29.7% and 32.9%, respectively, of its consolidated net sales. In addition, the Company currently plans to increasingly target its sales to one or two major customers in each geographical market, which could lead to a greater concentration of its customer base.

The Company typically does not enter into long-term sales contracts with its customers and such customers may in the future vary order levels significantly from period to period due to various reasons. There is no assurance that the customers of the Company will not cancel orders or that they will continue to place orders with the Company in the future or at the same levels as in the previous periods. Although the Company has long-standing relationships with its largest customers, a substantial reduction in sales to any of these customers could have a material adverse effect on its results of operations and financial condition.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

Market competition may adversely affect the Company’s financial performance.

The optical storage media industry is characterized by rapid technological changes, evolving industry standards, changes in consumer demands and frequent new product innovations. Advances in optical storage media products could lead to new competitive technologies and products that have better performance or lower prices, and could render the Company’s products obsolete. If the Company is unable to adapt to this rapidly changing market on a cost-effective and timely basis, its business, financial condition and results of operations will be materially and adversely affected. The Company’s optical storage media products accounted for 90.1% of its consolidated net operating revenues in 2003. In 2001 and 2002, faced with a general market oversupply, the worldwide CD-R market experienced downward pressures on average selling price and profit margins. While the Company believes that the average selling price of CD-Rs will increase in line with increasing demand and decreasing supply, it cannot assure you that the CD-R market outlook would improve significantly, or at all.

The markets for the Company’s products in Taiwan and abroad are highly competitive and rapidly changing. The Company expects competition to persist and intensify, which could result in price reductions, reduced gross margins and loss of market share for its products.

For the Company’s optical storage media products, it competes with both local and foreign companies. Some of its competitors and potential competitors have a number of significant advantages over the Company, including significantly greater financial, marketing, manufacturing and technological resources, broader product lines, greater brand name recognition and larger customer bases. In addition, some of the Company’s competitors, including Ritek Corporation and Lead Date Inc., are also its customers.

As a result of existing or increased competition, the Company could encounter significant pricing pressures. See ‘‘Business — Competition.’’ These pricing pressures could result in significantly lower average selling prices for the Company’s products. The Company 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 Company cannot assure you that it can successfully compete with any of its existing or future competitors, and failing to do so, its results of operations could suffer.

Ritek Corporation’s interest in the Company may cause diversion of corporate opportunities to Ritek Corporation and reduce the Company’s potential revenues.

In February 2001, Ritek Corporation, an optical disc manufacturer in Taiwan, acquired certain equity interest in the Company and as of February 23, 2004, Ritek Corporation held a 11.68% equity interest in the Company as one of its major shareholders. In addition, four out of the eleven Directors and two out of the three Supervisors of the Company are appointed by Ritek Corporation. Ritek Corporation holds sufficient shares in the capital of the Company to influence its operations, management and policies. This ability to influence is expected to continue. Ritek Corporation is currently among the top two storage media product manufacturers in Taiwan by production volume, and competes with the Company in the optical storage media market. Although the Company is currently targeting different types of customers in different geographical markets, Ritek Corporation’s interest in the Company may create conflicts of interest for directors or executive officers serving both companies, which may result in diversion of corporate opportunities which could otherwise benefit the Company, to Ritek Corporation. As a result, the Company may be subject to competitive disadvantage or lose growth opportunities because of its inability to benefit from those corporate opportunities.

The value of the Company’s Shares may be reduced by possible future sales of the Shares by the Company’s shareholders.

As of February 23, 2004, Ritek Corporation is the largest shareholder of the Company holding 11.68% equity interest in the Company. The Company cannot assure you that one or more existing shareholders will not dispose of significant numbers of Shares. The Company cannot perdict the effect, if any, that future sales of the Shares will have on the market price of the Shares prevailing from time to time. Sales of substantial amounts of the Shares in the public market, or the perception that such sales may occur, could depress the prevailing market price of the Shares.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

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

Similar to other optical storage media product manufacturers, the Company has occasionally received communications alleging that its products or processes infringe product or process technology rights held by others. The Company is currently involved in patent disputes with Koninkijke Philips Electronics N.Y., or Philips, in Taiwan, the Netherlands, Italy, Belgium and the United States, where Philips alleged the production and sale of the Company’s CD-R and/or CD-RW products have infringed its patents. See ‘‘Business — Legal Proceedings.’’ The Company may continue to receive such communications. If the Company’s products or manufacturing processes are found to infringe such third party rights, the Company may be subject to significant liabilities and be required to change its production processes or products. This could restrict the Company 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 the Company’s operating results because of management attention required and legal costs incurred.

Anti-dumping tariffs imposed upon the Company may adversely affect the Company.

In April 2001, the European Commission commenced an anti-dumping investigation into the exports of CD-Rs to European Union countries by certain Taiwanese CD-R manufacturers, including the Company. The European Commission announced the results of its investigation, which included a finding that the Company had violated applicable anti-dumping rules, and imposed a punitive tariff of 20.1% on the Company’s exports of CD-Rs into the European Union in effect from December 20, 2001. In anticipation of the imposition of such tariffs, the Company has since 2001 begun to reduce the sale of its CD-Rs into this market. Sales of CD-Rs to the European Union accounted for approximately 32.3% of the Company’s consolidated net operating revenues in 2000, which was ~[reduced][to] ~~~~~ 1.9% and ~~~~~ 8.3%, respectively, in 2001 and 2002, ~~~~~ and to 9.9% in 2003. Although the Company believes it has taken steps to mitigate its impact, this tariff, in the short- to medium-term, may adversely affect the Company’s ability to compete in the CD-R market in the European Union, and the results of operations and financial condition of the Company could suffer.

On January 21, 2002, based on the recommendation of the Korean Trade Commission, the Minister of Finance and Economy of South Korea announced the imposition of anti-dumping duties with respect to exports of CD-Rs from Taiwan to South Korea, including the Company’s CD-Rs. The ruling imposes a provisional anti-dumping duty of 51.72% on several Taiwan CD-R producers, including the Company, for a period of four months, effective January 21, 2002. In April 2002, the Korean Trade Commission made a final decision to impose a 51.7% dumping duties on several Taiwan CD-R manufacturers, including the Company. In 2001, 2002 and 2003, CD-R sales to South Korea constituted 0.1%, 0.9% and 0.0%, respectively, of the total consolidated net operating revenues of the Company and is expected to be less than this percentage in the short- to medium-term.

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

The Company had in the past entered into a joint license agreement with Philips which covered the patents owned by Philips, Sony Corporation and Taiyo Yudan in order to produce its CD-R products. In January 2001, the joint license agreement has been ruled by the ROC Fair Trade Commission as violating ROC Fair Trade Law. The Company has successfully renegotiated a license agreement with each of Sony Corporation and Taiyo Yudan, respectively, but failed to do so with Philips. The Company currently does not have any license agreement with Philips and is involved in royalty payment disputes with Philips. See ‘‘Business — Legal Proceedings.’’ In additon, the Company also entered into a license agreement with Sony Corporation which cover patents owned by Sony Corporation for the Company’s production of DVD-R products.

In addition, the license agreements between the Company and each of Sony Corporation, Taiyo Yudan and other licensors contain customary termination provisions. The Company is required to make one-time and on-going royalty payments under these license agreements. In the future, the Company may need to obtain additional patent licenses or to renew existing license agreements. The Company cannot assure you that such licenses can be renewed on favorable or competitive terms, or at all. If not, its business and future operating results could be materially and adversely affected. See ‘‘Business — Intellectual Property.’’

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

If the Company is unable to obtain sufficient raw materials or machinery from its suppliers in a timely manner, its production schedules could be delayed and it may lose customers.

The Company depends on a reliable supply of raw materials from third parties in its manufacturing process. To the extent the Company relies on external suppliers, it faces the risk of the suppliers failing to meet its orders on a timely basis, or limiting their supply to the Company or increasing their prices (which the Company may not be able to pass-through to its customers), any of which could materially and adversely affect the results of operations and financial condition. There has been a shortage of the supply of tetrafluoro propanol, or TFP, a raw material used as solvents in the production of optical storage media products, since the second quarter of 2003, and the Company expects this shortage will continue in 2004.

In addition, the Company expects to purchase a significant amount of manufacturing and test equipment to expand its operations. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by equipment vendors, For example, in the past, increased demand for equipment caused some equipment suppliers to only partially satisfy the Company’s equipment orders in the normal lead time frame. The unavailability of equipment or delay in the delivery of equipment could delay implementation of the Company’s expansion plans and impair its ability to meet customer orders. If the Company is unable to implement its expansion plans or meet customer orders, it could lose potential and existing customers.

The Company’s diversification into new businesses or product lines may not be successful.

The Company’s recent expansion into the information appliance business area represents an expansion by the Company into a highly technical and complex business area in which it has little business experience and in which it has had, until recently, little technical expertise. In addition to the costs (including increased management attention) that will be required to be incurred by the Company to expand into this business area, the Company expects to face intense competition in the information appliance market as other companies, including those with more relevant technological and managerial experience, such as computer and mobile phone manufacturers, enter the market.

Within its optical storage media business, the Company has focused a certain amount of capital expenditure on the development of DVD+R and DVD+RW production facilities so that it is wellpositioned to capitalize on the potential growth in demand for DVD+Rs and DVD+RWs.

The Company’s diversification into new businesses will put pressure on its managerial, technical, financial, production, operational and other resources. To manage future growth, the Company must add production and distribution capacity, enhance financing controls and hire additional skilled personnel as well as manage relationships with a greater number of customers, suppliers, equipment vendors and other third parties. There can be no assurance that the Company will be able to successfully compete in these businesses or product areas, that demand in these businesses or for these products will grow to the extent that the Company expects it to, that these businesses or products will provide the returns that the Company expects them to or that the Company’s attempts to expand into these businesses or with respect to these products will be successful. Moreover, there can be no assurance that the implementation of such plans, including the management attention that such implementation is expected to require, will not adversely affect the Company’s existing operations.

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

Effective as of January 1, 2002, 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 for the year ended December 31, 2001, 2002 and 2003 and it intends to continue to comply with this requirement. The information the Company publishes 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 it publishes from time to time pursuant to the requirements of the Taiwan Stock Exchange, or to its audited semi-annual

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

or annual financial statements. Further, because this information is unaudited and unconsolidated, it may vary from the Company’s audited consolidated ROC GAAP financial statements for the same period. Any such variance may be material and adverse.

The Company relies on key personnel.

The Company’s success depends on its ability to attract and retain highly qualified management, engineering and technical personnel. The process of hiring employees with the combination of skills and attributes required to implement the Company’s strategy can be competitive and time-consuming. In particular, the Company’s continuing expansion into the production of information appliance products has required the recruitment of additional employees with specific sets of skills and there can be no assurance that the Company will be able to continue to attract or retain necessary personnel, who are in high demand. The loss of services of key personnel, or the inability to attract additional key personnel, could have a material adverse effect on the Company’s business.

Exchange rate fluctuations may have an adverse effect on the Company’s financial performance.

In 2001, 2002 and 2003, the Company had consolidated net operating revenues derived from sales outside the ROC of approximately NT$859.8 million, NT$1,020.2 million and NT$1,733.1 million (US$51.0 million), respectively. These represented approximately 51.4%, 57.4% and 69.7%, respectively, of the Company’s consolidated net operating revenues, and were settled mainly in US dollars. During the same periods, approximately 29.0%, 54.0% and 55.9%, respectively, of the Company’s raw materials purchases were settled in foreign currencies, principally US dollars and Japanese Yen, with the remainder settled in NT dollars. Consequently, the Company is exposed to fluctuations in exchange rates, particularly between the US dollar and the NT dollar. There can be no assurance that future exchange rate fluctuations will result in net foreign exchange gains for the Company. The impact of future exchange rate fluctuations between these currencies on the Company’s production costs, operating margins and net income cannot be accurately predicted. Although the impact of exchange rate fluctuations has, in the past, been partially mitigated by the Company’s policy of hedging its foreign currency payables through foreign currency options and exchange rate forward contracts, there can be no assurance that the Company will be able to offset any adverse impact of any exchange rate fluctuations in the future.

Risks Relating to the ROC

The Company is subject to risks associated with the political status and international relations of the ROC.

The Company is incorporated in the ROC, and a substantial amount of its assets are located in, and all of its revenues are derived from its production operations in the ROC. The ROC has a unique international political status. The People’s Republic of China asserts sovereignty over all of China (i.e., Taiwan, certain other islands and all of mainland China) and does not recognize the legitimacy of the ROC government.

Although significant economic and cultural relations have been established during recent years between the ROC and the PRC, the government of the PRC has indicated that it may use military force to gain control over Taiwan in some circumstances, such as a declaration of independence by Taiwan. Relations between the ROC and the PRC have been particularly strained in recent years. In particular on December 31, 2003, the Referendum Law was promulgated allowing referenda on a range of issues to be proposed and voted upon. The law includes a provision allowing referenda involving key constitutional issues, including, in the event that Taiwan comes under the risk of military attack from a foreign power, issues of sovereignty such as changes to Taiwan’s flag, official name and sovereign status. The President of the ROC announced in January 2004 that two national security issues would be put to the citizens in Taiwan’s first referendum alongside the presidential election on March 20, 2004. It is unclear what effects any of the events described above may have on relations with the PRC. Certain past developments in relations between the ROC and the PRC have occasionally adversely affected the market value of Taiwanese companies and the value of the Taiwan Stock Exchange Weighted Stock Index (the ‘‘TSE Index’’) and the ROC GreTai Securities Market Index.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

An increase in tension between the ROC and the PRC could adversely affect the market price and liquidity of the Shares and the Bonds, the availability of the PRC as an export market for the Company’s products and the ability of the Company to implement future plans for the development of production facilities in the PRC.

The outbreak of Severe Acute Respiratory Syndrome (‘‘SARS’’) in China, Hong Kong, Taiwan, Singapore, Vietnam and other countries in the first half of 2003 may have an adverse effect on the economies and financial markets of certain Asian countries and may adversely affect the Company’s results of operations.

In the first half of 2003, China, Hong Kong, Taiwan, Singapore, Vietnam and certain other countries encountered an outbreak of SARS, a highly contagious form of atypical pneumonia. To date, the SARS outbreak that occurred in the first half of 2003 has had no significant impact on the Company’s production operations and those of the Company’s suppliers or customers. There is no guarantee that SARS or SARSlike outbreaks will not occur again in the future and no guarantee that any future SARS or SARS-like outbreaks, or the measures taken by the governments of the ROC, Hong Kong, PRC or other countries against SARS or SARS-like outbreaks, will not seriously interrupt the Company’s production operations or those of the Company’s suppliers and customers. While the long-term impact of the SARS outbreak is unclear at this time, the existence of the SARS virus and the perception that the SARS or SARS-like outbreak may occur again may have an adverse effect on the economic conditions of certain countries in Asia.

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

Taiwan is susceptible to earthquakes. On September 21, October 22 and November 2, 1999 and June 11, 2000, 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 any major structural damage to its facilities, there can be no assurance that future earthquakes will not occur and result in major damage to the Company’s facilities, which would have a material adverse effect on the Company’s results of operations and financial condition.

Taiwan is also susceptible to typhoons, which may cause damage and business interruption to companies with facilities located in Taiwan. In 2001, Taiwan experienced severe damage from typhoons, including a typhoon on September 16 that caused over 100 deaths, severe flooding and extensive damage to property and businesses. Although the Company did not experience any material damage or business interruption from typhoon activities in Taiwan, there can be no assurance that the Company will not suffer damage or business interruption due to typhoons, or that the Company’s results of operations and financial condition will not be adversely affected as a result.

In May 2002, Taiwan experienced a severe drought. Although the Company’s manufacturing process does not rely on an adequate supply of water and the Company was not affected by the May 2002 drought directly, any temporary or sustained adverse impact from any future droughts may adversely affect Taiwan’s economic, social or political conditions and may lead to fluctuations in the market price of the Company’s Shares and Bonds.

The value of the Shares and the Bonds 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 and in certain European countries. The TSE Index has had substantial fluctuations in the prices of listed securities and has shown particular volatility following certain political events, market events and scandals and there are currently limits on the range of daily price movements on the TSE Index. The TSE Index peaked at 12,495 points in February 1990, and subsequently fell to a low of 2,560 points in October 1990. On [date], 2004, the TSE Index closed at [.] points. See ‘‘Appendix B — The Securities Market of the ROC.’’ The TSE Index has experienced problems such as market manipulation, insider trading and payment defaults. In addition, the ROC Ministry of Finance (the ‘‘MOF’’) has on occasion restricted the daily downward price movements on the TSE Index to 3.5% from the usual limit of 7% in response to certain

Gigastorage Job: 9082-1

File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

political and economic events. The recurrence of these or similar problems could adversely affect the market price and liquidity of the securities of ROC companies, including the Bonds and the Shares in both domestic and international markets.

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 non-ROC 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 are in excess of US$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. See ‘‘Appendix A — Foreign Investment and Exchange Controls in the ROC.’’

Risks Related to Ownership of the Bonds and the Shares

The market for the Bonds and the Shares may not be liquid.

There has been no trading market for the Shares outside the ROC and the only trading market for the Shares is the TSE. In addition, the Bonds will not be listed on any stock exchange, and there can be no assurance that an active trading market for the Bonds will develop.

In addition, the Manager, or its affiliates, intends to purchase Bonds for its own account and enter into transactions relating to the Bonds, including asset swaps, repackagings and other transactions, which transactions may involve a substantial proportion of the Bonds and may adversely affect the liquidity of any trading market in the Bonds. Such transactions would be carried out as bilateral trades with selected counterparties and separately from any offering, sale or resale of the Bonds to which this Offering Circular relates (notwithstanding that such selected counterparties may also be purchasers of the Bonds). Furthermore, to the extent permitted by, and in accordance with, applicable laws and regulations, the Manager may make a market with respect to the Bonds but is not obligated to do so, and any market-making with respect to the Bonds may be discontinued at any time without notice.

Holders of the Bonds will be required to complete the required registration and appoint an ROC tax guarantor and a local agent.

When holders of the Bonds are a non-ROC person and covert the Bonds or register as the Company’s shareholder, holders of the Bonds are required under current ROC law and regulations to appoint an agent, or a tax guarantor, in the ROC for filing tax returns and making tax payments. A tax guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment, becomes a guarantor of your ROC tax obligations. The Company cannot assure holders of the Bonds that they will be able to appoint and obtain approval for a tax guarantor in a timely manner, or at all.

In addition, in accordance with the regulations governing investment in securities by overseas Chinese and foreign nationals recently amended by the ROC Executive Yuan, if holders of the Bonds are an overseas Chinese or foreign national having not been registered with the Taiwan Stock Exchange, when exercising their conversion right, holders of the Bonds will be required to first register with the Taiwan Stock Exchange and obtain an approval from the Central Bank of China, and then appoint a local agent to, among other things, open a general securities trading account with a local securities brokerage firm to hold or trade the converted common shares, remit funds and exercise shareholders’ rights. Under existing ROC laws and regulations, without such an account, holders of the Bonds will not be able to hold or to sell or otherwise transfer our shares on the Taiwan Stock Exchange or otherwise.

In addition, under current ROC law, holders of the Bonds are required to appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

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

Companies in the ROC generally pay employee bonuses (in the form of cash or stock) to their employees and the Company’s Articles of Incorporation provide that (after certain deductions and provisions) employees should receive bonuses of at least 5% of the Company’s distributable retained earnings if the Company decides to distribute the earnings. When bonuses are paid to employees in Shares, the number of Shares issuable are calculated by reference to the par value of NT$10 per share, notwithstanding that the market value of the Shares as of the dates of the declaration and distribution of the stock bonuses were significantly higher than such par value. Such distributions in the form of new Shares, or further issuances of new Shares, will effectively dilute the holdings and associated rights of holders of the Bonds who convert the Bonds to Shares.

Gigastorage Job: 9082-1

File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

USE OF PROCEEDS

The net proceeds of the issue of the Bonds are expected to amount to approximately US$29.9 million and will be used by the Company to purchase raw materials overseas, expand production facilities and purchase machinery and equipment.

Gigastorage Job: 9082-1

File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

CAPITALIZATION

Set out below are the consolidated short-term borrowings and total capitalization of the Company as of December 31, 2003, as derived from the Company’s audited consolidated financial statements as of that date and as adjusted to reflect the issue of the Bonds. The following table should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in this Offering Circular. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

Borrowings: Short-term debt Short-term bank loans . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term liabilities . . . . . . . . Total short-term borrowings . . . . . . . . . . . . . Long-term debt (net of current portion) . . . . . . . . . The Bonds (now being issued) . . . . . . . . . . . . . . . Total long-term borrowings . . . . . . . . . . . . . Stockholders’ equity: Common stock(2). . . . . . . . . . . . . . . . . . . . . . . Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . Unrealized loss on mark value decline of long-term equity investments. . . . . . . . . . . . . . . . . . . . Cumulative translation adjustment . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . Total capitalization(3)(4) . . . . . . . . . . . . . . . . . . . .	As of December 31, 2003 Actual As adjusted (NT$ million) (US$ million)(1) (NT$ million) (US$ million)(1) 162.2 4.8 162.2 4.8 21.4 0.6 21.4 0.6 192.2 5.7 192.2 5.7 375.8 11.1 375.8 11.1 808.9 23.8 808.9 23.8 — — 1,019.7 30.0 808.9 23.8 1,828.6 53.8 2,638.1 77.6 2,638.1 77.6 1,268.8 37.3 1,268.8 37.3 199.5 5.9 199.5 5.9 (36.7) (1.1) (36.7) (1.1) (9.9) (0.3) (9.9) (0.3) 4,059.8 119.4 4,059.8 119.4 4,868.7 143.2 5,888.4 173.2	As of December 31, 2003 Actual As adjusted (NT$ million) (US$ million)(1) (NT$ million) (US$ million)(1) 162.2 4.8 162.2 4.8 21.4 0.6 21.4 0.6 192.2 5.7 192.2 5.7 375.8 11.1 375.8 11.1 808.9 23.8 808.9 23.8 — — 1,019.7 30.0 808.9 23.8 1,828.6 53.8 2,638.1 77.6 2,638.1 77.6 1,268.8 37.3 1,268.8 37.3 199.5 5.9 199.5 5.9 (36.7) (1.1) (36.7) (1.1) (9.9) (0.3) (9.9) (0.3) 4,059.8 119.4 4,059.8 119.4 4,868.7 143.2 5,888.4 173.2
	Actual (NT$ million) (US$ million)(1) 162.2 4.8 21.4 0.6 192.2 5.7 375.8 11.1 808.9 23.8 — — 808.9 23.8 2,638.1 77.6 1,268.8 37.3 199.5 5.9 (36.7) (1.1) (9.9) (0.3) 4,059.8 119.4 4,868.7 143.2
	(NT$ million) 162.2 21.4 192.2 375.8 808.9 — 808.9 2,638.1 1,268.8 199.5 (36.7) (9.9) 4,059.8 4,868.7	(NT$ million) 162.2 21.4 192.2 375.8 808.9 1,019.7 1,828.6 2,638.1 1,268.8 199.5 (36.7) (9.9) 4,059.8 5,888.4

(1) For convenience purposes only, this figure has been translated at the Noon Buying Rate of NT$33.99 = US$1.00 on December 31, 2003.

(2) The Company’s authorized share capital as of December 31, 2003 was NT$3, ~~~~~ 880.0 million divided into 3 ~~~~~ 88.0 million Shares of which 263.8 million Shares have been issued. All the Shares of the Company have been fully paid up.

(3) Includes long-term debt (net of current portion), total stockholders’ equity at December 31, 2003 and, as adjusted, the Bonds (now being issued).

(4) Save as disclosed herein or elsewhere in this Offering Circular, there has been no material change in the Company’s capitalization since December 31, 2003.

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004 Roman (852) 2850 6000

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

You should read the following discussion of the Company’s financial condition and results of operations together with the audited consolidated financial statements as of and for the years ended December 31, 2001, 2002 and 2003 and the notes to such statements included in this Offering Circular. The Company’s audited consolidated financial statements are prepared in accordance with ROC GAAP, which differ in many material respects from US GAAP. For a discussion of these differences, see ‘‘Summary of Principal Differences Between ROC GAAP and US GAAP.’’

Overview

The Company manufactures and sells a broad range of optical storage media products. The principal optical storage media products of the Company include CD-Rs, CD-RWs and DVD-Rs. In addition to the optical storage media production business, the Company ~~~~~ has in the past engaged in the production of optical storage media related products, such as optical storage-based portable players and duplicators.

The following table shows the breakdown of the Company’s consolidated net operating revenues by category of principal products in 2001, 2002 and 2003:

	Year Ended December 31,	Year Ended December 31,	Year Ended December 31,
2001	% 84.2 0.6 0.2 3.3 11.7 100.0	2002	% 63.7 1.3 3.0 — 32.0 100.0	2003
NT$ million 1,408.2 9.6 2.8 56.5 194.9 1,672.0		NT$ million 1,133.3 23.2 53.4 — 568.2 1,778.1		NT$ million 1,671.0 71.4 490.1 9.0 245.8 2,487.3	% 67.2 2.8 19.7 0.4 9.9
					100.0

(1) Includes the sales of CD-ROMs and DVD-ROMs.

(2) Includes operating revenues from the trading of finished optical storage media products and raw materials for optical storage media products and the sale of other products, such as optical storage-based portable players (including key components for such products) and duplicators.

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 its 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 exceed 3% of its unconsolidated total assets or net sales, if the total assets or net sales of all such unconsolidated subsidiaries exceed 30% of its unconsolidated total assets or net sales, as the case may be. See ‘‘Principal Differences Between ROC GAAP and U.S. GAAP — ROC GAAP — Consolidation.’’ The Company’s consolidated subsidiary in 2001, 2002 and 2003 was Gigastorage Corporation USA, the Company’s wholly-owned subsidiary.

Consolidated Results of Operations

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

Net operating revenues

Net operating revenues increased by 39.9% to NT$2,487.3 million (US$73.2 million) in 2003 from NT$1,778.1 million in 2002. The increase in net operating revenues was attributable principally to an increase in net operating revenues from the sales of CD-R and DVD-R products. Net operating revenues from the sale of CD-R products increased by 47.4% from NT$1,133.3 million in 2002 to NT$1,671.0 million (US$49.2 million) in 2003, mainly reflecting an increase in the average selling price of such

Gigastorage Job: 9082-1

File: 03_main

(X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

products. Average selling price for CD-Rs increased in 2003 was due primarily to a short supply of such products as many optical storage media manufacturers shifted part of their CD-R production capacity to the production of DVD-Rs in that year. Net operating revenues from the sale of DVD-R products increased significantly by 817.8% from NT$53.4 million in 2002 to NT$490.1 million (US$14.4 million) in 2003, mainly reflecting an increase in units sold of such products in 2003. The increase in units sold of DVD-Rs was due to a strong demand for such products and the Company’s obtaining a large purchase order for DVD-R products from a new customer in Europe in that year.

Cost of goods sold

Cost of goods sold decreased by 3.5% from NT$1,918.8 million in 2002 to NT$1,852.1 million (US$54.5 million) in 2003. The decrease in cost of goods sold was due primarily to a decrease in raw material procurement costs for CD-R products. The reduction of raw material procurement costs for CD-Rs in 2003 was due primarily to the increased purchase by the Company of such raw materials as a result of the increased sales of such products, which enabled the Company to bargain for a better purchase price for such raw materials.

Gross profit (loss)

The company recorded gross loss of NT$140.7 million in 2002 but a gross income of NT$635.3 million (US$18.7 million) in 2003. Accordingly, gross margin increased to 25.5% in 2003 from negative 7.9% in 2002. The increase in gross margin reflected principally an increase in average selling price of CD-R products and a change in product mix to include more sales of higher-margin DVD-R products.

Operating expenses

Operating expenses increased by 15.2% from NT$352.4 million in 2002 to NT$405.8 million (US$11.9 million) in 2003, primarily due to an increase in administrative expenses. Administrative expenses increased in 2003 due primarily to the legal fees paid in connection with the Company’s dispute with Philips in the United States and an increase in salary payments due to ~~~~~ additional hiring. As a percentage of net operating revenues, operating expenses decreased from 19.8% in 2002 to 16.3% in 2003.

Operating income (loss)

As a result of the foregoing factors, the Company recorded operating income of NT$229.4 million (US$6.8 million) in 2003, compared to a operating loss of NT$493.1 million in 2002, with operating margin improving to 9.2% in 2003 from negative 27.7% in 2002.

Net non-operating income (expenses)

The Company’s net non-operating expenses decreased 66.3% from NT$106.2 million in 2002 to NT$35.8 million (US$1.1 million) in 2003. Net non-operating expenses in 2002 were primarily due to interest expenses of NT$66.4 million (US$1.9 million) and investment losses of NT$46.0 million. Net nonoperating expenses in 2003 were primarily due to net equity investment loss under equity method of NT$46.9 million (US$1.4 million), mainly from the investment in Taimide Tech. Inc., and interest expenses of NT$44.7 million (US$1.3 million), mainly interest expenses incurred from bank loans.

Net income

As a result of the above factors, the Company generated an income before income tax of NT$193.6 million (US$5.7 million) and net income of NT$199.5 million (US$5.9 million), respectively, in 2003, as compared to a loss before income tax and net loss of NT$599.4 million in 2002.

Year ended December 31, 2002 compared to year ended December 31, 2001

Net operating revenues

Net operating revenues increased by 6.3% to NT$1,778.1 million (US$51.2 million) in 2002 from NT$1,672.0 million in 2001. The increase in net operating revenues was attributable principally to increases in net operating revenues from the sale of duplicators and DVD-Rs, partially offset by a decrease in net

Gigastorage Job: 9082-1

File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

operating revenues from the sale of CD-Rs. The Company commenced the manufacture and sale of duplicators in 2002 and generated net operating revenues of NT$568.2 million (US$16.4 million) in that year. Net operating revenues from the sale of DVD-Rs increased by 1,807.1% from NT$2.8 million in 2001 to NT$53.4 million (US$1.5 million) in 2002, mainly reflecting an increase in units sold, which was partially offset by a decline in the average selling price of such product. Net operating revenues from the sale of CD-Rs decreased by 19.5% from NT$1,408.2 million in 2001 to NT$1,133.3 million (US$32.6 million) in 2002, mainly reflecting a decline in the average selling price, which was partially offset by an increase in the units sold of such product.

Cost of goods sold

Cost of goods sold increased by 10.8% from NT$1,731.8 million in 2001 to NT$1,918.8 million (US$55.2 million) in 2002. The increase in cost of goods sold was due primarily to the increase in units sold of the Company’s products in 2002 compared to 2001.

Gross profit (loss)

Gross loss increased by 135.3% from NT$59.8 million in 2001 to NT$140.7 million (US$4.0 million) in 2002. Accordingly, gross margin decreased to negative 7.9% in 2002 from negative 3.6% in 2001. The decrease in gross margin reflected principally a decline in average selling price of the CD-R products.

Operating expenses

Operating expenses decreased by 37.3% from NT$562.2 million in 2001 to NT$352.4 million (US$10.1 million) in 2002, primarily due to a decrease in selling expenses as a result of decreases in the allowance of doubtful accounts and royalty payments in 2002. As a percentage of net operating revenues, operating expenses decreased from 33.6% in 2001 to 19.8% in 2002.

Operating loss

As a result of the foregoing factors, operating loss decreased by 20.7% from NT$622.0 million in 2001 to NT$493.1 million (US$14.1 million) in 2002, with operating margin improving from negative 37.2% to negative 27.7%.

Net non-operating income (expenses)

The Company had net non-operating income of NT$29.0 million in 2001 and net non-operating expenses of NT$106.3 million (US$3.1 million) in 2002. Net non-operating income in 2001 was primarily due to gains on foreign exchange of NT$50.1 million, income from increased market price of short-term investments of NT$42.9 million and income from increased market price of inventory of NT$37.0 million, partially offset by interest expenses of NT$65.2 million. Net non-operating expenses in 2002 were primarily due to interest expenses of NT$66.4 million (US$1.9 million) and investment losses of NT$46.0 million.

Net income

As a result of the above factors, the Company generated a loss before income tax and net loss of NT$599.4 million (US$17.2 million) in 2002 compared to a loss before income tax and net loss of NT$593.0 million in 2001.

Liquidity and Capital Resources

The Company’s principal sources of cash have been net cash provided by operating activities, bank borrowings, sales of commercial paper and proceeds of issues of new shares for cash. The Company’s primary uses of cash have been to fund capital expenditures and working capital requirements related to its sales growth and expansion relating to optical storage media products. The Company’s net cash provided by operating activities was NT$879.3 million (US$25.9 million) in 2003, compared to net cash used in operating activities of NT$155.3 million in 2002 and NT$188.9 million in 2001.

Gigastorage Job: 9082-1

File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

Accounts receivable and inventories are significant components of the Company’s current assets and require significant working capital. Accounts receivable, on a consolidated basis, increased by 22.7% to NT$587.4 million (US$17.3 million) as of December 31, 2003 from NT$478.9 million as of December 31, 2002, reflecting primarily an increase in the sales of the Company’s products. Accounts receivable, on a consolidated basis, increased by 28.6% to NT$478.9 million as of December 31, 2002 from NT$372.4 million as of December 31, 2001, compared with a 6.3% increase in net operating revenues for the same period, reflecting primarily the Company’s increased sales of its products retained in inventory in the fourth quarter of 2002, which generated a large amount of accounts receivable in that year. Inventories, on a consolidated basis, decreased by 19.8% to NT$245.2 million (US$7.2 million) as of December 31, 2003 from NT$305.7 million as of December 31, 2002, reflecting primarily an increase in the sales of the Company’s products. Inventories, on a consolidated basis, decreased by 22.0% to NT$305.7 million as of December 31, 2002 from NT$392.0 million as of December 31, 2001, principally due to the Company’s increased sales of products retained in inventory in the fourth quarter of 2002.

The Company made capital expenditures of NT$197.1 million (US$5.8 million) in 2003 compared to NT$109.0 million for the same period in 2002. The capital expenditures in 2003 were made primarily to acquire machinery and equipment for DVD production. In connection with the expansion of its production capacity, the Company made capital expenditures, on a consolidated basis, of NT$197.1 million (US$5.8 million), NT$109.0 million and NT$97.0 million in 2003, 2002 and 2001, respectively, to acquire machinery and equipment and other fixed assets and to procure raw materials for use in its optical storage media production.

On a consolidated basis, long-term investments decreased to NT$352.5 million (US$10.4 million) in 2003 from NT$405.5 million in 2002 and from NT$381.1 million in 2001. The decrease in long-term investments in 2003 compared to 2002 was due primarily to the Company’s dispose of its investments in Lead Data Inc., partially offset by an increase in its investments in Taimide Tech. Inc. and ID Interactive. The increase in long-term investments in 2002 compared to 2001 was due primarily to additional long-term investments in Prorit Corporation of NT$60.0 million (US$1.7 million) and Informax Optical Technology Corporation of NT$21.0 million (US$0.6 million) in 2002.

The Company has budgeted capital expenditures in 2004 of NT$815.8 million (US$24.0 million) primarily for equipment purchases in connection with the production of DVDs. The budgeted amount 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. The Company does not anticipate significant additional capital expenditures in connection with its information appliance business during 2004.

As of December 31, 2003, the Company had available long-term credit lines, on a consolidated basis, of NT$1,698.0 million (US$50.0 million), of which NT$502.0 million (US$14.8 million) had been drawn down. As of December 31, 2003, the Company had available short-term credit lines, on a consolidated basis, of NT$1,387.2 million (US$40.8 million), of which approximately NT$162.2 million (US$4.8 million) had been drawn down.

In August 2003, the Company issued US$20 million of zero coupon credit enhanced convertible bonds (the ‘‘2003 Convertible Bonds’’). The 2003 Convertible Bonds are convertible into the Company’s Shares at the option of the bondholders. The 2003 Convertible Bonds are scheduled to mature in August 2008 and are redeemable by the Company under certain conditions beginning in March 2004. The bondholders may require the Company to repurchase the 2003 Convertible Bonds in September 2005 and September 2006. As of February 23, 2004, bondholders had exercised conversion rights to receive 11,800,244 of the Company’s Shares.

The net proceeds of the issue of the Bonds are expected to amount to approximately US$29.9 million. The net proceeds will be used by the Company to purchase raw materials overseas, expand production facilities and purchase machinery and equipment.

Foreign Currency Exposure

In 2003, 2002 and 2001, the Company had net operating revenues, on a consolidated basis, derived from sales outside Taiwan of NT$1,733.1 million (US$51.0 million) (or 69.7% of net operating revenues), NT$1,020.2 million (or 57.4% of net operating revenues) and NT$859.8 million (or 51.4% of net operating revenues), respectively. Such net operating revenues were settled mainly in US dollars. During the same

Gigastorage Job: 9082-1 File: 03_main (X10) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

periods, approximately 55.9%, 64.0% and 29.0%, respectively, of the Company’s raw material purchases were settled in foreign currencies, principally US dollars and Japanese Yen, with the remainder settled in NT dollars. The Company has outstanding significant accounts receivable and other assets, and significant liabilities denominated in US dollars. Consequently, the Company’s results of operations are affected by fluctuations in the exchange rates among US dollars, NT dollars and Japanese Yen, with the Company’s US dollar denominated revenues and income characteristically exceeding its US dollar and other foreign currency costs and expenses. The effects of such fluctuations are partially mitigated by the Company’s hedging of its foreign currency exposure through foreign currency options and exchange rate forward contracts.

Inflation

The Company does not believe that inflation in Taiwan, where the majority of its operations are located, has had a material impact on its results of operations.

Income Tax

The statutory income tax rate applicable to the Company in the ROC is 25%. 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 the amendment, all after-tax earnings generated after January 1, 1998 and not distributed to shareholders as dividends for the year in which such retained earnings were generated will be assessed a 10% tax. However, the Company has benefited and expects to benefit from tax holidays in respect of the income from certain of its products. The Company has been granted one five-year tax holiday in respect of income derived from CD-R and DVD-ROM products commencing from 2000 and another fiveyear tax holidays in respect of income derived from CD-R, CD-RW and DVD-ROM products commencing from 2005. In addition, the Company benefits from tax credits at various rates available on the acquisition of certain machinery for production or equipment purchases and expenses for research and development. As of December 31, 2003, the Company had approximately NT$232.3 million (US$6.8 million) in unused tax credits which will progressively expire between 2004 and 2007.

Gigastorage Job: 9082-1 File: 04_main

(x12) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

BUSINESS

Introduction

The Company manufactures and sells a broad range of optical storage media products. The principal optical storage media products of the Company include CD-Rs, CD-RWs and DVD-Rs. In addition, the Company ~~~~~ has in the past engaged in the production of optical storage media related products, such as optical storage-based portable players and duplicators. Sales of optical storage media products accounted for approximately 90.1% of the Company’s consolidated net operating revenues in 2003. The principal component of the optical storage media sales of the Company was sales of CD-Rs.

The Company’s consolidated net operating revenues grew to NT$2,487.3 million (US$73.2 million) in 2003 from NT$1,778.1 million in 2002 and NT$1,672.0 million in 2001. The Company had consolidated gross profit of NT$635.3 million (US$18.7 million) in 2003 but a consolidated gross loss of NT$59.8 million in 2001 and NT$140.7 million in 2002. The Company’s consolidated net loss was NT$593.0 million and NT$599.4 million respectively, in 2001 and 2002 and a consolidated net income of NT$199.5 million (US$5.9 million) in 2003. As of December 31, 2003, the Company had consolidated stockholders’ equity of NT$4,059.8 million (US$119.4 million).

Strategy

To enhance manufacturing efficiencies by seeking to improve existing manufacturing processes and exploring new cost-reduction opportunities.

To provide a comprehensive range of high quality products and services to customers around the world.

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

To emphasize DVD products.

While broad market acceptance of DVD-Rs has to date been impeded by a number of factors, including the existence of competing DVD formats and issues relating to DVD licensing arrangements, the Company believes that, in the medium term, DVD products and, in particular, DVD recordable products will be an increasingly significant growth area for the Company as the CD-R and CD-RW markets mature. In order to capture this emerging market, the Company is focusing a portion of its capital expenditure on the development of its DVD recordable production facilities so that it will be well-positioned to capitalize on the potential growth in the DVD recordable market. In addition, the Company has developed a manufacturing lines conversion procedure, which can convert its CD-R manufacturing facilities into DVD recordable manufacturing facilities in a timely and cost-effective way.

To leverage core technology in optical storage media and diversify into higher growth and higher margin markets.

The Company has, since early 2000, broadened its product lines to include information appliance products. The Company has made efforts to capitalize on the strategic relationships established and technological and manufacturing expertise gained by it as a manufacturer of optical storage media products to diversify into this new business area. For example, the Company has successfully designed key IC components, and served as a system integrator, for Hasbro, a major consumer electronics manufacturer in the United States, for the development of its ‘‘Video Now Player’’, a lightweight portable audio device which enables users to play pre-recorded movies in MP3 compression standard. The commercial production of this product commenced in April 2003 and the launch of this product in the United States is expected in the third quarter of 2003. The Company believes that by entering business of manufacturing information appliance products, it will be able to diversify its revenues and capture new growth opportunities.

Products

The principal business of the Company is the manufacture and sale of optical storage media products. The principal optical storage media products produced by the Company are CD-Rs, CD-RWs and DVD-Rs.

In addition to the sale of optical storage media products manufactured by the Company, the Company also engages in trading activities relating to such products. The trading activities include the purchase of certain types of optical storage media products from other manufacturers, including Ritek Corporation and Lead Data Inc., for resale to the Company’s customers. The Company also sells raw materials for the production of optical storage media products to other manufacturers, including Ritek Corporation and Lead Data Inc. The revenues so generated are recorded as other operating revenues of the Company.

The following table shows the Company’s consolidated net operating revenues by category of principal products in the periods indicated:

	Year Ended December 31,	Year Ended December 31,	Year Ended December 31,
2001	% 84.2 0.6 0.2 3.3 11.7 100.0	2002	% 63.7 1.3 3.0 — 32.0 100.0	2003
NT$ million 1,408.2 9.6 2.8 56.5 194.9 1,672.0		NT$ million 1,133.3 23.2 53.4 — 568.2 1,778.1		NT$ million 1,671.0 71.4 490.1 9.0 245.8 2,487.3	% 67.2 2.8 19.7 0.4 9.9
					100.0

(1) Includes the sales of CD-ROMs and DVD-ROMs.

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

Optical Storage Media Products

Compact Disks — Recordable

The Company began commercial production of CD-Rs in November 1997. The Company currently produces primarily 48X and 52X speed CD-Rs. As of December 31, 2003, the aggregate monthly production capacity of the Company for the manufacture of CD-Rs was approximately 24.0 million units. In 2003, 2002 and 2001, the Company’s CD-R sales accounted for 67.2%, 63.7% and 84.2%, respectively, of its consolidated net operating revenues.

CD-Rs are non-erasable recordable disks which are mainly used for high quality digital audio and video recording and high capacity data storage for computers. CD-Rs have a standard size with a diameter of 8 or 12 centimeters and a thickness of 1.2 millimeters. Data may be recorded on a CD-R only once. A standard CD-R disk can store up to approximately 700 megabytes (‘‘MB’’) of data and its storage life is approximately 100 years. Due to their non-erasable characteristics, CD-Rs are often used for data exchange applications and for long-term record storage or for the archiving of data. They are also widely used by individual end-users for Internet downloads and virus protection.

The basic manufacturing process for CD-Rs consists of injecting a mould with substrate, substrate cooling, dye coating, edge cleaning, drying, sputtering, lacquering, ultraviolet curing and, subject to a quality check inspection at each stage, packaging and storing. The Company believes that the dye is the most critical raw material used in the production of CD-Rs and therefore places particular emphasis in ensuring that its dyes are of high quality. The Company also developed its own in-house technology for designing and producing the dye used in the manufacture of CD-Rs. Such expertise has in the past enabled the Company to reduce the production cost of CD-Rs significantly, thereby enhancing the overall competitiveness of the Company’s products. The Company currently sources certain key raw materials, including dyes and solvents for the manufacture of CD-Rs, from local suppliers, which enables the Company to reduce unit production cost. For raw materials which the Company sources from overseas countries such as Japan, it is able to reduce its unit production cost of CD-Rs by applying its in-house dye technology to recycle the imported dye and solvents.

Compact Disks — Rewritable

The Company began commercial production of CD-RWs in October 1998. In 2003, 2002 and 2001, the Company’s CD-RW sales accounted for 2.8%, 1.3% and 0.6%, respectively, of its consolidated net operating revenues.

CD-RWs are rewritable compact disks. CD-RWs have standard sizes with diameters of 8 or 12 centimeters and a thickness of 1.2 millimeters. The storage capacity of a standard CD-RW is approximately 650 MB and its storage life is approximately 30 years. The main advantage of CD-RWs, compared to CD-Rs, is that they can be rewritten approximately 1,000 times.

The manufacturing process for CD-RWs is similar to that for CD-Rs, with the major difference being that the sputtering process is more sophisticated.

Digital Versatile Disks — Recordable and Rewritable

There are five different writable and recordable formats of DVD-ROM discs: DVD-R, DVD-RAM, DVD-RW, DVD+RW, and DVD+R. All DVD recorders can read DVD-ROM discs, but each uses a different type of disc for recording. DVD-Rs and DVD+Rs can record data once, like CD-Rs, except that they have significantly higher storage capacity. DVD-RAMs, DVD-RWs, and DVD+RWs can be rewritten thousands of times, like CD-RWs, except that they have a significantly higher storage capacity. DVD-Rs first became commercially available in the fall of 1997, DVD-RAMs followed in the summer of 1998, DVD-RWs in December 1999 and DVD+Rs in mid-2002.

The official specification for DVD-ROM was developed by a consortium of ten companies: Hitachi, JVC, Matsushita, Mitsubishi, Philips, Pioneer, Sony, Thomson, Time Warner, and Toshiba. Representatives from many other companies also contributed in various working groups. In May 1997, the DVD Consortium was replaced by the DVD Forum, which is open to all companies. The Company is a member of the DVD Forum.

Gigastorage Job: 9082-1

File: 04_main

(x12) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

The Company started commercial production of DVD-Rs in July 2000 and is scheduled to commence commercial production of DVD+Rs in first quarter of 2004. In 2003, 2002 and 2001, the Company’s DVDR sales accounted for 19.7%, 3.0% and 0.2%, respectively, of its consolidated net operating revenues.

The manufacturing process for DVD-ROM discs is similar to that for CD-Rs, with the major difference being that there is an additional binding process in the production of DVD-ROM discs.

Other Products

DVD Modules

The Company commenced the manufacture and sale of DVD modules in early 2004. DVD modules are semi-finished products for DVD players or DVD writers, which contain certain key components, including pick-up heads, driver integrated circuit and loaders. The Company principally purchases these key components and outsourced the manufacture requirements to third-party contract manufacturers. The Company believes it can procure certain key components for DVD modules at lower cost which enables it to sell such products with ~~~~~ compatitive terms.

Other Products Under Development

In addition to the products discussed above, the Company is engaged in the research and development of other information appliance products. For example, the Company has successfully designed key IC components for the MP3 player product Video Now Player for Hasbro, a major consumer electronics manufacturer in the United States. The commercial production commenced in April 2003 and the product were launched in the United States in July 2003. The Company is engaged in further research and development with a view to improving the resolution of the existing MP3 players.

Production Facilities

The Company currently operates two production facilities in Hsinchu Industrial Park in Hsinchu, Taiwan. The Giga I factory was established in November 1997 with a gross floor area of approximately 4,783 square meters. The land on which the Giga I factory was built is owned by the Company. The Giga I factory’s monthly production capacity for the manufacture of CD-Rs was approximately 5 million units as of December 31, 2003. The Giga II A factory was established in October 1999 with a gross floor area of approximately 17,064 square meters. The land on which the Giga II A factory was built is owned by the Company. The Giga II A factory’s monthly production capacity for the manufacture of CD-Rs was approximately 20 million units as of December 31, 2003.

The Company plans to expand its production capacity by establishing a new production facility, the Giga II B factory, on the site adjacent to the existing Giga II A factory. The Company expects to complete the construction of this factory and commence production in the second quarter of 2004. The company expects to complete the ramp-up of this new factory by 2006 and is expected to have monthly production capacity at such factory for the manufacture of CD-Rs and DVD±Rs of approximately 20 million.

Raw Materials

Raw materials accounted for approximately 44.0%, 40.0% and 39.7%, on a consolidated basis, of the Company’s total production costs in 2001, 2002 and 2003, respectively. In 2003, over half of the Company’s raw materials were sourced outside the ROC, mainly from Japan.

The main raw materials for the optical storage media products are polycarbonates, dyes, targets, lacquers and oil ink. The Company generally sources its raw materials from suppliers in Taiwan, the United States and Japan. In recent years, the Company has been able to reduce the unit production cost of CD-Rs by utilizing its own in-house technique to produce dyes (a key component of recordable optical disk) as well as by using its in-house dye technology to recycle imported dyes and solvents.

The Company does not enter into long-term supply contracts for its raw materials. However, the Company places orders on a quarterly basis and provides rolling forecasts to suppliers for certain key raw materials such as polycarbonates, dye and silver. The Company generally maintains a raw material inventory of approximately one month’s supply, as a safeguard against potential supply disruptions.

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 41 24/02/2004

Roman (852) 2850 6000

Payment terms are generally 30 to 120 days from the date of invoice. The Company does not consider itself to be materially reliant on any particular supplier for raw materials and has not experienced any significant disruption in supplies in the past. However, there has been a shortage of the supply of tetrafluoro propanol, of TFP, a raw material used as solvents in the production of optical storage media products, since the second quarter of 2003, and the Company expects this shortage will continue in 2004. See ‘‘Risk Factors — If the Company is unable to obtain sufficient raw materials or machinery from its suppliers in a timely manner, its production schedules could be delayed and it may lose customers.’’

Sales and Marketing

The sales department at the Company’s headquarters in Hsinchu is responsible for the Company’s sales and marketing activities. In addition, the Company’s wholly-owned subsidiary, Gigastorage Corporation USA, serves as its sales and customer service office in the United States. As of December 31, 2003, the Company had 25 personnel responsible for sales and marketing activities.

The Company’s sales and marketing strategy is focused on satisfying customers with high quality products, prompt and timely delivery, good after-sales service and competitive pricing. The Company also advertises its products and attends trade fairs and exhibitions to promote its sales.

The majority of the Company’s optical storage media products are sold to local private label manufacturers and retail distribution channels on a no-brand basis, with a small portion of its products under its own brand name ‘‘Cursor.’’ Although the Company has established a large and diversified customer base located in over 15 countries, the Company’s sales are concentrated in a relatively small number of key customers. During 2001, 2002 and 2003, the five largest customers of the Company accounted for 60.6%, 29.7% and 32.9%, respectively, of its consolidated net sales. In addition, the Company has in the past manufactured and sold certain optical storage media products to Ritek Corporation. For example, in 2001, the Company manufactured and sold CD-Rs to Ritek Corporation, which accounted for 23.0% of its total net operating revenues in that year.

For a majority of its sales, the Company does not typically enter into long-term purchase and sale agreements with its customers. Instead, for planning purposes, such customers typically supply the Company with non-binding rolling forecasts, which form the basis of purchase orders at a later point in time.

The following table sets forth the consolidated net operating revenues of the Company and percentage breakdown, categorized by geographic region to which its products were shipped, for the periods indicated.

Taiwan . . . . . . . . . . . . . . . . . . . . . . . Asia (excluding Taiwan) . . . . . . . . . . . North and South Americas . . . . . . . . . . Europe. . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . .	Year Ended December 31,	Year Ended December 31,
	2001 NT$ million % 812.2 48.6 219.7 13.1 595.4 35.6 32.3 1.9 12.4 0.8 1,672.0 100.0	2002 NT$ million % 757.9 42.6 308.9 17.4 415.0 23.3 147.9 8.3 148.4 8.4 1,778.1 100.0	2003
			NT$ million % 754.2 30.3 ~~~~~ 891.4 ~~~~~ 35.9 547.2 22.0 246.7 9.9 ~~~~~ 47.8 ~~~~~ 1.9 2,487.3 100.0

Quality Control

The Company believes that key factors in its success have been the high quality and reliability of its products achieved by following strict quality control procedures and the use of automated production facilities.

Components and raw materials are subject to quality control inspection and testing according to the Company’s specifications before they enter the production line. The quality requirement is particularly high for certain critical components and materials which directly determine the quality and performance of finished products. Such materials are either manufactured and supplied from within the Company or sourced from third party suppliers. In-process quality control procedures are implemented at each stage of the manufacturing processes. Different types of testing equipment are used to ensure compliance with different

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

customers’ quality requirements. Inspection of all finished recordable products is performed on a random sampling basis and concentrates on critical areas such as the reliability and compatibility check of the optical storage media products.

The Company has been certified as meeting the ISO 9001 quality standards in August 1999 for its Giga I factory and Giga II factory in respect of its manufacture of CD-Rs, CD-RWs and DVD-Rs.

Research and Development

To continuously enhance the quality of the Company’s products and to maximize its cost efficiency, the Company has dedicated its research and development efforts to process- and product-related research and development in respect of its various existing product lines, focusing on improving process efficiency and lowering production cost. The Company also has project orientation teams that serve as a link between the production and research departments, and that focus on production process control to facilitate the development of new products and to improve production efficiency.

In addition to its in-house research and development activities, the Company also works with local raw material suppliers to develop and promote new raw materials for optical storage media products to improve the quality and reduce costs of such raw materials. Additionally, the Company engages in cooperative research efforts with the Bureau of Industry, Ministry of Economic Affairs and universities in Taiwan for the development of process- and product-related technologies.

For 2001, 2002 and 2003, the total research and development expenditures of the Company amounted to 2.7%, 2.5% and 2.7%, respectively, of the Company’s consolidated net operating revenues.

The Company focuses its research and development efforts with respect to optical storage media products on developing new products in line with market demand, improving existing products, lowering cost of production and enhancing production efficiency. These efforts have enabled the Company to minimize its production costs by increasing yield rates and reducing downtime, and to meet its customers’ specific production requirements. For example, the Company’s researched development efforts that led to the replacing of gold reflective layers with silver ones resulted in lower production costs. The Company has also developed a cyanine dye for DVD-Rs to reduce its product cost and reliance on third parties for the supply of these raw materials. The Company is currently engaged in enhancing its DVD technology in terms of reliability, quality, cost reduction and mass production. The Company has developed four-time writing speed DVD-Rs which the Company believes to be compatible with most of the four-time DVD-dual writers in the market. The Company expects its research to focus on future high capacity storage technology development, including volumetric storage, DVD-Blue and multi-layer storage.

The Company has also made research and development efforts relating to information appliance technology, including MP3 compatible systems. The Company has jointly developed with Samsung Taiwan a MP3 Mini-CD Player, a lightweight device enabling users to play media in either compact disc digital audio, or CD-DA, format, or in MP3 format. The Company has also successfully developed certain key IC components for the MP3 player product Video Now Player for Hasbro, a consumer electronics manufacturer in the United States. The Company is engaged in further research and development for the improvement of the resolution of the existing MP3 players.

Competition

The markets in which the Company’s products are sold have become increasingly competitive in recent years. The Company’s products compete against those produced by foreign companies. With price competition, particularly for CD-Rs, intensifying from 2000 to 2002, a number of major CD-R manufacturers have proceeded with significant capacity expansion plans, including Memorex as well as local ROC companies, such as Ritek Corporation, CMC Magnetics Corporation and ProDisc Technology Inc. Some of these competitors already hold a significant share of their relevant markets. This increased competition and downward price pressure has had the effect of driving a number of the Company’s smaller competitors, as well as certain of its competitors operating in Japan’s higher-cost production environment, out of the business.

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

Despite the market competition, the Company believes that it is well-positioned to maintain its position in the storage media industry. The Company has a large and diversified customer base worldwide. The Company believes that product quality, good after-sales service, competitive pricing, product design innovation, technological expertise, close relationships with reliable suppliers and efforts in fostering customer loyalty are all key factors in preserving its competitive strength in the industry. The Company believes that the expertise and experience of its management, coupled with its awareness of market movements through strategic relationships with major customers, should position the Company to diversify quickly into other sectors in the information storage media industry such as CD-RWs, DVD-RAMs, DVDRs, DVD+RWs and DVD+Rs and into newer areas such as information appliance products and components.

Information appliance products have relatively short product lives due to frequent product introductions, rapidly changing technology and evolving industry standards and the Company expects that the level of competition in its information appliance businesses will be intense. In addition, production of information appliance products involves a highly complicated manufacturing process and will require the Company to hire and maintain a highly skilled labor force to focus on this area. The Company believes that personal computer manufacturers and other companies in related fields will enter this market as they look to expand their business and as margins decrease in their respective business areas. The Company believes that its technological and production know-how, its access to new technology through its existing inter-company relationships and its established customer delivery channels will position it to compete effectively in this business area.

Intellectual Property

The Company owns various patents and trademarks. The Company has registered, among others, ‘‘Gigastorage’’ and ‘‘Cursor’’ as trademarks in Taiwan in the categories relating to optical storage media products. The Company holds a number of patents in the area relating to its manufacturing processes in the ROC. Currently, the Company has four patent applications pending in the United States, Canada and the PRC. The Company believes that its intellectual property rights are valuable and intends to protect its investments in technology by enforcing its intellectual property rights.

The Company was duly licensed by, and made royalty payments to, Philips for the manufacture and sale of its CD-R products. For each unit of CD-R, the Company paid a royalty fee per unit of 10 Japanese Yen (approximately US$0.08) or 3% of the net selling price of CD-Rs, whichever is higher, to Philips for the years 1997 to 2000. In light of the continued decrease in the selling price of CD-Rs, the Company failed to renegotiate with Philips to lower the royalty rate and ceased to make royalty payments to Philips since the second quarter of 2000. The Company currently is involved in disputes with Philips in Taiwan, the Netherlands, Italy, Belgium and the United States. See ‘‘— Legal Proceedings.’’

In addition, the Company is also required to pay royalties in respect of its CD-R products to Sony Corporation and Taiyo Yuden. Pursuant to an agreement between the Company and Sony Corporation dated April 4, 2003 for CD-R products, the Company pays Sony Corporation per-unit royalty fees that vary inversely with the number of units produced. The Company entered into an agreement with Taiyo Yuden on April 22, 2003 which set out royalty arrangements for CD-R products. Royalty rate paid to each of Sony and Taiyo Yuden by the Company are lower than the royalty rate paid to Philips in respect of its CD-R production.

The Company is also required to pay license expenses to DVD Format Licensing Corp. in respect of the formats of DVD-R, DVD-ROM and DVD-RAM. The Company entered into a license agreement with Sony Corporation and make per-unit royalty payments in resport of its DVD-R products.

In 2001, 2002 and 2003, on an unconsolidated basis, the Company incurred NT$103.0 million, NT$59.0 million and NT$64.6 million (US$1.9 million), respectively, in total royalty expenses.

Insurance

The Company maintains insurance policies with independent third parties in respect of buildings, vehicles and equipment and inventory located in its premises. The Company’s current insurance coverage includes losses resulting from flood, fire, earthquake, explosion, strike or riot, of up to approximately NT$2,923.4 million. Insurance policies of the Company are generally renewed annually. Buildings and equipment are insured for their net book value (plus the cost of shipping of replacement equipment). Raw

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

materials are insured for approximately 80% of their net purchase price and inventory of finished products is insured for approximately 80% of its book value. The Company considers its insurance coverage to be adequate and in accordance with industry norms in the ROC.

Litigation and Regulatory Issues

In April 2002, Philips brought a civil action in the Hsinchu District Court claiming that the Company had discontinued making royalty payments for CD-R products, and claimed CD-R royalty payments in an approximate amount of Y=7.9 million. In the same action, Philips also requested the Company to provide royalty report relating to the sales of CD-Rs products. Philips’s claim for such royalty payments in this civil action depends on the validity of the CD-R license agreement between the Company and Philips, which has been ruled by the ROC Fair Trade Commission as violating ROC Fair Trade Law in January 2001. Philips petitioned for review of this decision with the Taipei High Administrative Court and the civil action in the Hsinchu District Court was suspended by the court until a decision is made by the Taipei High Administrative Court. Further, in June 2002, Philips brought another civil action in the Hsinchu District Court claiming that the Company has infringed some of its patents relating to CD-R products, claiming damages in the amount of NT$1.55 million. Another company has petitioned for review of the validity of the patents in question with the ROC Intellectual Property Office (‘‘IPO’’) and appealed against the decision of IPO with Taipei High Administration Court; and thus this civil action in the Hsinchu District Court was suspended by the Court until a decision is made by Taipei High Administration Court.

The Company received a summons from the District Court of the Hague in connection with two containers of its CD-R products which were seized by the Dutch Custom Authority in August 2001 as requested by Philips alleging the Company’s infringement of its patents relating to such CD-Rs. This case is currently pending before the Appeal Court of the Hague.

The Company received a summons from the Court of Genoa in Italy for the hearing on July 18, 2003 in connection with 280,000 units of CD-RWs sold by the Company to an Italian customer which were seized by the customs authority as requested by Philips alleging the Company’s infringement of its patents relating to such CD-RWs. The Company has retained an Italian counsel to defend this case.

The Company received a summons from the Court of Antwerp in Belgium in connection with four containers of its CD-R products which were seized by Antwerp customs authorities on April 30, 2001 as requested by Philips alleging the Company’s infringement of its patents relating to CD-Rs. This case is currently pending before the Court of Antwerp.

On June 24, 2002, Philips filed a complaint in the International Trade Commission (‘‘ITC’’) against the Company and its subsidiary, Gigastorage Corporation USA and other distributors of the Company’s CDR and CR-RW products alleging that the CD-R and CD-RW products manufactured, imported into the United States and sold in the United States by the Company infringed six patents owned by Philips. Philips requested that the ITC issue a general exclusion order to prohibit the importation and sale of all the Company’s CD-R and CD-RW products in the United States. Prior to the trial, the Company filed a prehearing statement arguing that all the asserted Philips patent claims are not infringed and/or invalid, and all the asserted Philips patents are unenforceable due to patent misuse. Philips filed its pre-hearing statement arguing that all the asserted Philips patent claims are valid and infringed, there has been no patent misuse, and the ITC should enter a general exclusion order prohibiting the Company from importing and selling CDR and CD-RW products in the United States. The Commission Investigative Staff for the ITC filed its prehearing statement taking the position that all the asserted Philips patents are valid and infringed, but Philips has committed patent misuse. The first trial started on June 10, 2003 and was completed on June 20, 2003. After the trial was completed, the court under the ITC requested that the parties and the Commission Investigative Staff file post-hearing briefs and proposed findings of fact and conclusions of law. On October 24, 2003, the Administrative Law Judge (‘‘ALJ’’) of ITC rendered an initial determination (‘‘ID’’) in favor of the Company to rule that six patents owned by Philips are unenforceable due to patent misuse. Philips requested ITC to review the ALJ’s ID on November 5, 2003. ITC announced on December 10, 2003 that they would review in part the ID of ALJ and thus the case is pending for ITC’s review.

In April 2001 the European Commission commenced an anti-dumping investigation into the exports of CD-Rs to European Union countries by certain ROC CD-R manufacturers, including the Company. The European Commission announced the results of its investigation, which included a finding that the Company had violated applicable anti-dumping rules and imposed a punitive tariff of 20.1% on the

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Company’s exports of CD-Rs into the European Union with effect from December 20, 2001. In anticipation of the imposition of such tariffs, the Company has since 2001 begun to reduce the sales of its CD-Rs into this market. Sales of CD-Rs to the European Union accounted for approximately 32.3% of the Company’s consolidated net sales in 2000 and~[decreased to] ~~~~~ 1.9% and ~~~~~ 8.3%, respectively, in 2001 and 2002, ~~~~~ and to 9.9% in 2003. Although the Company believes it has taken steps to try to mitigate its impact, this tariff, in the short- to medium-term, may adversely affect the Company’s ability to compete in the CD-R market in the European Union, and the results of operations and financial condition of the Company could suffer materially. See ‘‘Risk Factors — Risks Relating to the Company and its Business — Anti-dumping tariffs imposed upon the Company may adversely affect the Company.’’

On January 21, 2002, based on the recommendation of the Korean Trade Commission, the Minister of Finance and Economy of South Korea announced the imposition of anti-dumping duties with respect to imports of CD-Rs from Taiwan to South Korea, including the Company’s CD-Rs. The ruling imposes a provisional anti-dumping duty of 51.72% on several Taiwan CD-R producers, including the Company, for a period of four months, effective January 21, 2002. In April 2002, the Korean Trade Commission made a final decision to impose a 51.7% dumping duties on several Taiwan CD-R manufacturers, including the Company. In 2001, 2002 and 2003, CD-R sales to South Korea constituted 0.1%, 0.9% and 0.0% of the total consolidated net sales of the Company. See ‘‘Risk Factors — Risks Relating to the Company and its Business — Anti-dumping tariffs imposed upon the Company may adversely affect the Company.’’

Except as disclosed above, the Company is not involved in any, and is not aware of any pending or threatened, litigation or other proceedings the outcome of which the Company believes might, individually or taken as a whole, have a material adverse effect on the results of operations or financial condition of the Company.

Environmental Issues

The production process for the Company’s products generates some liquid waste and other industrial wastes in various stages of the manufacturing process. The Company has installed different types of antipollution equipment for the treatment of liquid waste and equipment for the recycling of treated water in the Company’s facilities. In September 2001, the Company’s Giga I factory obtained an ISO 14001 certification on its environmental management system for its design and manufacture of CD-Rs. The Company, together with other companies located in an industrial area, receives assistance from the local environmental protection authorities for the disposal of industrial waste. The Company believes that it is in compliance in all material respects with applicable environmental laws and regulations. For the three-year period ended December 31, 2003, the Company has not been subject to, nor is it aware of, any material claims or legal actions involving non-compliance with environmental regulations.

Employees

As of December 31, 2001, 2002 and 2003, the Company had approximately 443, 413 and 472 employees, respectively. As of December 31, 2003, approximately 24.7% of the Company’s employees were university graduates or college graduates. The Company provides benefits to its employees, such as medical insurance and travel allowances. The Company provides ongoing training programs to its employees to ensure that they have the requisite skills to carry out their job responsibilities and also to improve the quality of its staff. As an incentive, the Company also pays employee bonuses in the form of cash or stock of at least 5% of the Company’s net income after payment of taxes and contribution to legal and special reserves, such amounts being allocated to employees based on individual performance. As permitted by ROC law and the Articles of Incorporation of the Company, the Company has reserved 20,000,000 Shares for the purpose of transfer to the employees of the Company or its subsidiaries under a stock option plan when it is introduced. The Company has established a stock option plan in June 2003, under which the Company may grant stock options to its employees for their purchase of up to 10 million Shares. As of July 8, 2003, 6 million stock options have been granted for the purchase of 6 million Shares by the employees. As of December 31, 2003, 4 million stock options have been granted for the purchase of 4 million Shares by the employees.

The Company has not experienced any strikes or labor disputes and considers its relations with its employees to be good.

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Subsidiaries and Associated Companies

As of December 31, 2003, the Company held direct and indirect investments over 50% or more of the common stock of the following companies:

Company Gigastorage Corporation USA . . . Quo-Chao Investment Corporation Maxmax Group Corporation . . . . Custer Inc. . . . . . . . . . . . . . . . . Barnwell Enterprise Ltd. . . . . . .	Main Business Sales of optical storage media products Investment Sale of CD-Rs and CD-RWs Sale of CD-Rs and CD-RWs Sale of CD-Rs and CD-RWs	Place of Incorporation United States ROC ROC Samoa Mauritius	Book Value of Investment (millions) — 99.0 14.3 — —	The Company’s Effective Equity Interest (%)
				100.0 99.99 78.14 100.0 100.0

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

MANAGEMENT

Directors and Supervisors

The ROC Company Law and the Articles of Incorporation of the Company provide that the Company’s Directors is to be elected by the shareholders for three-year terms in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The Chairman is a Director elected from and among the Directors.

The term of office of the Directors and the Supervisors is three years. They may serve any number of consecutive terms and may be removed from office at any time by a resolution adopted at a meeting of shareholders. Normally, all members of the Board of Directors are elected at the same time, except where the posts of one-third or more of the Directors are vacant, at which time a special meeting of shareholders shall be convened to elect Directors to fill the vacancies. The Board of Directors has ultimate responsibility for the management of the business and affairs of the Company.

Under ROC Company Law, the Supervisors are responsible for overseeing the activities of the Board of Directors and have the power to investigate the business and financial condition of the Company, examine its books, records and documents and request the Board of Directors to submit reports. The Supervisors may engage independent experts to carry out any investigations or examinations at the cost of the Company. Any of the Company’s Supervisors can also convene a meeting of shareholders when the Board of Directors do not or cannot convene a meeting of shareholders and/or when such a meeting is necessary for the benefit of the Company. In accordance with the laws of the ROC relating to corporations, each supervisor is elected by shareholders and cannot concurrently serve as a director, managerial officer or other staff member. For a public company, such as the Company, the ROC Company Law requires at least two supervisors be appointed at all times and that a supervisor’s term of office be up to three years.

At present, there are eleven Directors and three Supervisors who are elected by the shareholders of the Company at the Company’s general shareholders’ meeting. The Chairman is the legal representative of the Company under the Company Law of the ROC.

The following table sets forth information regarding the present Board of Directors and the Supervisors as elected by the shareholders of the Company on May 14, 2001 for three-year terms expiring on May 13, 2004:

Name Chao-Feng Chang(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chih-Tsun Kuo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jih-Hsing Chen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hui-Chu Tsai(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sen-Hsiang Chen(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hsio-Te Tsai(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chih-Jen Chen(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chwei-Jing Yeh(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wei-Fen Yang(1)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jing-Pu Lu(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ming-Shih Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tien-Tai Shao(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kuo-Hsing Tseng(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yu-Chiu Tsai(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Position within the Company
	Chairman Director Director Director Director Director Director Director Director Director Director Supervisor Supervisor Supervisor

Name
Chao-Feng Chang(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chih-Tsun Kuo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jih-Hsing Chen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hui-Chu Tsai(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sen-Hsiang Chen(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hsio-Te Tsai(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chih-Jen Chen(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chwei-Jing Yeh(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wei-Fen Yang(1)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jing-Pu Lu(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ming-Shih Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tien-Tai Shao(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kuo-Hsing Tseng(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yu-Chiu Tsai(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Position
within the Company

Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Supervisor
Supervisor
Supervisor

Notes:

(1) Representative of Ritek Corporation

(2) Ms. Hui-Chu Tsai is the wife of Mr. Chih-Tsun Kuo, a Director of the Company.

(3) Representative of Zun Liy Tiles Co., Ltd.

(4) Representative of China Glaze Co., Ltd.

(5) Mr. Chih-Jen Chen is the brother of Mr. Jih-Hsing Chen, a Director of the Company.

(6) Ms. Wei-Fen Yang is the wife of Mr. Chwei-Jing Yeh, a Director of the Company.

(7) Representative of Superrite Electronics Co., Ltd.

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

As of April 29, 2003, the Directors and the Supervisors had a registered holding of 19.61% of the Company’s issued shares. No remuneration was paid to the Directors and the Supervisors of the Company in their capacities as such, in accordance with the resolution in the shareholders’ meeting, for the year ended December 31, 2001 and 2002.

None of the Directors or Supervisors has any options to subscribe for the Company’s Shares.

Executive Officers

The following table sets forth information regarding the Company’s executive officers and key employees as of January 2003:

Executive Officers Chih-Jen Chen . . . . . . . . . . . Sheng-Ru Yang. . . . . . . . . . . Jing-Pu Lu . . . . . . . . . . . . . . Shu-Hua Huang. . . . . . . . . . . Chi-Jie Wu. . . . . . . . . . . . . .	Position President Executive Vice President Head of Administration Division Assistant Manager of Marketing Head of Manufacturing Division	Current Position Since
		07/01/1997 05/26/1997 05/14/2001 09/01/2001 08/01/2002

Biographies of Directors, Supervisors and Executive Officers

Mr. Chao-Feng Chang has served as the Company’s Chairman since May 2001. He is also a Director of Ritek Corporation, Chung Yung Venture Capital Fund Ltd., Prodisc Technology Inc., Catalyst Logic Co., Ltd., Universal Disc Co., Ltd., Kuo Chau Investment Industrial Co., Ltd., Taimide Tech. Inc. and Jade Investment Ltd. and a Supervisor of CGCG Inc. Mr. Chang holds a doctoral degree in business administration from Nova Southeastern University.

Mr. Chih-Tsun Kuo has served as the Company’s Director since May 2001. He is also the Director of Kuo Chia Fu Investment Co., Ltd., Formosan Union Chemical Corp. and Hsin Chong Construction Group Limited. Mr. Kuo holds a degree in civil engineering from the Tamkang University.

Mr. Jih-Hsing Chen has served as the Company’s Director since May 2001. He is also the Chairman of Maxmax Group Corporation and the President of Li Hsing Construction Co., Ltd. Mr. Chen holds a degree in chemical engineering from Chinese Cultural University.

Ms. Hui-Chu Tsai has served as the Company’s Director since May 2001. She is also a Director of Kuo Chia Fu Investment Co., Ltd. and Hsin Chong Construction Group Limited. Ms. Tsai holds a degree in accounting from the Fu Jen Christian University.

Mr. Sen-Hsiang Chen has served as the Company’s Director since May 2001. He is also the Chairman of Zun Liy Tiles Co., Ltd. Mr. Chen holds a degree from National Taipei Institute of Technology.

Mr. Hsio-Te Tsai has served as the Company’s Director since May 2001. He is also the President of Yuan Sheng Venture Capital Co., Ltd., Chung Lung Ceramics Co., Ltd. and Yuan Fu Investment Co., Ltd. Before joining the Company, he served as the Executive Vice President of China Glaze Co., Ltd.

Mr. Chih-Jen Chen has served as the Company’s Director since May 2001 and the Company’s President since July 1997. He is also a Director of Gigastorge Corporation USA, Kuo Chau Investment Industrial Co., Ltd., Maxmax Group Corporation, Lead Data Inc., Taimide Tech. Inc., You Chih Technology Co., Ltd. and Jiaher Transportation Co., Ltd. Before joining the Company, he served as the manager of the discs development program of the Material Research Laboratories of the Industrial Technology Research Institute. Mr. Chen holds a degree in material science and engineering from National Tsing Hua University.

Mr. Chwei-Jing Yeh has served as the Company’s Director since May 2001. He is also the Chairman of Chung-Yuan Investments Ltd., Chung Yung Venture Capital Fund Ltd. and Rifull Venture Capital, and a Director of Ritek Corporation, China Rich Holdings Limited, Hua Jing Venture Capital Corp., Han Rong Venture Capital Investments Co., Ko Fu Development Venture Capital, Hua-Chin Venture Capital Co., Ltd., Prodisc Technology Inc., China Television Co., Sunplus Technology Co., Ltd., Giantplus Technology Co., Ltd., Ritek Display Technology Inc., Prorit Corp., Solid State System Co., Ltd., Platinum Studio, Kinik

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Precision Grinding Co. and StarTech Fund (Cayman). Before joining the Company, he served as the Chief Executive Officer of Ritek Corporation. Mr. Yeh holds a master’s degree from Stevens Institute of Technology.

Ms. Wei-Fen Yang has served as the Company’s Director since May 2001. She is also the Chairman of Yuanrong Investment and Development Co. Ltd. and a Director of Ritek Corporation, Chung Yung Venture Capital Fund Ltd., Glory Years Investments Ltd., Ko Fu Development Venture Capital, EChem HighTech Co., Ltd., RiTDATA Technology Inc., Prorit Corp., Rilite Corporation and Ritek Display Technology Inc. Before joining the Company, she served as the Vice Chief Executive Officer of Ritek Corporation. Ms. Yang holds a bachelor’s degree from Feng Chia University.

Mr. Jing-Pu Lu has served as the Company’s Director since June 2003 and Head of Administration Division since May 2001. He is also the Director of ID Interactive Ltd. Before joining the Company, he served as the Vice President of Investment Department of Ritek Corporation. Mr. Lu holds a master’s degree in business administration from Birmingham University.

Mr. Ming-Shih Lee has served as the Company’s Director since May 2001. He is also a Director of Toyota Petrol Station Co., Ltd.. Mr. Lee holds a degree in civil engineering from Ming Chi Institute of Technology.

Mr. Tien-Tai Shao has served as the Company’s Supervisor since May 2001. He is also the Chairman of Hsiou Mao Co., Ltd. and Tsi Bo Chemical Industry Co., Ltd.. Mr. Shao holds a degree from Kinka University.

Mr. Kuo-Hsing Tseng has served as the Company’s Supervisor since May 2001. He is also the Chairman of Excellenca Venture Capital Investment Co., Ltd. and Taiwan Nano Electro-Optical Technology Co., Ltd., a Director of Chungyung Venture Capital and Investment International Inc., Rifull Venture Capital Co., Ltd., Prodisc Technology Inc., KF Development Venture Capital, Prodisc Technology Co., Ltd., AVE Network Co., Fu Tai Construction Co., Ltd., G-Tech Optoelectronics Corporation and Ritek Display Technology Inc. and a Supervisor of Hua Chi Venture Capital Co., Ltd. He also serves as the Vice President of Ritek Corporation. Before joining the Company, he served as the Vice President of the Investment Department of Ritek Corporation. Mr. Tseng holds a degree in accounting from National Cheng Kung University.

Ms. Yu-Chiu Tsai has served as the Company’s Supervisor since May 2001. He also serves as the Executive Vice President of Ritek Corporation. Before joining the Company, she served as the Chief Auditor of Ritek Corporation. Ms. Tsai holds a bachelor’s degree from Tamkang University.

Mr. Sheng-Ru Yang has served as the Company’s Executive Vice President since May 1997. He is also a Director of Gigastorage Corporation USA. Before joining the Company, he served as the manager of the Technology Department of China Glaze Co., Ltd. Mr. Yang holds a doctoral degree in material science and engineering from National Ching Hua University.

Ms. Shu-Hua Huang has served as the Company’s Vice President of the Sales Division since September 2001. She is also a Supervisor of Maxmax Group Corporation. Before joining the Company, she served as the assistant manager of the Marketing Department of Ritek Corporation. Ms. Huang holds a degree in German from Chinese Cultural University.

Mr. Chi-Jie Wu has served as the Company’s head of the Manufacturing Division since August 2002. Before joining the Company, he served as the engineer of the Electronic Packaging Technology Division of the Electronics and Service Organization of the Industrial Technology Research Institute. Mr. Wu holds a master’s degree in material science and engineering from National Cheng Kung University.

The business address of each of the Company’s Directors, Supervisors and Executive Officers is the Company’s registered office.

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

MARKET PRICE OF THE SHARES

The Shares of the Company have been listed on the TSE since April 19, 2000.

The following table sets out the high and low closing prices of the Company’s Shares on the TSE, adjusted for the effects of rights issues and stock dividends, and the high and low closing values of the TSE Index, for the periods indicated:

2000 . . . . . . . . Second Quarter (from April [.]) Third Quarter Fourth Quarter 2001 . . . . . . . . First Quarter Second Quarter Third Quarter Fourth Quarter 2002 . . . . . . . . First Quarter Second Quarter Third Quarter Fourth Quarter 2003 . . . . . . . . First Quarter Second Quarter Third Quarter Fourth Quarter 2004 . . . . . . . . First Quarter (through [.])	Price Share of the	per Company Low (NT$) 50.5 24.1 9.7 9.0 17.7 9.0 13.0 15.3 11.5 8.9 8.1 7.8 5.9 14.0 15.8 .	TSE Index	TSE Index
	High (NT$) 117.0 54.5 22.6 34.9 32.1 27.4 19.5 20.3 22.9 12.6 11.9 10.2 18.8 18.4 20.6 .		High 10,186.17 8,585.52 6,353.67 6,104.24 5,608.50 4,886.86 5,551.24 6,242.64 6,462.30 5,416.50 4,823.67 5,141.57 5,088.54 5,757.91 6,142.32 .	Low
				8,120.89 6,185.14 4,614.63 4,894.79 4,768.55 3,493.78 3,446.26 5,488.33 5,071.76 4,185.95 3,850.04 4,240.60 4,044.73 5,017.78 5,581.66 .

Source: Bloomberg.

On [.], 2004, the reported closing price of the Company’s Shares was NT$[.] per Share and the TSE Index closed at [.].

There is no public market outside Taiwan for the Company’s Shares. The TSE has experienced fluctuations in the prices of listed securities and there are currently limits on the range of daily price movements.

Gigastorage Job: 9082-1 File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

DIVIDENDS

All dividend payments are subject to a legally required minimum reserve. Dividends may be distributed either in cash, common stock or a combination of cash and common stock. The ratio between any cash dividend and stock dividend is proposed by the Board of Directors and determined by the shareholders at a shareholders’ meeting. Under the Articles of Incorporation of the Company, the Company may, after paying all income taxes in accordance with ROC law, recovering any past losses and deducting the Legal Reserve and special reserve, reserve the remaining portion of earnings or allocate the remaining portion of earnings (subject to proposal by the Board of Directors and approval by shareholders) as follows:

(i) at least 5% as bonuses to employees;
(ii) at least 2% as remuneration to directors and supervisors; and
(iii) the remaining balance, if any, to shareholders as dividends (of which no less than 5% may be distributed in the form of cash).

Dividends are paid annually to shareholders usually within four months, in respect of both cash dividends and stock dividends, of shareholder approval being received. The dividends paid by the Company in respect of each of 2001 and 2002 are set out in the following table:

Year 2001 . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . .	Aggregate Number of Shares Issued(1) 22,909,000 —	Cash Dividends Per Share (NT$) — —	Stock Dividends Per Share(2)
			(NT$) 1.0 —

(1) Aggregate number of Shares outstanding on the record date applicable to the dividend payment.

(2) The Company expresses stock dividends as an NT dollar amount per Share. A holder of Shares receives as a stock dividend the number of Shares equal to the NT dollar amount per share of dividends declared multiplied by the number of Shares owned by the holder and divided by the par value of NT$10 per share. Fractional Shares are not issued but are paid in cash.

The dividend in respect of each previous financial year is usually declared in May or June each year, to be paid in July or August of such year. The dividend is recommended at the meeting of the Board of Directors scheduled to be held in either February or March of each year. The dividend for the year 2003 is expected to be proposed by the meeting of the Board of Directors in March or April of 2004.

Gigastorage Job: 9082-1

File: 04_main (x12) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

PRINCIPAL SHAREHOLDERS

The holders of 2% or more of the Company’s Shares as of April 23, 2003, as such holders appear on the register of shares of the Company, are as follows:

Name Ritek Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kuo Chia-Fu Investment Co., Ltd. . . . . . . . . . . . . . . . . . . . . CMC Magnetics Corporation. . . . . . . . . . . . . . . . . . . . . . . .	Number of Shares Held 30,802,200 10,308,533 8,846,200	Percentage of Share Capital
		12.22% 4.09 3.51

Gigastorage Job: 9082-1

File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

RELATED PARTY TRANSACTIONS

The Company from time to time has engaged in a variety of transactions with the Company’s affiliates. Its policy on transactions with affiliates is that these transactions will be conducted on terms substantially as favorable to the Company as the Company could obtain at the time in a comparable arm’s-length transaction with a person other than an affiliate. Any material related party transactions, depending on the nature and size of the transaction, must be approved in writing by a majority of the members of the Board of Directors of the Company.

Ritek Corporation

Ritek Corporation held a 11.68% equity interest in the Company as of February 23, 2004. The representative of Ritek Corporation, Mr. Chao-Feng Chang, is also the Company’s Chairman. The Company purchased from Ritek Corporation finished optical storage media products and raw material for such products in the amount of NT$337.3 million, NT$88.8 million and NT$173.4 million (US$5.1 million), which accounted for 19.5%, 4.6% and 9.4% of the Company’s total cost of goods sold, in 2001, 2002 and 2003, respectively.

Ritek Corporation purchased the Company’s optical storage media products for resale in the amount of NT$372.6 million, NT$21.9 million (US$0.6 million) and NT$39.3 million (US$0.2 million) in 2001, 2002 and 2003, respectively.

Lead Data Inc.

One of the directors of Lead Data Inc. was appointed by the Company. Lead Data Inc. purchased the Company’s optical storage media products in the amount of NT$13.3 million, NT$16.7 million and NT$89.3 million (US$2.6 million) in 2001, 2002 and 2003, respectively.

Maxmax Group Corporation

We held 78.14% of the outstanding shares of Maxmax Group Corporation as of December 31, 2003. The Company sold optical storage media products to Maxmax Group Corporation in the amount of NT$22.2 million and NT$80.7 million (US$2.4 million) in 2002 and 2003, respectively.

Barnwell Enterprise Ltd.

Barnwell Enterprise Ltd. is an indirect, wholly owned subsidiary of the Company. The Company sold optical storage media products to Barnwell Enterprise Ltd. in the amount of NT$26.6 million (US$0.8 million) in 2002.

Custer Inc.

Custer Inc. is a wholly owned subsidiary of the Company. The Company sold optical storage media products to Custer Inc. in the amount of NT$108.8 million (US$3.2 million) in 2003.

Prorit Corp.

Both of the Chairman of the Company and of Prorit Corp. were appointed by Ritek Corporation. The Company purchased from Prorit Corp. jewel cases for the Company’s optical storage media products in the amount of NT$20.6 million (US$0.6 million), which accounted for 1.1% of the total cost of goods sold of the Company, in 2003.

Ritdisplay Corporation Technology Inc.

Both of the Chairman of the Company and of Ritdisplay Corporation were appointed by Ritek Corporation. The Company purchased from Ritdisplay Corporation certain raw materials for optical storage media products in the amount of NT$50.5 million, which accounted for 2.9% of the total cost of goods sold of the Company, in 2001.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

CHANGES IN SHARE CAPITAL

The following table shows the changes in the issued share capital of the Company since March 1997:

Record Date March 1997 . . . . July 1997 . . . . . . June 1998. . . . . . January 1999 . . . April 1999 . . . . . June 1999. . . . . . April 2000 . . . . . June 2000. . . . . . September 2001 . February 2004. . .	Number of Shares Issued 10,127,000 43,329,000 26,728,000 35,000,000 11,611,800 13,204,200 49,097,800 40,000,000 22,909,780 11,800,244	Type of Issue Share capital established Issuance of shares for cash Issuance of shares for cash Issuance of shares for cash Capitalization of retained earnings and employee stock bonus Issuance of shares for cash Capitalization of capital reserves and retained earnings and employee stock bonus Issuance of shares for cash Capitalization of capital reserves Issuance of shares for the conversion of the 2003 Convertible Bonds	Number of Shares Outstanding After Issue
			10,127,000 53,456,000 80,184,000 115,184,000 126,795,800 140,000,000 189,097,800 229,097,800 252,007,580 263,807,824

Gigastorage Job: 9082-1

File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

DESCRIPTION OF THE BONDS

The following is a description of the terms and conditions (subject to amendment and except for the sentences in italics) of the Bonds (the ‘‘Conditions’’), which includes summaries of, and is subject to, the more detailed provisions of the Indenture referred to below. Holders of the Bonds should read the Indenture in its entirety as it defines their rights and obligations as holders of the Bonds.

The issue of US$30,000,000 Zero Coupon Credit Enhanced Convertible Bonds Due 2007 (the ‘‘Bonds’’) of Gigastorage Corporation (the ‘‘Company’’) was authorized by a resolution of its Board of Directors adopted on December 25, 2003. The Bonds will be issued pursuant to an indenture (the ‘‘Indenture’’) dated [.], 2004 between the Company and The Bank of New York, as trustee (the ‘‘Trustee’’, which term shall include any successor trustee duly appointed under the Indenture) for the holders of the Bonds. The Company has entered into a paying and conversion agency agreement (the ‘‘Agency Agreement’’) dated [.], 2004 with The Bank of New York, as the Trustee and the registrar and principal paying, conversion and transfer agent appointed thereunder. The Company may appoint further or other paying agents, conversion agents and transfer agents with the consent of the Trustee. The registrar, principal paying and conversion agent, paying agents, conversion agents, transfer agents and replacement agent for the time being are referred to below as the ‘‘Registrar’’, the ‘‘Principal Agent’’, the ‘‘Paying Agents’’ (which expression shall include the Principal Agent), the ‘‘Conversion Agents’’ (which expression shall include the Principal Agent), the ‘‘Transfer Agents’’ (which expression shall include the Registrar) and the ‘‘Replacement Agent’’, respectively, and they are collectively referred to below as the ‘‘Agents.’’ Copies of the Indenture and the Agency Agreement are available for inspection by holders of the Bonds during normal business hours at the principal office of the Trustee located on the date hereof at 101 Barclay Street, 21st Floor West, New York, N.Y. 10286 and at the specified offices of each of the Agents. The holders of the Bonds are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all of the provisions of the Indenture and the Agency Agreement.

The Company will also enter into a guarantee agreement (the ‘‘Guarantee Agreement’’) with Hua Nan Commercial Bank, Ltd. (the ‘‘Letter of Credit Bank’’), providing for the issuance of an irrevocable standby letter of credit (the ‘‘Letter of Credit’’). The Letter of Credit will be issued on or prior to the Closing Date in favor of the Trustee for the benefit of holders of the Bonds with an initial face value of US$[.] million and will be available for drawings according to the provisions of the Letter of Credit. The Letter of Credit does not support any other obligations of the Company under the Bonds, including the obligations described under ‘‘— Conversion’’ below, the obligations to make payments of ROC withholding tax or the obligation to pay default interest on the Bonds. See ‘‘Description of the Letter of Credit.’’

1. Status

The Bonds constitute direct, unconditional, unsubordinated and unsecured obligations of the Company and rank pari passu without any preference or priority among themselves and, subject to the provisions of Condition 3, shall at all times rank at least equally 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 shall be issued in registered form, without coupons, and shall be offered, sold and transferred in principal amounts of US$1,000 or an integral multiple thereof. The Bonds shall initially be represented by a global certificate (the ‘‘Global Certificate’’), and only under the limited circumstances described in the Global Certificate shall definitive bond certificates (each a ‘‘Definitive Certificate’’) be issued to holders of the Bonds in respect of their individual holdings. Each Definitive Certificate, if issued, shall be serially numbered and shall have an identifying number which shall be recorded on the relevant Certificate and in the register of holders of the Bonds, which the Company will procure to be kept by the Registrar.

The Bonds will be represented by the Global Certificate deposited with, and registered in the name of a nominee of, The Bank of New York, as common depositary for Euroclear and Clearstream, Luxembourg.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(B) Title

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

3. Certain Covenants

(A) Negative Pledge

So long as any of the Bonds remains outstanding (as defined in the Indenture), the Company shall not, and shall not permit any of its Principal Subsidiaries (as defined below) to, create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance or security interest (‘‘Security’’) upon the whole or any part of the property, assets or revenues, present or future, of the Company or the Principal Subsidiary, as the case may be, to secure for the benefit of the holders of any International Investment Securities (as defined below) any payment of any sum due in respect of or under any guarantee of or any indemnity or other like obligation relating to any such International Investment Securities, unless, in any such case, at the same time or prior thereto, either (1) the same Security is granted to the holders of the Bonds or (2) there is outstanding any guarantee, indemnity or other like obligation or such other security that is not materially less beneficial to the holders of the Bonds or as shall be approved by holders of the Bonds holding not less than 50% of the principal amount of the outstanding Bonds.

For the avoidance of doubt, the above restriction shall not apply retroactively to any transaction that is not subject to the above restriction at the time the transaction is effected.

For the purposes of these Conditions:

‘‘International Investment Securities’’ means bonds, debentures, notes, or other similar investment securities of the Company or any of its Principal Subsidiaries (as defined below) evidencing indebtedness with a maturity of not less than one year that (a) either (i) are by their terms payable, or confer a right to receive payment, in any currency other than NT dollars or (ii) are denominated or payable in NT dollars and more than 50% of the aggregate principal amount thereof is initially distributed outside the Republic of China (the ‘‘ROC’’) by the Company or with the authorization of the Company; and (b) are for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded on any stock exchange, quotation system or over-the-counter or other similar securities market outside the ROC.

‘‘Principal Subsidiary’’ means any corporation or other business entity more than 50% of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company and either (a) the net sales or net operating revenues of which, as shown by the accounts (consolidated in the case of an entity which itself has subsidiaries) of such entity upon which the most recent audited consolidated accounts of the Company have been based, are at least 10% of the consolidated net sales or net operating revenues, as the case may be, of the Company as shown by such audited consolidated accounts; or (b) the gross assets of which, as shown by the aforementioned accounts, are at least 10% of the consolidated gross assets of the Company, as shown by such audited consolidated accounts.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

(B) Mergers and Disposals

The Company shall not merge, amalgamate or consolidate with or into any other corporation or entity (if the Company is not the continuing entity) or sell or transfer all, or substantially all, of the Company’s assets, 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:

(i) the Company has notified the holders of the Bonds of such event in accordance with Condition 14;
(ii) the Company and such corporation, entity or person have executed an indenture supplemental to the Indenture, in form and substance satisfactory to the Trustee, and the supplemental indenture includes the following: (a) an express assumption by such corporation, entity or person of the obligations of the Company under the Bonds, the Indenture and the Agency Agreement, including the covenants contained in this Condition 3 relating to subsequent mergers, amalgamations, consolidations, sales or transfers; (b) provisions for the convertibility of each Bond then outstanding 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 Bonds 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 defined in Condition 5(A)(iii)) as adjusted from time to time pursuant to the Indenture; and (c) provisions for adjustments to the Conversion Price that shall be as nearly equivalent as may be practicable to the adjustments provided for in Condition 5; and
(iii) immediately after giving effect to any such merger, no Event of Default (as defined in Condition 9) shall have occurred or be continuing or would result therefrom.

4. Transfers of Bonds; Issue of Certificates

(A) Transfers

A Bond may be transferred as follows: (i) in the case of a Bond represented by a Definitive Certificate, by depositing such certificate at the specified office of any Transfer Agent, with the form of transfer on the back of such certificate duly completed and signed, or (ii) in the case of a Bond represented by the Global Certificate, by delivery at such office of a 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 in respect of which a Definitive Certificate is issued, a new Definitive Certificate shall be issued to the transferee in respect of the part transferred and a further new Definitive Certificate in respect of the balance of the holding not transferred shall be issued to the transferor.

All transfers of the Bonds and entries on the register of holders of the Bonds shall be made subject to the detailed provisions concerning transfer of the Bonds set forth in the Agency Agreement. The provisions may be changed by the Company with the prior written approval of the Trustee and the Registrar. A copy of the current provisions shall be mailed, at the Company’s expense, by the Registrar to any holder of the Bonds upon written request.

The forms of transfer are available at the specified offices of any Transfer Agent during normal business hours. Transfers of interests in the Bonds evidenced by the Global Certificate shall be effected in accordance with the rules of Euroclear or Clearstream, Luxembourg.

(B) Delivery of New Definitive Certificates

Each new Definitive Certificate to be issued upon transfer of the Bonds shall, within three Business Days (as defined below) of receipt by the Transfer Agent of the form of transfer, be mailed by uninsured mail at the risk of the holder entitled to the Bonds to the address specified in the form of transfer.

Gigastorage Job: 9082-1

File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

Where some but not all the Bonds in respect of which a Definitive Certificate is issued are to be transferred, converted or redeemed, a new Definitive Certificate in respect of the Bonds not so transferred, converted or redeemed shall, within three Business Days of deposit or surrender of the original Definitive Certificate with or to the relevant Agent, be mailed by uninsured mail at the risk of the holder of the Bonds not so transferred, converted or redeemed to the address of such holder appearing on the register of holders of the Bonds.

For the purposes of this Condition 4:

‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which banks are open for business in the city in which the specified office of the Agent with whom a Definitive Certificate is deposited in connection with a transfer is located.

(C) Formalities Free of Charge

Registration of transfer of the Bonds shall be effected without charge by or on behalf of the Company or any of the Agents, subject to payment (and the giving of such indemnity as the Company or any of the Agents may require) in respect of any tax or other governmental charges which may be imposed in relation to it and the transfer shall not be effected unless and until the required payment described herein is made.

(D) Restricted Transfer Period

No holder of the Bonds may require the transfer of a Bond to be registered (i) during the period of 15 days ending on [.], 2007, (ii) following selection of such Bond to be redeemed pursuant to Condition 7(B), (iii) following exercise by such holder of its option to require the Company to redeem such Bond pursuant to Condition 7(D) or (iv) following exercise by such holder of its option to convert such Bond pursuant to Condition 5(A) or Condition 5(E).

(E) Interest

The Bonds bear no interest, provided that any amount in respect of the Bonds that is not paid when due shall bear default interest at the rate specified in Condition 6(E).

5. Conversion

The Company will agree that, within five Trading Days (as defined below) from each Conversion Date (as defined in Condition 5(B)(i)), the Company will issue and deliver the Shares to the converting holder or its designee, subject to this Condition 5 and the provisions of the Indenture and the Agency Agreement relating to the conversion.

The Indenture provides that the term ‘‘Shares’’ means, when used to refer to the class or classes of the Company’s capital stock into which the Bonds are convertible and when used in certain other instances, only the Company’s common shares, NT$10 par value per share, but that when used elsewhere, including in Condition 5(C), such term also includes shares of any other class or classes of the Company’s capital stock authorized after the date of the Indenture that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation or winding-up.

The Letter of Credit does not cover the obligations of the Company pursuant to the holders’ Conversion Right (as defined below) or any other obligations of the Company contained in this Condition 5.

(A) Conversion Right

(i) Conversion Period. Each holder of the Bonds has the right hereunder to convert any Bond into Shares subject to the terms set forth herein (the ‘‘Conversion Right’’). Subject to and upon compliance with the provisions of this Condition 5, the Conversion Right attaching to any Bond may be exercised, at the option of the holder of the Bonds and to the extent provided herein, at any time (a) on or after [.], 2004 and prior to the close of business (at the place where such Bond is deposited for conversion) on [.], 2007 (or if such day shall not be a Business Day (as defined below), on the immediately preceding Business Day) (but in no event thereafter) or (b) if such Bond shall have been

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

called for redemption prior to [.], 2007 (or if such day shall not be a Business Day, on the immediately preceding Business Day), then up to the close of business (at the place aforesaid) on the seventh day prior to the date fixed for redemption thereof (or if such day shall not be a Business Day, on the immediately preceding Business Day or (c) if an event of default occurs, the Conversion Right attaching to a Bond shall continue to be exercisable in accordance with Condition 5(A)(iv) (the ‘‘Conversion Period’’); provided, however, that the Conversion Right during any Closed Period (as defined below) shall be suspended and the Conversion Period shall not include any such Closed Period.

For the purposes of these Conditions:

‘‘Closed Period’’ means (i) the 60-day period prior to the date of any of the Company’s annual general shareholders’ meetings; (ii) the 30-day period prior to the date of any of the Company’s extraordinary shareholders’ meetings; (iii) the period from the date following the third Trading Day (as defined below) prior to the date of notification to the Taiwan Stock Exchange (the ‘‘TSE’’) by the Company of the record date for the determination of shareholders entitled to the receipt of dividends, subscription of new shares or other benefits and bonuses to such record date, and (iv) such other periods during which the Company may be required to close its stock transfer books or the conversion of the Bonds is not allowed under ROC laws and regulations applicable from time to time. The Company shall procure that holders of the Bonds are given timely (and if practicable timely prior) notice in accordance with Condition 14 of the commencement of any Closed Period.

‘‘Trading Day’’ means a day when the TSE is open for business.

For the purposes of this Condition 5 (except for Condition 5(E)):

‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks are open for business in London and the city in which the specified office of the Conversion Agent with whom a Conversion Notice is deposited in connection with the conversion is located.

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

Under current ROC law, when a non-ROC converting holder of the Bonds exercises his conversion right to receive Shares, he will be required to obtain and appoint an agent, referred to as a tax guarantor, in the ROC. The tax guarantor will be required to meet the qualification set by the ROC Ministry of Finance and will act as the guarantor of the holder’s tax payment requirements. In addition, he must also appoint a local agent (with such qualifications as are set by the ROC SFC) in the ROC to, among other things, open a securities trading account with a local securities brokerage firm and an NT dollar bank account, remit funds and exercise shareholder rights. Further, he must appoint a local bank to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds, payment of taxes and reporting and declaration of information. In addition, he will be required to register with the Taiwan Stock Exchange and obtain an approval from the Central Bank of China. Unless these requirements are satisfied, converting holders of the Bonds that receive Shares upon conversion will not be able to receive and hold or otherwise transfer Shares on the Taiwan Stock Exchange. See ‘‘Risk Factors — Risks Relating to Ownership of the Bonds and the Shares’’, ‘‘Foreign Investment and Exchange Controls in the ROC’’ and ‘‘Description of the Shares’’.

(ii) Number of Shares Issuable on Conversion. The number of Shares issuable upon conversion of any Bond shall be determined by dividing the principal amount of the Bond, translated into New Taiwan dollars at a fixed exchange rate of NT$[.] = US$1.00 (the ‘‘Fixed Exchange Rate’’), by the Conversion Price (as defined in Condition 5(A)(iii)) in effect on the Conversion Date (as defined in Condition 5(B)(i)). If more than one Bond shall be deposited for

Gigastorage Job: 9082-1

File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

conversion at any one time by the same holder of the Bonds, the number of Shares to be issued upon conversion thereof shall be calculated on the basis of the aggregate principal amount of the Bonds so deposited. Fractions of Shares shall not be issued on conversion, and cash adjustments shall 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, the Company shall upon conversion of the Bonds pay in US dollars a sum equal to such portion of the principal amount of the Bonds deposited for conversion as corresponds to any fraction of a Share not issued as aforesaid if such sum exceeds US$10. For the purpose of calculating the amount of such payment, the Company will use the Fixed Exchange Rate.

(iii) Initial Conversion Price. The price at which Shares shall be issued upon conversion (the ‘‘Conversion Price’’) shall initially be NT$[.] per Share, but shall be subject to adjustment in the manner provided in Conditions 5(C), 5(D) and 5(E).

(iv) Revival on Default. Notwithstanding the provisions of Condition 5(A)(i), if an Event of Default (as defined in Condition 9) occurs, the Conversion Right attaching to a Bond shall continue to be exercisable up to and including the close of business (at the place where the relevant Conversion Notice (as defined in Condition 5(B)(i)) is deposited for conversion) on the date upon which (a) the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and (b) notice of such receipt has been duly given to the holders of the Bonds.

(B) Conversion Procedures

(i) Exercise Procedures; Conversion Notice; Deposit Date; Conversion Date. To exercise the Conversion Right attaching to any Bond, a holder of the Bonds must deposit the following at its own expense between 9: 00 a.m. and 3: 00 p.m. on any Business Day during the Conversion Period at the specified office of a Conversion Agent outside the ROC at which the Bond is presented for conversion:

(a) 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 Definitive Certificate, if issued, in respect of the relevant Bonds;
(b) any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent shall be located; and
(c) any amount to be paid by the holder of the Bonds as required by (ii) below.

Any Conversion Notice or Definitive Certificate, if issued, deposited with a Conversion Agent outside the hours specified above or on a day that is not a Business Day shall for all purposes be deemed to have been deposited with that Conversion Agent on the next Business Day. Any Conversion Notice or Definitive Certificate, if issued, deposited with a Conversion Agent during a Closed Period shall for all purposes be deemed to have been deposited with that Conversion Agent on the first Business Day after the end of such Closed Period. The Conversion Notice shall contain, among other things, (a) the certificate or other evidence certifying the converting holders’ receipt of the registration and/or approval required by ROC laws and regulations; (b) an appointment of a local agent; (c) an irrevocable instruction to convert the Bonds into Shares; and (d) any other information required by ROC laws and regulations. Once deposited, the Conversion Notice may not be withdrawn without the Company’s consent in writing. The price at which such Bond shall be converted shall be the Conversion Price in effect on the Conversion Date.

For the purposes of these Conditions:

‘‘Deposit Date’’ means the date on which any Definitive Certificate, if issued, in respect of a Bond and the duly signed and completed Conversion Notice, in duplicate, relating thereto are deposited with a Conversion Agent and the payments, if any, required to be paid by the holder of the Bond are made.

‘‘Conversion Date’’ means the first date following the Deposit Date which is a Trading Day not within a Closed Period.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(ii) Taxes and Expenses. As conditions precedent to the exercise of the Conversion Right attaching to any Bond, together with the delivery of the Conversion Notice, the holder of the Bond must pay to the relevant Conversion Agent all stamp, issue, registration and similar taxes and duties, 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 the converting holder of the Bond or any other person. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares upon conversion of the Bond and all charges of the Conversion Agents in connection therewith as provided in the Agency Agreement.

(iii) Holder of Record. With effect from the opening of business in the ROC on the Conversion Date, the Company will deem the converting holder of a Bond as indicated in the Conversion Notice to have become the holder of record of the number of Shares to be issued upon such conversion, disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective. At such time, subject to Condition 5(B)(iv), the rights of such converting holder of the Bonds with respect to the Bonds deposited for conversion shall cease, except with respect to rights arising under Condition 5(B)(v).

(iv) Delivery of Shares. On the Conversion Date, the Company shall register the converting holder of the Bonds or its designee in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 5(B)(iii) upon conversion of such Bonds. Subject to any applicable limitations then imposed by ROC laws and regulations, in accordance with the request made in the relevant Conversion Notice, the Company shall deliver as soon as practicable, and in any event within five Trading Days from the Conversion Date, for the benefit of the converting holder of the Bonds, the following:

(a) the relevant Shares, either through book-entry transfer to an account registered in the name of the converting holder or its designee at Taiwan Securities Central Depositary Co., Ltd. or its successor, or, to the extent permitted by law and at the election of the Company, through the delivery to the local agent appointed by the converting holder of the Bonds, one or more certificates for such Shares registered in the name of the converting holder or its designee;
(b) any other property or cash (including, without limitation, cash payable pursuant to Condition 5(A)(ii)) required to be delivered upon conversion to the local agent appointed by the converting holder; and
(c) such documents as may be required by law to effect the delivery of the relevant Shares, other property and cash to the local agent appointed by the converting holder.

(v) Retroactive Adjustment of Conversion Price. If (a) 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 5(C) and the Indenture and (b) 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 date of such adjustment of the Conversion Price, issue and deliver to the local agent appointed by the converting holder of the Bond such number of Shares as is equal to the excess of (1) 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 of the said Conversion Date over (2) the number of Shares previously issued pursuant to such conversion; and in such event and in respect of such number of Shares, references in Conditions 5(B)(iii) and 5(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 shall not be issued and no cash adjustment shall be made in respect thereof.

(vi) Dividend and Other Entitlement. The converting holder of a Bond shall be entitled to the Company’s annual dividend distributions if the Conversion Date falls prior to the third Trading Day before the Company’s notification to the TSE of the record date (and the relevant closure of the shareholders’ register) for determining the identity of shareholders who are entitled to such dividend distributions.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(vii) 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 other Conversion Agents. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents shall be given promptly by the Company to the holders of the Bonds in accordance with Condition 14.

(C) Adjustments to Conversion Price

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

(i) the making of a free distribution of Shares, including distribution from retained earnings or capital reserve;
(ii) subdivisions, consolidations or reclassifications of Shares;
(iii) the declaration of a dividend in Shares;
(iv) the issue of (a) securities convertible into or exchangeable for Shares at less than the then Current Market Price (as defined below) or (b) options, rights or warrants 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;
(v) a Capital Distribution (as defined below) or other distribution to the holders of Shares of (a) evidences of the Company’s indebtedness, (b) the Company’s capital stock (other than Shares), (c) assets (other than regular annual and interim dividends in cash not constituting a Capital Distribution) or (d) options, rights or warrants to subscribe for or purchase shares or securities (other than those mentioned in (iv) above);
(vi) the issue of Shares (other than (a) Shares issued on conversion of the Bonds; (b) Shares issued to shareholders of any company that merges with the Company upon such merger in proportion to their shareholdings in such company immediately prior to such merger; and (c) Shares issued in any of the circumstances described above), including Shares issued in any employee dividend or employee profit-sharing arrangements, at less than the then Current Market Price; and
(vii) any other event or circumstance that would have in the determination of the Company an effect analogous to any of the events in (i) to (vi) above.

No adjustment shall be made where such adjustment would be less than NT$1.00; but any adjustment that otherwise would be required to be made shall be carried forward and taken into account in determining any subsequent adjustment. Any adjustment shall be notified promptly by the Company to the holders of the Bonds in accordance with Condition 14.

As a result of any adjustment required by this Condition 5(C), the Conversion Price may be reduced to an amount below the par value of the Shares to the extent permitted by ROC law; provided that any Shares issued upon the conversion of a Bond at such reduced Conversion Price will be legally issued, fully-paid and non-assessable. The Company will covenant in the Indenture not to take any action that would reduce the Conversion Price to an amount below the par value of the Shares unless the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares.

The Trustee shall not be obliged to monitor whether any event has occurred that might fall within (i) to (vii) above and shall assume that none has occurred until it has actual knowledge by way of express notice in writing from the Company to the contrary.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

For the purposes of these Conditions:

‘‘Capital Distribution’’ means any cash dividend, distribution of cash or distribution of assets in specie made by the Company for any fiscal year unless (and to the extent that): (a) it does not exceed (when taken together with all dividends or distributions by the Company of cash or assets previously made or paid in respect of all periods ending after December 31, 2003) 5% of market capitalization of the Company at the time of announcement of such dividend or distribution; (b) it does not exceed (when taken together with all other dividends or distributions by the Company of cash or assets charged or provided for in its accounts for that period) the aggregate amount of dividends (excluding stock dividends) and distributions on such class of capital charged or provided for in its accounts for the immediately preceding fiscal year; or (c) it comprises a purchase or redemption of capital stock of the Company; provided, in the case of a purchase of Shares by the Company, that the average price (before expenses) in any one day in respect of such purchases does not exceed by more than 5% of the Current Market Price either (i) on that day, or (ii) where an announcement has been made of the intention to purchase Shares at some future date at a specified price, on the Trading Day immediately preceding the date of such announcement. In computing such amounts, the value of any dividends and distributions and adjustments as are in the opinion of the Company’s auditors appropriate to the circumstances shall be taken into account.

‘‘Closing Price’’ for any Trading Day means the last reported transaction price or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TSE in effect on the most recent Trading Day preceding such day on which a transaction has taken place or, if the Shares are not listed or admitted to trading on the TSE, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE selected by the Company for the purpose.

‘‘Current Market Price’’ on any day means (a) the average of the Closing Prices for the 30 consecutive Trading Days commencing 45 Trading Days before such day and (b) when used with respect to any issuance or distribution, the average of the Closing Prices for the 30 consecutive Trading Days commencing not more than 45 Trading Days (with the commencement date selected by the Company with the consent of the Trustee) before the first date on which the Shares, without the right to receive such issuance or distribution, trade in a regular way on the TSE, other applicable securities exchange or any applicable securities market; provided, however, if no Closing Price is available for one or more Trading Days, such day or days shall be disregarded in any relevant calculation and shall be deemed not to have existed when ascertaining any period of consecutive Trading Days.

(D) Conversion Price Reset

The Conversion Price shall be adjusted (the ‘‘Adjusted Conversion Price’’) on October 25, 2004, October 25, 2005 and October 25, 2006 (the ‘‘Reset Dates’’ and each a ‘‘Reset Date’’), in the event that the average closing price of the Shares on the TSE translated into US dollars at the then Prevailing Rate (as defined below) for 20 consecutive Trading Days immediately prior to a Reset Date (the ‘‘Average Closing Price’’) is less than the Conversion Price then in effect converted into US dollars, at the fixed exchange rate of NT$[.] = US$1.00, in accordance with the following formula:

ACP = FER PR x (BP x ACP = Adjusted Conversion Price FER = Fixed Exchange Rate, which is NT$[.] PR = Prevailing Rate (as defined below)	100+ P 100 ) = US$1.00

BP = Basic Price, which is, at the sole option of the Company, either (a) the average of the closing prices of the Company’s shares listed on the TSE for a number of Trading Days to be determined by the Company (but in any event not more than 30 Trading Days) prior to and including the Reset Date or (b) the closing price on the Reset Date

Gigastorage Job: 9082-1

File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

P = Premium factor, which is a sum between one and ten, to be determined at the sole option of the Company

Any adjustment to the Conversion Price pursuant to this Condition 5(D) shall be subject to the following conditions:

(i) the adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.01;
(ii) any adjustments shall be limited so that the Conversion Price adjusted in accordance with this Condition 5(D) shall not be less than 80% of the initial Conversion Price (or if the initial Conversion Price has been adjusted to reflect any adjustments required under Condition 5(C) above that may have occurred prior to the relevant Reset Date, of such adjusted Conversion Price);
(iii) the provisions of Condition 5(C) shall apply in a corresponding manner to this Condition 5(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 5(C); and
(iv) for the avoidance of doubt, (x) any adjustments to the Conversion Price made pursuant to this Condition 5(D) shall only be downward adjustments and (y) an adjustment may be made in respect of a subsequent Reset Date notwithstanding that an adjustment may have been made in respect of an earlier Reset Date.

For the purposes of these Conditions:

‘‘Prevailing Rate’’ for any period means the average of the last available buying rate for the purchase of US dollars against the sale of NT dollars quoted by Taipei Forex Inc. (or a replacement agency selected by the Company and approved by the Trustee) on each Trading Day (as defined in Condition 5(a)(i)) over such period; provided, however, if no buying rate is available for one or more Trading Days, such day or days shall be disregarded in any relevant calculation and shall be deemed not to have existed when ascertaining any period of consecutive Trading Days. Prevailing Rate is expressed as the number of NT dollars per US dollar.

Any such adjustment shall become effective as of the Reset Date and shall be notified by the Company to the holders of the Bonds as soon as practicable in accordance with Condition 14. The Trustee shall not be obliged to monitor whether any event has occured that might fall under this Condition 5(D) and shall assume that none has occured until it has actual knowledge by way of express notice in writing from the Company to the contrary.

(E) Special Conversion Price Reset

The Company may, by giving the holders of the Bonds notice (which notice shall be irrevocable and published in accordance with Condition 14 and shall indicate the adjusted Conversion Price referred to below) as soon as practicable after each Special Reset Date (as defined below), offer the holders of the Bonds the option to convert their Bonds for a period of up to seven Business Days (as defined below), which period shall start on a day selected by the Company but end no later than twelve (12) Business Days prior to the applicable Holders’ Put Date (exclusive of the Holders’ Put Date) or, as the case may be, [.], 2007 (or if such days shall not be a Business Day, the immediately preceding Business Day), at [.], [.] and [.], respectively, of the applicable Special Reference Price (as defined below) on any or all of [.], 2005, [.], 2006 and [.], 2007 (each a ‘‘Special Reset Date’’).

Any adjustments to the Conversion Price pursuant to this Condition 5(E) shall be subject to the following conditions:

(i) the adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.01; and

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(ii) for the avoidance of doubt, (x) any adjustments shall only be temporary and the Conversion Price shall be reset to the Conversion Price in effect immediately prior to the Special Reset Date when the option to convert at the adjusted Conversion Price expires and (y) the option to convert at the adjusted Conversion Price may be granted in respect of a subsequent Special Reset Date notwithstanding that a similar one may have been granted in respect of an earlier Special Reset Date.

For the purposes of these Conditions:

‘‘Special Reference Price’’ for a Special Reset Date means the lowest of the three averages of the Closing Prices for the 10, 15 and 20 consecutive Trading Days immediately before the Special Reset Date; provided, however, if no Closing Price is available for one or more Trading Days, such day or days shall be disregarded in any relevant calculation and shall be deemed not to have existed when ascertaining any period of consecutive Trading Days.

For the purposes of this Condition 5(E):

‘‘Business Day’’ means a day (other than a Saturday and Sunday) on which commercial banks are open for business in Taiwan.

6. Payments

(A) Manner of Payment

Payment in respect of a Bond shall be made (i) by wire transfer of immediately available, freely transferable funds to the registered account of the holder of the Bonds or (ii) if such holder does not have a registered account, by a US dollar check mailed to its registered address. Payments of principal, however, under a Bond represented by a Definitive Certificate shall only be made after surrender of the relevant Definitive Certificate at the specified office of an Agent.

References in these Conditions, the Indenture and the Agency Agreement to payment in respect of a Bond shall, where the context so permits, be deemed to include not only a reference to the principal but also to any premium (if any), interest (if any), Additional Amounts (as defined in Condition 8) (if any) and other amounts payable thereon.

(B) Registered Account and Address

The registered account and address of a holder of the Bonds means its account and address appearing on the register of holders of the Bonds at the close of business on the second Business Day (as defined below) before the due date for payment.

(C) Commissions and Expenses

All payments are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8. No commissions or expenses shall be charged to the holders of the Bonds in respect of such payments.

(D) Date of Payment

Where payment is to be made by transfer to a registered account, payment instructions for value on the due date (or, if that date is not a Business Day (as defined below), for value on the next Business Day) shall be initiated. Where payment is to be made by check, the check shall be mailed on the due date for payment. Payment of principal in respect of a Bond represented by a Definitive Certificate, however, shall not be made earlier than the Business Day on which the relevant certificate is surrendered at the specified office of an Agent.

For the purposes of this Condition 6 (other than Condition 6(F)) and Condition 7, ‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks are open for business in The City of New York, in London, in Taiwan and, in the case of the surrender of a Definitive Certificate, in the place where the Definitive Certificate is surrendered.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

(E) Default Interest and Payment Delay

If the Company fails to pay any sum in respect of the Bonds when the same becomes due and payable under these Conditions, interest shall accrue on the overdue sum at the rate of 5% per annum from the due date and ending on the date that the Trustee determines to be the date on and after which payment is to be made to the holders of the Bonds in respect thereof (both dates inclusive) as stated in a notice given to the holders of the Bonds in accordance with Condition 14. Such default interest shall accrue on the basis of the actual number of days elapsed and a 360-day year consisting of 12 months of 30 days each.

The Letter of Credit dose not support the Company’s obligation to pay default interest. See ‘‘Description of the Letter of Credit’’.

Holders of the Bonds shall not be entitled to any interest or other payment for any delay after the due date in receiving the amount due caused by the fact that (i) the due date is not a Business Day, (ii) the holder of the Bonds is late in surrendering its Definitive Certificate (if required to do so) or (iii) a check mailed in accordance with this Condition 6 arrives after the due date for payment.

(F) The Letter of Credit

Hua Nan Commercial Bank, Ltd. (the ‘‘Letter of Credit Bank’’) has committed to issue the Letter of Credit to the Trustee for the benefit of the holders of the Bonds under the Guarantee Agreement dated on or prior to [.], 2004. The Letter of Credit is intended to provide a source of funds for payment of the principal of the Bonds upon the Company’s failure to pay such amounts when due or upon the Bonds being declared due and payable on the occurrence of an Event of Default pursuant to the Conditions of the Bonds.

The Letter of Credit does not support any other obligations of the Company under the Bonds, including the obligations described under ‘‘— Conversion’’ above, the obligations to make payments of ROC withholding tax or the obligation to pay default interest on the Bonds. See ‘‘Description of the Letter of Credit.’’

The amount under the Letter of Credit is drawable by the Trustee on behalf of the holders of the Bonds, upon the presentation of, inter alia, a certificate from the Trustee to the effect that (a) the Company has failed to pay the principal amount of the Bonds (i) within three days after an acceleration of the Bonds pursuant to an Event of Default described in the Condition 9 of the Bonds (other than any of the events specified in clauses (vi), (vii) and (viii) in Condition 9 of the Bonds) has occurred, or (ii) within seven days after the ~~~~~ maturity date of the Bonds or (b) the Bonds become immediately due and payable at their principal amount upon the occurance of any of the events specified in clauses (vi), (vii) and (viii) in Condition 9 of the Bonds, as applicable. Each drawing on the Letter of Credit will be payable in immediately available funds to an account of the Trustee in The City of New York on the second Business Day by no later than 10: 00 a.m., New York time, following presentation in accordance with the terms and conditions of the Letter of Credit.

‘‘Business Day’’ for this Condition 6(F) shall mean any day other than a Saturday, Sunday, public holiday or a day on which banking institutions in Taipei, The City of New York or London are authorized or required to close.

7. Redemption, Repurchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, the Company will redeem the Bonds at their principal amount in US dollars on [.], 2007 (‘‘Maturity Date’’) or if such day shall not be a Business Day, on the immediately preceding Business Day. The Bonds may be redeemed prior to that date only as provided in Condition 7(B), (C) and (D) below, but without prejudice to Condition 9.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

(B) Redemption at the Option of the Company

On or at any time after [.], 2004 and prior to [.], 2007, the Company may, having given not less than 30 or more than 60 days’ notice to the holders of the Bonds (which notice shall be irrevocable and given in accordance with Condition 7(G) and Condition 14), redeem the Bonds in whole, or from time to time in part (being US$1,000 in principal amount or an integral multiple thereof), at their principal amount; provided, however, that no such redemption may be made unless the Closing Price (as defined in Condition 5(C)) of the Shares, translated into US dollars at the Prevailing Rate (as defined in Condition 5(D)) on the same day, for each of the 20 Trading Days with in a period of 30 consecutive Trading Days, is at least 125% of the Conversion Price then in effect, translated into US dollars at the Fixed Exchange Rate. If an event giving rise to a change in the Conversion Price occurs during any such 30 consecutive Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the Closing Price for such days.

At any time, the Company may, having given not less than 30 or more than 60 days’ notice to the holders (which notice shall be irrevocable and given in accordance with Condition 7(G) and Condition 14), redeem the Bonds in whole, but not in part, at their principal amount if at least 90% in principal amount of the Bonds has already been converted, redeemed or repurchased and cancelled.

(C) Redemption for Taxation Reasons

At any time but not if notice of redemption under Condition 7(B) has already been given to the holders of the Bonds, the Company may, having given not less than 30 or more than 60 days’ notice to the holders of the Bonds (which notice shall be irrevocable and given to holders of the Bonds in accordance with Condition 7(G) and Condition 14), redeem the Bonds in whole, but not in part, at their principal amount, provided that the Company satisfies the Trustee immediately prior to the giving of such notice that:

(i) the Company has or shall become obliged to pay Additional Amounts (as defined in Condition 8) 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, that would require it to gross up for payments of principal or to gross up for payments of interest or premium (if any) at a rate exceeding 20%; and
(ii) such obligation cannot be avoided by the Company taking reasonable measures available to it.

Notwithstanding the foregoing, 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.

Prior to the publication of any notice of redemption pursuant to this Condition 7(C), the Company will deliver to the Trustee (a) a certificate signed by two of the Company’s authorized officers stating that the obligation to pay Additional Amounts (1) exists, (2) cannot be avoided by the Company taking reasonable measures available to it and (3) will require payment of Additional Amounts within 90 days of the proposed notice of redemption, and (b) an opinion addressed to the Trustee by an independent law firm of recognized standing admitted to practice in the ROC or written advice of a qualified tax expert to the effect that the Company has or will become obligated to pay Additional Amounts, and the Trustee shall be entitled to accept such certificate and opinion or advice as sufficient and conclusive evidence of the fulfillment of the conditions precedent referred to in Condition 7(C), in which event it shall be conclusive and binding on the holders of the Bonds. The Bonds in respect of which a notice of redemption has been given under Condition 7(B) or 7(D) shall not be affected by any notice given subsequently under this Condition 7(C).

(D) Redemption at the Option of the Holders

Each holder of the Bonds shall have the right (‘‘Holders’ Put Right’’), at such holder’s option, to require the Company to redeem Bonds held by such holders in whole, or in part only (being US$1,000 in principal amount or an integral multiple thereof), on [.], 2005 and on [.], 2006 at the principal amount (each of [.], 2005 and [.], 2006, a ‘‘Holders’ Put Date’’). The Company will provide sufficient

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

information to the Trustee in sufficient time in accordance with the Indenture to permit the Trustee, within not less than 30 or more than 60 days prior to each Holders’ Put Date, to give notice to the holders (which notice shall be given in accordance with Condition 7(G) and Condition 14), informing them of their Holders’ Put Right.

(E) Repurchase and Cancellation

The Company may at any time and from time to time repurchase the Bonds in the open market or otherwise at any price. The Company may surrender any Bonds so repurchased to the Principal Paying Agent for cancellation or may hold or resell such Bonds subject to applicable laws.

(F) Cancellation

All Bonds that are redeemed, repurchased or converted and surrendered to any Agent shall forthwith be cancelled. In the case of Bonds represented by Definitive Certificates, certificates in respect of all Bonds cancelled shall be forwarded to or to the order of the Principal Agent. Cancelled Bonds may not be reissued or resold.

(G) Redemption Procedures

In the event that the Company shall be required to deliver a notice to the holders of the Bonds under this Condition 7, the Company will provide sufficient information to the Trustee in sufficient time to permit the Trustee to give notice to each holder of the Bonds in accordance with Condition 14, which notice shall state, as applicable:

(A) the Holders’ Put Date;
(B) the date by which the Put Notice (as defined below) must be given by the holder;
(C) the redemption price of a Bond at the Holders’ Put Date and the method by which such redemption price will be paid;
(D) the names and addresses of all Paying Agents and Conversion Agents;
(E) the Conversion Price then in effect;
(F) the procedures that holders must follow and the requirements that holders must satisfy in order to exercise their Holders’ Put Right and Conversion Right; and
(G) that a Put Notice, once validly given, may not be withdrawn.

To exercise its Holders’ Put Right, a holder must deliver a written irrevocable notice of the exercise of such right (a ‘‘Put Notice’’) in the form obtainable from any of the Agents, to any Paying Agent on any Business Day that is not fewer than ten (10) Business Days prior to the Holders’ Put Date. Payment of the redemption price upon exercise of the Holders’ Put Right attaching to any Bond represented by a Definitive Certificate for which a Put Notice has been delivered is conditioned upon the delivery of such Definitive Certificate (together with any necessary endorsements) to any Paying Agent on any Business Day together with the delivery of such Put Notice and shall be made promptly following the later of the Holders’ Put Date and the time of delivery of such Definitive Certificate. If the Paying Agent holds on a Holders’ Put Date money sufficient to pay the redemption price for a Bond for which a Put Notice has been delivered, then, whether or not Definitive Certificates representing such Bond have been delivered to the Paying Agent, on and after such Holders’ Put Date (i) such Bond shall cease to be outstanding; (ii) the interest, if any, on such Bond shall cease to accrue; (iii) such Bond shall be deemed paid; and (iv) all other rights of the holder shall terminate, other than the right to receive the redemption price.

Gigastorage Job: 9082-1 File: 05_main

(X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

(H) Partial Redemption

In the case of a redemption of less than all of the Bonds then outstanding pursuant to Condition 7(B), 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 70 days or less than 20 days prior to the date fixed for redemption.

8. Taxation

All payments of principal, interest, if any, premium, if any, and any other amounts by the Company shall 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. In respect of any such deduction or withholding from any such payment, the Company will pay such additional amounts (‘‘Additional Amounts’’) as will result in the receipt by the holders of the Bonds of the amounts that would have been receivable in the absence of any such deduction or withholding, except that no 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 such holder being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal, interest, if any, or premium, if any, in respect of the Bond; or
(ii) if the Definitive Certificate, if issued, in respect of such Bond is presented for payment more than 30 days after the Relevant Date (as defined below) 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 the purposes of this Condition 8:

‘‘Relevant date’’ in relation to any Bonds 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 holders of the Bonds that such monies have been so received.

References in these Conditions to principal, interest, if any, premium, if any, and any other amounts shall be deemed also to refer to any Additional Amounts that may be payable in respect thereof under this Condition 8.

The Letter of Credit does not support the obligations of the Company to pay Additional Amounts or to make payments to the ROC government of any ROC withholding or other tax, duty, assessment or charge.

9. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of the Bonds of not less than 25% in principal amount of the Bonds then outstanding shall, give notice in writing to the Company that the Bonds are immediately due and payable, if any of the following events (each, an ‘‘Event of Default’’) shall have occurred and be continuing; provided, however, that if any of the events specified in clauses (vi), (vii) and (viii) shall have occurred, the Bonds shall forthwith become immediately due and payable at their principal amount with the overdue interest payable, if any, in accordance with Condition 6(E), without regard to the giving of any such notice:

(i) the Company fails to pay the principal of, or premium, if any, or interest, if any, on, any of the Bonds within seven days after the same becomes due and payable or fails to pay any other amount due on the Bonds within 15 days after the same shall become due and payable; or
(ii) the Company fails to deliver Shares as and when such Shares are required to be delivered upon the conversion of the Bonds, which failure is not remedied within five Trading Days; or

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(iii) the Company defaults in performance or observance of or compliance with any of the Company’s other obligations on the Bonds or under the Indenture, which default is incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy, such default is not remedied within 30 days after written notice of such default shall have been given to the Company by the Trustee; or
(iv) (a) any other present or future indebtedness of the Company or any of the Company’s Principal Subsidiaries (as defined in Condition 3(A)) for or in respect of monies borrowed becomes 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 (b) the Company or any of the Company’s Principal Subsidiaries fails to pay when due any amount payable by the Company or such Principal Subsidiary under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed by any person; provided that the aggregate amount of the relevant indebtedness or amounts payable in respect of which one or more events mentioned above in this paragraph (iv) have occurred and is continuing equals or exceeds US$5,000,000 or its equivalent in any other currency (determined as provided below); or
(v) any person entitled to the benefit thereof shall institute legal proceedings to enforce any mortgage, charge, pledge, lien or other encumbrance upon the whole or any material part of the assets, property or revenues of the Company or those of any of its Principal Subsidiaries, unless the Company or such Principal Subsidiary, as the case may be, are contesting such proceedings in good faith by appropriate legal proceedings and have established reserves adequate in the Company’s judgment with respect thereto; or
(vi) a decree or order by a court having jurisdiction shall have been entered (a) adjudging the Company or any of its Principal Subsidiaries bankrupt or insolvent, or (b) approving a petition seeking the Company’s reorganization or that of any of its Principal Subsidiaries under any applicable bankruptcy, insolvency or reorganization law, or (c) for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of, or all or substantially all of the business or assets of, or for the winding-up or liquidation of the affairs of, the Company, such Principal Subsidiary or any of the Company’s other Principal Subsidiaries; or
(vii) (a) an effective resolution shall be passed for the winding-up or liquidation of the Company or that of any of its Principal Subsidiaries, or (b) the Company or any of its Principal Subsidiaries shall institute proceedings to be adjudicated as a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or arrangement under any applicable bankruptcy, insolvency or reorganization law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or such Principal Subsidiary or of all or substantially all of its business or assets, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or (c) any corporate action shall be taken by the Company or any of its Principal Subsidiaries in furtherance of any of the aforesaid purposes; or
(viii) 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 90 days; or
(ix) it is or will become unlawful for the Company to perform or comply with one or more of its obligations under any of the Bonds, the Indenture or the Agency Agreement; or
(x) any event occurs that under the laws of the ROC has an effect analogous to any of the events referred to in the foregoing paragraphs.

Upon any such notice being given to the Company, the Bonds shall immediately become due and payable at their principal amount with the overdue interest, if any, payable in accordance with Condition 6(E).

Gigastorage Job: 9082-1

File: 05_main

(X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

For the purposes of clause (iv) above, any indebtedness that is in a currency other than US dollars shall be translated into US dollars at the spot rate for the sale of US dollars against the purchase of the relevant currency quoted by any leading bank in the relevant market selected by the Trustee on any day when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rate shall be calculated by reference to the cross-rates through US dollars of the relevant currencies.

For the purposes of this Condition 9:

‘‘Principal Subsidiary’’ means any corporation or other business entity more than 50% of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company and either (a) the net sales or net operating revenues of which, as shown by the accounts (consolidated in the case of an entity which itself has subsidiaries) of such entity upon which the most recent audited consolidated accounts of the Company have been based, are at least 10% of the consolidated net sales or net operating revenues, as the case may be, of the Company as shown by such audited consolidated accounts; or (b) the gross assets of which, as shown by the aforementioned accounts, are at lease 10% of the consolidated gross assets of the Company, as shown by such audited consolidated accounts.

10. Prescription

Claims in respect of payment of the Bonds will be prescribed unless made within six years from the relevant date of payment in respect thereof.

Under ROC law, claims in respect of the (i) payment of principal would become unenforceable after 15 years and (ii) payment of interest would become unenforceable after 5 years, each measured from the relevant date for payment in respect thereof.

11. 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 in respect of the Bonds, including any premium and interest, and to enforce the provisions of the Indenture; provided, however, that the Trustee shall not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the holders of at least 25% in principal amount of the Bonds then outstanding and (b) it shall have been indemnified or secured to its satisfaction. No holder of the Bonds shall be entitled to proceed directly against the Company, unless (x) the Trustee, having become bound to take proceedings against the Company, fails to do so and such failure shall have continued for a period of 60 days and (y) no direction inconsistent with the Trustee taking such proceedings has been given to the Trustee during such 60-day period by the holders of not less than a majority in principal amount of the Bonds then outstanding.

12. Meetings of Bondholders, Modification and Waiver

(A) Meetings

The Indenture contains provisions for convening meetings of holders of the Bonds to consider any matter affecting their interests, including the approval of certain amendments or modifications of these Conditions or the provisions of the Indenture upon either the written consent of the holders of not less than a majority in principal amount of the Bonds then outstanding or the approval at a meeting of holders duly called by persons entitled to vote not less than a majority in principal amount of the Bonds then outstanding, with a quorum of two or more persons holding or representing over 50% (or 25% in the case of a meeting adjourned for lack of quorum) in principal amount of the Bonds for the time then outstanding; provided that no such modification may, without the consent of each holder of the Bonds affected thereby:

(i) modify the Maturity Date or a redemption date of any Bonds (as fixed in accordance with the provisions of the Indenture);
(ii) reduce the principal, redemption price of, the rate of interest, if any, on, any Bond or increase the Conversion Price (as adjusted in accordance with the provisions of the Indenture);

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(iii) change the place or currency of payment of principal and redemption price of, or premium, if any, or interest, if any, on, any Bond or the method of calculating any such payment;
(iv) impair the right to institute suit for the enforcement of any payment on any Bond;
(v) alter the Company’s obligations relating to the payment of Additional Amounts as described in Condition 8;
(vi) except to the extent permitted by Condition 12(B) below, modify, cancel or adversely affect in any material respect the Conversion Right or Holders’ Put Right;
(vii) reduce the percentage or aggregate principal amount of outstanding Bonds the consent of whose holders is necessary for modification, amendment or waiver of compliance with provisions of the Indenture or waiver of Defaults under the Indenture; or
(viii) modify the provisions concerning the voting and quorum required at any meeting of holders of the Bonds.

(B) Modification of Conversion Right

Notwithstanding Condition 12(A) above, the Trustee may agree to, without the consent of the holders of the Bonds, any modification to the Conversion Rights that (i) is in the Trustee’s opinion necessary or desirable to effect or facilitate conversion as contemplated in these Conditions and (ii) is not materially adverse to the interests of the holders of the Bonds. The Trustee’s agreement may be subject to any condition which the Trustee requires, including but not limited to the delivery of an opinion of a financial or legal or other expert at the Company’s expense, and shall be binding on all holders of the Bonds. Unless the Trustee agrees otherwise, any such modification shall be notified by the Company to the holders of the Bonds as soon as practicable thereafter in accordance with Condition 14.

(C) Other Modifications and Waivers

The Trustee may also agree to, without the consent of the holders of the Bonds, (i) any modification of, or the waiver or authorization of any breach or proposed breach of, the Bonds or the Indenture that is not, in the Trustee’s opinion, materially adverse to the interests of the holders of the Bonds or (ii) any modification of the Bonds or the Indenture that, in the Trustee’s opinion, is of a formal, minor or technical nature or is necessary or appropriate to correct an error, defect or ambiguity in the Indenture, these Conditions or the Bonds 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 complies with the requirements of the Indenture. Any such modification, waiver or authorization shall be binding on the holders of the Bonds. Unless the Trustee agrees otherwise, any such modification waiver or authorization shall be notified by the Company to the holders of the Bonds as soon as practicable thereafter in accordance with Condition 14.

(D) Exercise of Trustee’s Functions

In connection with the exercise of its functions, including but not limited to those in relation to any proposed modification, authorization or waiver, the Trustee shall have regard to the interests of the holders of the Bonds as a class and shall not have regard to the consequences of such exercise for individual holders of the Bonds (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers, authorities or discretion for individual holders of the Bonds (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to, the jurisdiction of any particular territory. The Trustee shall not be entitled to require from the Company, nor shall any holder of the Bonds be entitled to claim from the Company or the Trustee, in the case of a claim by a holder, any indemnification or payment in respect of any tax consequences of any such exercise upon individual holders of the Bonds.

Gigastorage Job: 9082-1 File: 05_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

13. Replacement of Certificates

The Indenture includes provisions for the replacement of any mutilated, defaced, destroyed, stolen or lost Definitive Certificate at the specified offices of the Registrar and Paying Agents. The main provisions include the following:

(i) replacement certificates shall only be issued upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity to the satisfaction of the Company and the Registrar;
(ii) mutilated or defaced certificates must be surrendered before replacements will be issued; and
(iii) in the event any Bonds represented by a mutilated, destroyed, lost or stolen Definitive Certificate has become or is about to become due and payable, the Company in the Company’s discretion may, instead of issuing a new Definitive Certificate representing such Bonds, make payment as consideration for the cancellation of the Bonds represented thereby in accordance with these Conditions.

14. Notices

All notices to holders of the Bonds shall be validly given if made in writing in English and mailed to them at their respective addresses in the register of holders of the Bonds maintained by the Registrar.

Any such notice shall be deemed to have been given on the seventh day after being so mailed.

15. Indemnification

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

16. Agents

The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of Agents. 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 any Conversion Agent, Paying Agent or Transfer Agent shall be given promptly by the Company to the holders of the Bonds in accordance with Condition 14.

17. Governing Law and Jurisdiction

(A) Governing Law

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

(B) Jurisdiction

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

(C) Agent for Service of Process

The Company has irrevocably appointed CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY 10011, United States of America as its agent in the State of New York to receive service of process in any proceedings in the State of New York based on any of the Bonds.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

THE GLOBAL CERTIFICATE

Capitalized terms used in this section and not otherwise defined shall have the meanings given to them in ‘‘Description of the Bonds’’.

The Global Certificate

The Global Certificate will be deposited with, and registered in the nominee name of, a common depositary for Euroclear and Clearstream, Luxembourg (the ‘‘Common Depositary’’). Euroclear and Clearstream, Luxembourg will credit their respective account holders with the respective principal amounts of the individual interests represented by the Global Certificate. Such accounts will be designated initially by or on behalf of the Manager. Ownership of beneficial interests in the Global Certificate will be limited to persons who have accounts with Euroclear or Clearstream, Luxembourg, or persons who hold interests through such account holders. Ownership of beneficial interests in the Global Certificate will be shown on, and the transfer of that ownership will be effected only through, the records maintained by Euroclear and Clearstream, Luxembourg (with respect to interests of their respective account holders) and the records of such account holders (with respect to interests of persons with beneficial interests in the Global Certificate other than such account holders).

Payments in respect of the Global Certificate will be made to the Common Depositary or its nominee as the registered owner thereof. None of the Company, the Trustee, the Common Depositary, the Registrar, the Principal Paying Agent, the Paying Agents, any custodian, any transfer agent or any other agent will have any responsibility or liability for the accuracy of any of the records relating to, or payments made on account of, ownership interests in the Global Certificate or for any notice permitted or required to be given to persons with beneficial interests in the Global Certificate or any consent given or actions taken by such persons. The Company expects that upon receipt of any payment in respect of the Global Certificate representing any Bonds held by it or its nominee, Euroclear and Clearstream, Luxembourg, or their nominees, will promptly credit the accounts of the participants of Euroclear and Clearstream, Luxembourg with payments proportionate to their respective interests in the amount of the principal of the Global Certificate as shown on the records of Euroclear and Clearsteams, Luxembourg, or their nominees.

Transfers between account holders in Euroclear and Clearstream, Luxembourg will be effected in accordance with their respective rules and operating procedures.

The laws of certain jurisdictions require that certain purchasers of the Bonds take physical delivery of such Bonds in definitive form. Accordingly, the ability of beneficial owners to own, transfer or pledge beneficial interests in the Global Certificate may be limited by such laws.

Conversion through participants in Euroclear and Clearstream, Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Although Euroclear and Clearstream, Luxembourg have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Certificate among participants and account holders of Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Trustee, the Common Depositary, the Registrar, the Principal Paying Agent, the Paying Agents, any custodian, any transfer agent, any registrar or any other agent will have any responsibility for the performance by Euroclear or Clearstream, Luxembourg, or their respective participants, indirect participants or account holders, of their respective obligations under the rules and procedures governing their operations.

Euroclear and Clearstream, Luxembourg each holds the Bonds for participating organizations and facilitates the clearance and settlement of Bond transactions between its respective participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream, Luxembourg provide to their respective participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg participants are financial institutions throughout the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Euroclear and Clearstream, Luxembourg is also available to others, such as banks, brokers, dealers and trust companies which clear through or maintain a custodial relationship with a Euroclear or Clearstream, Luxembourg participant, either directly or indirectly.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Definitive Certificate

The Company will issue Definitive Certificate in registered form in exchange for the Global Certificate if:

(i) the Common Depositary or any successor to the Common Depositary notifies the Company in writing that it is at any time unwilling or unable to continue as a depositary and a successor depositary is not appointed by the Company within 90 days, or
(ii) either Euroclear or Clearstream, Luxembourg or a successor clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, or
(iii) an event of default under the Bonds or the Indenture has occurred and is continuing.

Upon receipt of such notice from Euroclear, Clearstream, Luxembourg or the Registrar, as the case may be, the Company will make arrangements for the exchange of interests in the Global Certificate for Definitive Certificates representing individual Bonds and cause such Definitive Certificates to be executed and delivered to the Registrar in sufficient quantities and authenticated by the Trustee for delivery to the holders of the Bonds. Each person exchanging interests in the Global Certificate for one or more of these Definitive Certificates will be required to provide to the Trustee, through the relevant clearing system, written instructions and other information required by the Company and the Trustee to complete, execute and deliver the relevant certificates. Any Definitive Certificates delivered in exchange for the Global Certificate or beneficial interests therein will be registered in the names requested, and issued in any denominations approved, by the relevant clearing system.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

EXCHANGE RATE INFORMATION

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

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

The following table sets forth the average, high, low and period-end Noon Buying Rates between NT Dollars and US Dollars (in NT Dollars per US Dollar) for the periods indicated. No representation is made that the NT Dollar amounts actually represent such US Dollar amounts or could have been, or could be, converted into US Dollars at the rate indicated, at any other rate or at all.

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January . . . . . . . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . . . . . . . March (through [.]). . . . . . . . . . . . . . . . . .	NT	Dollars/US Dollar Noon Buying Rate	Dollars/US Dollar Noon Buying Rate	Dollars/US Dollar Noon Buying Rate
	Average 33.55 32.32 31.26 33.82 34.75 33.66 [.] [.]	High 35.00 33.40 33.20 35.13 34.79 33.98 [.] [.]	Low 32.05 31.39 30.48 32.23 34.70 33.34 [.] [.]	Period End
				32.27 31.39 33.17 35.00 34.70 33.39 [.] [.]

Source: Federal Reserve Statistical Release H.10 (512), 1997–2003; Board of Governors of the Federal Reserve System.

For information relating to foreign exchange controls required in the ROC for the conversion by the holders of Bonds of dividends on Shares or proceeds from the sale of Shares from NT dollars into US dollars, see ‘‘Foreign Investment and Exchange Controls in the R.O.C.’’

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

DESCRIPTION OF THE LETTER OF CREDIT

Hua Nan Commercial Bank, Ltd. (the ‘‘Letter of Credit Bank’’) has committed to issue an irrevocable standby letter of credit (the ‘‘Letter of Credit’’) to the Trustee under the Guarantee Agreement dated on or prior to [.], 2004, to support ~~~~~ certain payment obligations of the Company. The Company has committed to provide cash, factories or machinery with a value equivalent to US$[.] as collateral (the ‘‘Collateral’’) for the issuance of the Letter of Credit. The Letter of Credit will authorize the Trustee to draw on the Letter of Credit Bank, on demand, for an amount not exceeding the Stated Amount (as defined below) of the Letter of Credit in accordance with the terms and conditions of the Letter of Credit. The Letter of Credit will be issued on the Closing Date in favor of the Trustee for the benefit of the holders of the Bonds. Accordingly, the Trustee, as beneficiary of the Letter of Credit, will not be acting as an agent of the Company but will act on behalf of holders of the Bonds. The Letter of Credit is intended to provide a source of funds for payment of the principal of the Bonds upon the Company’s failure to pay such principal amount ~~~~~ at maturity or upon the Bonds being declared due and payable on the occurrence of an Event of Default pursuant to the Conditions of the Bonds. The Letter of Credit does not support any other obligations of the Company under the Bonds, including the obligations described under ‘‘Description of the Bonds — Conversion’’, the obligations to make payment of ROC withholding tax or the obligation to pay default interest on the Bonds.

The stated amount of the Letter of Credit (the ‘‘Stated Amount’’) means the maximum aggregate amount payable at maturity of the Bonds, which is US$30.0 million, after any reduction as provided in the Letter of Credit. The Stated Amount at the time the Letter of Credit is issued will be US$30.0 million. The Stated Amount available for drawing under the Letter of Credit shall be reduced (a) by the principal amount of any Bonds that have been redeemed pursuant to the Indenture, (b) by the principal amount of any Bonds that have been converted into Shares, and (c) by the principal amount of any Bonds that have been repurchased and cancelled, in each case pursuant to the Indenture. The Collateral will be proportionally reduced and released to the Company by the Letter of Credit Bank from time to time contemporaneously with a reduction of the Stated Amount as described above.

The Letter of Credit will automatically terminate at the close of business on the earliest to occur (the ‘‘Expiry Date’’) of (i) [.], 2007, (ii) the date the final drawing under the Letter of Credit is honored and paid by the Letter of Credit Bank, (iii) the date the Stated Amount is reduced to zero or (iv) the day on which the Letter of Credit is surrendered by the Trustee to the Letter of Credit Bank for cancellation.

The Stated Amount under the Letter of Credit is drawable by the Trustee on behalf of the holders of the Bonds, upon the presentation of, inter alia, a certificate from the Trustee to the effect that (a) the Company has failed to pay the principal amount of the Bonds (i) within three days after an acceleration of the Bonds pursuant to an Event of Default described in the Condition 9 of the Bonds (other than any of the events specified in clauses (vi), (vii) and (viii) in Condition 9 of the Bonds) has occurred, or (ii) within seven days after ~~~~~ the maturity date of the Bonds or (b) the Bonds become immediately due and payable at their principal amount upon the occurance of any of the events specified in clauses (vi), (vii) and (viii) in Condition 9 of the Bonds, as applicable. The Trustee shall, within three Business Days, after (a) receiving the Principal Paying Agent’s notice of the Company’s failure to make such payment or (b) the date the Bonds become immediately due and payable upon the occurance of any of the events specified in clauses (vi), (vii) and (viii) in Condition 9 of the Bonds, as applicable, draw on the Letter of Credit in accordance with the Indenture and the Agency Agreement and as described in the Conditions.

The Letter of Credit is transferable any number of times, but only in the amount of the full Stated Amount, as such amount may have been reduced from time to time, and not in part, and transfer may only be made to the person or entity who has been duly appointed as successor Trustee under the Indenture. Transfer of the Letter of Credit to such transferee shall be effected only by the presentation to the Letter of Credit Bank of the Letter of Credit accompanied by the signed documents required under the Letter of Credit.

The demand for payment, accompanied by the certificate and presented in full compliance with the terms and conditions of the Letter of Credit at or before 11: 00 a.m., Taipei time, on a Business Day (as defined below), will be honored by the Letter of Credit Bank by payment to the Trustee no later than 10: 00 a.m., New York time, on the second following Business Day. If the Letter of Credit Bank receives the demand for payment and certificate from the Trustee in full compliance with the terms and conditions of the Letter of Credit after 11: 00 a.m., Taipei time, on a Business Day, the Letter of Credit Bank will honor such demand for payment by payment to the Trustee no later than 10: 00 a.m., New York time, on the third following Business Day. ‘‘Business Day’’ shall mean any day other than a Saturday, Sunday, public holiday

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

or a day on which banking institutions in Taipei, the City of New York or London are authorized or required to close. However, the Trustee shall not be required to make payment of moneys received pursuant to a drawing under the Letter of Credit (‘‘Amount Collected’’) until the Business Day following the day on which the Amount Collected is received by the Trustee.

The Letter of Credit shall be governed by and construed in accordance with the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500 (the ‘‘UCP’’), and, to the extent not inconsistent therewith, New York law.

Notwithstanding anything to the contrary in Article 41 of the UCP, the Letter of Credit is intended to remain in full force and effect until the Expiry Date. Any failure by Trustee or a successor trustee to draw on the Letter of Credit shall not cause the Letter of Credit to be unavailable for any future drawing, provided, that any such future drawing may not be made after the Expiry Date.

In relation to any legal action or proceedings arising out of or in connection with the Letter of Credit (‘‘Proceedings’’), the Letter of Credit Bank has irrevocably submitted to the non-exclusive jurisdiction of the courts of any U.S. Fedural or New York State court located in The City of New York and agrees that proceedings may be brought in any such court and waives to the fullest extent permitted by applicable law any objection to proceedings in any such court on the grounds of venue or on the grounds that the proceedings have been brought in an inconvenient forum. The Letter of Credit Bank has irrevocably appointed Hua Nan Commercial Bank, Ltd., New York Agency, currently located at 330 Madison Ave., 38th Floor, New York, NY 10017, United States of America, as its agent to receive for and on its behalf service in any Proceedings.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

DESCRIPTION OF THE LETTER OF CREDIT BANK

Set forth below is a summary of information relating to the Letter of Credit Bank which is derived from, qualified in its entirety by, and should be read in conjunction with, information that has been made publicly available by the Letter of Credit Bank. You are cautioned that we have not independently verified the accuracy or completeness of the information contained herein.

Overview

The Letter of Credit Bank was formally established as the Hua Nan Commercial Bank, Ltd. in March 1947 with capital of 15 million Old Taiwan Dollars. In May 1947, the Letter of Credit Bank merged with Taiwan Trust Company, which became the Letter of Credit Bank’s newly-formed Trust Department. In January 1998, a large number of government-owned shares were sold, enabling the Letter of Credit Bank to complete its privatization.

In November 2001, the shareholders of the Letter of Credit Bank and EnTrust Securities Co. Ltd. approved the formation of Hua Nan Financial Holdings Co., Ltd. through a share exchange between these two companies and thereafter the Letter of Credit Bank and EnTrust Securities became wholly-owned subsidiaries of Hua Nan Financial Holdings Co., Ltd. In December 2001, Hua Nan Financial Holdings Co., Ltd. commenced its operations and its shares were listed on the Taiwan Stock Exchange.

The Letter of Credit Bank conducts general banking operations, including deposit taking, extension of loans and credit, issuance of credit cards and bank cards, acting as a corporate trustee and engaging in bills finance.

The Letter of Credit Bank is headquartered in Taipei and has branches located throughout Taiwan and in major international financial centers. As of March 31, 2003, the Letter of Credit Bank’s organization consists of a headquarter, 163 domestic branches and 3 representative offices, as well as an offshore banking branch and 8 overseas business units, including 5 overseas branches and 3 overseas representative offices.

Directors and Supervisors

The Letter of Credit Bank currently has fourteen directors and four supervisors. The following table sets forth certain information with respect to the directors and supervisors of the Letter of Credit Bank as of December 31, 2003.

Name Ming-Cheng Lin Teh-Nan Hsu Yun Lin Teng-Lung Hsieh Hsien-Hsien Hsu Kao-Chin Wang Ya-Hwei Yang	Position Chairman Managing Director and President Managing Director Managing Director Managing Director Director Director	Experience Vice Chairman of Hua Nan Commercial Bank and President of Ta-Yung Shing Yeh Corp. President of Taiwan Coorperative Bank Chairman of Finance Department of National Taiwan University Vice President and Deputy General Manager of Loans and Discounts Dept., Bank of Taiwan Director & Supervisor of Shin-Kong Life Insurance Co., Ltd. Senior Vice President and General Manager of New York Agency and Los Angeles Branch and Supervisor of Hua Nan Commercial Bank Director of Division of Taiwan Economy	Education
			Master of law from Keio University, Japan Bachelor’s degree in banking from National Cheng Chi University Doctoral degree from the University of Illinois, Urbana Champaign, U.S.A. Bachelor’s degree from National Taichung Institute of Commerce Bachelor’s degree in economics from Meiji University, Japan Bachelor’s degree from National Taiwan University & master’s degree from North Dakota State University, U.S.A. Doctoral degree in economics from National Taiwan University

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Name Sou-Shan Wu Shiu-Hsiung Chen Hsu-Hsueh Chang James Hui-Jan Yen Hui-Wei Yen Tommy Lin Po-Wei Hsu Chan-Sheng Chen Wen-Yuh Tsai Justin J.L. Wei Shu-Shai Yen Chen	Position Director Director Director Director Director Director Director Supervisor Supervisor Supervisor Supervisor	Experience Director of Management Science Institute of National Chiao Tung University and Academic Advisor to the Ministry of Education President of Maxwell Electric Co., Ltd. Supervisor of Fu Chuan Enterprises Co., Ltd. Chairman of Asia Jewelry Co., Ltd., Director of Memorial Scholarship Foundation to Mr. Lin Hsiung- Chen, and Director of Chinese National Export Enterprises Association Director of Chang Hwa Commercial Bank, Ltd. Fund Manager of Mercury Asset Management Co., Ltd. (Japan) President and Chief Executive Officer of EnTrust Securities Co., Ltd. Manager of Bank Examination Department of the Central Bank of China and President of Central Deposit Insurance Corp. Auditor engaged in tax planning and business management Vice President and Deputy Chief Secretary of The Bank of Taiwan Director of Taipei Business Bank	Education
			Doctoral degree from the University of Florida, U.S.A. Master’s degree in business administration from City University of Washington, U.S.A. Graduated from Tokyo Kyalite College, Japan Bachelor’s degree from Tamkang University Doctoral degree from Hawaii Pacific University, U.S.A. J.D. from the University of California, Los Angeles, U.S.A. Master’s degree in chemical engineering from University of South California, U.S.A. Bachelor’s degree in accounting from Tamkang University Master’s degree in business administration from National Cheng Chi University Master’s degree in economics from Soochow University Bachelor’s degree from Shih Chien University

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

Selected Financial Information of the Bank

The following tables set forth selected financial information derived from the financial statements of the Bank as of and for the years ended December 31, 2000, 2001 and 2002 and nine months ended September 30, 2002 and 2003.

Consolidated Income Statement Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . . . . Income tax gains (expenses) . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .		Year Ended December 31,	Year Ended December 31,	2002 (US$ million) 1,431.6 2,217.8 (786.2) 355.6 (1,141.8) 145.5 63.2 (1,059.4) (277.0) (782.4)
	2000 73,429.9 54,110.0 19,320.0 12,107.7 7,212.2 460.2 1,911.8 5,760.6 943.6 4,817.0	2001 (NT$ million) 69,727.2 52,286.4 17,440.7 12,140.7 5,300.1 1,342.8 2,095.3 4,547.5 573.4 3,974.1	2002 49,745.6 77,067.3 (27,320.8) 12,356.8 (39,677.6) 5,057.2 2,194.8 (36,815.2) (9,627.4) (27,187.8)

Consolidated Balance Sheet Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from Central Bank of China. . . . . . . . . . . . . . . . Marketable securities, net . . . . . . . . . . . . . . . . . . . . . Account receivables, net. . . . . . . . . . . . . . . . . . . . . . Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . Bills purchased and discounts and loans, net . . . . . . . . Long-term equity investments . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due to Central Bank of China. . . . . . . . . . . . . . . . . . Due to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds sold under repurchase agreements . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . Advance collections. . . . . . . . . . . . . . . . . . . . . . . . . Deposits accepted and remittances . . . . . . . . . . . . . . . Bank bonds payable. . . . . . . . . . . . . . . . . . . . . . . . . Financing from Central Bank of China and other banks Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . Consolidated Income Statement Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31,
	2000 58,057.0 51,589.7 46,957.9 136,962.5 17,094.3 2,488.9 823,783.1 7,133.8 21,521.9 13,781.9 1,179,370.0 191.5 65,816.9 28,037.0 48,876.3 828.5 938,204.6 3,299.2 4,283.6 10,408.1 1,828.9 1,101,774.7 77,595.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
		2002 2003 (NT$ million) 38,724.0 32,008.2 (70,224.6) (21,401.2) (31,500.6) 10,607.0 9,125.4 9,135.4 (40,626.0) 1,471.7 2,756.8 7,323.2 1,609.6 274.4 (39,478.8) 8,520.4 (10,032.0) 1,982.0

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Consolidated Balance Sheet Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from Central Bank of China. . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Account receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills purchased and discounts and loans, net . . . . . . . . . . . . . . . . . . . . Long-term equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due to Central Bank of China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchased-bond-liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits accepted and remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As	of September 30,	of September 30,
	2002 2003 (NT$ million) 173,012.9 215,089.2 61,799.1 76,076.1 47,527.8 59,248.9 103,301.4 126,442.5 16,616.3 18,330.2 2,396.1 2,481.4 813,328.4 789,225.9 11,885.9 9,434.1 21,316.2 20,836.3 23,582.3 21,465.2 1,274,766.5 1,338,629.8 2,122.9 188.7 96,461.5 92,551.1 26,093.3 19,820.0 40,000.2 42,431.7 527.9 533.8 1,019,831.9 1,083,653.7 28,495.3 31,170.0 1,820.4 36.4 9,602.1 9,671.4 2,373.3 2,354.4 1,227,328.9 1,282,411.2 47,437.6 56,218.6		2003
			(US$ million) 6,328.0 2,238.2 1,743.1 3,720.0 539.3 73.0 23,219.4 277.6 613.0 631.5
			39,383.0
			5.6 2,722.9 583.1 1,248.4 15.7 31,881.5 917.0 1.1 284.5 69.3
			37,729.1
			1,654.0

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

DESCRIPTION OF THE SHARES

Set forth below is certain information relating to the capital stock of the Company, including brief summaries of certain provisions of the Company’s Articles of Incorporation (the ‘‘Articles’’), the Securities and Exchange Law of the ROC (the ‘‘Securities and Exchange Law’’) and regulations promulgated thereunder and the Company Law.

General

The Company’s authorized share capital is NT$3.88 billion consisting of 388 million Shares of common stock with a par value of NT$10 each, of which 100 million Shares have been reserved for issuance upon conversion of convertible bonds and 20 million Shares have been reserved for issuance of stock options. All Shares are in registered form and 263,807,824 Shares were issued and outstanding as of February 23, 2004. The Company does not have any equity in the form of preference shares nor are any currently authorized under the Articles. The Company has established a stock option plan in June 2003, under which the Company may grant stock options to its employees for their purchase of up to 10 million Shares. As of July 8, 2003, 6 million stock options have been granted for the purchase of 6 million Shares by the employees. As of December 31, 2003, 4 million stock options have been granted for the purchase of 4 million Shares by the employees. Except for this stock option plan, the Company does not have any outstanding warrants, bonds or other securities exerciseable exchangeable for, or convertible into, Shares.

Dividends

Except under limited circumstances as permitted by the Company Law, an ROC company is not permitted to distribute dividends or make any other distributions to shareholders for any year in which the company does not have earnings or retained earnings (excluding reserves). In addition, before distributing a dividend or making any other distribution to shareholders, a company must recover any past losses, pay all outstanding taxes and set aside a reserve, referred to as the ‘‘Legal Reserve’’, at 10% of its earnings until such time as its Legal Reserve equals the amount of its total paid-up capital, and a special reserve (if any). Subject to compliance with these requirements, a company may pay dividends from its earnings or make other distributions from its reserves as set forth below.

Under the Company Law, following approval by the shareholders’ meeting, dividends are paid to shareholders from a company’s earnings (subject to compliance with the above requirements), in proportion to the number of shares owned by each shareholder as listed on the register of shareholders as of the relevant record date. Dividends declared out of earnings may also be distributed either in cash or in the form of common stock or a combination thereof. Stock dividends may also be distributed in connection with a capitalization of reserves. The ratio between any cash dividend and stock dividend is determined by the shareholders at a shareholders’ meeting. Notices of such persons’ entitlements to stock dividends are delivered by post, notifying them of the place and date to collect the relevant share certificates or to receive the relevant shares through a book-entry system. In respect of cash dividends, the Company will notify the shareholders and make the payments by check or wire transfer to such accounts as may be designated by the shareholders.

In addition to permitting dividends to be paid out of earnings or retained earnings, the Company Law also permits a company to make distributions to its shareholders in the form of additional shares of capital stock from recapitalization of reserves (including the Legal Reserve and certain other reserves). In the case of a company’s capital reserves, subject to the Securities and Exchange Law and applicable regulations of the Securities and Futures Commission of the ROC (the ‘‘ROC SFC’’), 100% of the capital reserves may be recapitalized through stock distributions to shareholders. In the case of a company’s Legal Reserve, however, the recapitalized portion payable out of such Legal Reserve is limited to 50% of the total accumulated Legal Reserve and such recapitalization can only be effected when the accumulated Legal Reserve exceeds 50% of the paid-in capital of the company.

The Articles provide that the Company may, after paying all income taxes in accordance with ROC law, recovering any past losses and deducting the Legal Reserve and special reserve, reserve the remaining portion of earnings or allocate the remaining portion of earnings (subject to proposal by the Board of Directors and approval by shareholders) as follows:

(i) at least 5% as bonuses to employees;

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

(ii) at least 2% as remuneration to directors and supervisors; and
(iii) the remaining balance, if any, to shareholders as dividends (of which no less than 5% may be distributed in the form of cash).

For information as to ROC taxes on cash and stock dividends, see the section headed ‘‘ROC Taxation’’ below.

Pre-Emptive Rights and Issue of Additional Shares

The ROC Company Law provides that between 10% and 15% of any new issue of shares of capital stock sold for cash must be offered first to the issuing company’s employees except in certain limited circumstances. In addition, the Securities and Exchange Law and the relevant securities regulations require that, if a public company (e.g., a company listed on the TSE or whose shares are traded on the GreTai Securities Market) intends to offer new shares for cash, at least 10% of such issue must be offered to the public except under certain circumstances or when exempted by the ROC SFC. Holders of common stock who are listed on the shareholders’ register as of the record date have a pre-emptive right to acquire the remaining 75 to 80% of the issue. The shares not subscribed for by the employees, shareholders and the public, at the expiration of the period for the exercise of their rights, may be freely offered by the company (subject to ROC law) to the general public by means of public offering or a private placement. The shareholders do not have pre-emptive rights to subscribe for the Bonds.

Meetings of Shareholders

The ordinary meeting of shareholders of the Company is usually held in Taipei, Taiwan, or an alternative location within the ROC as determined by the Board of Directors, within the six months following the end of the Company’s fiscal year. Notice in writing of ordinary meetings stating the place, time and purpose thereof must be dispatched to each shareholder at least 30 days prior to the date set for the meeting. Extraordinary meetings of shareholders may be convened by resolution of the Board of Directors or by shareholders under certain circumstances. Extraordinary meetings of shareholders may also be convened by a supervisor of the Company when the Board of Directors of the Company does not or cannot convene a shareholders meeting and/or such a meeting is necessary for the benefit of the Company. Notice in writing of extraordinary meetings stating the place, time and purpose thereof must be dispatched to each shareholder at least 15 days prior to the date set for the meeting.

Voting Rights

A holder of common stock has one vote for each share of common stock.

Except as otherwise provided by law, a resolution may be adopted by the holders of a simple majority of the total issued and outstanding common shares represented at a shareholders’ meeting at which a majority of the holders of the total issued and outstanding common shares are present. Notwithstanding the above, in order to approve certain major corporate actions, including any amendment to the Articles (which is required for, inter alia, any increase in authorized share capital), the dissolution or amalgamation of the Company, the transfer of all or an important part of its business or its property, the taking over of the whole of the business or property of any other company which would have a significant impact on the Company’s operations, or the distribution of any stock dividend, the Company Law provides that a resolution has to be passed at a meeting of the shareholders with a quorum of holders of at least two-thirds of all issued and outstanding common stock at which the majority present vote in favor thereof. Alternatively, in the case of a public company, such as the Company, such a resolution may be approved by the holders of at least twothirds of the common stock represented at a meeting of shareholders with a quorum of holders of at least a majority of issued and outstanding common stock.

A shareholder may be represented at a shareholders’ meeting by proxy. A valid proxy form must be delivered to the Company at least five days prior to the date fixed for the ordinary or extraordinary meeting.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

Registration of Shareholders and Record Dates

The Company currently uses Taiwan Securities Corp. as its share registrar to maintain the register of shareholders of the Company at its registered office in B1, 96, Chien-Kuo N. Rd., Section 1, Taipei, ROC. The share registrar of the Company enters transfers of common stock in the register of shareholders upon presentation of the certificates in respect of the common stock transferred accompanied by other required documents.

As mentioned above, the record date for a dividend will be determined and announced by the Company. For the purpose of determining certain rights, including rights to dividends pertaining to the common stock, the Company Law provides that the register of shareholders is closed for a period of 60 days, 30 days and five days immediately before each date of ordinary shareholders’ meeting, each extraordinary shareholders’ meeting and the relevant record date, respectively.

Annual Report

Under the ROC Company Law, 10 days before the ordinary shareholders’ meeting, the Company’s annual audited financial statements and the Supervisors’ report must be available at the principal office of the Company in Taipei for inspection by the shareholders.

Transfers of Capital Stock

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

Acquisition by the Company of Its Own Capital Stock

Except under limited circumstances, the Company cannot acquire its own capital stock under the Company Law. However, under the Securities and Exchange Law, the Company may, by a board resolution adopted by majority consent at a meeting with two-thirds of the Company’s directors present, purchase its capital stock on the TSE or by a tender offer, in accordance with the procedures prescribed by the ROC SFC, for the following purposes: (i) to transfer shares to the Company’s employees; (ii) to convert bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by the Company into capital stock; and (iii) if necessary, to maintain the Company’s credit and its shareholders’ interests provided that the capital stock so purchased shall be cancelled thereafter.

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

The Company may not pledge or hypothecate any purchased capital stock. In addition, the Company may not exercise any shareholders’ rights attached to such capital stock. In the event that the Company purchases its capital stock on the TSE, its affiliates, directors, supervisors, managers and their respective spouses and minor children and/or nominees are prohibited from selling any of the Company’s capital stocks during the period in which the Company purchases its capital stock.

Liquidation Rights

Pursuant to the ROC Company Law, in the event of the liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses, taxes and distribution to holders of preference shares, if any, will be distributed pro rata to the shareholders.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Notices

All notices to shareholders of the Company are delivered by post or published in newspapers with general circulation in the ROC or through a website designated by the ROC SFC (for shareholders holding less than 1,000 shares) as relevant ROC regulations may require.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

TRANSFER RESTRICTIONS

Because of the following restrictions, investors should consult legal counsel prior to making any offer, resale, pledge or other transfer of the Bonds or the Shares issuable upon conversion of the Bonds.

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, US 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 Bonds may be made to any US 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 used in this section are defined in Regulation S under the Securities Act.

Except in certain limited circumstances, interests in the Bonds may only be held through interests in the Global Certificate. Such 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 respective direct and indirect participants. See ‘‘Description of the Bonds’’.

Each purchaser of the Bonds, by accepting delivery of this Offering Circular, will be deemed to have represented, agreed and acknowledged that:

(1) The Bonds and the Shares issuable upon conversion of the Bonds have not been and will not be registered under the Securities Act or with any state of the United States and are subject to significant restrictions on transfer;
(2) Each owner purchasing prior to the expiration of 40 days after the later of the commencement of the offering and the latest closing date for the offering (‘‘Distribution Compliance Period’’) is purchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S;
(3) The Bonds will not be sold, pledged or transferred to, or for the account or benefit of, any US person outside the United States or any person in the United States during the Distribution Compliance Period;
(4) Such owner will not offer, sell, pledge or otherwise transfer any interest in the Bonds or Shares issuable upon conversion of the Bonds except as permitted by the applicable legend set forth in paragraph (5) below; and
(5) The Bonds will bear legends to the following effect, which restrictions the Company will observe unless the Company determine otherwise in compliance with applicable law:

THE BONDS EVIDENCED HEREBY AND THE COMMON SHARES OF GIGASTORAGE CORPORATION (‘‘GIGASTORAGE’’) ISSUABLE UPON CONVERSION OF THE BONDS EVIDENCED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), AND PRIOR TO THE EXPIRATION OF 40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF THE BONDS AND THE LATEST CLOSING DATE FOR THE OFFERING (THE ‘‘DISTRIBUTION COMPLIANCE PERIOD’’), SUCH BONDS MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY U.S. PERSON OUTSIDE THE UNITED STATES OR ANY PERSON IN THE UNITED STATES. EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE BONDS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWING RESTRICTIONS.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

THIS LEGEND WILL BE REMOVED AFTER THE END OF THE DISTRIBUTION COMPLIANCE PERIOD, AFTER WHICH THE BONDS EVIDENCED HEREBY, AND THE COMMON SHARES OF GIGASTORAGE ISSUABLE UPON CONVERSION OF THE BONDS SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN THIS LEGEND, PROVIDED THAT AT SUCH TIME AND THEREAFTER THE OFFER OR SALE OF THE BONDS EVIDENCED HEREBY AND THE COMMON SHARES OF GIGASTORAGE ISSUABLE UPON CONVERSION OF THE BONDS WOULD NOT BE RESTRICTED UNDER ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES OR OF THE STATES OR TERRITORIES OF THE UNITED STATES.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

ROC TAXATION

Prospective investors should consult their own advisers concerning the tax consequences of an investment in the Bonds or Shares.

The following is a summary of the principal ROC tax consequences of the ownership and disposition of the Bonds or Shares to a Non-Resident Individual or Non-Resident Entity that holds the Bonds or Shares (each a ‘‘Non-ROC Holder’’) under the ROC law currently in effect. As used in the preceding sentence, a ‘‘Non-Resident Individual’’ is a foreign national individual who owns the Bonds or Shares and is not physically present in the ROC for 183 days or more during any calendar year, and a ‘‘Non-Resident Entity’’ is a corporation or a non-corporate body that owns the Bonds or Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent establishment in the ROC. Prospective purchasers of the Bonds should consult their own tax advisers concerning the tax consequences of owning the Bonds or Shares in the ROC and any other relevant taxing jurisdiction to which they are subject.

Premium and Interests on the Bonds

Premium (if any) and interests (if any) on the Bonds paid to Non-ROC Holders are subject to ROC income tax collected by way of withholding at the time of payment. The current rate of withholding for Non-ROC Holders is 20%. The Company has agreed to gross up such withholding tax.

Dividends on the Shares

Dividends (whether in cash or shares) declared by the Company out of retained earnings and paid out to Non-ROC Holders of Shares are subject to ROC income tax collected by way of withholding at the time of distribution. The current rate of withholding for Non-ROC Holders is 20% of the amount of the distribution (in the case of cash dividends) or the par value of the shares (in the case of stock dividends). The aforementioned 20% withholding tax may be reduced by an amount which is calculated by multiplying 10% of the amount of dividends distributed by a fraction, the numerator of which is the retained earnings on which the 10% retained earnings tax has been imposed, and the denominator is the accumulated retained earnings as of the distribution date.

Distribution of Shares declared by the Company out of capital reserve is currently not subject to ROC withholding tax.

Capital Gains

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

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

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 are subject to capital gains tax at the rate of (i) 25% of the gains realized for a Non-Resident Entity, and (ii) 35% of the gains realized for a Non-Resident Individual. Subject to compliance with ROC law, the Company has the sole discretion to determine whether statutory subscription rights are evidenced by securities or not.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Securities Transaction Tax

The ROC government imposes a securities transaction tax that will apply to sales of Shares. The transaction tax, which is payable by the seller, is generally levied on sales of shares at the rate of 0.3% of the sales proceeds. No securities transaction tax will apply to transfers of the Bonds.

There is no ROC transfer, stamp, issue or registration tax imposed on the issuance of Shares upon conversion of the Bonds. However, securities transaction tax, gift tax and/or income tax may be imposed in relation to the converting Bondholder’s designation of another person to be the holder of the Shares upon conversion of the Bonds.

Estate Taxation and Gift Tax

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

Tax Treaty

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

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

PLAN OF DISTRIBUTION

The Manager has, pursuant to a Purchase Agreement dated [.], 2004 agreed with the Company to subscribe and pay for the Bonds in the principal amounts therein specified at the issue price of 100% of their principal amount less a combined management and underwriting commission, and a selling commission aggregating US$120,000. The Purchase Agreement provides that the Company will indemnify the Manager against certain liabilities. The Purchase Agreement provides that the obligations of the Manager are subject to certain conditions precedent, and entitles the Manager to terminate it in certain circumstances prior to payment being made to the Company.

The Manager, or its affiliates, intends to purchase Bonds for their own account and enter into transactions relating to the Bonds, including asset swaps, repackagings and other transactions. Such transactions would be carried out as bilateral trades with selected counter-parties and separately from any offering, sale or resale of the Bonds to which this Offering Circular relates (notwithstanding that such selected counter-parties may also be purchasers of the Bonds). These transactions may involve a substantial portion of the Bonds. Furthermore, the Manager may, to the extent permitted by, and in accordance with, applicable laws and regulations, make a market with respect to the Bonds but is not obligated to do so, and any market-making with respect to the Bonds may be discontinued at any time without notice.

The Company has agreed that, to the extent applicable, without the prior written consent of the Manager between the date hereof and the date 90 days after the Closing Date, it will not, and will cause any person acting on its behalf not to, (a) issue, offer, sell, contract to sell or otherwise dispose of any interest in (1) any Shares or securities of the same class as the Bonds or Shares or (2) any securities (other than preferred stock) convertible into, exchangeable for or which carry rights to subscribe or purchase the Bonds, the Shares or securities of the same class as the Bonds or the Shares or (3) any other instruments representing interests in the Bonds, the Shares or securities of the same class as the Bonds or the Shares; or (b) announce or otherwise make public an intention to do nay of the foregoing, except for: (i) the sale of the Bonds under the Purchase Agreement; (ii) transactions relating to the Bonds, the Shares or other securities acquired in open market transactions after the completion of the offering of the Bonds; (iii) Shares issued pursuant to stock option plan, including the stock option plan established in June 2003; (iv) announcement and/or distributions of dividends or employee dividends in the form of Shares; or (v) the issuance of Shares upon conversion of the ~~~~~ 2003 Convertible Bonds and the Bonds.

The Manager is a wholly-owned subsidiary of Hua Nan Securities Co., Ltd. Both Hua Nan Securities Co., Ltd. and Hua Nan Commercial Bank, Ltd., acting as the Letter of Credit Bank, are wholly-owned subsidiaries of the Hua Nan Financial Holdings Co., Ltd. Each of the Manager, Hua Nan Securities Co., Ltd., the Letter of Credit Bank and/or its respective affiliates have provided and may in the future provide banking, advisory and other financial services to the Company and some of its affiliates in the ordinary course. In particular, the Company will enter into the Guarantee Agreement with the Letter of Credit Bank with respect to the issuance of the Letter of Credit to support certain of its payment obligations of the Bonds. See ‘‘Description of the Bonds’’ and ‘‘Description of the Letter of Credit.’’

General

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 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 be offered or sold within the United States or to, or for the account or benefit of, US persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

The Manager has agreed that, except as permitted by the Purchase Agreement, it will not offer or sell the Bonds or Shares to be issued upon conversion of the Bonds (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the latest closing date for the offering, within the United States or to, or for the account or benefit of, US persons, and it will have sent to each dealer to which it sells the Bonds or Shares to be issued upon conversion of the Bonds during the Distribution Compliance Period a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds or Shares, as the case may be, within the United States or to, or for the account or benefit of, US persons. Terms used in this paragraph have the meanings given to them by Regulation S.

The Bonds are being offered and sold outside the United States to persons that are non-US persons in reliance on Regulation S.

In addition, until 40 days after the commencement of the offering of the Bonds, an offer or sale of the Bonds or Shares to be issued upon conversion of the Bonds within the United States by a dealer that is 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 expiry of a period of six months from the issue date 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;
(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 (the ‘‘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 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 represented and agreed that (i) 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. No advertisement, invitation of document relating to the Bonds, whether in Hong Kong or elsewhere, has been or will be issued, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

Japan

The Manager has represented and agreed that the Bonds have not been and will not be registered under the Securities and Exchange Law of Japan (the ‘‘Securities and Exchange Law’’) and that the Bonds which it subscribes will be subscribed by it as principal. Each Manager has also represented and agreed that, in connection with the initial offering of the Bonds, it will not directly or indirectly offer or sell any Bonds in

Gigastorage Job: 9082-1

File: 06_main

(X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Japan, or to, or for the benefit of any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and other applicable laws and regulations of Japan.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GENERAL INFORMATION

Authorizations

The Company has obtained all necessary consents, approvals and authorizations in connection with the issue of the Bonds. The issue of the Bonds was authorized by resolutions of the Board of Directors of the Company passed on December 25, 2003.

Material Change

Except as disclosed in this Offering Circular, there has been no significant change in the financial or trading position since December 31, 2002, the date of the latest audited consolidated financial statements, nor any material adverse change in the financial position or prospects since December 31, 2003 of the Company, except as may be otherwise disclosed or referred to herein.

Litigation

Save as disclosed herein, neither the Company nor any of its subsidiaries is involved in any litigation or arbitration proceedings which may have, or have had during the 12 months preceding the date of this Offering Circular, an material adverse effect on the financial position of the Company and its subsidiaries, nor, so far as any of them is aware, are any such proceedings pending or threatened except as may be otherwise disclosed or referred to herein.

Auditors

The audited financial statements as of and for the years ended December 31, 2001 and 2002 have been audited by Deloitte & Touche, independent accountants, as indicated in their report with respect to those financial statements, included in this Offering Circular. Diwan, Ernst & Young was appointed as the accountants of the Company in 2003 and therefore the audited financial information for the year ended December 31, 2003 has been audited by Diwan, Ernst & Young.

Clearing Systems

The Bonds have been accepted for clearance through the facilities of Euroclear and Clearstream, Luxembourg. The ISIN Number for the Bonds is XS0187178834 and the Common Code is 018717883.

Gigastorage Job: 9082-1

File: 06_main (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN ROC GAAP AND US GAAP

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

ROC GAAP

US GAAP

1. Presentation of non-consolidated financial statements

Under ROC GAAP, non-consolidated financial statements of a company are presented as the primary financial statements and consolidated financial statements as supplemental financial statements.

Under U.S. GAAP, parent-company-only non-consolidated financial statements are not allowed to be presented as the primary financial statements for any period.

Employee bonus and remuneration to directors and supervisors

Under ROC GAAP, a portion of distributable earnings should be set aside as bonuses to employees, directors and supervisors in accordance with the provisions of a company’s articles of incorporation. Remuneration to directors and supervisors can only be paid in cash. Bonuses to employees may be granted in cash or shares or both. If employee bonuses are paid in common shares of a company, the bonuses are valued at par value of the shares and charged against retained earnings in the year when such appropriations are formally approved by the shareholders.

Under U.S. GAAP, bonuses to employees and remuneration to directors and supervisors are charged as compensation expense against income in the period to which they relate. If the employee bonuses are paid in the form of common shares, the fair value of the shares issued is used to determine the amount of the expense. However, since the form of the payment of the such bonuses are not finally determinable until at the shareholders’ meeting in the subsequent year, the total amount of such bonuses is initially accrued based on management’s estimate of the number of shares to be issued, valued at fair value of the shares. Any difference between the initially accrued amount and the fair value of the shares upon the issuance of shares is recognized in the year when the shareholder approval is obtained.

3. Stock dividends

Stock dividends are recorded as a reduction to retained earnings for the par value of the stock issued, and a like amount is recorded to the capital stock account.

Stock dividends that are less than 20–25% of the common shares outstanding at the time of the dividend declaration are recorded as a reduction to retained earnings based on the fair value of the stock issued, with the par value recorded in the capital stock account and the excess of fair value over the par value being recorded in capital surplus account.

Gigastorage Job: 9082-1 File: 06_main (X14)

Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

US GAAP

ROC GAAP

Consolidation

Under ROC GAAP, a company is required to include in its annual consolidated financial statements only those subsidiaries that are directly or indirectly more than 50% owned. For directly or indirectly owned subsidiaries (1) with total assets and operating revenues less than 10% of the company’s non-consolidated total assets and operating revenues, or (2) which are in a negative equity position which is considered to be other than temporary and the company did not guarantee the obligations of the subsidiary or commit to provide additional financial support, the Company has the option of whether or not to consolidate such subsidiaries. For purposes of applying the above test, the amounts are determined on the basis of each respective subsidiary’s nonconsolidated financial statements. Under ROC SFC requirements, beginning in 1995, if the combined operating revenues or total assets of all non-consolidated subsidiaries equal to or exceed 30% of a company’s non-consolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues greater than 3%, including 3%, of a company’s respective non-consolidated amounts shall be consolidated. Such subsidiaries shall be included in the consolidated financial statements thereafter, unless the percentage of the combined total assets and operating revenues for all such subsidiaries decreases to less than 20%, including 20%, of a company’s respective nonconsolidated amount.

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 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, of over fifty percent of the outstanding voting shares of another company is a condition pointing towards consolidation. The consolidation of all majority-owned subsidiaries is required unless control does not rest with the majority owner or the investments are not subject to FASB Interpretation No. 46, ‘‘Consolidation of Variable Interest Entities’’.

Investments in marketable debt and equity securities that represent less than 20% of an investee’s ownership

Under ROC GAAP, short-term investments in debt securities and equity securities are stated at the lower of cost or market value with unrealized losses included in earnings. Long-term investments in equity securities that have readily determinable fair value are stated at the lower of cost or market value with unrealized losses recorded as a deduction of shareholders’ equity.

Under U.S. GAAP, investments in debt securities and equity securities that have readily determinable fair value are classified in one of three categories: trading, held-to-maturity or available-for-sale. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value with unrealized gains and losses included in earnings; debt securities that a company has the positive intent and ability to hold to maturity are classified as held-tomaturity securities and reported at amortized cost; and debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-forsale securities and reported at fair value with unrealized gains and losses reported in a separate component of shareholders’ equity.

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

ROC GAAP has no specific standards that address impairment of long-lived assets held and used by an entity. Normally such assets are carried at cost less accumulated depreciation.

Under U.S. GAAP, if the sum of future cash flows, undiscounted and without interest charges, expected to result from the use of an asset and its eventual disposal is less than the asset’s carrying value, an impairment loss is recognized. Measurement of an impairment loss is based on the difference between the fair value and the carrying value of the asset. Once an impairment is recognized, the reduced carrying amount of the asset is accounted for as its new cost. For a depreciable asset, the new cost is depreciated over the asset’s remaining useful life. Restoration of previously recognized impairment losses is prohibited, except for impairment losses recorded on assets to be disposed of. However, if the fair value of an asset to be disposed of increases, resulting in a write-up, the increased carrying amount cannot exceed the carrying amount of the asset before the decision to dispose of the asset was made.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

ROC GAAP

US GAAP

Prepayment of fixed assets

Under ROC GAAP, prepayment of fixed assets is presented as Under US GAAP, prepayment of fixed assets should be part of fixed assets. presented as other assets.

Convertible debt securities with beneficial conversion feature

Under ROC GAAP, there are no specific regulations with respect to the accounting for the beneficial conversion feature embedded in convertible securities.

Under U.S. GAAP, the beneficial conversion feature should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.

9. Convertible debt securities with beneficial conversion feature

Under ROC GAAP, there are no specific regulations with Under U.S. GAAP, convertible debt securities denominated in respect to the accounting for a foreign currency exchange a different currency than the equity into which it can convert option embedded in convertible debt securities. trades are considered to have embedded foreign currency exchange option that are not clearly and closely related to the host debt instrument. The embedded option must be bifurcated and accounted for separately under Statements of Financial Accounting Standards No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’.

10. Debt securities

ROC GAAP provides no guidance for the accounting of the derivatives embedded in debt securities regardless of whether the securities are assets or liabilities.

Under U.S. GAAP, if debt securities (assets or liabilities) contain terms that are not considered to be clearly and closely related to the underlying security , the instrument is considered to contain an embedded derivative that must be bifurcated and accounted for separately according to FAS 133. The host instrument is accounted for consistent with the accounting for similar instruments according to U.S. GAAP. The bifurcated derivative instrument is accounted for in accordance with FAS 133.

11. Income tax

Under ROC GAAP, a valuation allowance determined is less stringent as compared to U.S. GAAP. Under U.S. GAAP, if a company has experienced cumulative losses in recent years, it is not generally able to consider projections of future operating profits for the purpose of determining the valuation allowance for deferred income tax assets.

Under U.S. GAAP, a valuation allowance is provided on deferred tax assets to the extent that it is not ‘‘more likely than not’’ that such deferred tax assets will be realized.

12. 10% tax on undistributed earnings

Companies in the ROC are subject to a 10% surtax on profits retained and earned after December 31, 1997. If the retained profits are distributed to the shareholders in the following fiscal year, the surtax can be avoided. Under ROC GAAP, surtax is recorded on the statement of income in the following fiscal year if the earnings are not distributed to the shareholders.

Under U.S. GAAP, income tax expense relating to the 10% retained profit tax is recorded on the statement of income in the year when the profits are earned and the related deferred tax effect is also accounted for.

13. Comprehensive income

There is no requirement to present comprehensive income under ROC GAAP.

Comprehensive income and its components (revenues, expenses, gains and losses) must be presented in a full set of financial statements under U.S. GAAP. Comprehensive income includes all changes in stockholders’ equity during a period, except changes resulting from investments by or distributions to owners.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

US GAAP

ROC GAAP

Stock option ROC GAAP has no specific accounting practice regarding Under U.S. GAAP, APB Opinion No. 25 ‘‘Accounting for stock options or the disclosures of stock options. Stock Issued to Employees’’ and SFAS No. 123 ‘‘Accounting for Stock-Based Compensation’’ have outlined detail principles on how to account for the accounting and reporting of stock-based compensation plans. In general, either the intrinsic value or fair value of stock options granted must be recognized as compensation expenses over the vesting period of the related stock options.
Compensated absences ROC GAAP has no specific accounting practice regarding Under U.S. GAAP, compensated absences must be accrued compensated absences. based on the liability for employees’ rights to receive compensation for future absences when the benefits can be accumulated or vested over the service period.

16. Derivative financial instrument transaction

Under ROC GAAP, companies are required to disclose certain Beginning January 1, 2001, all derivative contracts are information in the financial statements regarding derivative recognized on the balance sheet at fair value (including those financial instruments but there are no specific accounting that do not qualify as a hedge), the measurement of which requirements for derivative financial instruments except for takes account of all contractually committed future cash flows foreign currency forward exchange contracts. Because there under the contract regardless of when they will be paid. If are no specific accounting requirements, different companies hedge accounting criteria are met, the rules provide for may apply different accounting practices to derivatives. The deferral of gains and losses in equity for cash flow hedge and Company’s accounting policies for financial instruments recognition of offsetting gain or loss on hedged item in the please see note 2 to the Company’s financial statements. case of a fair value hedge (in both cases, to the extent effective).

17. Reclassification of capital account to accumulated deficit

Under ROC GAAP, a company may reclassify its additional paid-in capital account to offset its accumulated deficit.

Under US GAAP, in accordance with SAB Topic 5S ‘‘QuasiReorganization’’, a deficit reclassification of any nature is considered to be a quasi-reorganization. As such, a company may not reclassify or eliminate a deficit in retained earnings unless all requisite conditions for a quasi-reorganization are satisfied. The Company’s reclassification of additional paid-in capital account to offset its accumulated deficit does not qualify as a quasi reorganization in accordance with US GAAP.

18. Gross profit and operating income

Under ROC GAAP, inventory loss provision is presented in non-operating loss.

Under U.S. GAAP, the inventory loss provision is included in the determination of gross profit.

19. Investment in equity investee

Under ROC GAAP, if an investee company issues new shares and the original shareholders do not purchase new shares proportionally such that the investor increases its percentage of ownership, the difference between the investment cost for the portion of the investee acquired and the acquired net assets is charged to equity.

Under U.S. GAAP, if an investee company issues new shares and the original shareholders do not purchase new shares proportionally such that the investor increases its percentage of ownership, the difference between the investment cost for the portion of investee acquired and the acquired net assets is recorded as part of the investment. The difference is assigned to individual assets and liabilities acquired on the basis of the assets’ and liabilities’ fair values. Any remaining difference between the cost of the investment and net assets acquired is allocated to goodwill. Goodwill for equity method investments is not separable from the investment.

Gigastorage Job: 9082-1 File: 06_main (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

ROC GAAP

US GAAP

20. Equity method goodwill

Under ROC GAAP, if a company acquires an equity method investment at a value over the fair value of that investment, the excess is included in the carrying value of that investment and amortized over a period of less than twenty years.

Under U.S. GAAP, such excess is recognized as goodwill which is not amortized. The equity investment as a whole is reviewed for impairment, including the goodwill.

Gigastorage Job: 9082-1

File: 07_Index (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION

Page AUDITED CONSOLIDATED FINANCIAL STATEMENTS: December 31, 2001, 2002 and 2003 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-. Consolidated Balance Sheets as of December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . F-. Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003 . . . . F-. Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 . . . F-. Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-.

F-1

Gigastorage Job: 9082-1

File: 08_acc1 (x12) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders of

Gigastorage Corporation

We have audited the accompanying consolidated balance sheet~[of][Gigastorage][Corporation][and][its] subsidiaries (collectively, the ‘‘Company’’) as of December 31, 2003 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated financial statements included those of Gigastorage Corporation USA which were audited by other auditors. Accordingly, our opinion, insofar as it relates to the amounts of Gigastorage Corporation USA, is based solely on the report of the other auditors. Total assets of Gigastorage Corporation USA amounted to NT$50,162 thousand, representing 0.87% of the Company’s consolidated total assets as of December 31, 2003. Total operating revenue of Gigastorage Corporation USA amounted to NT$77,961 thousand, accounting for 3.13% of the Company’s consolidated total operating revenue for the year ended December 31, 2003. Also, we did not audit the financial statements of Taimide Tech. Inc., the investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The investment in Taimide Tech. Inc. reflects NT$49,619 thousand (0.86% of the consolidated total assets) as of December 31, 2003, and its net loss represents loss of NT$29,347 thousand (15.16% of the consolidated pre-tax income) for the year ended December 31, 2003. The financial statements of Taimide Tech Inc. were audited by other auditors whose report have been furnished to us and our opinion, insofar as it relates to data included for that company, is based solely on the report of the other auditors. In addition, the consolidated financial statements of Gigastorage Corporation and its subsidiaries as of December 31, 2001 and 2002, were audited by other auditors whose report thereon dated April 10, 2002 and February 21, 2003, expressed an modified unqualified audit opinion on those statements.

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

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gigastorage Corporation and its subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles in the Republic of China.

Diwan, Ernst & Young

Taipei, Taiwan Republic of China

February 6, 2004

F-2

Gigastorage Job: 9082-1 File: 08a_acc1 (X18) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands)

Notes Current assets Cash and cash equivalents . . . . . . . . . . . . . 2, 4(1) Short-term investments — net. . . . . . . . . . . 2, 4(2) Notes receivable — net . . . . . . . . . . . . . . . 2, 4(3) Accounts receivable — net . . . . . . . . . . . . . 2, 4(3) Receivables form related parties . . . . . . . . . 2, 5 Other financial assets. . . . . . . . . . . . . . . . . 4(4) Inventories — net . . . . . . . . . . . . . . . . . . . 2, 4(5) Deferred income tax assets — current (Net) . 2, 4(16) Prepaid expense and other current assets . . . Restricted deposits — current . . . . . . . . . . . 2, 6 Total current assets . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . . . . 2, 4(6) Property, plant and equipment. . . . . . . . . . . 2, 4(7), 6 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and facilities . . . . . . . . . . . . . . . Machinery . . . . . . . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . Total cost. . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . . . . Add: Prepayments for equipment and construction . . . . . . . . . . . . . . . . . . Net property, plant and equipment. . . . . . . . Other assets Deferred assets . . . . . . . . . . . . . . . . . . . . . 2 Deferred income tax assets-non-current (Net) 2, 4(16) Other assets . . . . . . . . . . . . . . . . . . . . . . . Total other assets . . . . . . . . . . . . . . . . . Total Assets. . . . . . . . . . . . . . . . . . . . . . . . .		As of December 31, 2002 2003 NT$ NT$ US$ $ 103,075 $ 751,394 $ 22,106 554,059 460,348 13,544 100,927 25,370 746 478,941 587,425 17,282 144,007 118,820 3,496 19,183 15,759 464 305,659 245,180 7,213 41,000 61,732 1,816 24,345 44,176 1,300 11,124 32,574 958 1,782,320 2,342,778 68,925 405,504 352,535 10,372 215,598 215,598 6,343 528,114 530,386 15,604 3,429,977 3,533,494 103,957 186,640 205,349 6,042 4,360,329 4,484,827 131,946 (1,387,855) (1,817,922) (53,484) 42,682 120,399 3,542 3,015,156 2,787,304 82,004 119,651 148,173 4,359 157,995 143,210 4,213 10,848 12,648 373 288,494 304,031 8,945 $5,491,474 $5,786,648 $ 170,246	As of December 31, 2002 2003 NT$ NT$ US$ $ 103,075 $ 751,394 $ 22,106 554,059 460,348 13,544 100,927 25,370 746 478,941 587,425 17,282 144,007 118,820 3,496 19,183 15,759 464 305,659 245,180 7,213 41,000 61,732 1,816 24,345 44,176 1,300 11,124 32,574 958 1,782,320 2,342,778 68,925 405,504 352,535 10,372 215,598 215,598 6,343 528,114 530,386 15,604 3,429,977 3,533,494 103,957 186,640 205,349 6,042 4,360,329 4,484,827 131,946 (1,387,855) (1,817,922) (53,484) 42,682 120,399 3,542 3,015,156 2,787,304 82,004 119,651 148,173 4,359 157,995 143,210 4,213 10,848 12,648 373 288,494 304,031 8,945 $5,491,474 $5,786,648 $ 170,246
	2001 NT$ $ 358,730 517,384 47,635 372,373 164,934 55,928 392,001 1,986 16,209 47,037 1,974,217 381,062 215,598 518,610 3,314,034 205,594 4,253,836 (968,981) 54,728 3,339,583 92,527 197,000 27,538 317,065 $6,011,927	2002 NT$ $ 103,075 554,059 100,927 478,941 144,007 19,183 305,659 41,000 24,345 11,124 1,782,320 405,504 215,598 528,114 3,429,977 186,640 4,360,329 (1,387,855) 42,682 3,015,156 119,651 157,995 10,848 288,494 $5,491,474
			NT$ $ 751,394 460,348 25,370 587,425 118,820 15,759 245,180 61,732 44,176 32,574 2,342,778 352,535 215,598 530,386 3,533,494 205,349 4,484,827 (1,817,922) 120,399 2,787,304 148,173 143,210 12,648 304,031 $5,786,648

The accompanying notes are an integral part of the financial statements.

F-3

Gigastorage Job: 9082-1 File: 08a_acc1 (X18) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS — (Continued)

(Expressed in thousands)

Notes Current liabilities Short-term loans . . . . . . . . . . . . . . . . . . . . 4(8) Current portion of long-term loans. . . . . . . . 4(9) Notes payable . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . Payables to related parties . . . . . . . . . . . . . 6 Payables to equipment suppliers . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . Advance receipts and other current liabilities Total current liabilities. . . . . . . . . . . . . . Long-term Liabilities Convertible bonds . . . . . . . . . . . . . . . . . . . 2, 4(10) Long-term loans, less current portion . . . . . . 4(9) Total long-term liabilities . . . . . . . . . . . . . . Other Liabilities Accrued pension liabilities . . . . . . . . . . . . . 2, 4(11) Total Liabilities. . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity Common stock . . . . . . . . . . . . . . . . . . . . . 4(12) Capital reserve . . . . . . . . . . . . . . . . . . . . . 4(13) Paid-in capital in excess of par — common stock . . . . . . . . . . . . . . . . . . . . . . . . Conversion of convertible bonds . . . . . . . Long-term equity investment adjustments . Retained earnings . . . . . . . . . . . . . . . . . . . 4(14) Unappropriated (accumulated deficits) . . . Unrealized loss on market value decline of long-term equity investments . . . . . . . . . 2, 4(6) Cumulative translation adjustments . . . . . . . 2, 4(6) Total Shareholders’ Equity. . . . . . . . . . . . . . Total Liabilities and Shareholders’ Equity. . .		As of December 31, 2002 2003 NT$ NT$ US$ $ 358,106 $ 162,225 $ 4,773 340,583 192,164 5,654 130,809 21,441 631 68,512 95,160 2,800 27,439 43,734 1,287 21,227 41,028 1,207 280,625 342,569 10,079 13,646 14,596 429 1,240,947 912,917 26,860 — 499,137 14,685 591,496 309,786 9,114 591,496 808,923 23,799 4,091 5,007 147 1,836,534 1,726,847 50,806 2,520,076 2,638,078 77,614 2,405,981 1,202,239 35,370 — 64,858 1,908 — 1,682 49 (1,203,742) 199,546 5,871 (55,729) (36,693) (1,080) (11,646) (9,909) (292) 3,654,940 4,059,801 119,440 $5,491,474 $5,786,648 $170,246	As of December 31, 2002 2003 NT$ NT$ US$ $ 358,106 $ 162,225 $ 4,773 340,583 192,164 5,654 130,809 21,441 631 68,512 95,160 2,800 27,439 43,734 1,287 21,227 41,028 1,207 280,625 342,569 10,079 13,646 14,596 429 1,240,947 912,917 26,860 — 499,137 14,685 591,496 309,786 9,114 591,496 808,923 23,799 4,091 5,007 147 1,836,534 1,726,847 50,806 2,520,076 2,638,078 77,614 2,405,981 1,202,239 35,370 — 64,858 1,908 — 1,682 49 (1,203,742) 199,546 5,871 (55,729) (36,693) (1,080) (11,646) (9,909) (292) 3,654,940 4,059,801 119,440 $5,491,474 $5,786,648 $170,246
	2001 NT$ $ — 333,870 78,051 122,140 65,534 27,447 208,850 66,155 902,047 — 822,079 822,079 2,326 1,726,452 2,520,076 2,405,981 — — (592,963) (33,769) (13,850) 4,285,475 $6,011,927	2002 NT$ $ 358,106 340,583 130,809 68,512 27,439 21,227 280,625 13,646 1,240,947 — 591,496 591,496 4,091 1,836,534 2,520,076 2,405,981 — — (1,203,742) (55,729) (11,646) 3,654,940 $5,491,474
			NT$ $ 162,225 192,164 21,441 95,160 43,734 41,028 342,569 14,596 912,917 499,137 309,786 808,923 5,007 1,726,847 2,638,078 1,202,239 64,858 1,682 199,546 (36,693) (9,909) 4,059,801 $5,786,648

The accompanying notes are an integral part of the financial statements.

F-4

Gigastorage Job: 9082-1 File: 08a_acc1 (X18)

Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in thousands, except per share data)

Notes Operating Revenues Net operating revenues. . . . . . . . . . . . . . . . 2, 4(17), 5 Cost of goods sold . . . . . . . . . . . . . . . . . . . . Gross Profit (Loss). . . . . . . . . . . . . . . . . . . . 4(17), 5 Operating Expenses . . . . . . . . . . . . . . . . . . . 2, 4(18) Selling expenses . . . . . . . . . . . . . . . . . . . . Administrative expenses. . . . . . . . . . . . . . . Research and development expenses . . . . . . Total operating expenses . . . . . . . . . . . . Operating Income (Loss) . . . . . . . . . . . . . . . Non-operating Income Interest income . . . . . . . . . . . . . . . . . . . . . Gain on disposal of investments . . . . . . . . . 2 Foreign exchange gains . . . . . . . . . . . . . . . 2 Reversals of market value decline on short- term investments . . . . . . . . . . . . . . . . . . 2, 4(2) Gain on inventory value recovery . . . . . . . . 2, 4(5) Other income . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . Non-operating Expenses Interest expense . . . . . . . . . . . . . . . . . . . . Net equity investment loss-under equity method . . . . . . . . . . . . . . . . . . . . . . . . 2, 4(6) Net equity investment loss-under cost method 2, 4(6) Foreign exchange loss . . . . . . . . . . . . . . . . 2 Inventory loss provision . . . . . . . . . . . . . . . 2, 4(5) Other losses . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . Income (Loss) Before Income Taxes . . . . . . . Income Tax Benefit . . . . . . . . . . . . . . . . . . . 2, 4(16) Net Income (Loss) . . . . . . . . . . . . . . . . . . . . Basic Earnings Per Share (in New Taiwan Dollars) Net Income (Loss) . . . . . . . . . . . . . . . . . . . . 2, 4(15) Diluted Earnings Per Share (in New Taiwan Dollars) Net Income . . . . . . . . . . . . . . . . . . . . . . . . .	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $1,671,973 $1,778,074 $2,487,324 $73,178 (1,731,758) (1,918,789) (1,852,055) (54,488) (59,785) (140,715) 635,269 18,690 (342,777) (173,924) (177,211) (5,214) (174,201) (134,673) (162,049) (4,768) (45,238) (43,818) (66,569) (1,958) (562,216) (352,415) (405,829) (11,940) (622,001) (493,130) 229,440 6,750 14,480 2,738 978 29 1,066 19,408 37,210 1,095 50,058 — — — 42,893 — 5,658 166 37,000 — 7,470 220 11,877 17,090 19,805 583 157,374 39,236 71,121 2,093 (65,203) (66,443) (44,699) (1,315) (3,749) (45,955) (46,903) (1,380) (27,539) — (137) (4) — — (10,816) (318) — (13,081) — — (31,845) (19,989) (4,379) (129) (128,336) (145,468) (106,934) (3,146) (592,963) (599,362) 193,627 5,697 — — 5,919 174 $ (592,963) $ (599,362) $ 199,546 $5,871 $ (2.35) $ (2.38) $ 0.79 $ 0.02 $ 0.77 $ 0.02	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $1,671,973 $1,778,074 $2,487,324 $73,178 (1,731,758) (1,918,789) (1,852,055) (54,488) (59,785) (140,715) 635,269 18,690 (342,777) (173,924) (177,211) (5,214) (174,201) (134,673) (162,049) (4,768) (45,238) (43,818) (66,569) (1,958) (562,216) (352,415) (405,829) (11,940) (622,001) (493,130) 229,440 6,750 14,480 2,738 978 29 1,066 19,408 37,210 1,095 50,058 — — — 42,893 — 5,658 166 37,000 — 7,470 220 11,877 17,090 19,805 583 157,374 39,236 71,121 2,093 (65,203) (66,443) (44,699) (1,315) (3,749) (45,955) (46,903) (1,380) (27,539) — (137) (4) — — (10,816) (318) — (13,081) — — (31,845) (19,989) (4,379) (129) (128,336) (145,468) (106,934) (3,146) (592,963) (599,362) 193,627 5,697 — — 5,919 174 $ (592,963) $ (599,362) $ 199,546 $5,871 $ (2.35) $ (2.38) $ 0.79 $ 0.02 $ 0.77 $ 0.02	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $1,671,973 $1,778,074 $2,487,324 $73,178 (1,731,758) (1,918,789) (1,852,055) (54,488) (59,785) (140,715) 635,269 18,690 (342,777) (173,924) (177,211) (5,214) (174,201) (134,673) (162,049) (4,768) (45,238) (43,818) (66,569) (1,958) (562,216) (352,415) (405,829) (11,940) (622,001) (493,130) 229,440 6,750 14,480 2,738 978 29 1,066 19,408 37,210 1,095 50,058 — — — 42,893 — 5,658 166 37,000 — 7,470 220 11,877 17,090 19,805 583 157,374 39,236 71,121 2,093 (65,203) (66,443) (44,699) (1,315) (3,749) (45,955) (46,903) (1,380) (27,539) — (137) (4) — — (10,816) (318) — (13,081) — — (31,845) (19,989) (4,379) (129) (128,336) (145,468) (106,934) (3,146) (592,963) (599,362) 193,627 5,697 — — 5,919 174 $ (592,963) $ (599,362) $ 199,546 $5,871 $ (2.35) $ (2.38) $ 0.79 $ 0.02 $ 0.77 $ 0.02
	2001 NT$ $1,671,973 (1,731,758) (59,785) (342,777) (174,201) (45,238) (562,216) (622,001) 14,480 1,066 50,058 42,893 37,000 11,877 157,374 (65,203) (3,749) (27,539) — — (31,845) (128,336) (592,963) — $ (592,963) $ (2.35)	2002 NT$ $1,778,074 (1,918,789) (140,715) (173,924) (134,673) (43,818) (352,415) (493,130) 2,738 19,408 — — — 17,090 39,236 (66,443) (45,955) — — (13,081) (19,989) (145,468) (599,362) — $ (599,362) $ (2.38)
			NT$ $2,487,324 (1,852,055) 635,269 (177,211) (162,049) (66,569) (405,829) 229,440 978 37,210 — 5,658 7,470 19,805 71,121 (44,699) (46,903) (137) (10,816) — (4,379) (106,934) 193,627 5,919 $ 199,546 $ 0.79 $ 0.77

The accompanying notes are an integral part of the financial statemtments.

F-5

Gigastorage Job: 9082-1 File: 08a_acc1 (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Expressed in thousands)

Common Stock	Capital Reserv	Capital Reserv	e	Retain	ed Earnings	Unrealized loss on market value decline of long-term equity investments	Cumulative Translation Adjustments	Total
	Paid-in capital in excess of par- common stock	Conversion of convertible bonds	Long-term equity investment adjustment	Legal Reserve	Unappropriated Earnings (Accumulated Deficits)
NT$ $2,290,978 — — 229,098 — — —			$ — — — — — — —
2,520,076	2,405,981	—	—	—
— — — —	— — — —	— — — —	— — — —	— — — —
2,520,076	2,405,981	—	—	—
— 118,002 — — — —			— — — — 1,682 —	— — — — — —	1,203,742 — — — — 199,546	— — 19,036 — — —	— — — 1,737 — —	— 182,860 19,036 1,737 1,682 199,546
$2,638,078	$1,202,239	$64,858	$1,682	$ —	$ 199,546
$ 77,614	$ 35,370	$ 1,908	$ 49	$ —	$ 5,871

The accompanying notes are an integral part of the financial statements.

F-6

Gigastorage Job: 9082-1 File: 08a_acc1 (X18) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands)

Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . Net equity investment loss-under equity method . . . . . . Net equity investment loss-under cost method . . . . . . . . Inventory loss provision . . . . . . . . . . . . . . . . . . . . . . . Reversals of (loss on) market value decline on short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in short-term investments . . . . . . . . (Increase) decrease in notes and accounts receivable . . . (Increase) decrease in inventories . . . . . . . . . . . . . . . . Decrease in other financial assets . . . . . . . . . . . . . . . . Increase in prepaid and other current assets . . . . . . . . . Increase (decrease) in notes and accounts payable . . . . . Increase in accrued expenses. . . . . . . . . . . . . . . . . . . . Increase (decrease) in other current liabilities . . . . . . . . Exchange rate adjustment for convertible bonds . . . . . . Increase in reserve for redemption of convertible bonds . Increase in accrued pension liabilities . . . . . . . . . . . . . Net cash provided by (used in) operating activities . . . . Cash flows from investing activities: (Increase) decrease in restricted deposits . . . . . . . . . . . . . Increase in long-term investments . . . . . . . . . . . . . . . . . . Acquisition of property, plant and equipment . . . . . . . . . . Increase in deferred assets . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposal of long-term investments. . . . . . . . (Increase) decrease in other assets . . . . . . . . . . . . . . . . . . Net cash provided by (used in) investing activities. . . . . Cash flows from financing activities: Increase (decrease) in short-term loans. . . . . . . . . . . . . . . Increase (decrease) in long-term loans . . . . . . . . . . . . . . . Increase in convertible bonds . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . . Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . Cash and cash equivalents at the beginning of year . . . . . . . . Cash and cash equivalents at the end of year . . . . . . . . . . . . Supplemental disclosures of cash flow information: Income taxes paid during the year . . . . . . . . . . . . . . . . . . Interest paid during the year . . . . . . . . . . . . . . . . . . . . . . Investing and financing activities not affecting cash flows: Current portion of long-term loans. . . . . . . . . . . . . . . . . .	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $(592,963) $(599,362) $199,546 $ 5,871 276,654 62,165 44,460 1,308 — — (5,947) (175) 449,383 475,750 504,942 14,856 3,749 45,955 46,903 1,380 27,540 — 137 4 (14,472) 6,747 (7,470) (220) (42,893) 5,658 (5,658) (166) (541,284) (42,818) 99,717 2,934 41,825 (198,485) (50,463) (1,485) (118,476) 79,595 67,949 1,999 9,170 36,745 3,424 101 (10,861) (8,136) (19,831) (583) 206,566 (38,965) (66,425) (1,954) 89,508 71,775 61,944 1,822 26,521 (53,737) 950 28 — — (2,210) (65) — — 6,377 188 1,093 1,765 916 27 (188,940) (155,348) 879,261 25,870 207,237 54,411 (21,450) (631) (57,180) (133,084) (36,479) (1,073) (96,926) (109,315) (197,103) (5,799) (53,396) (76,149) (92,960) (2,735) — 28,440 62,778 1,847 4,702 (1,051) (1,800) (53) 4,437 (236,748) (287,014) (8,444) (214,966) 358,106 (195,881) (5,763) 23,756 (223,869) (430,129) (12,656) — — 682,000 20,065 (191,210) 134,237 55,990 1,646 (13,850) 2,204 82 2 (389,563) (255,655) 648,319 19,074 748,293 358,730 103,075 3,032 $358,730 $103,075 $751,394 $22,106 $ — $ 226 $ 28 $ 1 $ 66,284 $ 65,787 $ 41,210 $ 1,212 $333,870 $340,583 $192,164 $ 5,654	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $(592,963) $(599,362) $199,546 $ 5,871 276,654 62,165 44,460 1,308 — — (5,947) (175) 449,383 475,750 504,942 14,856 3,749 45,955 46,903 1,380 27,540 — 137 4 (14,472) 6,747 (7,470) (220) (42,893) 5,658 (5,658) (166) (541,284) (42,818) 99,717 2,934 41,825 (198,485) (50,463) (1,485) (118,476) 79,595 67,949 1,999 9,170 36,745 3,424 101 (10,861) (8,136) (19,831) (583) 206,566 (38,965) (66,425) (1,954) 89,508 71,775 61,944 1,822 26,521 (53,737) 950 28 — — (2,210) (65) — — 6,377 188 1,093 1,765 916 27 (188,940) (155,348) 879,261 25,870 207,237 54,411 (21,450) (631) (57,180) (133,084) (36,479) (1,073) (96,926) (109,315) (197,103) (5,799) (53,396) (76,149) (92,960) (2,735) — 28,440 62,778 1,847 4,702 (1,051) (1,800) (53) 4,437 (236,748) (287,014) (8,444) (214,966) 358,106 (195,881) (5,763) 23,756 (223,869) (430,129) (12,656) — — 682,000 20,065 (191,210) 134,237 55,990 1,646 (13,850) 2,204 82 2 (389,563) (255,655) 648,319 19,074 748,293 358,730 103,075 3,032 $358,730 $103,075 $751,394 $22,106 $ — $ 226 $ 28 $ 1 $ 66,284 $ 65,787 $ 41,210 $ 1,212 $333,870 $340,583 $192,164 $ 5,654	For the year ended December 31, 2001 2002 2003 NT$ NT$ NT$ US$ $(592,963) $(599,362) $199,546 $ 5,871 276,654 62,165 44,460 1,308 — — (5,947) (175) 449,383 475,750 504,942 14,856 3,749 45,955 46,903 1,380 27,540 — 137 4 (14,472) 6,747 (7,470) (220) (42,893) 5,658 (5,658) (166) (541,284) (42,818) 99,717 2,934 41,825 (198,485) (50,463) (1,485) (118,476) 79,595 67,949 1,999 9,170 36,745 3,424 101 (10,861) (8,136) (19,831) (583) 206,566 (38,965) (66,425) (1,954) 89,508 71,775 61,944 1,822 26,521 (53,737) 950 28 — — (2,210) (65) — — 6,377 188 1,093 1,765 916 27 (188,940) (155,348) 879,261 25,870 207,237 54,411 (21,450) (631) (57,180) (133,084) (36,479) (1,073) (96,926) (109,315) (197,103) (5,799) (53,396) (76,149) (92,960) (2,735) — 28,440 62,778 1,847 4,702 (1,051) (1,800) (53) 4,437 (236,748) (287,014) (8,444) (214,966) 358,106 (195,881) (5,763) 23,756 (223,869) (430,129) (12,656) — — 682,000 20,065 (191,210) 134,237 55,990 1,646 (13,850) 2,204 82 2 (389,563) (255,655) 648,319 19,074 748,293 358,730 103,075 3,032 $358,730 $103,075 $751,394 $22,106 $ — $ 226 $ 28 $ 1 $ 66,284 $ 65,787 $ 41,210 $ 1,212 $333,870 $340,583 $192,164 $ 5,654
	2001 NT$ $(592,963) 276,654 — 449,383 3,749 27,540 (14,472) (42,893) (541,284) 41,825 (118,476) 9,170 (10,861) 206,566 89,508 26,521 — — 1,093 (188,940) 207,237 (57,180) (96,926) (53,396) — 4,702 4,437 (214,966) 23,756 — (191,210) (13,850) (389,563) 748,293 $358,730 $ — $ 66,284 $333,870	2002 NT$ $(599,362) 62,165 — 475,750 45,955 — 6,747 5,658 (42,818) (198,485) 79,595 36,745 (8,136) (38,965) 71,775 (53,737) — — 1,765 (155,348) 54,411 (133,084) (109,315) (76,149) 28,440 (1,051) (236,748) 358,106 (223,869) — 134,237 2,204 (255,655) 358,730 $103,075 $ 226 $ 65,787 $340,583
			NT$ $199,546 44,460 (5,947) 504,942 46,903 137 (7,470) (5,658) 99,717 (50,463) 67,949 3,424 (19,831) (66,425) 61,944 950 (2,210) 6,377 916 879,261 (21,450) (36,479) (197,103) (92,960) 62,778 (1,800) (287,014) (195,881) (430,129) 682,000 55,990 82 648,319 103,075 $751,394 $ 28 $ 41,210 $192,164

The accompanying notes are an integral part of the financial statements.

F-7

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

1. COMPANY BACKGROUND

GIGASTORAGE CORPORATION (‘‘GIGASTORAGE’’) was established on March 26, 1997 in accordance with the Company Law and related regulations of the Republic of China and started operations on December 1, 1997. GIGASTORAGE is mainly engaged in research, manufacturing, and sale of readonly, write-able, and erasable optical disks; consulting services on the related technology; import and export of production equipment, spare parts, raw materials, semi-finished goods, and finished goods; bidding and agency services for foreign and local products; and manufacturing of information storage and handling equipment.

Beginning April 29, 2000, the ~~~~~ GIGASTORAGE shares are listed in Taiwan Securities Exchange Corporation. As of December 31, 2001, 2002 and 2003, the employees of the GIGASTORAGE totaled 443, 400, and 472, respectively.

GIGASTORAGE CORPORATION USA (‘‘GIGA USA’’) was established in August 1999 in the State of California, USA. As of December 31, 2003, GIGASTORAGE owned 100.00% of GIGA USA. The major business of GIGA USA includes sale of read-only, write-able, and erasable optical disks.

GIGASTORAGE and GIGA USA are herein collectively referred to as the ‘‘Company.’’~

2. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with R.O.C.’s ‘‘Guidelines Governing the Preparation of Financial Reports by Securities issuer’’ and generally accepted accounting principles. Significant accounting policies are summarized as follows:

Basis of Presentation of Consolidated Financial Statements

The consolidated financial statements include the following:

2001 Financial Statements GIGASTORAGE GIGA USA	2002 Financial Statements GIGASTORAGE GIGA USA	2003 Financial Statements
		GIGASTORAGE GIGA USA

Among the GIGASTORAGE’s subsidiaries, Maxmax Group Corporation (78.14% owned), QuoChao Investment Corporation (99.99% owned), Custer Inc. (100% owned) and Barnwell Enterprise Ltd. (a 100% owned subsidiary of Custer Inc.) were not consolidated ~~~~~ in accordance with ROC GAAP since the total revenue and total assets of each of these subsidiaries are less than 10% of those of ~~~~~ GIGASTORAGE and the collective total of assets or revenues of such subsidiaries do not exceed 30% of those of GIGASTORAGE.

Cash and Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates. Commercial papers, negotiable certificates of deposit, and bank acceptances with original maturities of three months or less at the investment date are considered to be cash equivalents.

F-8

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

Foreign Currency Transactions and Translation of Foreign Currency Statements

The Company maintains its accounting records in New Taiwan dollars (‘‘NT Dollars’’ or ‘‘NT$’’). Transactions denominated in foreign currencies are recorded in NT dollars using the exchange rates in effect at the dates of transactions. Assets and liabilities denominated in foreign currencies are translated into NT Dollars using the exchange rates in effect at the balance sheet date. Foreign exchange gains or losses are included in other income or expense.

For long-term foreign investments accounted for under the equity method, their financial statements are first translated into NT Dollars. The Company then recognizes the investment gain or loss and translation adjustment based on the translated financial statements. For the translation, the current rate at the balance sheet date is used for asset and liability accounts. The weighted average rate for the reporting period is used for the income statement accounts. Translation adjustments are included as a component of shareholders’ equity.

Short-term Investments

Short-term investments are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed equity securities, closed-end funds, overseas convertible bonds and depository receipts are determined by the average closing price during the last month of the fiscal period. The market value for open-ended funds is determined by their equity value as reported at the balance sheet date. No revenue is recognized when stock dividends are received. Instead, the number of shares increases and the cost per share is recalculated. Interest revenue is recognized, on an accrued basis, for credit-linked structured deposits due within a year based on its contract rate. Disposal gain or loss of short-term investments is calculated based on the weighted average method.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is provided based on a collectibles and aging analysis of notes and accounts receivable and other receivables.

Inventories

Inventories, except slow-moving and obsolete items, which are stated at net realizable value, are recorded at cost when acquired and stated at the lower of aggregate cost, based on the weighted average method, or market value at the balance sheet date. The market value is determined on the basis of replacement cost.

Long-term Investments

(1) Long-term investments in which the Company holds an interest less than 20% are stated at the lower of cost or market value, with unrealized losses recorded as a separate component of shareholders’ equity. There is no recognition of unrealized gains.
(2) Long-term investments in which the Company holds an interest of 20% or more are accounted for under the equity method. The difference between the cost of the investment and the underlying equity in the investee’s net assets at the date of acquisition is amortized over ten years. Adjustment to capital reserve is required when the holding percentage changes due to unproportional subscription to investee’s new shares. If the capital reserve is insufficient, retained earnings is adjusted.

F-9

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(3) Unrealized inter-company 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 inter-company transactions is recognized when realized.
(4) If the Company’s share of an investee company’s losses equals to or exceeds the carrying amount of an investment accounted for under the equity method, the recognized investment losses shall be limited to the extent that makes the book value of a long-term investment equal to zero. However, if the Company intends to provide further financial support for the investee company, or the investee company’s losses are temporary and there exists sufficient evidence showing imminent return to profitable operations, then the Company shall continue to recognize investment losses in proportion to the stock ownership percentage. Such credit long-term investment balance shall first offset the advance (if any) the Company made to the investee company; the remaining shall be recorded under other liabilities.
(5) Long-term bond investments are recorded at cost as acquired. Premiums or discounts are amortized over the bond life.
(6) Consolidated financial statements are prepared if the Company owns at least 50% of the invested Company’s shares. However, the financial statements of any subsidiary in which the total assets and total revenue for the current year are less than 10% of that of the parent company may be excluded from the consolidated financial statements. If the sum of the total assets or sales of all unconsolidated subsidiaries equals to or exceeds 30% of the parent company’s assets or sales, subsidiaries whose sales or assets are over or equal to 3% of the parent company’s sales or assets should be consolidated.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the following useful lives:

Buildings and facilities . . . . . . . . . . . . . . . . . . . 9 to 55 years Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 10 years Other equipment . . . . . . . . . . . . . . . . . . . . . . . . 3 to 10 years

Improvements and replacements are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance are expensed as incurred. When property, plant and equipment are disposed of, their costs and accumulated depreciation are written off and related gain or loss is recorded under non-operating income (losses). Interest incurred to bring property, plant and equipment to the condition necessary for their intended use is capitalized.

Deferred Assets

Deferred assets, including molds, spare parts and tools are amortized by the straight-line method over 3 to 5 years. Deferred bond issuance cost is amortized over the period from the issue date to the expiry of put option.

Capital Expenditure vs. Revenue Expenditures

If the expenditure increase the future service potential of the plant assets and the purchase price exceeds a certain monetary threshold, the expenditure is capitalized, while the others are expensed as incurred.

F-10

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

Revenue Recognition

Revenue is recognized according to R.O.C. Statement of Financial Accounting Standards No. 32, ‘‘Accounting for Revenue Recognition.’’ Revenue can be recognized when all of the following are met:

(i) It is realized or realizable.
(ii) It is earned.
(iii) The collectibility can be fairly assessed.

Pension Plan

The Company has a funded defined benefit pension plan covering all regular employees. The net pension cost is computed based on an actuarial valuation in accordance with the provision of R.O.C. Statement of Financial Accounting Standards No. 18, which requires consideration of pension cost components such as service cost, interest cost, expected return on plan assets and amortization of net obligation at transition. The unrecognized net obligation at transition is amortized on the straight-line basis over the employees average remaining service period provided, however, if the average remaining service period is shorter than 15 years, the unrecognized net obligation at transition may be amortized over 15 years. The pension fund is managed by an independent pension fund committee.

Income Taxes

Income taxes are accounted for in accordance with R.O.C. Statements of Financial Accounting Standards No. 22 (‘‘SFAS 22’’), ‘‘Accounting for Income Taxes.’’ Under the asset and liability method of SFAS 22, deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be covered or settled. Valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that benefits will not be realized.

Income tax credits resulting from the acquisition of equipment, research and development expenditures, employee training and investment in equity stock shall be recognized using flowthrough method.

The 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained.

Earnings Per Share

In accordance with R.O.C. Statement of Financial Accounting Standards No. 24, ‘‘Earnings per Share,’’ the Company presents basic earnings per share if a simple capital structure exists; or both basic earnings per share and diluted earnings per share if a complex capital structure exists. Basic earnings per share is equal to the net income (loss) attributable to common stock divided by the weighted-average number of common shares. When calculating diluted earnings per share, the numerator includes or adds back potential common stock dividends, interest and other conversion revenues (expenses). The denominator includes all potentially dilutive potential common shares.

F-11

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

Financial Instruments

(1) Foreign exchange forward contracts

A forward foreign exchange contract obligates the Company to exchange predetermined amount of specified foreign currencies at specified exchange rates for another currency on a specified date. For contracts that are designated as hedges, discounts or premiums, being the difference between the spot exchange rate and the forward exchange rate at the inception of the contract, are accreted or amortized to the income statement over the contract lives using the straight-line method. Realized gains and losses form settlement or unrealized gains and losses resulting from changes in the spot exchange rate at the balance sheet date are recorded in the income statement as foreign exchange gains and losses in the period in which they relate.

Receivables and payables resulting from forward exchange contracts are presented, on a net basis, in the balance sheet under either other current assets or liabilities.

(2) Option contracts

Option contracts are reported at their fair market value at the balance sheet date. Changes in fair value are recorded in different ways depending on the nature of the hedging activities to which they are related. In a fair value hedge of existing asset or liability, all gains and losses are recognized in earnings in the period of change. In a cash flow of forecasted transaction hedge, gains and losses are deferred and are reclassified into earnings when the forecasted transaction affects earnings. Premium of option contract is stated at cost as acquired and amortized over the contract lives using the straightline method.

Convenience Translation into US Dollars

The Company prepares its consolidated financial statements in NT Dollars, its reporting currency. The United States (‘‘US’’) dollar amounts disclosed in the consolidated financial statements as of and for the year ended December 31, 2003~[are presented solely for the convenience of the reader] and were translated at the rate of NT$33.99 to US$1.00 (on the basis of the noon buying rate in the City of New York for cable transfer in NT dollars per US dollar as certified for customer’s purpose by the Federal Reserve Bank of New York on December 31, 2003). Such translation amounts are unaudited and it should not be construed that the NT Dollar amounts represent, or have been, or could be, converted into US dollars at that or any other rates.

3. REASONS AND EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

None.

F-12

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

4. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and Cash Equivalents

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ 235 3,268 355,227 — $358,730	2002 NT$ $ 104 2,127 100,844 — $103,075	2003
		NT$ $ 239 3,332 744,123 3,700 $751,394	US$ $ 7 98 21,892 109
			$22,106

The Company has contracted to sell the cash equivalents totaling NT$3,700 (US$109) back to four financing companies ~~~~~ on March 1, 2004 at price of ~US$10 ~~~~~ 9. However, the Company settled the cash equivalent at NT$3,671 (US$108) on January 6, 2004.

(2) Short-term Investments

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ — 517,384 — — — 517,384 — $517,384 $517,384	2002 NT$ $ 27,021 499,500 33,196 — — 559,717 (5,658) $554,059 $554,059	2003
		NT$ $ 6,111 398,410 33,981 2,933 18,913 460,348 — $460,348 $460,637	US$ $ 180 11,721 1,000 86 557
			13,544 —
			$13,544
			$13,552

Short-term investments were not pledged.

(3) Notes Receivable

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $47,635 — $47,635	2002 NT$ $100,927 — $100,927	2003
		NT$ $25,370 — $25,370	US$ $746 —
			$746

F-13

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

Accounts Receivable

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $619,551 (247,178) $372,373	2002 NT$ $717,354 (238,413) $478,941	2003
		NT$ $685,447 (97,922) $587,525	US$ $20,166 (2,881)
			$17,285

(4) Other financial assets

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ — 3,354 52,574 $55,928	2002 NT$ $ — 12,359 6,824 $19,183	2003
		NT$ $ 7,260 7,901 598 $15,759	US$ $214 232 18
			$464

(5) Inventories

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ 47,669 168,100 215,769 431,538 (39,537) $392,001	2002 NT$ $ 78,602 131,740 141,601 351,943 (46,284) $305,659	2003
		NT$ $104,667 94,281 61,953 260,901 (15,721) $245,180	US$ $3,079 2,774 1,823
			7,676 (463)
			$7,213

a. The insurance coverage for inventories amounted to NT$200,000 (US$5,884) as of December 31, 2001, 2002 and 2003.

b. Inventories were not pledged.

F-14

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(6) Long-term Investments

Investee Company Long-term equity investment Equity method: Quo-Chao Investment Corporation (‘‘Quo-Chao’’). . . . . . . . . . . . . Maxmax Group Corporation (‘‘Maxmax’’). . . . . . . . . . . . . . Taimide Tech. Inc. (‘‘Taimide’’) . . Abon-Senses Technology Incorporation (‘‘Abon-Senses’’) . Custer Inc. . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . Cost method: E-Ritek International Group Corporation . . . . . . . . . . . . . . New Land Transportation Corporation . . . . . . . . . . . . . . Informax Optical Technology Corporation . . . . . . . . . . . . . . Prosperity Venture Capital Corporation . . . . . . . . . . . . . . Catalyst Logic CO., LTD . . . . . . . ID Interactive LTD . . . . . . . . . . . Porit Corporation . . . . . . . . . . . . Ritekom Phonotics Corporation . . . Subtotal . . . . . . . . . . . . . . . . . . . LCM method: Ritek Corporation . . . . . . . . . . . . Lead Data Inc. . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . Long-term bonds investment (stated at LCM) . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . Less: allowance for decline in market value . . . . . . . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . .	Ownership 2001 2002 2003 % % % 99.99 99.99 99.99 49.00 78.14 78.14 20.00 20.00 19.73 — 43.33 43.33 — 100.00 100.00 10.91 10.91 10.91 18.15 18.15 18.15 3.75 2.91 2.91 — 1.34 1.10 — 0.05 — — 16.92 19.49 — 1.34 1.34 1.20 — — 0.06 0.06 0.06 0.61 0.74 —	Ownership 2001 2002 2003 % % % 99.99 99.99 99.99 49.00 78.14 78.14 20.00 20.00 19.73 — 43.33 43.33 — 100.00 100.00 10.91 10.91 10.91 18.15 18.15 18.15 3.75 2.91 2.91 — 1.34 1.10 — 0.05 — — 16.92 19.49 — 1.34 1.34 1.20 — — 0.06 0.06 0.06 0.61 0.74 —		As of December 31, 2002 2003 NT$ NT$ US$ $105,350 $ 99,046 $ 2,914 24,025 14,293 421 66,691 49,619 1,460 10,528 — — — — — 206,594 162,958 4,795 — — — 55,000 55,910 1,645 21,000 21,000 618 9,900 8,100 238 484 — — 10,184 18,645 548 60,000 60,000 1,765 — — — 156,568 163,655 4,814 53,635 53,607 1,577 44,436 — — 98,071 53,607 1,577 — — — 461,233 380,220 11,186 (55,729) (27,685) (814) $405,504 $352,535 $10,372	As of December 31, 2002 2003 NT$ NT$ US$ $105,350 $ 99,046 $ 2,914 24,025 14,293 421 66,691 49,619 1,460 10,528 — — — — — 206,594 162,958 4,795 — — — 55,000 55,910 1,645 21,000 21,000 618 9,900 8,100 238 484 — — 10,184 18,645 548 60,000 60,000 1,765 — — — 156,568 163,655 4,814 53,635 53,607 1,577 44,436 — — 98,071 53,607 1,577 — — — 461,233 380,220 11,186 (55,729) (27,685) (814) $405,504 $352,535 $10,372
	2001 % 99.99 49.00 20.00 — — 10.91 18.15 3.75 — — — — 1.20 0.06 0.61	2002 % 99.99 78.14 20.00 43.33 100.00 10.91 18.15 2.91 1.34 0.05 16.92 1.34 — 0.06 0.74	2001 NT$ $108,326 — 88,454 — — 196,780 16,800 55,000 21,000 — — — — 27,180 119,980 53,635 35,436 89,071 9,000 414,831 (33,769) $381,062	2002 NT$ $105,350 24,025 66,691 10,528 — 206,594 — 55,000 21,000 9,900 484 10,184 60,000 — 156,568 53,635 44,436 98,071 — 461,233 (55,729) $405,504
					NT$ $ 99,046 14,293 49,619 — — 162,958 — 55,910 21,000 8,100 — 18,645 60,000 — 163,655 53,607 — 53,607 — 380,220 (27,685) $352,535

The Company recognized losses on~[Quo-Chao Investment Corporation and Maxmax Group] Corporation in an aggregate amount of NT$7,028 (US$207) for the year ended December 31, 2003. This recognition was based on the audited financial statements of ~~~~~ these investees. ~~~~~
The Company recognized losses ~~~~~ on Taimide in the amount of NT$4,152, NT$21,763 and NT$29,347 for the years ended December 31, 2001, 2002 and 2003, respectively, based on

~~~~~ Taimide’s financial statements ~~~~~ which were audited by other auditors ~~~~~ .

F-15

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

~~~~~ 3. The Company recognized losses on Abon-Senses in the amount of NT$2,472 for the year ended December 31, 2002. Such recognition was based on Abon-Sense’s financial statements which were audited by other auditors.
~~~~~ 4. On April 29, 2002, the Company subscribed all Maxmax’s new shares in the amount of NT$40,000 that resulted in the increase in ownership from 49% to 78.14%. Such unproportional subscription also resulted in a decrease of NT$11,417 in the Company’s equity in the Maxmax’s net assets. The amount was charged against retained earnings as the Company did not have capital reserve arising from long-term investment transaction.
~~~~~ 5. In July 2003, Taimide issued new shares for NT$60,000. The Company did not subscribe the new shares in proportion to its original ownership that decreased its ownership to 19.73%. However, the Taimide investment was still accounted for under the equity method in the Company’s 2003 financial statements in that the Company’s ownership together with Quo-Chao’s ownership over Taimide (6.17%) have exceeded 20%.
~~~~~ 6. In June 2003, the Company wrote off its investment in Abon-Senses of NT$10,528 (US$310). Abon-Senses was dissolved in July 2003.
~~~~~ 7. The Company acquired 1,000,000 shares (100%) of Custer Inc. from Offshore Incorporations (Samoa) Limited in 2002. However, no payment has been made for these shares as of December 31, 2003. In 2002 and 2003, the investment income recognized for this investment was nil.
~~~~~ 8. The Company provided 100% loss for its investment in E-Ritek International Group in 2002 due to the investee’s inability to improve its operations or financial positions.
~~~~~ 9. Catalyst Logic Co., Ltd. Shares are listed on GreTai Securities Market from March 31, 2003. Accordingly, the Company reclassified NT$348 of its investment in Catalyst Logic Co., Ltd. from long-term investments to short-term, and recognized the realized loss on long-term investments of NT$137 (US$4) based on its closing price on March 31, 2003.
~~~~~ 10. The Company intends to holds the equity investments in Ritek Corporation and Lead Data Inc. on a long-term basis. Accordingly, on July 1, 2001, the Company’s short-term investments in such investees have been reclassified into long-term investments. The market value at the date of transfer was recorded as the new cost. Therefore, the Company recognized a realized loss on decline in value of investment of NT$27,539.
~~~~~ 11. Long-term investments were not pledged.

(7) Property, Plant and Equipment

a. For the year ended December 31, 2001, 2002, and 2003, NT$4,187, NT$232 and nil of interest were capitalized, respectively.
b. The insurance coverage over property, plant and equipment amounted to NT$3,372,992, NT$3,076,674 and NT$2,723,376 (US$80,123) as of December 31, 2001, 2002 and 2003, respectively.
c. Please refer to Note 6 ‘‘Assets Pledged As Collateral’’ for a summary of those assets included in property, plant and equipment that have been used as security for loans.

F-16

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(8) Short-term Loans

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $— — $—	2002 NT$ $ 28,106 330,000 $358,106	2003
		NT$ $ 2,225 160,000 $162,225	US$ $ 66 4,707
			$4,773

a. The Company’s unused short-term lines of credit amounted to NT$761,624, NT$562,023 and NT$695,865 (US$20,473) as of December 31, 2001, 2002 and 2003, respectively.
b. The interest rates of short-term loans were 2.175%~2.80% and 1.50%~2.00% as of December 31, 2002 and 2003, respectively.

Please refer to Note 6 for assets pledged for short-term loans.

F-17

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(9) Long-term Loans

Secured Loan from Land Bank, repayable in 108 monthly installments from July 2003 to June 2012 . . . . . . . Loan from Land Bank, repayable in 60 monthly installments from December 1999 to November 2004 Loan from Chiao Tung Bank, repayable in 21 quarterly installments from January 2001 to January 2006, fully extinguished in the third quarter of 2003 . . . . . . Loan from Chiao Tung Bank, repayable in 19 quarterly installments from March 2002 to September 2006 . . . . . . . . . . . . Loan from China Development Industrial Bank, repayable in 13 quarterly installments from April 2001 to April 2004, fully extinguished in the fourth quarter of 2003 . . . . . . . . . . . . . . . . . . Loan from Land Bank, repayable in 60 monthly installments from January 2004 to December 2008 . Loan from Sunny Bank, repayable in 8 quarterly installments from October 2003 to July 2005 . . . . . Unsecured Loan from MOEA, repayable in 8 quarterly installments from April 2001 to April 2003 . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . Less: current portion . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . .	Interest Rate As of December 31, 2001 2002 2003 % % % — 5.675% 3.51% 4.00% 3.00% 2.525% 6.225~ 6.475% 5.865% 5.655% 6.475% 5.865% 3.500% 6.475% 5.865% 3.955% — — 3.030% — — 3.750% — — —	Interest Rate As of December 31, 2001 2002 2003 % % % — 5.675% 3.51% 4.00% 3.00% 2.525% 6.225~ 6.475% 5.865% 5.655% 6.475% 5.865% 3.500% 6.475% 5.865% 3.955% — — 3.030% — — 3.750% — — —		As of December 31, 2002 2003 NT$ NT$ US$ $200,000 $188,889 $ 5,557 158,619 75,861 2,232 142,977 — — 244,500 179,300 5,275 184,617 — — — 14,400 424 — 43,500 1,280 1,366 — — 932,079 501,950 14,768 (340,583) (192,164) (5,654) $591,496 $309,786 $ 9,114	As of December 31, 2002 2003 NT$ NT$ US$ $200,000 $188,889 $ 5,557 158,619 75,861 2,232 142,977 — — 244,500 179,300 5,275 184,617 — — — 14,400 424 — 43,500 1,280 1,366 — — 932,079 501,950 14,768 (340,583) (192,164) (5,654) $591,496 $309,786 $ 9,114
	2001 % — 4.00% 6.225~ 6.475% 6.475% 6.475% — — —	2002 % 5.675% 3.00% 5.865% 5.865% 5.865% — — —	2001 NT$ $ 90,000 241,378 200,049 310,000 307,693 — — 6,829 1,155,949 (333,870) $ 822,079	2002 NT$ $200,000 158,619 142,977 244,500 184,617 — — 1,366 932,079 (340,583) $591,496
					NT$ $188,889 75,861 — 179,300 — 14,400 43,500 — 501,950 (192,164) $309,786

Please refer to Note 6 for assets pledged for long-term loans.

F-18

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(10) Convertible bonds

	As of December 31,	As of December 31,	As of December 31,
2000 NT$ $— — — — $—	2001 NT$ $— — — — $—	2002
		NT$ $494,264 4,873 499,137 — $499,137	US$ $14,542 143
			14,685 —
			$14,685

On September 5, 2003, the Company issued 5-year secured convertible bonds. The major terms of the issue are as follows:

a. Total amount was US$20,000.
b. Coupon interest rate: 0%; redeemable 100.00% of par value at maturity date.
c. Type of debentures: Secured convertible bonds.
d. Redemption at maturity/Redemption at the option of the Company
(a) Redemption at maturity

Unless previously redeemed, converted or purchased and canceled, the Company will redeem the bonds at their principal amount in US dollars at the maturity date.

(b) Redemption at the option of the Company

On or at any time after March 5, 2004 and prior to September 5, 2008, the Company may, having given not less than 30 nor more than 60 days’ notice to the holders of bonds, redeem bonds, in whole or from time to time in part (being US$1,000 in principal amount or an integral multiples thereof), at their principal amount if (i) the closing price of the Company’s shares translated into U.S. dollars at the prevailing rate on the same day, for each of the 20 trading days within a period of 30 consecutive trading days, is at least 125% of the conversion price then in effect, translated into U.S. dollars at the fixed exchange rate of NT$34.21=US$1.00; (ii) the principal amount of the bonds outstanding is less than 10% of the principal amount at the issue date.

e. Redemption at the option of the holders:

The bonds are redeemable at 105% and 107.5% of par at the option of the bondholders, in whole or in part, on September 5, 2005 and September 5, 2006, respectively.

f. Conversion period/Conversion price and adjustment
(a) Subject to certain exceptions, conversion may be made at any time 30 days after the issue date and up to September 5, 2008.
(b) The conversion price was NT$15.8 per share at the issue date, translated into U.S. dollars at the fixed exchange rate of NT$34.21 = US$1.00.

F-19

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003 (Amounts in thousands except shares, per share and percentage)

The conversion price is subject to adjustment in the manner set forth in the Indenture upon the occurrence of certain events set out in the Indenture, including, among other things, the making of a free distribution or bonus issue of shares, subdivision, consolidations, or reclassifications of shares and the declaration of a dividend in shares.

(d) Conversion price reset:

Besides the adjustment stated in (c), the conversion price is subject to reset as discussed in the following:

(i) Conversion price reset

If the reset reference price for a reset date, converted into US dollars at the prevailing rate for the 20 consecutive trading days immediately before the reset date, is less than the conversion price, converted into US dollars at the fixed exchange rate, the conversion price shall be adjusted on the 60th day prior to each anniversary of the closing date (each, a ‘‘Reset Date’’), in accordance with the following formula:

Fixed Exchange Rate Adjusted Conversion Price = Prevailing Rate x ~~~~~ Reset Reference Price

Any adjustment shall be limited so that the conversion price adjusted in accordance with the above formula shall not be less than 80% of the initial conversion price.

(ii) Special conversion price reset

The Company may offer the bondholders the option to convert their bonds at 86.58% and 84.57%, respectively, of the applicable special reference price on any or all of July 25, 2005 and July 25, 2006.

As of December 31, 2003, totally US$5,450 has been converted, which resulted in increases in common stock and capital reserve by NT$118,002 (US$3,472) and NT$64,858 (US$1,908), respectively. Please refer to Note 4(12).

On December 25, 2003, the Company’s board of directors resolved to issue the second ~~~~~ convertible ~~~~~ bonds ~~~~~ in the amount ~~~~~ of US$30,000. The issue plan is under process.

(11) Pension Fund

The Company’s employee pension plan fund amounted to NT$9,902, NT$12,456 and NT$15,106 (US$444) as of December 31, 2001, 2002 and 2003, respectively. The pension cost recognized amounted to NT$4,307, NT$4,318 and NT$3,794 (US$112) for the years ended December 31, 2001, 2002 and 2003, respectively.

F-20

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

The components of net periodic pension cost were as follows:

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ $4,263 492 (459) 11 $4,307	2002 NT$ $4,263 585 (541) 11 $4,318	2003
		NT$ $3,827 535 (523) (45) $3,794	US$ $113 16 (15) (2)
			$112

The funding status of pension plan is listed as follows:

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ — $4,514 4,514 7,803 12,317 (9,902) 2,415 (216) 127 2,326 — $2,326	2002 NT$ $ — 7,132 7,132 7,149 14,281 (12,709) 1,572 (205) 2,724 4,091 — $4,091	2003
		NT$ $ — 11,203 11,203 5,920 17,123 (15,106) 2,017 (193) 3,425 5,249 (242) $5,007	US$ $ — 330
			330 174
			504 (444)
			60 (6) 101
			155 (8)
			$147

The balances of the employees’ vested benefit of the Company’s pension plan amounted to nil, nil and NT$239 (US$7) for the years ended December 31, 2001, 2002 and 2003, respectively.

The actuarial assumptions were as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of increase in future compensation levels . . . . . . . . . . . . . Expected long-term rate on plan assets. . . . . . . . . . . . . . . . . . .	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
	2001 4.75% 5.00% 4.75%	2002 3.75% 3.50% 3.75%	2003
			3.50% 2.00% 3.50%

(12) Common Stock

As of January 1, 2001, the Company’s authorized and issued common stock amounted to NT$3,380,000 and NT$2,290,978, respectively, divided into 338,000,000 shares and 229,097,800 shares, respectively, each at par of NT$10.

On May 14, 2001, the shareholders’ meeting resolved to transfer ~[NT$229,098][from][capital] reserve to common stock, which resulted in an issuance of 22,909,780 shares.

F-21

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

On May 30, 2002, the Company’s shareholders resolved in the annual general meeting to increase 20,000,000 shares reserved for exercise of stock options.

Following the resolution of shareholders’ meeting on June 27, 2003, the Company increased its authorized capital to NT$3,880,000 divided into 388,000,000 shares, of which 100,000,000 shares and 20,000,000 shares reserved for conversion and exercise of convertible bonds and stock options, respectively.

As of December 31, 2003, totaling US$5,450 of the Company’s convertible bonds has been converted to common stock that resulted in the issuance of the Company’s common stock of 11,800,244 shares.

As of December 31, 2003, the Company’s authorized and issued common stock amounted to NT$3,880,000 (US$114,151) and NT$2,638,078 (US$77,614), respectively, divided into 388,000,000 shares and 263,807,824 shares, respectively, each at par of NT$10.

The Company has a stock option plan that provides for granting of 10,000,000 units of options to qualified employees for purchase of up to 10,000,000 common shares of the Company. Stock options expire in six years from the date granted. Option holders may exercise 50%, 75% and 100% of the options in the third year, fourth year and fifth year after the grant date. The plan was authorized by the board of directors of the Company on April 28, 2003 and approved by Taiwan SFC on June 23, 2003. The Company granted 6,000,000 units and 4,000,000 units of stock options on July 8, 2003 and December 30, 2003, respectively. As of December 31, 2003, no options was exercised. Please refer to Note 10.(8) for more information.

(13) Capital Reserve

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $2,405,981 — — $ —	2002 NT$ $2,405,981 — — $ —	2003
		NT$ $1,202,239 64,858 1,682 $1,268,779	US$ $35,370 1,908 49
			$37,327

According to the ROC Company Law, the capital reserve can only be used for making up deficiencies or distribution of stock dividends. The Company shall not use the capital reserve to make up its losses unless the legal reserve is insufficient for making good such losses.

On June 27, 2003, the Company’s shareholders resolved to make up its accumulated deficits by using capital reserve of NT$1,203,742 (US$35,415).

(14) Income Distributions

The Company’s articles of incorporation provide that the net income, after deducting the previous years’ losses and the appropriation to the legal and special reserve (‘‘Distributable Earnings’’), may be appropriated or distributed proportionally as follows:

a. Remuneration for directors and supervisors’ services at 2% of the Distributable Earnings;
b. Employee bonuses at minimum 5% of the Distributable Earnings;

F-22

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

c. Shareholder’s dividend distribution is to be proposed by the board of directors and approved at the Company’s shareholders’ meeting.

(15) Earnings Per Share

The capital structure of the Company in 2003 is considered to be complex as there are convertible bonds and stock options outstanding. The Company presents basic and diluted earnings per share for the year ended December 31, 2003 as its stock options and convertible bonds would have a dilutive effect if they had been fully exercised. However, the Company only presents basic earnings per share for the years ended December 31, 2001 and 2002 due to a simple capital structure.

			For the year ended	For the year ended	For the year ended	December 31,	December 31,
			2001		2002		2003
Common shares outstanding, beginning . . . . .	. . . . . . . . . . . .	.	229,097,800		252,007,580		252,007,580
Capital reserve transferred to common shares in	2001 (totally 10%)		22,909,780			—		—
Bonds converted to common stock. . . . . . . . .	. . . . . . . . . . . .	.		—		—	642,733
Weighted average numbers of shares . . . . . . .	. . . . . . . . . . . .	.	252,007,580		252,007,580		252,650,313
Potential common shares:
The effect of dilutive stock options (assuming fully exercised) .		.		—		—		68,925
The effect of dilutive convertible bonds (assuming fully converted)				—		—	13,238,210
Weighted average numbers of dilutive shares .	. . . . . . . . . . . .	.	252,007,580		252,007,580		265,957,448
	Amount
	(numerator)			Shares		Earnings per		share
	After tax		(Denominator)				After tax
	NT$					NT$(in dollars)
For the year ended December 31, 2001
Basic Earnings Per Share
Net loss . . . . . . . . . . . . . . . . . . . . . . .	$(592,963)			252,007,580				$(2.35)
For the year ended December 31, 2002
Basic Earnings Per Share
Net loss . . . . . . . . . . . . . . . . . . . . . . .	$(599,362)			252,007,580				$(2.38)
For the year ended December 31, 2003
Basis and Diluted Earnings Per Share
Net income (in NT$) . . . . . . . . . . . . . .	$ 199,546			252,650,313				$0.79
Stock options . . . . . . . . . . . . . . . . . . .		—			68,925
Convertible bonds . . . . . . . . . . . . . . . .		6,377		13,238,210
Net income (in NT$) . . . . . . . . . . . . . .	$205,923			265,957,448				$0.77
Net income (in US$) . . . . . . . . . . . . . .	$	6,058						$0.02

F-23

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(16) Income taxes

The tax authorities have finalized the Company’s income tax assessment through 1999.

The Company is entitled to two tax exemption periods for five consecutive years from 2000 to 2004 and from 2005 to 2009.

As of December 31, 2003, unused tax credits available to reduce future tax payable were as follows:

Year incurred 2000 . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . 2003 (Estimated). . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . .	Unused Balances NT$ US$ $127,555 $3,753 69,281 2,038 15,056 443 20,444 602 $232,336 $6,836	Expiration Years
	NT$ $127,555 69,281 15,056 20,444 $232,336	2004 2005 2006 2007

As of December 31, 2003, net operating losses that can be carried forward for a period of five years were as follows:

Year incurred 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . .	Loss carryforwards NT$ $ 83,056 263,165 336,354 $682,575	Unused Balances	Unused Balances
		NT$ $ 83,056 263,165 336,354 $682,575	US$ $ 2,444 7,742 9,896
			$20,082

Tax effects of above loss carryforwards have been included in deferred income tax assets.

The components of deferred income tax assets and liabilities are as follows:

(1)

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ (15,000) $573,986 $360,000	2002 NT$ $ — $645,000 $446,014	2003
		NT$ $ (590) $531,132 $325,600	US$ $ (18)
			$15,626
			$ 9,579

F-24

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(d) The tax effects of deductible (taxable) temporary differences that gave rise to the deferred income tax assets and liabilities at December 31, 2001, 2002 and 2003 are as follows:

Temporary differences that generated deferred income tax assets or liabilities: Allowance for doubtful accounts . . . . . . . . . . . Loss on market value decline and obsolete or slow- moving inventories . . . . Unrealized foreign exchange gains. . . . . . . . . . . . . . Unrealized long-term investment loss. . . . . . . Unrealized reserve for redemption of convertible bonds . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . Operating loss carryforwards Investment tax credits . . . .				As of December 31,	As of December 31,
	20	01	20	02		2003
	Amount	Tax Effect	Amount	Tax Effect NT$ $ 72,466 3,270 — 107,926 — 2,867 — 170,675 287,796	Amount	Tax Effect	Amount

(2)

Deferred income tax assets-current . . . . Valuation allowance for deferred income tax assets — current . . . . . . . . . . . . Net deferred income tax assets — current Deferred income tax liabilities — current Net deferred income tax assets and liabilities — current. . . . . . . . . . . . .		As of December 31, 2002 2003 NT$ NT$ US$ $162,000 $131,877 $3,880 (121,000) (69,555) (2,046) 41,000 62,322 1,834 — (590) (18) $ 41,000 $ 61,732 $1,816	As of December 31, 2002 2003 NT$ NT$ US$ $162,000 $131,877 $3,880 (121,000) (69,555) (2,046) 41,000 62,322 1,834 — (590) (18) $ 41,000 $ 61,732 $1,816
	2001 NT$ $56,986 (40,000) 16,986 (15,000) $ 1,986	2002 NT$ $162,000 (121,000) 41,000 — $ 41,000
			NT$ $131,877 (69,555) 62,322 (590) $ 61,732

F-25

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(3)

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $517,000 (320,000) 197,000 — $197,000	2002 NT$ $483,000 (325,014) 157,986 — $157,986	2003
		NT$ $399,255 (256,045) 143,210 — $143,210	US$ $11,746 (7,533)
			4,213 —
			$ 4,213

(4)

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ $ — (56,957) (49,553) 144,000 7,505 (64,444) 19,449 $ —	2002 NT$ $ — (15,509) (34,531) 86,014 69,834 (85,014) (20,794) $ —	2003
		NT$ $ 28 72,466 (14,743) (120,414) 55,460 31 1,253 $ (5,919)	US$ $ 1 2,132 (434) (3,543) 1,632 1 37
			$ (174)

Information relating to imputation of shareholders’ income taxes:

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $43,485 . . . . . . . . . .	2002 2003 NT$ NT$ US$ $45,272 $45,496 $1,339 For the year ended December 31,	2003
			US$ $1,339
	2001 —	2002 —	2003
			—

Information relating to undistributed retained earnings:

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ — (592,963) $(592,963)	2002 NT$ $ — (1,203,742) $(1,203,742)	2003
		NT$ $ — 199,546 $199,546	US$ $ — 5,871
			$5,871

F-26

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(17) Operating Revenues

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ $1,502,997 168,976 $1,671,973	2002 NT$ $1,187,252 590,822 $1,778,074		2003
		$		US$ $~~~~~ 65,947 ~~~~~ 7,231
					~~~~~ 7,231
				$73,178

(18) Compensatory expense, depreciation, and amortization expenses for the year ended December 31, 2003 are as follows:

Compensatory expense Payroll expense. . . . . . . . . . . . . . . . . . . . . Labor and health insurance . . . . . . . . . . . . . Pension expense . . . . . . . . . . . . . . . . . . . . Depreciation expenses . . . . . . . . . . . . . . . . . . Amortization expenses . . . . . . . . . . . . . . . . . .	For	the year ended December 31, 2003	the year ended December 31, 2003
	Operating Costs NT$ $146,465 10,099 2,559 399,059 66,308	Operating Expenses NT$ $65,426 4,743 1,235 32,031 7,544	Total
			NT$ US$ $211,891 $ 6,234 14,842 437 3,794 112 431,090 12,683 73,852 2,173

5. RELATED PARTY TRANSACTIONS

(1) Name and Relationship of Related Parties

Related parties Relationships

Custer Inc. (‘‘Custer’’) . . . . . . . . . . . . . . . . Barnwell Enterprise Ltd. (‘‘Barnwell’’). . . . . Maxmax Group Corporation . . . . . . . . . . . . Taimide Tech. Inc. . . . . . . . . . . . . . . . . . . Ritek Corporation . . . . . . . . . . . . . . . . . . . Lead Data Inc. . . . . . . . . . . . . . . . . . . . . . Chungf Investments Co., Ltd. (‘‘Chungf’’) . . Prorit Corporation . . . . . . . . . . . . . . . . . . . Ritdisplay Corporation . . . . . . . . . . . . . . . . Ju-Ji Corporation. . . . . . . . . . . . . . . . . . . . ID Technology Co. Ltd. . . . . . . . . . . . . . . . U-Tech Media Corporation . . . . . . . . . . . . .

100% owned investee

100% owned investee of the Company’s subsidiary Equity investee of the Company

Equity investee of the Company

Its legal representative also serves as the Company’s chairman Related party in substance

Related party in substance Related party in substance Related party in substance Related party in substance Related party in substance The Same Chairman

F-27

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(2) Significant Related Party Transactions

a. Purchases

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ $337,305 50,548 — 6,799 $394,652	2002 NT$ $88,802 — — 7,173 $95,975	2003
		NT$ $173,389 — 20,630 2,679 $196,698	US$ $5,101 — 607 79
			$5,787

There was no specific cost-plus for the above purchases.

b. Sales

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ $ — 13,319 — 372,601 — 87,545 $473,465	2002 NT$ $ — 16,747 22,194 21,884 26,616 17,030 $104,471	2003
		NT$ $108,765 89,332 80,748 39,342 — 401 $318,588	US$ $3,200 2,628 2,376 1,158 — 12
			$9,374

There was no specific cost-plus for the above sales.

(3) Receivables and payables resulting from the above transactions were as follows:
a. Receivables from related parties:

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $ 12,506 83,529 87,274 — — 3,238 186,547 (19,000) (2,613) $164,934	2002 NT$ $ 33,701 55,207 23,213 — 26,821 7,688 146,630 (2,623) — $144,007	2003
		NT$ $ 24,749 55,092 — 46,454 7,267 14 133,576 (14,756) — $118,820	US$ $ 727 1,621 — 1,367 214 1
			3,930 (434 —
			$3,496

Credit terms with Custer and Barnwell are 75 to 150 days, similar to those with regular foreign customers.

F-28

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

Credit terms with Maxmax Group Corporation are month end 180 days. However, in order to support its operations, the Company extends the credit terms with Maxmax Group Corporation.

Credit terms with Ritek Corporation are month end 90 days, similar to those with other domestic customers.

Credit terms with Lead Data Inc. ~~~~~ were month end 70 to 100 days for the year ended December 31, 2002~[.] ~~~~~ In 2003, the Company revised these terms~to~month end 30 to 90 days ~~~~~ which were similar to those with other domestic customers.

b. Payables to related parties:

	As of December 31,	As of December 31,	As of December 31,
2001 NT$ $14,808 50,548 — 178 $65,534	2002 NT$ $23,409 — 431 3,599 $27,439	2003
		NT$ $36,968 — 6,766 — $43,734	US$ $1,088 199 —
			$1,287

Payment terms with Ritek Corporation and Prorit Corporation are month end 30 to 120 days and 45 to 120 days, respectively, similar to those with other vendors.

c. Other ~~~~~

In 2002, the Company’s acquired Prorit Corporation’s shares in the amount of NT$60,000 from Chungf.

d. For the years ended December 31, 2001, 2002 and 2003, rental paid to Ritdisplay Corporation amounted to nil, NT$1, ~~~~~ 820 and NT$625 (US$18), respectively.

6. ASSETS PLEDGED AS COLLATERAL

Account Land . . . . . . . . . . . . . . . Buildings and facilities . . Machinery and research equipment . . . . . . . . . Restricted deposit . . . . . . Total . . . . . . . . . . . . . . .		As of December 31, 2002 2003 NT$ NT$ US$ $ 215,598 $ 215,598 $ 6,343 216,479 212,004 6,237 1,432,289 1,307,347 38,463 11,124 32,574 958 $1,875,490 $1,767,523 $52,001	As of December 31, 2002 2003 NT$ NT$ US$ $ 215,598 $ 215,598 $ 6,343 216,479 212,004 6,237 1,432,289 1,307,347 38,463 11,124 32,574 958 $1,875,490 $1,767,523 $52,001	Nature of collateral
	2001 NT$ $ 215,598 220,953 1,728,960 65,536 $2,231,047	2002 NT$ $ 215,598 216,479 1,432,289 11,124 $1,875,490
			NT$ $ 215,598 212,004 1,307,347 32,574 $1,767,523	Long-term loans Long-term loans Long-term loans Deposits of foreign labor, customs clearance, short-term loans and project loans

F-29

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

7. COMMITMENTS AND CONTINGENCIES

(1) The Company’s unused letters of credit amounted to NT$536,794 (US$15,793) as of December 31, 2003.
(2) As of December 31, 2003, the Company’s significant machinery purchase contracts totaled[(US$16,516).][The][Company][has][paid][NT$117,334][(US$3,452)][as][of][December][31,]
~[NT$561,387] 2003.
(3) On October 12, 1999, the Company entered into the 10-year CD-WO/MD Disc Agreement with Royal Philip Electronics (‘‘Philip’’). The agreement requires the Company to pay Philip, on a quarterly basis, a royalty of 3% of net sales of authorized products (CD-R) or Japanese Yen 10 per disk, whichever is higher, provided that the terms will be comparable to the terms with other companies in the industry. However, the above-mentioned agreement was unilaterally terminated by Philip in April 2001. As of December 31,2003, the Company has not yet entered into a new agreement and has made an accrual based on common patent terms in the industry.
(4) Philip alleged that the Company infringed its patent right over write-able optical disk and asked for compensation in the amount of Japanese Yen 7,900 plus interest. At present, the case is under process in the Hsinchu District Court. According to the opinion of the Company’s legal counsel, the case involves an issue on the validity of Philip’s patent rights contract. The Fair Trade Committee of the Executive Yuan has ruled in April 2002 that the write-able optical disk patentrights contract of Philip was illegal and has penalized Philip. Based on this, the legal consul believes the Company’s position that the patent contract is not valid has more than 50% of chances to get a favorable result. In addition, Philip also filed a lawsuit against the Company for a claimed infringement of Philip’s patents, seeking for reimbursement of NT$1,550 plus interest. As this case involves the validity of Philip’s patents, the court has suspended the legal process. Final result is not expected to come out within two years.
(5) Philip filed a legal action against ~~~~~ the Company with the International Trade Commission (‘‘ITC’’) for violation of Philip’s patent. In October 2003, ITC preliminarily ruled that Philips failed in the suit. Final judgment is expected to be made in March 2004. If the result is in favor of Philip, the Company will not be able to sell CD-R and CD-RW products in the US. However, Philip is not seeking recovery of any monetary damages. The Company has instructed its attorney to prudently handle the case.
(6) Under the ‘‘CD-WO DISC PATENT LICENSE AGREEMETNT’’ with Taiyo Co., Ltd, as contracted in March 2003, the Company shall pay royalty fees for the period from December 31, 2002 to December 30, 2003, at a certain percentage of net sales, as defined in the agreement.
(7) Under the ‘‘CD-R Disc Patents License Agreement’’ with Sony Co., Ltd, as contracted on October 22, 2001, the Company shall pay royalty fees on the basis of the sales quantity of the Product, as defined in the agreement, for a period from April 1, 2001 to March 31, 2006.
(8) Under the ‘‘CD-RW Disc Patents License Agreement’’ with Sony Co., Ltd, as contracted on February 27, 2003, the Company shall pay royalty fees on the basis of the sales quantity of the Product, as defined in the agreement, for a period from October 1, 2002 to September 30, 2007. Royalty fees have been accrued in conformity with the terms and conditions specified in the agreement.
(9) The Company entered into a DVD-R Research and Development Agreement with the Ministry of Economic Affairs (‘‘MOEA’’). Under the agreement, MOEA agreed to grant a loan of NT$ 12,800 to finance the Company’s ~~~~~ research and development of related DVD-R discs. The loan is

F-30

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

guaranteed by Fubon bank. As of December 31, 2003, the Company has fully repaid the loan. In addition, the Company is obligated to reimburse MOEA, on a quarterly basis, in the amount of2% of the net sales of the DVD-R products for the period of three years from the commencement of such sales; provided, however, total reimbursement amount shall not exceed 30% of the loan. As of December 31, 2003, such reimbursement aggregately amounted to NT$2,355.

8. SIGNIFICANT CASUALTY LOSS

None

9. SIGNIFICANT SUBSEQUENT EVENTS

None

10. FINANCIAL INSTRUMENTS

(1) Derivative Financial Instruments

a. As of December 31, 2003

Financial Instruments Forward contracts — hedging . Options — trading. . . . . . . . . Options — hedging . . . . . . . .	Type Currency USD Put USD Call	Maturity Date January, 2004 February, 2004 January, 2004 February, 2004 March, 2004 June, 2004 January, 2004	Contract amount (US$’000) 2,000 1,000 5,000 2,000 1,000 1,000 1,000	Contract rate 33.926~34.039 34.037 33.8~34.4 34.1~34.4 34.4 35.0 34.1	Credit Risk
					— — — — — — —

b. As of December 31, 2001 and 2002

None

Credit risk amount represents contracts with positive fair value factoring in the offsetting effect of the master netting arrangement as of the balance sheet date. If the credit risk amount is positive and the transaction party breaches the contract, the Company will incur a loss. The possibility for incurring a loss is remote since the Company’s counter parties are reputable financial institutions.

(2) Market Value Risk

Market value risk for forward contracts is insignificant due to the fact that the purpose of the contracts is hedging and therefore any gain or loss form the fluctuation in interest or exchange rates will be offset by the gain or loss from the exchange hedged. The Company is exposed to market value risk for the options. Nonetheless, the Company prudently evaluates the contract rates of the options before it entered into and holds or expects to hold sufficient US dollars that minimize the market value risk.

F-31

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(3) Liquidity and Cash Flow Risk

The Company considers the liquidity risk to be minimal~[as][the][Company][owns][sufficient] operating funds. No significant cash flow risk exists as the exchange rate in the forward contracts is fixed. The Company holds or expects to hold sufficient US dollars that also minimize the cash flow risk of options.

(4) Types of derivative financial instruments, purpose of holding the derivative financial instruments and the strategy for achieving the hedging purpose

The Company’s derivative financial instruments are entered into for hedging or trading purposes. The purpose of holding call options and forward contracts was to hedge exchange rate fluctuation risks resulting from assets, liabilities or commitments denominated in foreign currencies. The Company’s hedging strategy is to mitigate market price risk. Derivative financial instruments selected for hedging purposes are reviewed and anti-co-related with the fluctuation of the fair value of derivatives hedged. Derivatives are evaluated periodically. Put options for trading purposes are entered to earn premium to offset premium from call options.

(5) Presentation of Derivative financial instruments

Forward receivable and payable are reported under current assets or liabilities on ~~~~~ a net basis. As of December 31, 2003, details were as follows:

Forward receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward exchange contracts receivable — net . . . . . . . . . . . . . . . . . . . . . . . . . .	NT$ $102,002 (101,910) 4 $ 96	US$ $3,001 (2,998) — $ 3

The forward exchange contracts receivable-net is classified under other current assets. Foreign exchange gain incurred from the derivatives for the year ended December 31, 2003 was NT$256 (US$8).

Loss and gains derived from the call and put options for the year ended December 31, 2003 were NT$543 (US$16) and NT$1,277 (US$38), respectively.

F-32

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(6) Fair value of financial instruments

Non-derivative Instruments Assets Cash and cash equivalents and restricted deposits . . . . . . . . Short-term investments — net. . Receivables (including related parties) . . . . . . . . . . . . . . . Other financial assets. . . . . . . . Long-term investments. . . . . . . Liabilities Short-term loans . . . . . . . . . . . Payables (including related parties) . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . Payables to equipment supplier . Long-term loans (including current portion). . . . . . . . . . Convertible bonds . . . . . . . . . . Derivative Instruments Forward Contracts — hedging. . Options — trading. . . . . . . . . . Options — hedging . . . . . . . . .		As of December 31,	As of December 31,
	2001 Book Value Fair Value NT$ $405,767 $405,767 517,384 517,384 584,942 584,942 55,928 55,928 381,062 347,293 — — 265,725 265,725 208,850 208,850 27,447 27,447 1,155,949 1,155,949 — — — — — — — —	2002 Book Value Fair Value NT$ $114,199 $114,199 554,059 554,059 723,875 723,875 19,183 19,183 405,504 349,775 358,106 358,106 226,760 226,760 280,625 280,625 21,227 21,227 932,079 932,079 — — — — — — — —		2003
			Book Value Fair Value NT$ $783,968 $783,968 460,348 460,637 731,615 731,615 15,759 15,759 352,535 324,850 162,225 162,225 160,335 160,335 342,569 342,569 41,028 41,028 501,950 501,950 499,137 (Remark) 96 (179) — 520 — (64)

(Remark): As of December 31, 2003, no publicly assessable value of Company’s convertible bonds was available.

The methods and assumptions used to estimate the fair values of the financial instruments are as follows:

a. The fair value of the Company’s short-term financial instruments is based on the carrying value of those instruments at reporting date due to the short maturity of those instruments. Th ~~~~~ is method is applied to cash and cash equivalents, receivables, other financial assets, payables, short-term loans, short-term notes, payables to equipment suppliers and accrued expenses.
b. The fair value of the Company’s short-term investments and long-term investments is based on market prices at the reporting date if market prices are available. The fair value of the Company’s long-term investments is based on relevant financial or any other information if market prices are not available.
c. The fair value of the Company’s long-term loans bearing variable interest rates, which includes the current portion of long-term loans, is estimated using the book value of the loans at the reporting date.
d. The fair value of derivative financial instruments, normally includes unrealized gains or losses from outstanding exchange contracts, is assumed to be the estimated amount that the Company is entitled to receive or obligated to pay if the Company terminate ~~~~~ s the contracts at reporting date.

F-33

Gigastorage Job: 9082-1

File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

(7) Disclosures of risks for investments in NTD Equity Linked Note:
a. Balances

Investment NT$ NTD Equity Linked Note with BENQ Corporation Stock Price . . . . . . . . . . . . . . . . . . . . . 2,913

b. Credit Risk

The Company is exposed to credit risk in the event of non-performance by the issuers of the NTD Equity Linked Note. However, the Company only enters into transactions with financial institutions of good financial standing that the Company believes, can minimize the credit risk.

c. Liquidity Risk

The Company is exposed to liquidity risk primarily because the Company is unable to call or redeem the NTD Equity Linked Note before maturity. In order to minimize such risk, the Company intends to invest in securities whose maturities are within a year.

d. Market Risk

~~~~~ The Company is exposed to limited market risk. The maximum market risk will be the contract surcharge plus 26.6% of its notional amount. As of December 31, 2003, the market risk was a gain of NT$20, calculating based on the underlying share price.

(8) Others

(1) Employees’ stock options (Expressed in NT Dollars)

Grant Date July 8, 2003 . . . . . . . . December 30, 2003 . . .	Total Units 6,000,000 4,000,000	Total Units Outstanding 6,000,000 4,000,000	Exercisable Shares 6,000,000 4,000,000	Exercisable Date July 8, 2005 December 30, 2005	Exercise Price $16.80 $16.90	Executor Method Issue common stock Issue common stock	Market price of Common Stock	Market price of Common Stock
							Highest Price $20.60 $16.90	Lowest Price
								$14.00 $16.90

(2) Certain accounts of the consolidated financial statements as of December 31, 2001 and 2002 have been reclassified to be in conformity with current year’s presentation.

11. Segment information

a. Industry information

The Company operates predominantly in one industry segment. No similar industry information is available.

F-34

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

b. Export sales

Area
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operations in different geographic areas
For the year ended December 31, 2001
Revenues from non-affiliated customers . . . . . . . . .
Revenues from affiliated customers . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Department loss . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expense . . . . . . . . . . . . . . . . . . . . . . .
Non-operating Revenues. . . . . . . . . . . . . . . . . . . .
Non-operating Expense . . . . . . . . . . . . . . . . . . . .
Income before Tax . . . . . . . . . . . . . . . . . . . . . . .
Identifiable Assets. . . . . . . . . . . . . . . . . . . . . . . .
Long-term investment . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 31, 2002
Revenues from non-affiliated customers . . . . . . . . .
Revenues from affiliated customers . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Department loss . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expense . . . . . . . . . . . . . . . . . . . . . . .
Non-operating Revenues. . . . . . . . . . . . . . . . . . . .
Non-operating Expense . . . . . . . . . . . . . . . . . . . .
Income before Tax . . . . . . . . . . . . . . . . . . . . . . .
Identifiable Assets. . . . . . . . . . . . . . . . . . . . . . . .
Long-term investment . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the year ended December 31,
2001
2002
2003
NT$ NT$ NT$ US$ $ 688,861
$595,421
$ 547,172
$16,098
98,040
219,717
891,401
26,225
477,408
32,299
246,702
7,258
$1,264,309
$847,437
$1,685,275
$49,581
Taiwan
Americas
Adjustment
Consolidation
NT$ NT$ NT$ NT$ $1,412,945
$259,028
$ —
$1,671,973
204,218
—
(204,218)
—
$1,617,163
$259,028
$(204,218)
$1,617,973
$ (685)
$ (59,100)
$ —
$ (59,785)
(562,216)
157,374
(128,336)
$ (592,963)
$5,083,067
$ 81,587
$ (78,684)
$5,630,865
381,062
$6,011,927
Taiwan
Americas
Adjustment
Consolidation
NT$ NT$ NT$ NT$ $1,734,183
$ 43,891
$ —
$1,778,074
21,190
—
(21,190)
—
$1,755,373
$43,891
$(21,190)
$1,778,074
$ (106,948)
$(33,767)
$ —
$ (140,715)
(352,415)
39,236
(145,468)
$ (599,362)
$5,083,067
$81,587
$(78,684)
$5,085,970
405,504
$5,491,474

c. Operations in different geographic areas

F-35

Gigastorage Job: 9082-1 File: 09_Note1 (X14) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

GIGASTORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except shares, per share and percentage)

For the year ended December 31, 2003 Revenues from non-affiliated customers . . . . . . . . . Revenues from affiliated customers . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Department Income Operating Expense . . . . . . . . . . . . . . . . . . . . . . . Non-operating Revenues. . . . . . . . . . . . . . . . . . . . Non-operating Expense . . . . . . . . . . . . . . . . . . . . Income before Tax . . . . . . . . . . . . . . . . . . . . . . . Identifiable Assets. . . . . . . . . . . . . . . . . . . . . . . . Long-term investment . . . . . . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Taiwan NT$ $2,413,250 10,961 $2,424,211 $ 627,656 $ (377,810) $5,436,643	Americas NT$ $ 74,074 3,887 $77,961 $ 7,613 $(31,906) $50,162	Adjustment NT$ $ — (14,848) $(14,848) $ — $ 3,887 $(52,692)	Consolidation
				NT$ $2,487,324 —
				$2,487,324
				$ 635,269 $(405,829 71,121 (106,934
				$ 193,627
				$5,434,113 352,535
				$5,786,648

d. Major customers

	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
2001 NT$ % $372,601 22.29 265,467 15.88 204,218 12.21 $842,286 50.38	2002 NT$ % $21,884 1.23 13,822 0.78 21,190 1.91 $56,896 3.92		2003
NT$ $372,601 265,467 204,218 $842,286	NT$ $21,884 13,822 21,190 $56,896	NT$ $237,244 186,251 148,269 $571,764	US$ $ 6,980 5,480 4,362 $16,822	% 9.54 7.49 5.96
				22.99

12. Elimination Entries For Related Party Transactions

Elimination entries for related party transactions are as follow:

Account Cash and cash equivalents . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . Inventory . . . . . . . . . . . . . . . . . . . . . . Accounts payables. . . . . . . . . . . . . . . . Other current liability . . . . . . . . . . . . . Common stock . . . . . . . . . . . . . . . . . . Unappropriated earnings. . . . . . . . . . . . Cumulative transaction adjustment. . . . . Operating revenue . . . . . . . . . . . . . . . . Operating cost . . . . . . . . . . . . . . . . . . Operating expense . . . . . . . . . . . . . . . . Unrealized gain on Inter-Affiliate . . . . . Net loss from equity investments. . . . . .	2001 Debit Credit NT$ $ $ 196,305 4,000 441,478 4,000 46,315 95,367 13,850 204,218 200,728 3,490 182,271	2002 Debit Credit NT$ $ $ 76,684 2,000 133,966 2,000 323,995 277,638 11,646 21,190 23,190 2,000 91,993	2003	2003
			Debit Credit NT$ $ 684 $ 64 49,440 4,000 116,307 4,000 323,995 369,631 9,909 14,848 8,961 3,887 2,000 12,070	Credit

F-36

Gigastorage Job: 9082-1

File: 10_AppA (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

APPENDIX A — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The information presented in this appendix has been extracted from publicly available documents which have not been prepared or independently verified by the Company, the Manager or any of their respective affiliates or advisers in connection with the offering of the Bonds.

Foreign Investment

Historically, foreign investment in the ROC securities market has been restricted. From 1983 onwards, however, the ROC government has from time to time enacted legislation and adopted regulations to make it possible for non-ROC persons (other than PRC persons) to invest in the ROC securities market.

On September 30, 2003, the Executive Yuan approved the amendment to Regulations Governing Investment in Securities by Overseas Chinese and Foreign National (‘‘Regulations’’) which took effect on October 2, 2003. According to the Regulations, the ROC Securities and Futures Commission (‘‘ROC SFC’’) abolished the mechanism of the so-called ‘‘qualified foreign institutional investors’’ and ‘‘general foreign investors’’ as stipulated in the Regulations before the amendment.

Under the Regulations, foreign investors are classified as either ‘‘onshore foreign investors’’ or ‘‘offshore foreign investors’’ according to their respective geographical location. Both onshore and offshore foreign investors are allowed to invest in ROC securities after they register with the Taiwan Stock Exchange (‘‘TSE’’). The Regulations further classify foreign investors into foreign institutional investors and foreign individual investors. ‘‘Foreign institutional investors’’ refer to those incorporated and registered in accordance with foreign laws outside of the ROC (i.e., offshore foreign institutional investors) or their branches set up and recognized within the ROC (i.e., onshore foreign institutional investors). Offshore foreign institutional investors are required to apply for a prior approval from the Central Bank of China (‘‘CBC’’) before they can register with the TSE. Offshore overseas Chinese and foreign individual investors are not required to apply for CBC’s approval, but a maximum investment ceiling will be separately determined by the ROC SFC after consultation with the CBC. On the other hand, foreign institutional investors are not subject to any ceiling for investment in the ROC securities market.

Depositary Receipts

In April 1992, the ROC SFC promulgated regulations permitting ROC companies listed on the TSE, with the prior approval of the ROC SFC, to sponsor the issuance and sale to foreign investors of depositary receipts evidencing depositary shares representing shares of capital stock of ROC companies. In December 1994, regulations were amended by the ROC Ministry of Finance allowing companies whose shares are traded on the GTSM, in addition to companies listed on the TSE, to sponsor, upon approval by the ROC SFC, the issuance and sale of depositary receipts. In 2002, the ROC SFC further permitted public companies to participate the issuance of depository receipts on a private placement basis. On December 31, 2003, the ROC SFC amended the regulations to adopt the ‘‘effective registration’’ system in approving the application for issuance of depositary receipts which may shorten the ROC SFC review time.

The Regulations, as amended, provide that any depositary receipt holder may, after the issue date of the depositary receipts (in the case that the deposited shares are new shares) or immediately (in the case that the deposited shares are existing shares), request the depositary bank either to cause the underlying shares to be sold in the ROC and distribute the proceeds of such sale to the depositary receipt holder or, after registration with TSE and if applicable, obtaining the approval from the CBC (if such holder is an offshore foreign institutional investors, that is, a company incorporated outside of the ROC under the laws of such foreign jurisdiction), to withdraw the underlying shares from the depositary receipt facility and deliver such shares to such holder. A citizen of the PRC or an entity organized under the laws of the PRC is not permitted to withdraw and hold the Shares.

Under existing ROC laws and regulations, a depositary may, without obtaining further approvals from the CBC or any other government authority or agency of the ROC, convert NT Dollars into other currencies, including US Dollars, in respect of the proceeds of the sale of shares represented by depositary receipts or received as stock dividends in respect of such shares and deposited into the depositary receipt facility and any cash dividends or cash distributions received in respect of such shares. In addition, a depositary may convert inward remittances of payments into NT Dollars for purchases of underlying shares for deposit in the depositary receipt facility against the creation of additional depositary receipts. With respect to

A-1

Gigastorage Job: 9082-1

File: 10_AppA (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

conversion from NT Dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares, proceeds in excess of US$100,000 per remittance may not be remitted overseas unless CBC approval is obtained. In addition, a depositary receipt holder may, after becoming a holder of shares, convert NT Dollars into other currencies for proceeds from the sale of any underlying shares withdrawn from the depositary receipt facility and delivered to the depositary receipt holder and for conversion from foreign currencies into NT Dollars for subscription payments in respect of rights offering. A depositary must obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT Dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares. It is expected that CBC will grant such foreign exchange approval as a routine matter.

Direct Share Offerings

The ROC Government has permitted ROC companies listed on the TSE, or the GTSM to issue shares directly (not through depositary receipt facilities) overseas. In addition, public-issue companies may issue shares directly overseas on a private placement basis.

Overseas Corporate Bonds

Since 1989, the ROC SFC has approved a series of overseas corporate bond issues (‘‘OCBs’’) by ROC companies listed on the TSE in offerings directed outside the ROC. Since December 1994, the ROC SFC has also permitted ROC companies whose shares are traded on the GTSM to issue and offer OCBs. In 2002, the ROC SFC further permitted public-issue companies to issue OCBs on a private placement basis. On December 31, 2003, the ROC SFC amended the regulations to adopt the ‘‘effective registration’’ system in approving the application for issuance of OCBs which may shorten the ROC SFC review time.

Under the current ROC laws and policies, OCBs can be converted by bondholders (other than PRC persons) into shares of the relevant ROC companies or (subject to the ROC SFC approval) may be converted into depositary receipts issued under the sponsorship of the same ROC company or the shares of other companies, in case of exchangeable bonds.

Under current ROC law, a converting bondholder when exercising the conversion right to convert the bonds into shares of an ROC company, is required to register with TSE and if applicable, to obtain the approval from the CBC (if such holder is an offshore foreign institutional investors, that is, a company incorporated outside of the ROC under the laws of such foreign jurisdiction). In addition, such converting bondholder is required to appoint a local agent (with such qualifications as are set by the ROC SFC) to open a securities trading account with a local brokerage firm, pay ROC withholding taxes, remit funds, exercise shareholders’ rights and perform such other actions as may be designated by such converting bondholder, on behalf of and as agent for such converting bondholder. In addition, the converting bondholder is required to appoint a local bank to act as custodian to hold the securities and cash proceeds in safekeeping, make confirmations and settle trades and report all relevant information and such converting bondholder is also required to appoint a tax guarantor for filling tax returns and making tax payments.

Unless otherwise limited by the CBC, an ROC Company may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT Dollars to other currencies, including US Dollars, in respect of the proceeds of the redemption of the Bonds or the repayment of principal upon maturity of, the Bonds. However, a converting bondholder must obtain prior 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.

In addition, a non-ROC converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert NT Dollars into foreign currencies of net proceeds realized from the sale of the converted shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such shares, as well as for inward remittances of subscription payments in connection with a rights offering.

A-2

Gigastorage Job: 9082-1 File: 10_AppA (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

Foreign Investment Approval

With the exception of foreign investors registered with the TSE and investors in OCBs and DRs, under existing ROC laws and regulations relating to foreign investment, investors (both institutional and individual) who are not ROC persons and wish to make direct investment in ROC securities are required to submit a Foreign Investment Approval (‘‘FIA’’) application to the Investment Commission of the Ministry of Economic Affairs of the ROC or other government authority. The Investment Commission or such other government authority reviews each FIA application and approves or disapproves each application after consultation with other government agencies (such as the CBC and the ROC SFC). Under current law, any non-ROC person possessing a FIA may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and dividends attributable to such investment.

Prohibited and Restricted Industries

In addition to the general restriction against direct investment by non-ROC persons in shares of ROC companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC pursuant to a ‘‘negative list’’, as amended by the Executive Yuan. The prohibition on foreign investment in the prohibited industries specified in the negative list is absolute in the absence of specific exemption from the application of the negative list. Pursuant to the negative list, certain other industries are restricted so that non-ROC persons (except in limited cases) may invest in such industries only up to a specified level and with the specific approval of the relevant competent authority which is responsible for enforcing the relevant legislation which the negative list is intended to implement.

Exchange Controls

The ROC’s Foreign Exchange Control Statute and regulations thereunder provide that all foreign exchange transactions must be executed by banks designated to handle such business by the MOF and by the CBC. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the import of merchandise and services may be purchased freely from the designated foreign exchange banks. Thus, ROC companies can freely purchase all of the foreign currency they need to import raw materials.

For non-trade related foreign exchange transactions, ROC companies and resident individuals may also, without foreign exchange approval, remit out of the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent), respectively, in each calendar year. In addition, ROC companies and resident individuals may, without foreign exchange approval, remit into the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent), respectively, in each calendar year. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of the ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittances involving a conversion between NT dollars and US dollars or other foreign currencies. A requirement is also imposed on all enterprises to register medium and long-term foreign debt with the CBC.

In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for each remittance. The above limit applies only to remittances involving a conversion between NT dollars and US dollars or other foreign currencies.

A-3

Gigastorage Job: 9082-1

File: 11_AppB (X18) Time/date: 12: 42 24/02/2004 Roman (852) 2850 6000

APPENDIX B — THE SECURITIES MARKET OF THE ROC

In September 1960, the ROC government established the ROC SFC to supervise and control all aspects of the securities market. The ROC government also took an active role in the creation of the TSE in 1961 and since that time has taken a number of steps designed to broaden the scope of the ROC securities market and to encourage ROC companies to list their shares on the TSE.

The Taiwan Stock Exchange and the ROC GreTai Securities Market

In 1961, the ROC SFC, working together with private interests, established the TSE to provide a marketplace for securities trading. The TSE is a corporation owned by government-controlled and private banks and enterprises. The TSE is independent of entities transacting business through it, each of which pays a user’s fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders and integrated securities firms (firms which are permitted to combine the activities of brokerage, trading and underwriting) must be made through the TSE.

The instruments traded on the TSE have primarily been limited to common shares and the bonds. However, recent legislative revisions and the present attitude of the ROC SFC regarding liberalization of the securities regulations have encouraged some innovation. In 1988, MOF permitted the issue of the ROC’s first exchangeable bonds (such bonds being convertible at the option of the bondholders into shares of 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 debt instruments issued by international financial institutions, such as Asia Development Bank, warrants and Taiwanese depositary receipts are also listed on the TSE.

To complement the TSE, the GTSM was established in September 1982 on the initiative of the ROC SFC. In early 1988, the ROC SFC promulgated regulations designed to encourage trading of unlisted securities of companies whose securities do not qualify for listing on the TSE. The GTSM is currently limited to equity securities, bank and corporate bonds and debentures and government bonds.

As of December 31, 2003, there were 669 companies whose shares were listed on the TSE and the total market capitalization was approximately NT$12.9 trillion, and there were 423 companies whose shares were traded on the GTSM and the total market capitalization was approximately NT$1.2 trillion.

Listing on the TSE

In the absence of special regulatory approval, only ROC companies are permitted to list their securities on the TSE. The ROC SFC has promulgated regulations that would permit foreign issuers to list their equity securities on the TSE through the use of depositary receipts. To date, four foreign issuers have listed their equity securities on the TSE through the use of depositary receipts pursuant to such regulations. The TSE has established specific requirements for such listing including the number and distribution of stockholders, the amount of capital, profitability and capital structure of the issuer.

The TSE has established specific requirements for listing based on the history of a company, the number and distribution of a company’s shareholders, amount of capital, profitability and capital structure. For a company to be listed on the TSE, it must have been in existence for at least five years, have a minimum paid-in capital of NT$600 million upon the application for listing and at least 1,000 registered shareholders, including not less than 500 shareholders each holding between 1,000 to 50,000 shares. Such shareholders must together hold in excess of either 20% of the outstanding shares or 10 million shares. The company may not have accumulated deficit for the previous fiscal year and its pre-tax net income and operating income must have: (i) been not less than 6% of paid-in capital for each of the previous two fiscal years, or (ii) averaged not less than 6% of paid-in capital for the previous two fiscal years with the profitability of the last fiscal year exceeding that of the preceding fiscal year, or (iii) been not less than 3% of the paid-in capital for the previous five fiscal years. However, other special listing criteria are applicable to high-technology companies and businesses engaged in activities relating to national economic development.

B-1

Gigastorage Job: 9082-1 File: 11_AppB (X18) Time/date: 12: 42 24/02/2004

Roman (852) 2850 6000

Mechanics of Trading on the TSE

In order to reduce market volatility, the TSE has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots or more must be registered and executed pursuant to certain TSE guidelines. Fluctuations in the price of equities traded on the TSE are subject to a limit of 7% above and below the previous day’s closing price. However, these restrictions have been modified from time to time by the MOF based on market conditions. The ROC SFC has indicated that the limits on share price movements may be further relaxed or abolished entirely.

All shares have a par value of NT$10 and trade in round lots of 1,000 shares. Although odd-lot trading may be conducted on the TSE, delays are occasionally experienced in respect of such trading.

The brokerage commissions can be in any rates not exceeding 0.1425% of the transaction price provided that the rates are required to be reported to the TSE. A securities transaction tax, currently levied at the rate of 0.3% of the transaction price for shares is payable by the seller of securities and is withheld at the time of the transaction giving rise to such taxes.

Price Limits

Fluctuations in the price of securities traded on the TSE are currently subject to a restriction of 7% above and below the previous day’s closing price (or reference price set by the TSE if the previous day’s closing price is not available because of lack of trading activity) in the case of equity securities and 5% in the case of debt securities.

The ROC SFC

The ROC SFC, which is under the jurisdiction of the MOF, is responsible for implementing and administering the Securities and Exchange Law, the principal legislation governing Taiwan’s securities market and its participants. It has extensive regulatory authority over the offering, issue and trading of securities. In addition, the Securities and Exchange Law specifically empowers the ROC SFC to promulgate rules under certain circumstances. The ROC SFC has regulatory authority over companies listed on the TSE, companies whose shares are traded on the GTSM and unlisted public companies. ROC public companies are generally required to obtain approval from, or an effective registration with, the ROC SFC for all securities offerings. The ROC SFC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public companies. In addition, the ROC SFC is responsible for the establishment of standards for financial reporting and carries out licensing and supervision with respect to the other participants in the ROC’s securities market.

The Securities and Exchange Law, among other things, prohibits market manipulation and abuses of inside information and imposes criminal liability on certified public accountants and lawyers who make false certifications in their examination and audit of an issuer’s contracts, reports and other related documents.

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 prosecutor upon the recommendation of the ROC SFC. Under ROC law, civil actions may only be brought by plaintiffs who assert that they have suffered damage. The ROC SFC is directly empowered to curb abuses and violations of applicable laws and regulations only through administrative measures such as the issuance of warnings, temporary suspension of operation, imposition of administrative fines and revocation of licenses.

B-2

File: 12_foot (X18) Time/date: 12: 42 24/02/2004

Gigastorage Job: 9082-1

Roman (852) 2850 6000

Printed by ROMAN 9082-1

AI assistant

GSC — Capital/Financing Update 2014

52060_rns_2014-05-15_9d5b81f4-76f0-4060-bc8b-ffd1808f5ddd.pdf

GIGASTORAGE CORPORATION

US$30,000,000 Zero Coupon Credit Enhanced Convertible Bonds Due 2007 Issue Price: 100%

Hua Nan Commercial Bank, Ltd.

Manager

FORWARD-LOOKING STATEMENTS

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

SUMMARY

The Company

Strategy

To enhance manufacturing efficiencies by seeking to improve existing manufacturing processes and exploring new cost-reduction opportunities.

To provide a comprehensive range of high quality products and services to customers around the world.

To emphasize DVD products.

Selected Financial Information

The Offering

RISK FACTORS

Risks Relating to the Company and its Business

The market for CD-Rs experienced severe downturns during 2000, 2001 and 2002 and may experience further downturns, which would adversely affect the Company.

The Company’s results of operations depend on its ability to keep pace with product innovations and changes in technology, which is partly dependent on the Company’s relationships with its major customers.

The Company derives a significant portion of its revenues from a small number of key customers and a loss of one or more of these customers would have a material adverse effect on its business.

Market competition may adversely affect the Company’s financial performance.

Ritek Corporation’s interest in the Company may cause diversion of corporate opportunities to Ritek Corporation and reduce the Company’s potential revenues.

The value of the Company’s Shares may be reduced by possible future sales of the Shares by the Company’s shareholders.

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

Anti-dumping tariffs imposed upon the Company may adversely affect the Company.

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

If the Company is unable to obtain sufficient raw materials or machinery from its suppliers in a timely manner, its production schedules could be delayed and it may lose customers.

The Company’s diversification into new businesses or product lines may not be successful.

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

The Company relies on key personnel.

Exchange rate fluctuations may have an adverse effect on the Company’s financial performance.

Risks Relating to the ROC

The Company is subject to risks associated with the political status and international relations of the ROC.

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

Risks Related to Ownership of the Bonds and the Shares

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

USE OF PROCEEDS

CAPITALIZATION

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

Overview

Consolidation

Consolidated Results of Operations

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

Net operating revenues

Cost of goods sold

Gross profit (loss)

Operating expenses

Operating income (loss)

Net non-operating income (expenses)

Net income

Year ended December 31, 2002 compared to year ended December 31, 2001

Net operating revenues

Cost of goods sold

Gross profit (loss)

Operating expenses

Operating loss

Net non-operating income (expenses)

Net income

Liquidity and Capital Resources

Foreign Currency Exposure

Inflation

Income Tax

Introduction

Strategy

To enhance manufacturing efficiencies by seeking to improve existing manufacturing processes and exploring new cost-reduction opportunities.

To provide a comprehensive range of high quality products and services to customers around the world.

To emphasize DVD products.

To leverage core technology in optical storage media and diversify into higher growth and higher margin markets.

Products

Optical Storage Media Products

Compact Disks — Recordable

Compact Disks — Rewritable

Digital Versatile Disks — Recordable and Rewritable

Other Products

DVD Modules

Other Products Under Development

Production Facilities

Raw Materials

GSC Capital/Financing Update 2014