HannsTouch - Capital/Financing Update 2019

SINTEK PHOTRONIC CORP.

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

U.S.$120,000,000 Zero Coupon Convertible Bonds due 2009 (comprising U.S.$100,000,000 Firm Bonds and U.S.$20,000,000 Optional Bonds)

Issue Price: 100 per cent.

Up to U.S.$120,000,000 zero coupon convertible bonds due 2009 (the ‘‘Bonds’’, which term includes the U.S.$100,000,000 zero coupon convertible bonds due 2009 (the ‘‘Firm Bonds’’) and any Optional Bonds (as defined below)) will be issued in registered form by SINTEK PHOTRONIC CORP. (the ‘‘Company’’). Unless previously purchased and cancelled, converted or redeemed, the Bonds will be redeemed on 6 April, 2009 at 100 per cent. of their principal amount. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

The Company may, at its option: (i) redeem all, or a portion of, the Bonds at 100 per cent. of their principal amount (as defined herein) at any time after 6 April, 2005, if the Closing Price (as defined herein) of the common shares, par value NT$10 per share, of the Company (‘‘Shares’’) on the Taiwan Stock Exchange (‘‘TSE’’) translated into U.S. dollars at the Prevailing Rate (as defined herein) on each of the 20 consecutive Trading Days (as defined herein), the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130 per cent. of the Conversion Price (as defined herein) of the Bonds then in effect, translated into U.S. dollars at the Fixed Exchange Rate (as defined herein) on each such Trading Day; or (ii) redeem all, but not less than all, the Bonds at 100 per cent. of their principal amount at any time, if not less than 90 per cent. in principal amount of the Bonds have already been redeemed, converted, or purchased and cancelled. The Bonds may also be redeemed in whole but not in part, at any time at the option of the Company at 100 per cent. of their principal amount in the event that certain changes relating to the Republic of China (‘‘ROC’’ or ‘‘Taiwan’’) taxation have been made which will result in additional costs to the Company. The Company will, at the option of the holder of any Bond (the ‘‘Bondholder’’), redeem all or a portion of such Bondholders’ Bonds on 6 April, 2006 and 6 April, 2007 at 100 per cent. of their principal amount. In addition, a Bondholder shall have the right to require the Company to purchase all, but not less than all, of such Bondholder’s Bonds at 100 per cent. of their principal amount in the event the Shares cease to be listed or admitted to trading on the TSE for a period of not less than 5 consecutive Trading Days. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

The Bonds may be converted at any time on or after 6 May, 2004 and prior to the close of business (at the place the Bond is deposited for conversion) on 7 March, 2009 into Shares unless previously redeemed, converted or purchased and cancelled and except during a Closed Period (as defined herein).

Investing in the Bonds involves certain risks. See the section of ‘‘Risk Factors’’.

The Company has granted to FB Gemini Limited and Fubon Securities Co., Ltd. (each a ‘‘Joint Lead Manager’’ and together, the ‘‘Joint Lead Managers’’ an option, exercisable in whole or in part and on one or more occasions at any time from the date of this Offering Circular to and including the date falling 30 days after the date of this Offering Circular to purchase up to a further U.S.$20,000,000 aggregate principal amount of the Bonds (the ‘‘Optional Bonds’’).

The Conversion Price will initially be NT$28.66 per Share subject to adjustment in the manner provided herein and with a fixed rate of exchange applicable on conversion of the Bonds of U.S.$1.00 = NT$33.195 (the ‘‘Fixed Exchange Rate’’). In addition, the Conversion Price will be adjusted on 6 October, 2004, 6 October, 2005, 6 October, 2006, 6 October, 2007 and 6 October, 2008 (each a ‘‘Reset Date’’) in certain circumstances relating to the then prevailing Closing Price of the Shares relative to the Conversion Price. See ‘‘Terms and Conditions of the Bonds — Conversion — Conversion Price reset’’. The Shares are listed on the TSE and application will be made to list the Shares issued upon conversion of the Bonds on the TSE. On 29 March, 2004, the Closing Price of the Shares on the TSE was NT$27.7 per Share.

No application has been made to list the Bonds on any stock exchange. The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’) and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act).

Joint Lead Manager

Joint Lead Manager and Local Financial Advisor

Co-managers

IBT Securities Co., Ltd.

GC Capital (Asia) Limited

The date of this Offering Circular is 29 March, 2004

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

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

No person is authorised 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 authorised by the Company or the Joint Lead Managers. Neither the delivery of this Offering Circular nor any sale or allotment made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The Joint Lead Managers make no representations or warranties as to the accuracy or completeness of the information contained herein.

In connection with this issue, the Joint Lead Managers may (to the extent permitted by applicable laws) over allot or 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 Joint Lead Managers to do this. Such stabilising, if commenced, may be discontinued at any time, and must be brought to an end after a limited period.

The Bonds will be represented by beneficial interests in a permanent global certificate (the ‘‘Global Certificate’’) in registered form, which will be registered in the name of a nominee for, and shall be deposited on or about the Closing Date (as defined herein) with, The Bank of New York as 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’’). Definitive Certificates (as defined herein) will be issued to Bondholders only if either Euroclear or Clearstream, Luxembourg (or any other clearing system as shall have been designated by the Company and approved by the Trustee on behalf of which the Bonds evidenced by the Global Certificate may be held) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so.

The Company has prepared its audited financial statements as at and for the years ended 31 December, 2001, 2002 and 2003. These financial statements were prepared in conformity with generally accepted accounting principles in the ROC (‘‘ROC GAAP’’) which differ in certain material respects from generally accepted accounting principles in the United States (‘‘U.S. GAAP’’). See ‘‘Summary of Principal Differences Between ROC GAAP and U.S. GAAP’’.

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Business of the Company’’, ‘‘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 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, political, social and economic conditions in the ROC, overall trends in the TFT-LCD and colour filters industries, the market supply of and average selling prices for the Company’s principal products, the financial condition and results of operations of the Company’s customers, the availability and price of raw materials, and the ability of the Company to successfully expand and integrate its business. 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.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

The Company is a company limited by shares and incorporated in the ROC under the Company Law of the Republic of China (‘‘Company Law’’). Substantially all of the Company’s directors and executive officers, its supervisors and certain other parties 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 of the ROC, or to enforce against any of them judgments obtained in courts outside of the ROC, including those predicated upon the civil liability provisions of the federal securities laws of the United States. The Company’s ROC counsel has advised that any final judgment obtained against the Company or such person in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that:

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

Judgments obtained in certain United States courts have been confirmed to be recognised and enforceable in the courts of the ROC on a reciprocal basis. 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 for remittance out of the ROC of any amounts recovered in respect of such judgment denominated in a currency other than NT dollars.

iii

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
CAPITALISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
BUSINESS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
DIVIDENDS AND DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
MARKET PRICE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
CHANGES IN ISSUED SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
DESCRIPTION OF THE COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
TERMS AND CONDITIONS OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
THE GLOBAL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC . . . . . . . . . . . . . . . . . . . .	70
THE SECURITIES MARKET OF THE ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	73
ROC TAXATION OF NON-RESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN ROC GAAP AND U.S. GAAP . . . . . . .	79
SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	86
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	89
INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003 . . . . . . . . . . . . . . . .	F-1

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

Unless otherwise specified or the context requires, references to ‘‘U.S. dollars’’ and ‘‘U.S.$’’ are to the lawful currency of the United States, references to ‘‘New Taiwan dollars’’, ‘‘NT dollars’’, ‘‘NT$’’ and ‘‘$’’ are to the lawful currency of the ROC and references to ‘‘JPYen’’, ‘‘Y=’’ or ‘‘Japanese Yen’’ are to the lawful currency of Japan. Unless otherwise specified, where financial information in relation to the Company has been translated into U.S. dollars, it has been so translated, for convenience only, at the rate of NT$33.97 = U.S.$1.00 using the average spot exchange rate quoted by the Bank of Taiwan on 31 December, 2003. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be converted into U.S. dollars at that or any other rate. The closing average spot exchange rate between the NT dollar and the U.S. dollar on 29 March, 2004 was NT$33.195 = U.S.$1.00.

This page is intentionally left blank

SUMMARY

The following summary is qualified in its entirety by, and subject to, the more detailed corporate information and financial statements, including the notes thereto appearing elsewhere herein. For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see ‘‘Risk Factors’’.

Sintek Photronic Corp.

Established in 1999, the Company is one of Taiwan’s largest and the world’s third largest independent manufacturer of colour filters in terms of its production volume and capacity. Colour filters are primarily used for the manufacturing of Thin Film Transistor Liquid Crystal Display (‘‘TFT-LCD’’) and are the most costly and essential component of TFT-LCD. Currently, the Company sells most of its products to TFTLCD manufacturers in Taiwan and to Dai Nippon Printing Co., Ltd. (‘‘DNP’’), a principal shareholder of the Company, on an original equipment manufacturing basis.

The Company’s current manufacturing operations are conducted at its plant based in the northern part of Taiwan. The production plant, located in Hsin-Chu Industrial Park, Hsin-Chu County, has two production lines geared for 3.5th generation and 4th generation colour filter production. The 3.5th generation production line has the capacity to produce approximately 65,000 sheets of glass substrate (620 mm x 750 mm or 550 mm x 650 mm) per month with average yield of 88 per cent. and the 4th generation production line has the capacity to produce approximately 75,000 sheets of glass substrate (680 mm x 880 mm or 730 mm x 920 mm) per month with average yield of 92 per cent. The primary production facility of South Sintek Photronic Corp., the Company’s subsidiary, is in the Tainan Science-based Industrial Park, which is located in the southern part of Taiwan. The plant is equipped with one 5th generation production line which is expected to begin mass production in 2004.

For the year ended 31 December, 2002, the Company had total net sales of NT$3.3 billion (U.S.$96.9 million). For the year ended 31 December, 2003, the Company had total net sales of NT$6.9 billion (U.S.$203.4 million). Total net sales for the year ended 31 December, 2003 represented a 86.5 per cent. increase over total net sales for the year ended 31 December, 2002.

The Company is incorporated as a company limited by shares in Taiwan, and its common shares have been listed on the TSE since September, 2002. As of 29 March, 2004, the Company had a market capitalisation of approximately NT$17 billion (U.S.$501.6 million). The registered office of the Company is located at No. 2-1, Wenhua Rd., Hsin-Chu Industrial Park, Hukou Shiang, Hsin-Chu County, Taiwan, ROC.

Summary of the Offering

The following is only a summary and is qualified in its entirety by reference to the ‘‘Terms and Conditions of the Bonds’’. Capitalised terms shall, unless the context otherwise requires, have the meaning ascribed thereto in the ‘‘Terms and Conditions of the Bonds’’.

Issuer . . . . . . . . . . . . . .	SINTEK PHOTRONIC CORP.
Issue of Firm Bonds . . . .	U.S.$100,000,000 Zero Coupon Convertible Bonds due 2009. The Bonds are
	offered and sold to non-U.S. persons outside the United States in reliance on
	Regulation S under the Securities Act.
Issue of Optional Bonds . .	The Company has granted to the Joint Lead Managers an option, exercisable
	in whole or in part and on one or more occasions at any time from the date of
	this Offering Circular to and including the date falling 30 days after the date
	of this Offering Circular to purchase up to a further U.S.$20,000,000
	aggregate principal amount of the Bonds (the ‘‘Optional Bonds’’). If issued,
	the Optional Bonds will be offered and sold to non-U.S. persons outside the
	United States in reliance on Regulation S under the Securities Act.
Issue Price . . . . . . . . . . .	100 per cent. of the principal amount.
Closing Date . . . . . . . . .	6 April, 2004 (the ‘‘Closing Date’’).
Maturity Date . . . . . . . . .	6 April, 2009.
Status . . . . . . . . . . . . . .	The Bonds constitute direct, unconditional, unsubordinated and unsecured
	obligations of the Company and will rank pari passu without any preference
	or priority among themselves and shall at all times rank at least equally with
	all other present and future direct, unconditional, unsubordinated and
	unsecured obligations of the Company, except as may be preferred by
	mandatory provisions of law.
Interest . . . . . . . . . . . . .	No interest will be payable on the Bonds, except in certain circumstances
	where an event of default has occurred. See ‘‘Terms and Conditions of the
	Bonds — Events of Default’’.
Withholding Tax . . . . . . .	Premium and interest (if any) payable on the Bonds to non-residents of the
	ROC is subject to a withholding tax in the ROC equal to 20 per cent. of the
	gross amount of such premium and interest (if any). The Company will gross
	up such amounts as will result in the receipt by the Bondholders of the net
	amounts after such withholding or deduction equal to the amounts which
	would otherwise have been receivable by them had no such withholding or
	deduction been required.
Conversion . . . . . . . . . . .	Subject to prior redemption and subject as otherwise provided herein, the
	Bonds are convertible at any time on or after 6 May, 2004 and prior to the
	close of business (at the place at which the Bond is deposited for conversion)
	on 7 March, 2009, except during any Closed Period (as defined herein), into
	Shares at a conversion price per Share (subject to adjustment) (the
	‘‘Conversion Price’’) of NT$28.66, determined on the basis of a fixed
	exchange rate of NT$33.195 = U.S.$1.00 (the ‘‘Fixed Exchange Rate’’). For
	a fuller description, see ‘‘Terms and Conditions of the Bonds —
	Conversion’’.

Conversion Price Reset . .	In addition to any downward adjustments for anti-dilution protection as
	referred to under Condition 6(C) of the Bonds, the Conversion Price will be
	adjusted on 6 October, 2004, 6 October, 2005, 6 October, 2006, 6 October,
	2007 and 6 October, 2008 (each a ‘‘Reset Date’’), in the event that the
	average of the Closing Price (as defined herein) for the 5 consecutive
	Trading Days (as defined herein) immediately preceding each Reset Date
	translated into U.S. dollars based on the then Prevailing Rate (as defined
	herein) is less than the Conversion Price, translated into U.S. dollars based
	on the Fixed Exchange Rate; provided that any adjustment to the Conversion
	Price pursuant to this mechanism shall be limited to the extent that the
	adjusted Conversion Price shall not be less than 80 per cent. of the initial
	Conversion Price, as adjusted to reflect any adjustments pursuant to
	Condition 6(C) of the Bonds. See ‘‘Terms and Conditions of the Bonds —
	Conversion — Conversion Price Reset’’.
Negative Pledge . . . . . . .	The Company will not create or permit to subsist security for the benefit of
	holders of any International Investment Securities (as defined hereafter) or
	for any guarantee thereof without granting equivalent security in respect of
	the Bonds. See ‘‘Terms and Conditions of the Bonds — Negative Pledge’’.
Final Redemption . . . . . .	Unless previously redeemed, converted or purchased and cancelled in the
	circumstances referred to in ‘‘Terms and Conditions of the Bonds’’, the
	Bonds will be redeemed at 100 per cent. of their principal amount in U.S.
	dollars on 6 April, 2009. See ‘‘Terms and Conditions of the Bonds —
	Redemption, Purchase and Cancellation — Redemption at Maturity’’.
Redemption at the Option of
the Company . . . . . . . .	The Company may, upon not less than 30 nor more than 60 days’ notice to
	the holders of the Bonds, at its option:
	(i) redeem all, or a portion of, the Bonds at 100 per cent. of their principal
	amount at any time after 6 April, 2005, if the Closing Price of the
	Shares on the TSE (translated into U.S. dollars at the Prevailing Rate),
	for a period of 20 consecutive Trading Days, the last of which occurs
	not more than ten days prior to the date upon which notice of such
	redemption is published, is at least 130 per cent. of the Conversion
	Price of the Bonds then in effect (translated into U.S. dollars at the
	Fixed Exchange Rate on each such Trading Day); or
	(ii) redeem all, but not less than all, the Bonds at 100 per cent. of their
	principal amount at any time, if not less than 90 per cent. in principal
	amount of the Bonds have already be redeemed, converted, or
	purchased and cancelled.
	See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and
	Cancellation — Redemption at the Option of the Company’’.
Redemption at the Option of
the Bondholders. . . . . .	The Company will, at the option of the Bondholders, redeem all, or a portion
	of, such Bondholders’ Bonds on 6 April, 2006 and 6 April, 2007 (each a
	‘‘Put Date’’) at 100 per cent. of their principal amount. See ‘‘Terms and
	Conditions of the Bonds — Redemption, Purchase and Cancellation —
	Redemption at the Option of the Bondholders’’.
Delisting Put Right . . . . .	A Bondholder shall have the right, at such Bondholder’s option, to require
	the Company to purchase all, but not less than all, of such Bondholder’s
	Bonds at 100 per cent. of their principal amount, in the event that the Shares
	cease to be listed or admitted to trading on the TSE for a period of not less
	than five consecutive Trading Days (as defined below).

Tax Redemption . . . . . . . The Company may at any time redeem all, but not less than all, the Bonds at 100 per cent. of their principal amount in the event of certain changes in ROC taxation which would result in additional costs to the Company. See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation — Redemption for Taxation Reasons’’.

Form and Registration of the Bonds . . . . . . . . . . The Bonds will be issued in registered form in the denomination of U.S.$1,000 and integral multiples thereof and will be offered, sold and transferable in principal amounts of U.S.$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. Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg. Except as described herein, Definitive Certificates for the Bonds will not be issued in exchange for beneficial interests in the Global Certificate.

Lock-up Undertakings . . . The Company has agreed in the Subscription Agreement that, except as described below, neither it nor any person acting on its behalf will issue, offer, sell, contract to sell or otherwise dispose of any interest in any Shares or securities of the same class as the Bonds or Shares or any securities convertible into, exchangeable for or which carry rights to subscribe or purchase the Bonds, Shares or securities of the same class as the Bonds, Shares or other instruments representing interests in the Bonds, Shares or other securities of the same class as them, in any such case without the prior written consent of the Joint Lead Managers between the date thereof and the date which is 90 days after the Closing Date (both dates inclusive).

The foregoing lock-up provisions shall not be applied to (i) the issue and sale of the Bonds, (ii) the issuance by the Company of any Shares upon conversion of the Bonds, (iii) the issuance by the Company of such amount of Shares represented in the form of global depositary receipts or domestic rights issuances as shall be agreed in good faith between the Company and the Joint Lead Managers, (iv) the issuance by the Company of any Shares upon the exercise of options issued pursuant to any employee share option schemes of the Company or the issuance of further options under such schemes, (v) the distribution by the Company of dividends or employee dividends in the form of Shares, (vi) the issuance by the Company of any Shares upon conversion of the Euro-convertible bonds previously issued by the Company, or (vii) the issuance by the Company of Shares in connection with a merger and acquisition; provided, however, in the case of (vii) above, (a) the persons to whom Shares are issued by the Company will not sell, contract to sell or otherwise dispose of any interest in the Shares issued as a result of such merger and acquisitions between the date of the effective date of merger and acquisitions and the date which is 90 days after the Closing Date, and (b) the Joint Lead Managers shall be notified by five-day prior notice of these issuances.

In addition, Ho Tung Chemical Corp., Si-Chung Chang, Zortec Corporation and Paoze Investment Limited have agreed that none of them will offer, sell, contract to sell or otherwise dispose of any interest in any Shares or securities of the same class as the Shares or any securities convertible into, exchangeable for or which carry rights to purchase the Shares or other instruments representing interests in the Shares or other securities of the same class as them, or announce or otherwise make public an intention to do any of the foregoing, in any such case without the prior written consent of the Joint Lead Managers between the date hereof and the date which is 90 days after the Closing Date (both dates inclusive). Governing Law . . . . . . . . English law. Trustee . . . . . . . . . . . . . The Bank of New York, acting in such capacity through its London branch Listing. . . . . . . . . . . . . . No application has been made to list the Bonds on any stock exchange. The Shares are listed on the TSE and application will be made for the Shares issuable upon conversion of the Bonds to be listed on the TSE. Use of Proceeds . . . . . . . The net proceeds from the offering of the Bonds will be approximately U.S.$119,850,000. The net proceeds of issue of the Bonds will be used to procure machinery and equipment.

RISK FACTORS

Investing in the Bonds involves risks, and any potential investor and buyer of the Bonds should carefully consider the risks described below before making an investment decision. In addition, any potential investor or buyer should carefully consider all of the information contained in the Offering Circular, including financial statements and related notes. Any potential investor or buyer should note that the Company is governed in the ROC by a legal and regulatory environment which in some respects may be different from that prevailing in other countries.

Risks Relating to the Company and its Business

High dependence on the performance of Taiwanese TFT-LCD manufacturers and the TFT-LCD market

Currently, all of the colour filters manufactured by the Company are sold either directly or indirectly through other colour filter vendors to Taiwanese TFT-LCD manufacturers for IT products and the Company’s business is highly dependent upon the future development of the TFT-LCD market in Taiwan. The TFT-LCD market in Taiwan has emerged from price volatility in 2003 to experience increased demand since the third quarter of 2003 as a result of wider application of TFT-LCD technology in other consumer goods such as television panels, mobile phones and digital cameras. The TFT-LCD market in Taiwan and hence the Company’s business is therefore dependent on the state of the various ultimate end markets. There is no assurance that the Company can remain competitive.

High reliance on technology transferred from DNP

The Company has entered into a technology transfer agreement with DNP whereby DNP has granted to the Company the right to use its 3.5th, 4th and 5th generation colour filter production technologies. DNP has over eight per cent. equity interest in the Company and has 13.8 per cent. equity interest in South Sintek Photronic Corp. (‘‘South Sintek’’), the Company’s subsidiary. In the event that the Company fails to obtain licenses for further use of advanced technologies from DNP on satisfactory terms, the Company may be required to outsource the technology from other colour filter makers or develop such technologies internally. The Company cannot guarantee that they could successfully outsource such technology or that it is able to successfully develop the required technologies internally. Any failure to do so could materially and adversely affect the prospects of the Company.

Limited operating history

The Company was established in December, 1999 as a professional independent colour filters manufacturer. The Company was a company under development stage between December, 1999 and December, 2001. The Company introduced various new products and technologies during its development, and as a result, recorded an operating loss in 2000 and 2001, a loss before income tax in 2001 and a net income in 2001, 2002 and 2003. In addition, the Company has only a limited operating history with which the Bondholders can evaluate its business and prospects. As a result of its limited operating history, the Company’s business strategy is unproven and it cannot be certain that the Company will be able to successfully expand its operations, ramp up its new 5th generation facilities and technologies or enter into the market for new products.

Highly competitive market for colour filters

The Company competes with a number of foreign and domestic colour filter manufacturers. Many of these manufacturers are increasing production by investing in a newer generation of colour filter production lines. In addition, the Company faces potential competition from the manufacturing operations of its current and prospective customers, which continually evaluate the merits of manufacturing colour filters internally. See ‘‘Business of the Company — Competition’’. There is no assurance that the Company will be able to compete successfully with its competitors, which could result in an adverse effect on the financial condition and results of operations of the Company.

Potential downward pressure on margins

The highly competitive environment of the TFT-LCD industry may put pressure on the Company’s prices and margins. Selling prices for colour filters fell in the first half of 2003 as a result of competition in the market. Although demand for colour filters increased substantially in the third quarter causing selling prices to gradually increase, the gross margin for 2003 is lower compared to 2002. Other factors which may affect the Company’s gross margins include fluctuation of foreign exchange rates, reductions in average sale price of the colour filters during their life cycles, fluctuation in the supply of and demand for principal components and raw materials, and the Company’s ability to reduce unit manufacturing costs. The Company’s gross margins may be subject to downward pressure as a result of the factors mentioned above, which could have a material and adverse effect on the Company’s results of operations and prospects.

The commencement of the Company’s new production facilities may be delayed

The construction and commencement of commercial operation of the Company’s new production facilities may be delayed due to events beyond its control, including:

a major design and/or construction change caused by changes to the initial building space utilisation plan or equipment layout;
shortages or late delivery of building materials and equipment;
shortages or late delivery of production line machinery;
a shortage of construction workers;
strikes and labour disputes;
on-site construction problems such as industrial accidents, fires and structural collapse;
delays in securing the necessary governmental approvals; and

delays in the achievement of full commercial operations following the construction of the plant.

If the Company experiences delays or other constraints in the expansion or construction of its new production facilities, planned increase in its capacity could be delayed and its results of operations could be negatively affected.

Highly dependent on access to key components

The Company relies on external suppliers to provide raw materials and the key components for the production of its colour filters. The Company’s top three suppliers accounted for 64.4 per cent. of the Company’s total purchases of raw materials for the year ended 31 December, 2003. There is no assurance that the Company can obtain sufficient supplies of raw materials and key components from its suppliers on satisfactory terms. In addition, the Company could face fluctuations in supply and pricing of raw materials and key components. There can be no assurance that the Company will not experience any shortages of raw materials and key components in the future. A shortage in the supply of any of these raw materials and key components could result in an increase in the prices of such raw materials and key components; and could cause disruption to the Company’s production, which could in turn, adversely affect the Company’s margins and ability to meet its production timeline.

Highly dependent on key customers for a substantial portion of the Company’s net sales

The Company’s top three customers accounted for 87.9 per cent. of the Company’s total net sales for the year ended 31 December, 2003. The Company’s key customers operate in competitive businesses and the Company cannot offer assurance that these key customers will continue to place orders in the future at similar levels or at all. The loss of one or more of such key customers, or a reduction in orders from such key customers, could materially and adversely affect the Company’s sales.

No long-term supply contracts with its customers and possible cancellation, reduction or postponement of customers’ orders

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

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

Possible inability to develop new products or keep pace with technological change

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

Risk of delivery delays or material product defects which will harm the Company’s results of operations and corporate reputation

The Company’s manufacturing process for its products is complex and involves a number of precise steps. In order to improve efficiency and reduce product defects and unit manufacturing costs, the Company continuously updates the manufacturing process for its colour filters. There is a risk that delivery delays and/or reduced output would be caused by production defects from time to time. Defective production can result from a number of factors including:

the cleanliness of the manufacturing environment;

human error;
equipment malfunction;
use of defective components and parts; and
inadequate testing.

From time to time, the Company has experienced lower than anticipated production yields as a result of these factors, particularly in connection with the expansion of its capacity or changes in its processing methods. The Company’s yield on new products is often lower as time is required for it to develop expertise and experience in producing these products. Although the Company has not experienced any significant manufacturing difficulties in the past, there can be no assurance that the Company will not experience manufacturing difficulties in achieving acceptable output or product delivery delays as a result of capacity constraints, construction delays, difficulties in upgrading or expanding existing facilities and in changing its manufacturing lines or delays in delivery of equipment or products to customers. Any of these events could

result in a loss of future revenues for the Company. Accordingly, if the Company fails to maintain highquality production standards and yields, its reputation and profitability may suffer and the Company’s customers may cancel their orders or return products.

Possible inability to manage growth effectively

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

Intellectual property and litigation

The Company’s success will depend, in part, on its ability to protect its proprietary rights and to operate without infringing on the proprietary rights of third parties. The infringement of other’s intellectual property could hinder or prevent the manufacturing, sales and marketing of the Company’s products or require the Company to obtain licenses to such technology, which may not be available on commercially reasonable terms. The Company could also incur substantial costs to redesign its products or to defend any legal action taken against the Company. Furthermore, the Company could be enjoined from further infringement and be required to pay damages to the infringed party.

As of 13 February, 2004, the Company held eight patents registered and had 14 patent applications pending in the ROC. There can be no assurance that any of the Company’s current or future patent applications will result in issued patents, that the scope of the claims in any patents currently held by, or which will be issued to, the Company will prevent competitors from introducing competitive products or that any patents currently held by, or which will be issued to, the Company would be enforceable if challenged. In addition, other parties may hold or receive patents that contain claims covering other technology included in the Company’s current or future products that could hinder or prevent the sale of the Company’s products or require the Company to obtain licenses for such technology, which might not be available on acceptable terms or at all.

Foreign currency exchange rate fluctuations

Currently, the majority of the Company’s payments in royalties to its licensors and for raw materials and equipment procurement are denominated in Japanese Yen. In the year ended 31 December, 2003, payments in Japanese Yen accounted for approximately 65 per cent. of the Company’s net payments. In addition, approximately 93 per cent. of the Company’s revenue, primarily associated with the purchase of components (including finished products) and raw materials were paid for in U.S. dollars and Japanese Yen with 7 per cent. being paid for in NT dollars. Accordingly, the Company is exposed to movements in the exchange rates between the U.S. dollar on the one hand, and NT dollar and Japanese Yen on the other hand. In addition, these fluctuations could result in foreign exchange losses and increased costs. Despite hedging transactions that the Company engages in which are to hedge against such currency fluctuations, the impact of future currency rate fluctuations in these currencies on the Company’s financial condition and results of operations cannot be accurately predicted. There can be no assurance that the Company’s attempts to mitigate the adverse effects of exchange rate fluctuations will be successful or that such exchange rate fluctuations will not in future have a material and adverse effect on the financial condition, results of operations and future prospects of the Company.

Reliance on key personnel

The Company’s success depends upon, among other factors, the continued service of the Company’s key senior executives, research and development, engineering, marketing, sales, manufacturing, support and other key personnel in the Company, as well as the Company’s ability to continue to attract, retain and motivate highly qualified personnel, and engineers. The process of hiring employees with the combination of skills and attributes required to implement the Company’s strategy can be extremely competitive and time-consuming. The loss of the services of any of these key personnel without adequate replacement, or the Company’s inability to attract additional qualified personnel, could have a material and adverse effect on the Company’s results of operations.

Risk of violation of environmental regulations

The operations of the Company are subject to a variety of laws and regulations in relation to the use, storage, discharge and disposal of chemical by-products of, and water used in, the Company’s manufacturing processes. Except as disclosed in the section ‘‘Business of the Company — Environmental Protection’’, the Company has not suffered any environmental claims. Environmental claims or the failure to comply with any present or future regulations could result in the imposition of fines against the Company, suspension of production or a cessation of operations. In addition, new regulations in the future could require the Company to acquire costly equipment or to incur other significant expenses.

The Company may not be able to meet all of its financial covenants to lenders

Certain of the Company’s debt obligations require that the Company comply with financial and other covenants on an annual and semi-annual basis, including covenants relating to current ratios, interest coverage ratios, debt-to-equity ratios and tangible net worth. Under the terms of certain of such debt obligations, the breach of one or more financial covenants could expose the Company to additional interest charges and its debt under these debt obligations may be accelerated. There can be no assurance that the Company will not breach such financial and other covenants in the future, nor if such breaches do occur, can there be any assurance that the Company will be able to obtain waivers or amendments to these debt obligations with respect to any such breaches on satisfactory terms or at all. In such circumstances, the Company may experience significant liquidity problems, be unable to fulfill all its repayment obligations and/or breach the terms and conditions of the Bonds (see ‘‘Terms and Conditions of the Bonds — Events of Default’’). In addition, to the extent that payment of any such defaulted debt obligations are secured by the Company’s undertaking, property, assets, revenues, plants or equipment, the acceleration of such debt obligations could result in a foreclosure on such undertaking, property, assets, revenues, plants or equipment and distribution of the proceeds of sale or liquidation thereof in repayment of such debt obligations and in order of priority ranking prior to repayment of the Bonds.

A fire, earthquake or other natural calamity at any of the facilities of the Company may occur

The Company conducts all of its operations at a single facility in the northern part of Taiwan while its subsidiary, South Sintek, has its production facility in the southern part of Taiwan. A fire, earthquake or other natural calamity resulting in significant damage at any of these facilities would have a material and adverse effect on the Company’s business, financial conditions and results of operations. For example, the Company has in the past experienced a fire damage in May, 2001. None of the Company’s operations were materially affected by the most recent major Taiwan earthquake on 31 March, 2002. However, in recent years, severe constraints have been placed on the water and electricity supply in the northern Taiwan region. Any shortages of water or electricity could have a material and adverse effect on the Company’s operations. Also, the Company’s colour filter production facilities, as well as many of the Company’s customers are located in Taiwan. If the Company’s customer are affected by an earthquake or other natural disasters, it could result in a decline in the demand for the products. The Company maintains insurance policies covering losses to its buildings, machinery and equipment, including losses due to fire and explosion. While the Company considers its insurance coverage to be consistent with industry practice, there can be no guarantee that it will be sufficient to cover all of the Company’s potential losses. Any losses beyond the losses covered by the insurance policies could strain the Company’s financial resources and may adversely affect its financial condition.

Other factors affecting the Company’s operating results

The other factors that may contribute to fluctuations in the Company’s results of operations include:

the timing of the Company’s expenditures in anticipation of future orders;
changes in the cost and availability of labour and components;
changes in economic conditions; and
local factors and events that may affect the Company’s production volume, such as local holidays.

Risks Relating to the Bonds and the Shares

Limitation on the investors’ ability to exercise conversion rights

The Bondholders’ ability to exercise their conversion rights may be limited. The Bonds are convertible into Shares at the option of the converting Bondholders pursuant to the Terms and Conditions of the Bonds. Purchasers of the Bonds will not be able to exercise their conversion rights during the Closed Periods. In addition, under current ROC law, regulations and policy, PRC persons are not permitted to hold or convert the Bonds or to register as shareholders of the Company. See ‘‘Terms and Conditions of the Bonds — Conversion’’.

Liquid market for the Bonds may not develop and the market for the Company’s Shares may not be liquid

A liquid market for the Bonds and Shares may not develop. The Bonds will not be listed on any stock exchange. The trading market for the Shares is the TSE on which the Shares were listed on 27 September, 2002. There can be no assurance that a liquid trading market for the Bonds will develop or that a liquid market for the Shares exists or will continue to exist.

In addition, the Joint Lead Managers, or their affiliates may purchase the Bonds for their 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. Furthermore, the Joint Lead Managers may make a market with respect to the Bonds, but are not obligated to do so, and any market-making with respect to the Bonds may be discontinued at any time without notice.

Transfers of the Bonds and Shares are restricted

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

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

While the Company is not aware of any plans by any major shareholders to dispose of a significant amount of the Shares, there can be no assurance that one or more of the Company’s shareholders will not dispose of the Shares in the future. The Company also cannot predict the effect, if any, that future sales of the Shares, or the availability of the Shares for future sale, will have on the market price of the Shares prevailing from time to time. Sales of substantial amounts of the Shares in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the Shares.

The imposition of foreign exchange restrictions may have an adverse effect on foreign investors’ ability to acquire ROC securities, including the Company’s securities, or repatriate the interest, dividends or sale proceeds from those securities

The ROC government may impose foreign exchange restrictions in certain situations, including situations where there are sudden fluctuations in interest rates or exchange rates, where the ROC government experiences difficulty in stabilising the balance of payments or where there are disturbances in the financial and capital markets in Taiwan. These restrictions may require foreign investors to obtain the ROC government’s approval before acquiring ROC securities or repatriating the interest or dividends from those securities or the proceeds from the sale of those securities. No assurances can be given that these restrictions will not adversely affect, among other things, the secondary market price of the Bonds and Shares.

Upon conversion of the Bonds, the investors must satisfy certain requirements in Taiwan, including registration with the TSE and appointing a tax guarantor, a local agent and a custodian, before investors can exercise their conversion rights and receive shares

When a non-ROC holder exercises its conversion rights to receive the Shares and register as a shareholder of the Company, such holders will be required to register with the TSE and, if applicable, to obtain approval from the Central Bank of China (if such holder is an offshore foreign institutional investor). Any such non-ROC holder will also be required to appoint an agent (the ‘‘Tax Guarantor’’) in Taiwan for filing tax returns and making tax payments. Such Tax Guarantor will be required to meet the qualifications set by the ROC Ministry of Finance (the ‘‘ROC MOF’’) and to act as the guarantor of such converting holder’s tax payment obligations. Evidence of appointment of a Tax Guarantor and the approval of such appointment is required as a condition to withdrawing such holder’s profits derived from the sale of Shares. There can be no assurance that such holders will be able to appoint and obtain approval for a Tax Guarantor in a timely manner.

In addition, under current ROC law, such converting or withdrawing holder is required to appoint a local agent (with such qualifications as required by the ROC Securities and Futures Commission (‘‘SFC’’)) in the ROC to, among other things, open a securities trading account with a local securities brokerage firm and a NT dollars bank account, remit funds and exercise a shareholder’s rights and perform such other matters as may be designated by such converting Bondholder. Further, such converting or withdrawing holder must appoint a local bank to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without satisfying these requirements, converting holders would not be able to hold or otherwise transfer the Shares on the TSE.

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

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

The Company is a ROC company and because the rights of shareholders under ROC law differ from those under the laws of some other jurisdictions, upon conversion of the Bonds into Shares, investors may have more difficulties protecting their shareholder rights than shareholders in some other jurisdictions.

The corporate affairs of the Company are governed by the Articles of Incorporation and by the laws governing corporations incorporated in the ROC. The rights of shareholders and the responsibilities of management and the members of the board of directors under ROC law are different from those applicable to a corporation incorporated in some other jurisdiction. Directors of ROC companies are required to conduct business faithfully and to act with the care of a good administrator. However, such duty of care as required of ROC companies’ directors may not be the same as the fiduciary duty of directors of non-ROC companies. Therefore, public shareholders of ROC companies may have more difficulty in protecting their interest in connection with actions taken by management or members of the board of directors than they would as public shareholders in some other jurisdictions.

Risks Relating to doing business in the ROC

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 and other countries. The TSE has experienced substantial fluctuations in prices and volume of sales of listed securities and there are currently limits on the range of daily price

movements on the TSE. The Taiwan Stock Exchange Weighted Stock Index (the ‘‘TSE Index’’) peaked at 12,495.34 in February, 1990 and subsequently fell to a low of 2,560.47 in October, 1990. For the year 2003, the TSE Index peaked at 6,142.32 in November 2003 and reached a low of 4,139.50 in April, 2003. The daily closing values of the Shares, which are listed on the TSE, ranged from NT$16 per Share to NT$26.5 per Share over the same period. The TSE has in the past experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems and restrictions on price movements could adversely affect the market price and liquidity of the securities of ROC companies, including the Shares, in both the domestic and the international markets.

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

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

In particular, the distribution of employees bonus shares in the ROC is treated as an allocation from retained earnings when the distribution of employees bonus shares is approved by the shareholders and the relevant regulatory authorities, and the Company is not required to, and does not, charge the value of the employees bonus shares as expense. Under U.S. GAAP, however, the Company would be required to initially accrue the bonuses as compensation costs when services are rendered. When bonuses are approved by shareholders in the subsequent year, an additional compensation cost would be recorded for the difference between the par value and the fair market value/intrinsic value of the shares granted to employees. Correspondingly, the Company’s net income and income per share calculated in accordance with U.S. GAAP would be reduced. This difference in treatment between ROC GAAP and U.S. GAAP may be material.

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

Forecasted financial information reported by the Company pursuant to SFC requirements may not be reliable

As a listed company newly approved by TSE, the Company is required by the SFC to report the financial forecasts each year until 2005.

To the extent that there is any significant variance between the Company’s actual results in any period and the forecasts for the corresponding period included in the annual forecast it has already published, the Company is required to revise out forecasts and publish the revised forecasts as soon as practicable.

The Company urges the Bondholders not to rely on these forecasts as they are derived from assumptions regarding the industries, investments and general market, political and economic conditions, many of which are beyond the Company’s control. In addition, the Company advises the Bondholders that none of the information included in this Offering Circular has formed or will form the basis of its future forecasts. The Company does not expect to update the Bondholders on any possible difference presented in its forecasts that it published before and plans to publish in the future, from the information included in this Offering Circular, including forward-looking statements.

The political status and international relations of the ROC may affect the Company and the Bonds

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

The ROC has a unique international political status. The PRC asserts sovereignty over mainland China and Taiwan and does not recognise the legitimacy of the ROC government. The ROC government resists sovereignty of the PRC and holds the ROC as a state with full sovereign power equal to the PRC’s. Although significant economic and cultural relations have been established in recent years between the ROC and the PRC, the government in the PRC has indicated that it may use military force to gain control over Taiwan in certain circumstances, such as the declaration of independence by Taiwan. 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 TSE Index and the ROC GreTai Securities Market Index. Relations between the ROC and the PRC and aspects of the ROC’s political environment could negatively affect the Company’s business and the market price of the Shares. The adverse economic conditions in Taiwan may affect the Company and the prices of its Shares and the Bonds.

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

Any future outbreak of severe acute respiratory syndrome (‘‘SARS’’) may adversely affect the Company’s results of operations

From March, 2003 to June, 2003, the PRC, Hong Kong, Taiwan, Singapore, Vietnam and certain other Asian countries encountered an outbreak of SARS, a highly contagious form of atypical pneumonia. In response to the severity of the SARS outbreak, the World Health Organisation issued a travel advisory recommending that persons travelling to certain affected areas consider postponing all but essential travel. In addition, most major airlines drastically reduced the number of flights to and from these countries. Although the World Health Organisation has removed its travel advisory against non-essential travel to the PRC, Hong Kong and Taiwan and has removed all countries from the list of areas affected by SARS, there is no assurance that there will not be a recurrence of SARS in any of these countries, including Taiwan. While the long-term impact of the SARS outbreak is unclear at this time, the perception that the SARS outbreak may recur in the future may have an adverse effect on the economic conditions of certain countries in Asia. In December, 2003, a new case of SARS was confirmed in Taiwan and in January and February, 2004 several new cases of SARS were confirmed in Guangdong, the PRC. There can be no assurance that a SARS outbreak will not reoccur in Taiwan or elsewhere in the world. The production operations of the Company, its suppliers or customers may be seriously interrupted due to any future SARS outbreak or the measures taken by the government of Taiwan, Hong Kong, the PRC or other countries against SARS, which would have a material and adverse affect on the Company’s results of operations.

USE OF PROCEEDS

The net proceeds of the issue of the Bonds will be approximately U.S.$119,850,000 and will be used to procure machinery and equipment.

CAPITALISATION

The following table sets forth the consolidated short-term debt and capitalisation of the Company as of 31 December, 2003 and as adjusted to reflect the effect of the issuance of the Bonds. The following table shall be read in conjunction with the Company’s audited financial statements, including the notices to those statements, included elsewhere in this Offering Circular which were prepared in accordance with ROC GAAP and which may differ in material respects from U.S. GAAP or the generally accepted accounting principles of certain other countries. See ‘‘Summary of Principal Differences between ROC GAAP and U.S. GAAP’’:

As of 31 December, 2003	As of 31 December, 2003	As of 31 December, 2003
Actual As adjusted for this offering(1) (in thousands) NT$ U.S.$(2) NT$ U.S.$(2) 3,142,869 92,519 3,142,869 92,519 7,294,535 214,734 7,294,535 214,734 908,181 26,735 4,984,581 146,735 8,202,716 241,469 12,279,116 361,469 6,129,333 180,434 6,129,333 180,434 1,736,329 51,114 1,736,329 51,114 120,750 3,555 120,750 3,555 1,123,391 33,070 1,123,391 33,070 1,351,130 39,774 1,351,130 39,774 10,460,933 307,947 10,460,933 307,947 18,663,649 549,416 22,740,049 669,416	As adjusted for this offering(1)
NT$ 3,142,869 7,294,535 908,181 8,202,716 6,129,333 1,736,329 120,750 1,123,391 1,351,130 10,460,933 18,663,649		U.S.$(2) 92,519
		214,734 146,735
		361,469
		180,434 51,114 3,555 33,070 39,774
		307,947
		669,416

(1) The as adjusted basis gives effect to the issuance of the Bonds in the aggregate amount of U.S.$120,000,000.

(2) New Taiwan dollar amounts have been translated into U.S. dollars using the average spot exchange rate on 31 December, 2003 quoted by the Bank of Taiwan of NT$33.97 to U.S.$1.00 solely for the convenience of the reader.

(3) Total capitalisation includes long-term borrowing (excluding current portion of long-term loans) and cumulative total stockholders’ equity.

Except as disclosed above, there have been no material changes in the capitalisation of the Company since 31 December, 2003.

BUSINESS OF THE COMPANY

Introduction

Established in September, 1999, the Company is one of Taiwan’s largest and the world’s third largest independent colour filter manufacturer in terms of its production volume and capacity. The Company believes that it has the highest production yield rate among all domestic colour filter manufacturers. The Company consistently improved the production yield rate of its 3.5th generation production line from 77 per cent. in January, 2002 to 88 per cent. in December, 2003. The Company also improved the production yield rate of its 4th generation production line from 87 per cent. in January, 2003 to 92 per cent. in December, 2003. The Company currently supplies colour filters to TFT-LCD manufacturers and other colour filter vendors for the production of large-area TFT-LCD displays that are primarily used as monitors for desktop and notebook computers and screens for flat panel televisions.

The Company’s primary production facility is located in the Hsin-Chu Industrial Park, Hsin-Chu County, Taiwan, ROC, which is equipped with two production lines. One of the production lines is a 3.5th generation line, which is geared towards the production of 14-inch, 15-inch and 17-inch colour filters and has a monthly production capacity of approximately 65,000 substrate sheets with average yield of 88 per cent. The other production line is a 4th generation line which commenced production in September, 2002 and is geared towards the production of 15-inch colour filters and has a monthly production capacity of approximately 75,000 substrate sheets with average yield of 92 per cent. The Company’s 4th generation production line is convertible into a 4.5th generation production line for the manufacture of 17-inch colour filters.

Since May, 2000, the Company has formed a strategic alliance with DNP by a technology transfer arrangement under which DNP provides 3.5th, 4th and 5th generation colour filter production technologies to the Company. In return, DNP charges the Company a royalty and technology transfer fee.

In February, 2003, South Sintek was co-established by the Company and HannStar Display Corporation (‘‘HannStar’’). In August, 2003, the Company, HannStar and DNP entered into a restated shareholders’ agreement in respect of the ownership of South Sintek. In February, 2003, South Sintek assumed the rights of the Company under a technical know-how transfer agreement and a new technology transfer agreement with DNP under which DNP agreed to provide 5th generation colour filter production technology to South Sintek. As of 31 December, 2003, the Company, HannStar and DNP held 66.2 per cent., 20 per cent., and 13.8 per cent. interests in South Sintek respectively. The Company believes that this joint venture arrangement will enable it to lower its capital expenditure and further enhance its relationship with its largest customers and technology providers.

For the year ended 31 December, 2003, the Company achieved total net sales of approximately NT$6.9 billion (U.S.$203.4 million). Net sales derived from sales of colour filters were NT$6,390 million or 92.5 per cent. of total net sales on 6,836 thousands units of substrate sheets shipped. Net sales derived from other products such as liquid-crystal modules (‘‘LCMs’’) were NT$520 million or 7.5 per cent. of total net sales.

The Company’s common shares began trading on the TSE on 27 September, 2002. As of 29 March, 2004, the Company had a market capitalisation of approximately NT$17 billion (U.S.$501.6 million) based on the closing price of the Company’s Shares on that date at NT$27.7. The registered office of the Company is located at No. 2-1 Wenhua Road, Hsin-Chu Industrial Park, Hukou Shiang, Hsin-Chu County, Taiwan, ROC.

The principal business activities of the Company as provided under the Company’s Articles of Incorporation are as follows:

production of optical equipment;

production of electronic components;

the sale and distribution of mechanical equipment;

the sale and distribution of refined electronic equipment;

the sale and distribution of electronic raw materials;

the production of electronic raw materials;

international trade;
engineering for air conditioning; and

production of refined chemical products.

Industry Overview

The Company currently supplies colour filters to TFT-LCD manufacturers and other colour filter vendors for the production of large-area TFT-LCDs that are primarily used as monitors for desktop and notebook computers and screens for flat panel televisions. As a result, the Company’s business is not only dependent upon the health of the overall TFT-LCD display market but is also dependent on the state of the various ultimate end markets in computer monitors and television.

The flat panel display market is expected to grow steadily over the next few years. The statistics from DisplaySearch, an independent display market research and consulting firm, indicate that the flat panel display market produced revenues totalling U.S.$29.2 billion in 2002 and will grow at a compound annual growth rate of 22 per cent. to reach revenues of U.S.$80.5 billion in 2007. In addition, TFT-LCD monitors have also experienced an increasing popularity over the traditional cathode ray tube monitors. DisplaySearch estimates that TFT-LCD monitors, including LCD-PCs which are bundled with TFT-LCD panels, will increase their market penetration of 29 per cent. in 2002 to account for 80 per cent. of the global desktop monitor market in 2007 and that LCD-TV application will increase its market penetration of 1 per cent. in 2002 to account for 21 per cent. of the large-size TFT-LCD market in 2007.

Demand for notebook computers, with TFT-LCD as the dominant display technology, is expected to grow rapidly over the next several years. According to DisplaySearch, notebook computer panel demand is expected to grow at a compound annual growth rate of 20 per cent. from 29.4 million units in 2002 to approximately 74.6 million units in 2007. The driving force behind such growth is the replacement of desktop computers as wireless technology matures and power saving-technology evolves to meet the need for mobility in business.

The television market is viewed as the most promising application for TFT-LCD. The statistics from DisplaySearch indicate that the global production for LCD-TVs was comprised of approximately 1.4 million units in 2002 and is expected to grow at an annual compound growth rate of 96 per cent. to reach 37.4 million units in 2007. DisplaySearch estimates that LCD-TV will increase its market penetration from one per cent. in 2002 to 21 per cent. of the television market in 2007.

As the various displays end markets enjoy healthy growth and TFT-LCD becomes increasingly popular in display applications, demand for TFT-LCD products is expected to grow rapidly over the next few years. Statistics from DisplaySearch indicate that revenues of TFT-LCD will increase from U.S.$22.3 billion in 2002 to U.S.$61.8 billion in 2007, at a compound annual growth rate of 23 per cent. Accordingly, colour filters being an essential component of TFT-LCD products is similarly expected to share a similarly favourable growth rate.

Colour Filter Market

Colour filters are manufactured either by independent colour filter manufacturers such as the Company or by TFT-LCD manufacturers for in-house use. According to DisplaySearch, independent colour filter manufacturers accounted for approximately 55 per cent. of the total global TFT-LCD production in 2003 and is expected to maintain such share of capacity in 2004. Although Japanese producers continue to dominate the independent colour filter manufacturers, according to statistics, the capacity share of Japanese producers as a percentage of total independent colour filter production decreased from 73 per cent. in the first quarter of 2003 to 57 per cent. in the fourth quarter of 2003. Taiwanese producers on the other hand have increased their share of capacity from 26 per cent. in the first quarter of 2003 to 33 per cent. in the fourth quarter of 2003, and is expected to increase further to 35 per cent. in the second quarter of 2004.

In recent years, Taiwan has experienced tremendous growth in TFT-LCD panel production and started to rival Korea as a base for global TFT-LCD panel production. There are now five major TFT-LCD panel manufacturers in Taiwan, namely, AU Optronics Corporation (‘‘AU Optronics’’), Chi Mei Optoelectronics, Chung Hwa Picture Tube., Ltd., Quanta Display Inc. (‘‘Quanta’’) and Hannstar. Statistics from DisplaySearch indicate that Taiwanese manufacturers produced 37.8 per cent. of the worldwide largearea TFT-LCD panel production in 2003 and is expected to reach 42.2 per cent. in 2004. Taiwanese TFTLCD component manufacturers, including colour filter producers, have benefited from this development. As Taiwan TFT-LCD manufacturers seek to lower their component costs in order to compete in the highly competitive TFT-LCD market, they have increasingly become reliant on sourcing local high-quality components. As technology advances, the sourcing of local colour filters has become increasingly important due to the costliness and damage risks of shipping larger and fragile colour filters from overseas suppliers.

As a result of expansion by Taiwanese TFT-LCD manufacturers, the Taiwanese colour filter market has experienced parallel growth. According to DisplaySearch, global market share of colour filters produced in Taiwan increased from 9 per cent. in the first quarter of 2001 to 26 per cent. in the first quarter of 2003, and is expected to reach 36 per cent. by the second quarter of 2004. According to DisplaySearch, Taiwanese independent colour filter manufacturers are currently supplying only approximately 55 per cent. of the local colour filter demand, indicating significant room for growth. Increased demand for colour filters from Taiwanese independent colour filter manufacturers is expected to be generated in the next year as a result of foreign and domestic influences. In particular, Japanese independent colour filter manufacturers are currently shifting the focus of their production towards high-level colour filters for LCD-TVs, therefore significantly reducing their supply of colour filters to Taiwanese TFT-LCD manufacturers and causing domestic manufacturers of 3rd to 4.5th generation TFT-LCD to source their colour filters from independent colour filter manufacturers in Taiwan. Furthermore, Taiwanese colour filter manufacturers are also best positioned to capture the significant demand associated with the 5th generation production capacity ramp-up by TFT-LCD manufacturers in the next year.

As technology advances, TFT-LCD producers may find it difficult to dedicate their own resources to develop and produce new generation colour filters and therefore may increase joint-development and outsourcing of their colour filter requirements. Apart from the Company and HannStar’s joint-venture to coestablish South Sintek, other TFT-LCD manufacturers have announced plans to jointly develop 6th generation colour filters with local colour filter manufacturers. For instance, colour filter manufacturer, Allied Material Technology Corporation (‘‘AMTC’’), and TFT-LCD manufacturer, Quanta, have announced plans to jointly set up a 6th generation colour filter facility, and the Company’s customer, AU Optronics, has recently invested in colour filter manufacturer, Cando Corporation (‘‘Cando’’).

TFT-LCD manufacturers increasingly face pricing pressures as price competition is keen and the lowering of production costs becomes a primary focus. In order to maintain margins, colour filter manufacturers have been cutting their own costs by improving their production yields. In addition, they have also been developing better quality and higher value-added products to maintain a competitive edge. The Company believes that the colour filter market will experience steady and healthy growth over the next few years.

Business Strategy

The Company’s principal objective is to strengthen its leading position in Taiwan’s colour filter industry. The Company expects to continue to expand its business and operations through internal growth and possible strategic alliances and partnerships in order to enhance its technological and production capabilities, increase its production capacity through economies of scale to achieve cost competitiveness, and enhance management resources. In order to achieve these goals and enhance its competitive edge in the market, the Company plans to implement the following business strategies:

Establish partnerships with major TFT-LCD and colour filter manufacturers

Since the colour filters industry is highly dependent upon the demand of its downstream customers and the availability of advanced technologies, the Company has adopted a policy of strengthening relationships via strategic alliances or joint ventures with its major customers and technology partners. By doing so, the Company hopes to be better positioned to take advantage of such relationships by securing regular orders from its major customers and obtaining the technological support from its technology partners.

In December, 2000, HannStar invested in the Company by acquiring 3.1 per cent. of its Shares. Furthermore, in March, 2001, DNP invested in the Company by acquiring ten per cent. of its Shares. The Company expects to establish more of such partnerships with TFT-LCD and colour filter manufacturers for the development of its 5th and 6th generation colour filter production capabilities.

In February, 2003, South Sintek was co-established by the Company and HannStar. In August, 2003, the Company, HannStar and DNP entered into a restated shareholders’ agreement in respect of the ownership of South Sintek. In February, 2003, South Sintek assumed the rights of the Company under a technical know-how transfer agreement and a new technology license agreement with DNP under which DNP agreed to provide 5th generation colour filter production technology to South Sintek. As of 31 December, 2003, each of the Company, HannStar and DNP held 66.2 per cent., 20 per cent., and 13.8 per cent. equity interests in South Sintek respectively. The Company believes that this joint venture arrangement will allow it to secure future purchase orders from HannStar, lower its overall capital expenditure requirements and further enhance its relationship with DNP.

Continue to enhance product quality and emphasise low cost and efficient manufacturing

To capture the potential growth, one of the Company’s main strategic focuses is to improve its product quality and enhance its low cost and efficient manufacturing processes. The Company’s emphasis on production quality has been demonstrated by its high production yield for colour filter production.

Focus its research and development (‘‘R&D’’) efforts on developing new products and localise core technology

To cope with the downward pressure on average selling prices of its products, the Company will focus its R&D efforts on higher value-added products that have higher unit sales prices and higher profit margins, including larger sized colour filters (17-inch and above) for TFT-LCDs, photo spacers, in-plane switching (‘‘IPS’’), multi-domain vertical alignment (‘‘MVA’’) technologies and higher resolution, brightness, colour salutation colour filters for low temperature poly-silicon LCD and LCD TV. Furthermore, the Company seeks to enhance its in-house technology by localising core technologies such as those used for colour resist production.

Since July, 2003, the Company’s R&D department has been producing colour resist and by December, 2003, production output increased to provide up to 40 per cent. of the Company’s monthly resist consumption. With a pricing advantage of up to 50 per cent. less than outsourcing resist, the Company believes that producing resist in-house will strengthen the Company’s competitiveness in the colour filter manufacturing industry in Taiwan. With further research on resist key components, the Company’s R&D department plans to lower the production cost of resist further and to sell resist to other local colour filter makers in the near future.

Enhance customer-focused logistics and fulfilment network

Major TFT-LCD manufacturers have increasingly required their component and raw material suppliers to provide product fulfilment and logistics capabilities so that the suppliers can respond to market demands quickly and reduce their inventory risk. The Company offers its customers the ability to receive and service products in Taiwan on a just-in-time basis. For TFT-LCD customers, the Company continues to offer the production of colour filters on a built-to-order basis and deliver such products to locations designated by customers within approximately seven days from receiving an order. For some TFT-LCD customers, the Company intends to provide ‘‘virtual’’ in-house production by building plants near those of its customers.

Products of the Company

Colour filter is one of the most critical and expensive component of a TFT-LCD, accounting for approximately 24 per cent. of the total raw material cost of a TFT-LCD.

The raw material cost breakdown for a TFT-LCD are as follows:

Raw material costs of a TFT-LCD (%)

==> picture [367 x 195] intentionally omitted <==

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

Other
19%
Colour Filter Colour Filter 24%
24%
Polarizer 15%
Back Light 24%
Driver IC 4%
Moter Glass
LC 6%
8%
Moter Glass 8%
Other 19%
LC
6% Polarizer
15%
Driver IC
4%
Back Light
24%
----- End of picture text -----

Source: DisplaySearch

Colour filters are a device that generate colour for a TFT-LCD. Therefore, every TFT-LCD panel needs one colour filter. TFT-LCD is a multi-layered structure with liquid crystal filled between two glass plates. The TFT-LCD panel is made of a TFT-array substrate and a colour-filter substrate. Thin film transistors (‘‘TFT’’) are arranged in a matrix on a glass substrate and control each individual pixel, while colour filters generate colour.

The cross section of a TFT-LCD is as follows:

==> picture [359 x 181] intentionally omitted <==

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

Polarizer
Glass substrate
Drive IC
Colour Filter
Array
Light
Back light
----- End of picture text -----

The colour filter of a TFT-LCD consists of three primary colours — red (R), green (G), and blue (B) (together ‘‘RGB’’), which are included on the colour-filter substrate. The elements of a colour filter line up one-to-one with the unit pixels on the TFT-array substrate. Each pixel in a colour liquid-crystal display (‘‘LCD’’) is subdivided into three sub-pixels, where one set of RGB subpixels is equal to one pixel. Colour filters can be made with either dyes or pigments, utilising colouring methods such as dyeing, diffusion, electro-deposition, and printing. There are several fairly common colour-element configurations for LCDs. Stripe is the most prevalent method, followed by mosaic and delta.

Among the many combinations of configuration and types of colour filter fabrication methods, the colour-resist method with stripe-type RGB arrangement is currently the most prevalent for use in both flat panel monitors and notebooks. The common LCDs rely on pixels formed by twisted nematic liquid-crystal

that change the angle of light passing through them when an electrical current is charged. As the polarisation changes, varying amounts of light are able to pass through a polarising layer on the surface of the display. There are two primary methods to produce a liquid-crystal image with the pixels, namely, passive and active matrix driving methods.

The cross section of a colour filter (with photo spacer type) is as follows:

==> picture [310 x 130] intentionally omitted <==

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

Spacer (4~5 µ m)
Colour Resist (1.1~1.2 µ m) ITO Film (~0.15 µ m)
R G B R G B
Glass Substrate (0.7 mm)
----- End of picture text -----

Cr BM Film (~0.2 µ m)

The production flow of a colour filter (without photo spacer type) is as follows:

Glass substrate

==> picture [301 x 231] intentionally omitted <==

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

Black matrix formation
Colour resist (R) coatings
Colour resist (G) coatings
Colour resist (B) coatings
ITO sputter
Colour filters
----- End of picture text -----

The Company primarily engages in production of colour filters that are designed for large sized TFTLCD panels. The Company distributes a wide range of colour filters that varies in size and specifications. These filters are manufactured by the Company’s two production lines which are capable of manufacturing 14.1-inch colour filters for notebook computers and 15-inch and 17-inch colour filters for flat panel monitors.

Given that different customers have different colour filter needs, the Company has implemented a program that closely monitors the requirements and specifications of its customers to ensure that the colour filters developed would be exactly in line with their requirements. Since it takes approximately three to six

months from design to testing and certification by a customer, the Company will gain an intimate knowledge of its customers’ businesses and customers are not likely to switch its colour filter suppliers as it is costly and time consuming to switch and certify another colour filter supplier.

The following table sets out the breakdown of sales by product as a percentage of net sales for each of the periods indicated:

		Year ended 31 December,	Year ended 31 December,
2001	% — 8.0 13.9 42.2 3.3 32.6 100	2002	% — 1.2 36.4 48.9 9.7 3.8 100	2003
(in NT$’000) — 126,084 218,805 664,111 51,970 514,188 1,575,158		(in NT$’000) — 39,169 1,197,562 1,609,812 321,432 125,283 3,293,258		(in NT$’000) 9,782 110,104 3,444,233 2,826,363 148,884 370,908 6,910,274	% 0.1 1.6 49.8 40.9 2.2 5.4
					100

The following table sets out the unit sales of colour filters for each of the periods indicated:

Unit Sales Colour filters 12 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended 31 December,	Year ended 31 December,	Year ended 31 December,
	2001 — 130.9 183.7 400.3 5.0	2002 — 39.2 1,150.8 1,156.2 66.7	2003
			14.2 124.8 4,204.0 2,493.3 23.8

Unit: per 1,000 substrate panel

Sales and Marketing

Although the Company’s manufacturing facility is operating at close to maximum capacity and the current domestic demand for colour filters outpaces the domestic supply of colour filters, the Company continues to place efforts on sales and marketing of its products. The Company mainly focuses its sales and marketing efforts on its existing key customers. The Company has allocated an account manager for each of the top five customers in order to maintain a good working relationship with each of these customers in order to fully understand their specific needs and requirements. The account manager responsible for each customer works closely with its respective customer and other departments of the Company, including but not limited to the R&D and manufacturing departments, to ensure that the products are manufactured with the specific needs of the customer in mind. The Company believes that the close contact between the Company’s sales team and that of the Company’s customers serves to strengthen the Company’s relationships with its customers. With respect to attracting new customers, the Company mainly targets first-tier companies with whom it is not currently doing business. To aid in the process of securing purchase orders from new customers, in response to a request for a quotation, the Company will often set up a team dedicated to a specific potential customer.

The Company conducts market research through its in-house customer service personnel. The Company also provides information in the area of production process technology to its major customers who are planning the launch of new products. The Company makes available to each of its major customers its customer relations management (‘‘CRM’’) system to maintain an ongoing interactive channel of

communication between the customer and the Company. The CRM system is an internal information system interfaced with the database of the customer, through which the customer can monitor each stage of the progress of products from design to shipping. The CRM system includes many protocols such as forecast, order, order confirmation, change of order, order change confirmation and shipment forecast. The Company believes its CRM system provides a convenient way for customers to interact with the Company and is an important element in achieving customer satisfaction.

The Company enters into arrangements with its key customers whereby, for planning purposes, such customers would supply the Company with non-binding rolling forecasts, which form the basis of purchase orders at a later point in time. The Company generally bills its customers on delivery of goods with a credit term ranging from 60 to 150 days. With respect to after-sale support, the Company has maintained a customer service department and a quality assurance department to service colour filters sold by the Company. Customer queries and complaints are usually discussed at the weekly customer support meeting, and questioned products subject to complaints are immediately relayed to the quality assurance department for testing and the determination of any defects.

Raw Materials and Components

The key raw materials or components for colour filters are glass substrate, colour resist, target, and chemical materials. For example, the glass substrate, colour resist and target (including Indium Tin Oxide (‘‘ITO’’) target and Chromium (‘‘Cr’’) target) utilised on 15-inch and 17 inch colour filters account for approximately 55 per cent., 17 to 21 per cent. and 8 to 12 per cent. of the material cost of the colour filter respectively, while material cost accounts for approximately 42 per cent. to 52 per cent. of the total cost for the colour filters. The Company acquires glass substrate from a number of reliable international suppliers such as Corning Display Technologies Taiwan. The Company believes that there are a sufficient number of vendors for most of its raw materials and components. The Company aggressively seeks alternative sources of raw materials and maintains a good relationship with its current suppliers. The Company’s order lead times and cancellation requirements vary by supplier and raw material.

The Company’s top three suppliers accounted for 64.4 per cent. of the Company’s total purchase of raw materials for the year ended 31 December, 2003.

The Company has not experienced any shortage of components and raw materials for its colour filter production. In negotiating supplier contracts, the Company requires the suppliers to guarantee a minimum monthly shipping quantity. Furthermore, the Company maintains a policy of sourcing from different suppliers for its products. The Company typically contacts its suppliers on a weekly basis and provides them with three-week rolling forecasts. The Company generally accumulates two weeks’ worth of colour filter raw materials and components in its inventory. As the largest independent colour filter manufacturer in Taiwan, the Company believes it is in a better position than many of its competitors to obtain a reliable supply of necessary components, due largely to the relationships that the Company maintains with its suppliers and the size of its purchases. The Company is currently developing certain key components inhouse primarily on the grounds of cost saving and quality control.

Research and Development

As of 31 January, 2004, the Company’s R&D department comprised 20 staff. At each stage of product design and development, the engineers work closely with the sales and marketing personnel and customers and interact with them via the CRM system with respect to specifications, schedule, prices and manufacturing readiness. The Company’s R&D expenses in 2003 accounted for approximately 1.3 per cent. of the Company’s revenue.

Due to the competitive nature and the rapid price erosion characteristic of the TFT-LCD industry, the Company’s R&D efforts are primarily focused on reducing the manufacturing cost of colour filters and increasing productivity and yields.

In addition to the R&D efforts in process technology to enhance yield and efficiency, the Company’s other recent R&D efforts seek to focus on new and emerging technologies such as photo spacers, IPS and MVA technologies and ITO glass. In addition, the Company is developing new black matrix technologies to

replace chromium oxide with a resin. Chromium oxide requires a vacuum process for film growth, while resin can be coated or printed in air. The Company has changed the colour resist application process from spin-coat to slit application to reduce initial equipment and running costs.

Since July, 2003, the Company’s R&D department has been producing colour resist and by December, 2003, production output increased to provide up to 40 per cent. of the Company’s monthly resist consumption. The R&D department is seeking to reduce the production cost of colour resist further and is planning to sell colour resist produced in-house to other domestic colour filter manufacturers in the future. The Company plans to further its research on colour resist by jointly developing with its colour resist suppliers a new colour resist that has a higher colour saturation and aperture to improve on current colour filters that absorb too much light, thereby limiting brightness and colour dissipation. The Company also plans to jointly develop with its affiliates a back light module that has higher purity and brightness.

In addition, the Company’s R&D department has started a project to develop a new colour filter related application technology that will reduce the cost of production dramatically. It is expected that this new application technology will be applied onto the present manufacturing technology for mass-production by mid-2005. With the successful application of this new technology to mass-production, the Company believes that it will further increase its competitiveness and further enhance its leading position ahead of its local competitors in Taiwan.

Competition

The colour filter industry is dominated by two groups of companies — one is headed by Toppan Printing Co., Ltd. (‘‘Toppan’’) and the other is headed by DNP. Statistics from DisplaySearch indicate that Toppan and DNP collectively accounted for 70 per cent. of the shares of the world colour filter market in 2003. Most of the other independent colour filter manufacturers and TFT-LCD makers who produce colour filters in-house have also primarily obtained technology and know-how from these two companies. The Company has formed a strategic alliance with DNP under which DNP provides 3.5th, 4th and 5th generation colour filter production technology to the Company. The Company believes that the royalty and technology transfer fees charged by DNP are competitive as compared to what Toppan is charging its licensees. The Company considers its main competition to be from other colour-filter manufacturers in Taiwan such as Toppan CFI (Taiwan) Co., Ltd., AMTC and Cando. According to DisplaySearch, colour filters produced domestically cover approximately 66 per cent. of the total demand from TFT-LCD manufacturers in Taiwan with approximately 34 per cent. of colour filters supplied by foreign manufacturers. It is estimated that with domestic colour filter manufacturers mass-producing colour filters in newer generations of production plants, domestically produced colour filters will account for approximately 70 per cent. of the colour filter market in Taiwan by 2004.

The Company also faces potential competition from the manufacturing operations of its customers, which are continually evaluating the merits of manufacturing colour filters internally versus outsourcing to contract manufacturers. For example, AU Optronics, one of the Company’s customers, completed the building of its 5th generation colour filter production facilities in 2003 and had a monthly capacity of 40,000 substrate sheets by the fourth quarter of 2003. It is expected that AU Optronics will increase its monthly capacity to 80,000 sheets by the fourth quarter of 2004.

The Company believes that its production capability represents a significant competitive advantage that the Company enjoys over the other domestic colour filter manufacturers.

Production Facilities

The Company has its production facility in Hsin-Chu Industrial Park, Hsin-Chu County, which is equipped with two production lines. One of the production lines is a 3.5th generation line, which has a monthly production capacity of 65,000 substrate sheets with average yield of 88 per cent. and is geared towards the production of 620 mm x 750 mm and 550 mm x 650 mm glass substrates. Each 620 mm x 750 mm glass substrate is capable of cutting six 14.1-inch colour filters for notebook computers or four 17-inch colour filters for flat panel monitors, and each 550 mm x 650 mm glass substrate is capable of cutting four 15-inch colour filters for flat panel monitors. The other production line is a 4th generation line, which is geared towards the production of 680 mm x 880 mm glass substrates which are capable of cutting six 15inch colour filters for flat panel monitors and also 730 mm x 920 mm glass substrates which are capable of

cutting into six 17-inch colour filters for flat panel monitors. The Company’s 4th generation production line commenced production in September, 2002 and as at 31 December, 2003, it had a monthly capacity of 75,000 substrate sheets with average yield of 92 per cent.

Quality Control

In the colour filter industry, production yield directly translates into profitability. Hence, the Company places particular focus on quality control and has in place strict quality control procedures and tests at various phases of production. As a result, the Company’s colour filter production has one of the highest yield rates among its competitors in Taiwan.

The quality control tests of the Company are aimed to enforce the strict standards set by the Company for its products. The testing of colour filters requires technical expertise and knowledge of the specific applications and functions of the colour filters tested. The Company believes that its testing services employ technology and expertise which are among the most advanced in the colour filters industry in Taiwan. The Company’s testing procedures closely follow the standards prescribed under ISO 9000 and ISO 14000. In addition to maintaining different types of testing equipment, which enables the Company to test a variety of colour filters functions, the Company works closely with its customers to design effective testing programs on multiple equipment platforms for particular colour filters. The Company also receives feedback reports from customers on a regular basis.

Starting in 2001, the Company’s quality control procedures have included the use of automatic inspection systems such as raw material intake quality controls, self-inspection, optical examinations and quality control flow charts under which the Company inspects every stage of the production of colour filters. The Company believes that this inspection system helps to ensure quality as early as the design stage, and helps the Company to design, engineer, develop and produce new products with cost and time efficiency.

The Company’s policy of high quality and strict control standards has lead to the award of ISO certificates to its existing manufacturing facilities in Taiwan. The Hsin-Chu plant received ISO 9001: 2000 and ISO 14001: 1996 certifications in 2002 and 2001 respectively.

Patents and Licenses

As of 13 February, 2004, the Company held eight patents registered and had 14 patent applications pending in the ROC. The Company believes that it is important to develop and patent its designs and special features in its products and may be able to license out some of the patents in the future.

Environmental Protection

The Company is in substantial compliance with the prescribed environmental regulations of Taiwan, and has not been subject to any material fines or action involving non-compliance with environmental regulations of Taiwan with the exception of the following:

Date of Issue 12 December, 2000 . 15 August, 2001 . . . 24 September, 2001.	Issuing Authority The Environmental Bureau of Hsin-Chu The Environmental Bureau of Hsin-Chu The Environmental Bureau of Hsin-Chu	Reason Release of wastewater prior to obtaining approval. The oxygen level of wastewater fails to meet the prescribed level. The oxygen level of wastewater fails to meet the prescribed level.	Fine Imposed
			NT$60,000 NT$120,000 NT$600,000

All above violations have been corrected. The Company has not been subject to any material fines, actions or violations in 2002 and 2003 and, as at the date of this Offering Circular, in 2004.

Litigation

The Company sustained fire damage to its plant and equipment on 13 December, 2000 in an amount of approximately NT$781.2 million. The Company had purchased insurance policies to cover the loss and damage from six different insurance companies. However, these insurance companies have refused to pay the proceeds with the claim for the reason that, among other things, the damage at issue did not amount to a total loss. In October, 2001, the Company lodged an arbitral claim with the ROC Arbitration Association to seek compensation against these insurance companies. The claim covers a full recovery of damage sustained from the fire incident. The insurance companies have submitted a preliminary response to the arbitrators in March, 2002. In the arbitration hearing held on 27 January, 2003, the arbitral tribunal instructed both parties to submit the evidence for further verification. On 15 January, 2004, expert opinion and forensic evidence was delivered by Chung-Shan Institute of Science and Technology supporting the Company’s claim for total loss. In response to the insurance companies’ request, the tribunal has declared a three-month standstill for both parties to prepare their final arguments. According to the formal ruling of the tribunal, the arbitration is expected to conclude in late June, 2004. The case is currently pending and there is no assurance that the Company’s damage can be fully recovered. If the Company is unable to obtain full recovery or partial recovery of the claim, the Company may have to write off an amount equal to the difference between the book value of the damaged equipment and the amount recovered from the arbitration award, if any. There can be no assurance that the lack of compensation would not have an adverse effect on the Company’s business, financial condition and results of operations.

Save as disclosed above, the Company is not and has not been involved in, and the Company is not aware of, any material litigation or other proceedings the outcome of which might, individually or taken as a whole, affect the financial condition or results of operations of the Company.

Insurance

The Company maintains insurance policies in respect of buildings, equipment and certain inventories, covering loss due to fire and explosion. Currently, the Company does not have business interruption insurance. Although the Company considers its insurance policies to be in line with industry norms in Taiwan, significant damage to any of the Company’s production facilities, whether as a result of fire or other causes, could still have a material and adverse effect on the Company.

Employees

As of 12 February, 2004, the Company had 657 full-time employees. The number of employees the Company had as of 31 December, 2001, 2002 and 2003 are 406, 592 and 672 respectively.

Employees’ salaries are reviewed once per year and are adjusted based on industry standards, inflation and individual performances. Under the Company’s Articles of Incorporation, the Company’s employees are to participate in the Company’s profit distribution such that employees are entitled to receive bonuses as an incentive, based on a percentage of allocable surplus income. On 5 February, 2004, the Board of Directors of the Company approved a stock option plan to issue 40,000,000 Shares to the Company’s employees. Such stock option plan is subject to the approval of the SFC and the Company’s shareholders at the annual shareholders’ meeting to be held on 23 April, 2004.

The Company has accidental benefits and medical insurance policies for its employees. The Company also collects pension fund contributions for its local employees in accordance with the Labour Standards Law of the ROC. In addition, the Company provides extensive training programs for its employees at various departments on various subjects. The average age of its employees is approximately 28.5 years. For 2003, the Company’s staff turnover rate, as defined by average monthly changes in the numbers of employees, including new hired and departing employees, divided by the number of employees at the beginning of the month, was approximately 7.71 per cent., which was primarily due to the transfer of employees to South Sintek. The Company does not have any collective bargaining arrangement with its employees, and has never experienced a work stoppage due to labour disputes or labour shortage. The Company believes it maintains a good relationship with its employees.

Subsidiaries

Sin Hsin Investment Ltd. (‘‘Sin Hsin’’), a wholly-owned subsidiary of the Company, was established in January, 2003. Its registered office is at 1F, No. 326, Kuan-Fu East Road, Fung-Hwung village, Hukou Shiang, Hsin-Chu, Taiwan, ROC. Sin Hsin is an investment holding company which engages in general investment business.

South Sintek Photronic Corporation (‘‘South Sintek’’) is a subsidiary co-established by the Company and HannStar in February, 2003. The registered office of South Sintek is at 2F, Building C, No. 3 Nan-Ko, Rd. 7, Science-Based Industrial Park, Tainan, Taiwan, ROC. In August, 2003, the Company, HannStar and DNP entered into a restated shareholders’ agreement in respect of the ownership of South Sintek. The Company believes that the shareholding arrangement will enable South Sintek to secure its purchasing orders and further enhance its relationship with its customers and technology providers. As of 31 December, 2003, South Sintek had an issued and paid-in capital of NT$3,500 million (U.S.$103.0), of which the Company owns 66.2 per cent., HannStar owns 20 per cent. and DNP owns 13.8 per cent. South Sintek is engaged in the sale and manufacture of colour filters. As of 31 January, 2004, South Sintek had 259 fulltime employees.

South Sintek’s primary production facility is located at the Tainan Industrial Park, Tainan County, Taiwan, ROC, which is equipped with one 5th generation production line. It is geared towards the production of 17-inch or 19-inch colour filters for flat panel monitors and 23-inch or 28-inch colour filters for TV monitors. The Company believes that South Sintek will begin mass production in 2004.

As TFT-LCD panel manufacturers in Taiwan ramp-up their 5th generation production capacity in 2004, the Company believes that South Sintek is well positioned to capture the significant demand associated with the mass production of 5th generation TFT-LCD over the next year.

MANAGEMENT

Directors and Supervisors

The Company Law and Articles of Incorporation of the Company provide that the Board of Directors of the Company are to be elected by the Company’s shareholders at the shareholders’ meetings at which a quorum, consisting of a majority of all the issued and outstanding shares in issue, is present. The Chairman is a director elected by the Board of Directors. The Board of Directors is responsible for the management of the business of the Company.

The Articles of Incorporation of the Company provide for five to nine directors (the ‘‘Directors’’) and one to three supervisors (the ‘‘Supervisors’’). In accordance with the Company Law, Supervisors are elected by the shareholders of the Company and cannot concurrently serve as Directors or officers of, or in staff positions with, the Company. The duties and powers of the Supervisors include, among other things, investigating the condition of the Company, attending meetings of the Board of Directors, inspecting corporate records, verifying statements prepared by the Board of Directors prior to the annual general shareholders’ meetings, calling shareholders’ meetings, representing the Company in negotiations with its Directors and notifying, when appropriate, the Board of Directors to cease acting in contravention of applicable law or regulation or in contravention of the Articles of Incorporation or beyond the Company’s scope of business.

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

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

The Company’s Board of Directors currently consists of seven Directors and three Supervisors. Of the seven board seats, two are occupied by independent directors. One of the Company’s three Supervisors is an independent supervisor. Directors and Supervisors will be deemed ‘‘independent’’ only if they:

are not legal persons, or representatives of legal persons, as defined in article 27 of the Company Law;
have more than five years’ experience in the field of business, law, finance or other working experience required by the Company’s business;

for at least one year prior to their election, they:

are not employees of the Company and are not directors, supervisors or employees of its affiliates unless they are independent directors and independent supervisors of the Company’s parent companies or subsidiaries;
do not directly or indirectly hold one per cent. or more of the total outstanding shares of the Company or are not one of the top ten individual shareholders of the Company;
are not the spouses or lineal blood relatives within the second degree of relationship of any of the persons in the preceding two sub-paragraphs;
are not directors, supervisors or employees of corporate shareholders that directly hold five per cent. or more of the total outstanding shares of the Company or are not one of the top five corporate shareholders of the Company;
are not directors, supervisors, managers or holders of more than five per cent. of the total outstanding shares of a specific company or institution which has financial or operational transactions with the Company;

are not a professional or an owner, partner, director, supervisor or manager of an enterprise with a single owner, a partnership, a company or an institution or their spouse, in each case which provides legal, financial or business advisory services; and
do not concurrently serve as an independent director or independent supervisor for five or more other companies; and
attend at least three hours of legal, financial or accounting training each year and obtain relevant certificates.

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

Name Si-Chung Chang . . . . Wu-Hsiung Chen(1) . . Chin-Lung Liu(1). . . . Sheng-Feng Hsieh(3) . Te-Lang Liao(2). . . . . Lo-HuoChiu(3) . . . . . Wen-Yi Chang . . . . . Yen-Pai Chen . . . . . . Wei-Yu Chen . . . . . . Kuo-An Hsu(4) . . . . .	Position Chairman Director Director Director Director Director Director Supervisor Supervisor Supervisor	Elected to office on 8 April, 2002 8 April, 2002 8 April, 2002 11 July, 2002 8 April, 2002 8 April, 2002 8 April, 2002 11 July, 2002 11 July, 2002 8 April, 2002	Number of Share held directly as of 26 February, 2004 4,217,708 40,253,662 40,253,662 — 1,250 500,000 2,661,950 1,625,000 1,688,750 6,250	Percentage of total Shares outstanding as of 26 February, 2004
				0.6856 6.5432 6.5432 — 0.0002 0.0813 0.4327 0.2641 0.2745 0.0010

(1) Representative of Ho Tung Chemical Corp.
(2) Representative of Sing Chiang Investment Co., Ltd.
(3) Independent Director
(4) Independent Supervisor

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

Si-Chung Chang is the Chairman of the Board of Directors of the Company. Dr. Chang has a Ph.D. degree in chemistry from Purdue University in the United States and is currently an associate professor in chemistry at the National Tsing Hua University.

Wu-Hsiung Chen is a Director of the Company representing Ho Tung Chemical Corp. Mr. Chen has a Master’s degree in chemistry from West Virginia State University in the United States.

Chin-Lung Liu is a Director of the Company representing Ho Tung Chemical Corp. Mr. Liu has a vocational degree in tax from the National Taipei College of Business in Taiwan.

Sheng-Feng Hsieh is an independent Director of the Company. Mr. Hsieh has a Bachelor’s degree in chemical engineering from Chung Yuan Christian University in Taiwan.

Te-Lang Liao is a Director of the Company. Mr. Liao has a Master’s degree in management of information system from Fairleigh Dickinson University.

Lo-Huo Chiu is a Director of the Company. Mr. Chiu has a Master’s degree in business administration from Massachusetts Institute of Technology in the United States.

Wen-Yi Chang is a Director and the CEO of the Company. Mr. Chang has a Bachelor’s degree in physics from Chung Yuan Christian University in Taiwan.

Yen-Pai Chen is a Supervisor of the Company. Mr. Chen has a Master’s degree in management of information system from the University of San Diego in the United States.

Wei-Yu Chen is a Supervisor of the Company. Mr. Chen has a Master’s degree in business administration from Berkeley University in the United States.

Kuo-An Hsu is an independent Supervisor of the Company. Mr. Hsu has a Bachelor’s degree in chemistry from National Zhejiang University.

The business address of each of the Directors and Supervisors is the registered office of the Company.

Executive Officers

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

Name Ming-Cheng Chang . . . . . . Will Wang . . . . . . . . . . . . Pao-Sun Chang . . . . . . . . . Wen-Haw Lu . . . . . . . . . . Wen-Jen Lin. . . . . . . . . . .	Position President Chief Financial Officer/Vice President Chief Operational Officer Associate Vice President in Quality Assurance Division Associate Vice President in R&D Division	Year of Appointment
		31 October, 2003 14 July, 2003 11 October, 1999 18 February, 2003 24 February, 2003

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

Ming-Cheng Chang is the president of the Company. Mr Chang has a Bachelor’s degree in chemical engineering from the Chinese Cultural University in Taiwan.

Will Wang is the CFO/Vice President of the Company. Mr Wang holds a Master’s degree of business administration in finance from the Michigan State University and a Bachelor’s degree of economics from the National Taiwan University.

Pao-Sun Chang is the Chief Operational Officer of the Company. Mr. Chang has a Ph.D. degree in chemistry from the Temple University in the United States.

Wen-Haw Lu is the Associate Vice President in the Quality Assurance Division of the Company. Mr Lu has a Ph.D. degree in macromolecular science from the Case Western Reserve University in the United States.

Wen-Jen Lin is the Associate Vice President in the R&D Division of the Company. Mr Lin has a Master’s degree in chemical engineering from the National Taiwan University.

Share Ownership and Compensation

As of 26 February, 2004, the members of the Board of Directors, the Supervisors and the executive officers of the Company, together with members of their immediate families, owned approximately 53.3 million Shares, or approximately 8.7 per cent. of the total outstanding Shares of the Company.

The aggregate remuneration paid and benefits in kind granted by the Company to Directors, Supervisors and executive officers of the Company in their capacity as such from 1 January, 2003 through 31 December, 2003 was approximately NT$46.6 million. There are no outstanding loans granted by the Company to any of the Directors, Supervisors or executive officers and there are no outstanding guarantees provided by the Company for the benefit of any of the Directors, Supervisors or executive officers. The Company has not engaged in any transactions with its Directors, Supervisors or executive officers which are unusual in their nature or conditions.

PRINCIPAL SHAREHOLDERS

The names of the ten largest shareholders of record of the Company and their share ownership as at 26 February, 2004 are as follows:

Name Dai Nippon Printing Co., Ltd.. . . . . . . . . . . . Ho Tung Chemical Corp. . . . . . . . . . . . . . . . Zortec Corporation . . . . . . . . . . . . . . . . . . . Hannstar Display Corporation . . . . . . . . . . . . Shintay Corporation. . . . . . . . . . . . . . . . . . . China Development Industrial Bank. . . . . . . . Hang Profit Ltd. . . . . . . . . . . . . . . . . . . . . . Paoze Investment Limited . . . . . . . . . . . . . . PCA Hi-Tech Fund . . . . . . . . . . . . . . . . . . . Ho Hon Gas Co., Ltd. . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of Shares Held 51,877,420 40,253,662 15,375,000 14,425,000 13,010,000 11,689,716 11,603,777 9,076,500 7,800,000 7,490,000 182,601,075	Percentage of Total Shares Outstanding
		8.4327 6.5432 2.4992 2.3448 2.1148 1.9002 1.8862 1.4754 1.2679 1.2175
		29.6819

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

This discussion and analysis should be read in conjunction with the financial statements of the Company included elsewhere in this Offering Circular. Such financial statements are English translations of the auditors’ report and financial statements in Chinese prepared for and used in the ROC. The financial statements are not intended to present the financial position and results of operations and cash flows of the Company in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than those in the ROC. The standards, procedures and practices utilised to audit such financial statements are those generally accepted and applied in the ROC. See ‘‘Summary of Principal Differences between ROC GAAP and U.S. GAAP’’. The Company has not quantified the effect of the differences that would arise in the event its financial condition and results of operations were restated or reconciled to U.S. GAAP; however, some of these differences could be material. See ‘‘Risk Factors — Risks Relating to doing business in the ROC — Financial reporting and accounting standards in the ROC differ from other countries’’. This Offering Circular contains financial statements of the Company as of and for the years ended 31 December, 2001, 2002 and 2003.

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

Basis of Presentation

Under ROC GAAP, the Company is required to consolidate financial results of any subsidiary whose total assets or net operating revenues exceed ten per cent. of the Company’s non-consolidated total assets or net operating revenues, as the case may be. A subsidiary is defined as any corporation or other business entity more than 50 per cent. of the outstanding voting stock of which is owned directly or indirectly by the company. In addition, the SFC requires a company to consolidate the financial statements of each subsidiary whose total assets or net operating revenues exceed three per cent. of the company’s non-consolidated total assets or net operating revenues, if the total assets or net operating revenues of all non-consolidated subsidiaries of the company exceed 30 per cent. of the company’s non-consolidated total assets or net operating revenues, as the case may be. Based on this principle, the Company was required to prepare consolidated financial statements as of and for the year ended as of 31 December, 2003.

Revenues

The Company derives its operating revenues primarily from the manufacturing and sale of colour filters and, to a lesser extent, from the resale of LCMs. Resales of LCMs ceased in October, 2003. The Company has experienced rapid growth in net operating revenues in recent years. The Company was in its inception period in 2000 and did not formally commence mass-production and sales of colour filters until August, 2001. As a result, revenues increased substantially between 2000 and 2001. In 2002, the Company’s net operating revenues further increased 109.1 per cent. because the Company’s 3.5th generation colour filter production facilities had a full year of commercial production in 2002, whereas in 2001, the 3.5th generation colour filter production facilities only started commercial production in August. In 2003, the Company’s net operating revenue increased by 109.8 per cent. This was largely due to the introduction of the Company’s 4th generation colour filter in December, 2002 at a time when demand for TFT-LCD increased in the market, allowing the Company to satisfy the demand of its downstream customers.

Cost of Goods Sold

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

overhead, including depreciation of property, plant and equipment and amortisation of intangible assets;
costs of raw materials, including principally glass substrate, colour resist, ITO target and Cr target; and

direct labour costs.

Gross Margin

The Company’s gross margin for 2003 was 23.9 per cent., compared with 33.8 per cent. for 2002 and 3.8 per cent. for 2001. The Company commenced mass-production of colour filters in August, 2001. Due to substantial ramp-up expenses, the Company recorded a lower than normal gross margin in 2001. Gross margin increased substantially in 2002 despite continuing pressure on average selling prices of the Company’s main products principally due to a substantial improvement in production yield of the Company’s 3.5th generation colour filters. Selling prices for colour filters fell in the first half of 2003 as a result of competition in the market. Although demand for colour filters increased substantially in the third quarter causing selling prices to gradually increase, the gross margin for 2003 is lower compared to 2002.

Operating Income and Margin

The Company was in its inception period in 2000 and recorded an operating loss of NT$64.3 million for 2000. In 2001, as the Company ramped up its 3.5th generation colour filter production, the Company recorded an operating loss of NT$116.4 million. In 2002, as the Company’s net operating revenues substantially increased, the Company recorded an operating income of NT$799.0 million, representing an operating margin of 24.3 per cent. As a result of the 4th generation line coming into production in December, 2002, the operating income for 2003 increased to NT$1,047.3 million, representing an operating margin of 15.2 per cent.

Product Pricing Trends

The following table sets forth the average selling prices of the Company’s colour filters and LCMs, based on different product sizes, for the periods indicated:

Colour filters 12 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 inch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended 31 December,	Year ended 31 December,
	2001 2002 (NT$ per panel) — — 963.2 998.3 1,191.1 1,040.7 1,659.0 1,392.3 10,394.0 4,819.1	2003
		684.8 882.2 819.3 1,133.5 6,261.7

The Company’s sales are normally priced pursuant to purchase orders negotiated with customers which generally cover one month or less of deliveries. As a result of the short periods covered by purchase orders, the Company is frequently in ongoing discussions with its customers over product prices. In addition, pressure to reduce prices is particularly high for products near the end of their life cycles.

Results of Operations

The following table summarises certain items from the Company’s results of operations for the years ended 31 December, 2001, 2002 and 2003, in each case as a percentage of net operating revenues:

Year ended 31 December,	Year ended 31 December,	Year ended 31 December,
2001 % 100.0 96.2 3.8 11.2 (7.4) 10.4 8.3 (5.3) 21.5 0 16.2	2002 % 100.0 66.2 33.8 9.5 24.3 2.1 7.6 18.8 5.7 0 24.5	2003
		% 100 76.1
		23.9
		8.7 15.2
		0.9 7.4 8.7
		5.0 (2.5) 11.2

Restated 2002 financial statements

In 2003, the Company was informed by the SFC to restate its 2002 financial statements due to a difference in opinion in the recognition of income of sale of products. According to the SFC’s opinion, the recognition of income of sale of products should be at the time of the actual delivery of products to customers rather than delivery of products to its sale agent, Ru Yuan International Corp., which is also a related party of the Company. The restatement caused decreases in operating revenue, net income after tax and retained earnings in the financial statements for the year ended 31 December, 2002 in the amounts of NT$379.3 million, NT$46.8 million and NT$46.8 million, respectively. Unrecognised income and revenue from 2002 was recognised in full in 2003.

Set forth below are the effects to the financial statements after the restatement of the 2002 financial statements:

Account Accounts receivable. . . . . . . . . Receivables from related parties, net . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . Other current assets . . . . . . . . . Deferred tax assets — current . . Net sales revenue . . . . . . . . . . Cost of goods sold . . . . . . . . . Income tax benefit. . . . . . . . . . Undistributed earnings . . . . . . .	Amount before restatement (NT$,000) 946,338 309,848 297,893 146,054 175,413 3,672,563 2,497,510 171,515 1,172,178	Debit (NT$,000) — 10,821 316,934 18,965 15,593 379,305 — — 46,778	Credit (NT$,000) $409,091 — — — — — 316,934 15,593 —	Amount after restatement
				(NT$,000) 537,247 320,669 614,827 165,019 191,006 3,293,258 2,180,576 187,108 1,125,400

2003 compared to 2002

Revenues. Net operating revenues in 2003 were NT$6,910.3 million (U.S.$203.4 million), representing an increase of 109.8 per cent. from NT$3,293.3 million in 2002. The increase was attributable to increases in sales volume mainly because the Company’s 4th generation colour filter production facilities had a full year of commercial production in 2003, whereas in 2002, the 4th generation colour filter production facilities only started commercial production in December.

Cost of goods sold. Cost of goods sold increased 141.2 per cent. from NT$2,180.6 million in 2002 to NT$5,259.7 million (U.S.$154.8 million) in 2003. This increase reflected increases in raw materials costs, direct labour costs and overheads resulted from the increase in the Company’s operating revenues.

Gross profit and gross margin. Gross profit increased by 48.3 per cent. from NT$1,112.7 million in 2002 to NT$1,650.6 million (U.S.$48.6 million) in 2003. Gross margins in 2002 and 2003 were 33.8 per cent. and 23.9 per cent., respectively. Gross margin decreased in 2003 as a result of decline in selling prices for colour filters in the first half of 2003 due to competition in the market. However, in the second half of 2003, the selling prices for colour filters stabilised and then increased, resulting in a turnaround of the Company’s gross margins.

Operating expenses and income from operations. Total operating expenses in 2003 increased to NT$603.3 million (U.S.$17.8 million) from NT$313.7 million in 2002, representing an increase of 92.3 per cent. over 2002. The increase was attributable to increases in:

selling expenses of NT$149.2 million, primarily due to increases in provision for bad debts and increases in royalty payments in connection with increased operating revenues and in sampling expenses in connection with payments resulted from certain returned products;
administrative expenses of NT$118.8 million, primarily due to increased compensation expenses for the Company and South Sintek’s administrative personnel; and
research and development expenses of NT$21.5 million, primarily due to an increase in compensation expenses for the Company’s research and development personnel employed to develop colour resist.

Operating expenses as a percentage of net operating revenues decreased from 9.5 per cent. in 2002 to 8.7 per cent. in 2003. Selling expenses were 2.7 per cent. in 2002 and 3.4 per cent. in 2003. Administrative expenses were 4.7 per cent. in 2002 and 4.0 per cent. in 2003. Research and development expenses were 2.2 per cent. in 2002 and 1.3 per cent. in 2003.

Operating income increased to NT$1,047.3 million (U.S.$30.8 million) in 2003, compared to NT$799.0 million in 2002.

Non-operating income. Total non-operating income decreased to NT$59.7 million (U.S.$1.8 million) in 2003 compared to NT$71.5 million in 2002. The decrease was mainly attributable to a decrease in interest income.

Non-operating expenses. Total non-operating expenses increased to NT$512.2 million (U.S.$15.1 million) in 2003, compared to NT$250.1 million in 2002. The increase was mainly attributable to an increase of NT$125.3 million in interest expense due to increase of loans and an increase of NT$107.7 million in losses resulting from settlement of foreign currency transactions.

Net income. Income before income tax increased from NT$620.4 million in 2002 to NT$594.9 million (U.S.$17.5 million) in 2003. Income tax benefit was NT$347.6 million (U.S.$10.2 million) in 2003 compared to an income tax benefit of NT$187.1 million in 2002. Net income decreased from NT$807.5 million in 2002 to NT$773.1 million (U.S.$22.8 million) in 2003.

2002 compared to 2001

Revenues. Net operating revenues in 2002 were NT$3,293.3 million, representing an increase of 109.1 per cent. from NT$1,575.2 million in 2001. The increase was attributable to increases in sales volume mainly because the Company’s 3.5th generation colour filter production facilities had a full year of commercial production in 2002, whereas in 2001, the 3.5th generation colour filter production facilities only started commercial production in August.

Cost of goods sold. Cost of goods sold increased 43.9 per cent. from NT$1,515.8 million in 2001 to NT$2,180.6 million in 2002. This increase reflected increases in raw materials costs, direct labour costs and overheads resulted from the increase in the Company’s operating revenues.

Gross profit and gross margin. Gross profit increased significantly by 1,773.2 per cent. from NT$59.4 million in 2001 to NT$1,112.7 million in 2002. Gross margins in 2001 and 2002 were 3.8 per cent. and 33.8 per cent., respectively. Gross margin increased in 2002 as the Company was able to reduce its cost of goods sold as it achieved higher economies of scale and better production yields despite the declining average selling prices for its products.

Operating expenses and income from operations. Total operating expenses in 2002 increased to NT$313.7 million from NT$175.8 million in 2001, representing an increase of 78.5 per cent. over 2001. The increase was attributable to increases in:

selling expenses of NT$64.0 million, primarily due to increases in royalty payments in connection with increased operating revenues and in sampling expenses in connection with payments resulted from certain returned products;
administrative expenses of NT$68.7 million, primarily due to increased compensation expenses for the Company’s administrative personnel and increased professional expenses in connection with the listing of the Company’s Shares on the TSE; and
research and development expenses of NT$5.2 million, primarily due to an increase in compensation expenses for the Company’s research and development personnel.

Operating expenses as a percentage of net operating revenues decreased from 11.2 per cent. in 2001 to 9.5 per cent. in 2002. Selling expenses were 1.5 per cent. in 2001 and 2.7 per cent. in 2002. Administrative expenses were 5.5 per cent. in 2001 and 4.7 per cent. in 2002. Research and development expenses were 4.2 per cent. in 2001 and 2.2 per cent. in 2002.

Operating income was NT$799.0 million in 2002, compared to an operating loss of NT$116.4 million in 2001.

Non-operating income. Total non-operating income decreased to NT$71.5 million in 2002 compared to NT$163.8 million in 2001. The decrease was mainly attributable to a decrease of NT$57.9 million in interest income due to a lower cash position and lower interest rates in 2002 and a decrease of NT$28.0 million in net foreign currency exchange gains resulted from a U.S. dollar depreciation in relation to Japanese Yen, such decreases were partially offset by an increase of NT$25.5 million in investment income resulted from additional investment in government bonds.

Non-operating expenses. Total non-operating expenses increased to NT$250.1 million in 2002, compared to NT$131.0 million in 2001. The increase was mainly attributable to an increase of NT$96.2 million in depreciated value of certain equipment, the uses of which were suspended as a result of an accident that occurred on 31 December, 2000 involving equipment malfunction and an arbitration proceeding in connection with such accident. See ‘‘Business of the Company — Litigation’’. The timing of the resumption of the uses of the equipment, if ever, will depend on the result of the arbitration proceeding.

Net income. Income before income tax increased to NT$620.4 million in 2002, compared to a loss of NT$83.6 million in 2001. Income tax benefits decreased by NT$152.2 million from NT$339.3 million in 2001 to NT$187.1 million in 2002. Net income increased to NT$807.5 million in 2002, compared to NT$255.8 million in 2001.

Inventories and Receivables

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

As of 31 December, 2003, the Company’s receivables, including receivables from related parties, totalled NT$1,751.5 million (U.S.$51.6 million). Average receivables turnover in 2002 and 2003 were 95 days and 72 days, respectively.

The Company invoices customers when goods are shipped. Credit terms are generally 60 to 150 days. As of 31 December, 2003, the Company’s net inventories were NT$527.7 million. Average inventories turnover in 2002 and 2003 were 85 days and 41 days, respectively.

Liquidity and Capital Resources

As of 31 December, 2003, the Company had NT$169.6 million (U.S.$5.0 million) in cash and cash equivalents and NT$2,933.3 million (U.S.$86.3 million) in short-term investments, mainly in bond funds. The Company held cash and cash equivalents in the form of cash and primarily savings accounts with banks and other financial institutions in Taiwan.

Net cash flows used in the Company’s operating activities in 2003 amounted to NT$548.9 million (U.S.$16.2 million), largely consisting of an increase of $2,284.0 million (U.S.$67.2 million) in short-term investments and increase of NT$893.6 million (U.S.$26.3 million) in account receivables and account receivables from related parties.

Net cash flows used in the Company’s investing activities in 2003 amounted to NT$8,112.4 million (U.S.$238.8 million), largely consisting of an investment of NT$6,802.0 million (U.S.$200.2 million) in fixed assets purchases and an increase of NT$620.8 million (U.S.$18.3 million) in intangible assets.

Net cash provided from financing activities in 2003 was NT$8,386.2 million (U.S.$246.9 million) which mainly consisted of an increase of NT$1,729.6 million (U.S.$50.9 million) corporate bonds payable, an increase of NT$409.5 million (U.S.$12.1 million) in short-term loans and minority interest of NT$1,181.7 million (U.S.$34.8 million).

As of 31 December, 2003, the Company had aggregate long-term debt, net of current portion, of NT$8,202.7 million (U.S.$241.5 million) and aggregate short-term debt, current portion of long-term debt and other short-term indebtedness of NT$3,142.9 million. The long-term debt was provided pursuant to four different facilities with commercial and financial institutions. The loans bore interest at rates between 0.89 per cent. and 5.45 per cent. per annum as of 31 December, 2003, mature between 28 June, 2002 and 14 November, 2011, and in general, require payments of principal and interest on either a semi-annually or monthly basis throughout the remainder of their terms. The short-term indebtedness consists of letter of credit loans and working capital loans with several banks.

The Company incurred capital expenditure, in the form of additions to colour filter plants, property and equipment, of NT$3,600.3 million, NT$3,247.3 million and NT$6,802.0 million (U.S.$200.2 million) in 2001, 2002 and 2003, respectively. Capital expenditure in these periods related principally to the expansion of the Company’s production facilities of colour filters.

In 2004, the Company’s capital expenditure plans consist mainly of the construction of a new production line.

Historically, the Company’s primary sources of finance have been net cash provided by operating activities, short-term and long-term bank borrowings, and other lines of credit and the proceeds from new issues of Shares for cash. The Company believes that it will have sufficient resources available to meet its planned capital expenditure requirements, as well as its present working capital requirements.

Foreign Exchange Matters

A large portion of the Company’s net operating revenues are denominated in currencies other than NT dollars, principally Japanese Yen and U.S. dollars, while a significant portion of the Company’s costs and expenses are denominated in currencies other than NT dollars including Japanese Yen and U.S. dollars. Accordingly, the Company is exposed to movements in the exchange rates between the U.S. dollar on the one hand, and NT dollar and Japanese Yen on the other hand. The Company recorded net exchange gains of NT$28.0 million, NT$9,000 and NT$(107.7) million in 2001, 2002 and 2003, respectively, reflecting the depreciation and appreciation of the U.S. dollar in relation to the NT dollar and the Japanese Yen.

The effect of future changes in currency exchange rates on the Company’s results of operations cannot be accurately predicted. In order to mitigate such risks, the Company attempts to balance to the extent possible the currency of its revenues with the currency of costs and expenses. In addition, from time to time, the Company enters into a number of currency based derivative instruments to hedge its foreign exchange risks.

Income Tax

The Company is currently subject to a 25 per cent. statutory corporate income tax rate in Taiwan. The Company has been receiving exemptions from ROC income taxes with respect to income attributable to capital increases for the acquisition of equipment in the ROC for the manufacture of the Company’s principal products for a period of five years following each of such capital increase. The Company also benefits from other tax incentives generally available to ROC companies, including tax credits ranging from 25 per cent. to 50 per cent. of certain research and development and employee training expenses and 10 per cent. to 20 per cent. of credits for investment in automation equipment and technology. These tax credits and exemptions resulted in income tax benefits of approximately NT$339.3 million, NT$187.1 million and NT$347.6 million (U.S.$10.2 million) in 2001, 2002 and 2003, respectively. The ROC government has announced that it is considering reviewing various tax exemptions applicable to several industries. There can be no assurance that the Company will continue to benefit from the tax exemptions for which it currently qualifies.

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

DIVIDENDS AND DIVIDEND POLICY

Except in limited circumstances, under the Company Law, the Company is not permitted to distribute dividends or make other distributions to shareholders in respect of any year in which the Company does not record net income or retained earnings (excluding reserves). The Company Law also requires that ten per cent. of annual net income (less prior years’ losses and outstanding taxes) be set aside as a legal reserve until such time as the accumulated legal reserve equals such company’s paid-in capital.

The Company’s Articles of Incorporations provide that the remaining portions of its net income, less prior years’ losses, outstanding taxes, the legal reserve, will be distributed as follows:

One per cent. to three per cent. is set aside as remuneration to directors and supervisors;
Not less than ten per cent. is distributable to employees as bonus; and
The balance is distributed to shareholders or retained by the Company in accordance with the resolution adopted at the shareholders’ meeting.

Shareholders on a divided record date will be entitled to the full dividend declared without regard to any prior or subsequent transfer of such Shares. Payment of dividends in respect of the prior year, if any, will be made in the following year after approval by the Company’s shareholders at a ordinary meeting of shareholders.

For information relating to ROC withholding taxes payable on dividends, see ‘‘ROC Taxation of NonResidents — Dividends on the Shares’’.

MARKET PRICE INFORMATION

The Shares have been listed on the TSE since 27 September, 2002. The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the TSE for the Shares and the high and low of the daily closing values of the TSE Index.

2002 September (listing)(1) . . . October . . . . . . . . . . . . November . . . . . . . . . . December. . . . . . . . . . . 2003 January . . . . . . . . . . . . February . . . . . . . . . . . March . . . . . . . . . . . . . April . . . . . . . . . . . . . . May . . . . . . . . . . . . . . June . . . . . . . . . . . . . . July. . . . . . . . . . . . . . . August. . . . . . . . . . . . . September . . . . . . . . . . October . . . . . . . . . . . . November . . . . . . . . . . December. . . . . . . . . . . 2004 January . . . . . . . . . . . . February . . . . . . . . . . .	Closing price per Share High Low (NT$) 26.1 24.36 22.6 13.65 24 18.5 20.7 16.3 19.7 17 18.7 16.3 20.5 18.1 21.1 17.2 18.1 16 20 16.8 26.5 18.1 26.1 21.8 22.4 19.3 20.9 17.5 19.3 16.3 22.4 19 26.4 20.9 28 25.4	Average daily trading volume (in thousands of Shares) 34 5,214 6,704 3,494 3,136 2,962 5,066 5,384 3,157 21,008 39,655 24,295 13,200 11,707 10,373 25,808 26,273 40,027	TSE Index	TSE Index
			High 4,208.8 4,601.37 4,500.55 4,823.67 5,757.91 4,833.58 4,599.25 4,658.3 4,555.9 5,048.91 5,017.78 5,686.85 5,757.91 6,108.13 6,142.32 5,924.24 6,386.25 6,549.18	Low
				4,191.81 3,850.04 4,813.53 4,452.45 5,611.41 4,432.46 4,260.45 4,139.5 4,187.82 4,678.08 5,318.34 5,214.6 5,611.41 5,581.66 5,740.57 5,752.01 6,041.56 6,241.39

Source: Taiwan Stock Exchange

(1) From 27 September, 2002 to 30 September, 2002

On 29 March, 2004, the reported closing price of the Shares was NT$27.7 per Share and the TSE Index closed at 6,474.11.

CHANGES IN ISSUED SHARE CAPITAL

The following table shows the changes in the issued common share capital of the Company since its incorporation in September, 1999, which are set out below:

Record date September, 1999 . . November, 1999 . . November, 1999 . . March, 2000 . . . . . October, 2000. . . . December, 2001 . . July, 2003 . . . . . . October, 2003. . . . January, 2004 . . . .	Type of issue Issuance of Shares for cash Issuance of Shares for cash Issuance of Shares to employees(1) Issuance of Shares for cash Issuance of Shares for cash Issuance of Shares for cash Capitalisation of capital surplus Capitalisation of retained earnings and employee bonus Issuance of Shares on conversion of convertible bonds(2) Issuance of Shares on conversion of convertible bonds(2) Issuance of Shares on conversion of convertible bonds(2)	Number of Shares issued 20,000,000 54,000,000 5,880,000 80,120,000 200,000,000 40,000,000 40,000,000 66,896,552 13,113,289 90,662,588 2,260,914	Number of Shares outstanding after issue
			20,000,000 74,000,000 79,880,000 160,000,000 360,000,000 400,000,000 440,000,000 506,896,552 520,009,841 610,672,429 612,933,343

(1) According to the Company Law, share capital to be contributed other than cash by shareholders may be in the form of monetary credit extended to a company, or the technical know-how or goodwill required by the company. 5,880,000 Shares were issued to employees in the form of the technical know-how.
(2) On 12 March, 2003, the Company issued U.S.$50,000,000 zero coupon Euro convertible bonds due 2008. Subject to the terms and conditions of the issue, such bonds may be converted into Shares at any time on or after 11 April, 2003 and prior to the close of business on 11 February, 2008.

DESCRIPTION OF THE COMMON STOCK

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

General

As of 31 December, 2003, the Company’s authorised share capital was 800,000,000 Shares with a par value of NT$10 per Share, among which 40,000,000 Shares are reserved for employee stock options. All issued common Shares of the Company are in registered form and 612,933,343 Shares were issued and fully paid for as of 31 December 2003.

As of the date of this Offering Circular, other than the issue of U.S.$50,000,000 zero coupon convertible bonds due 2008, the Company has not issued any convertible debt securities, exchangeable debt securities or debt securities with warrants attached.

The Company Law and the Securities and Exchange Law provide that any change in the issued share capital of a public company requires the approval of the Board of Directors. In the event that the issuance of any new shares will result in any change in the authorised share capital of the Company, in accordance with the Company Law, the Company must amend its Articles and obtain shareholders’ approval at a shareholders’ meeting. The Company must also obtain the approval of, or submit a registration to, the SFC and the Ministry of Economic Affairs.

Dividends

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

Subject to compliance with the above requirements, following approval of the financial statements for the preceding fiscal year by the shareholders in an annual shareholders’ meeting, dividends are, unless otherwise stipulated under the Company’s Articles, distributed in proportion to the number of Shares owned by each shareholder as listed on the register of shareholders as at the relevant record date determined by the Board of Directors (‘‘Annual Dividends’’). Annual Dividends may be distributed either in cash or in the form of common stock or a combination thereof. The ratio between any cash dividend and stock dividend is proposed by the Board of Directors and is determined by the shareholders at a shareholders’ meeting. The stock dividend of the Company is distributed to the shareholders via the Company’s share registrar (‘‘Share Registrar’’) while the cash dividend is distributed by a paying agent appointed by the Company for the specific distribution. The Company has not appointed a paying agent on a standing basis.

The Company Law provides that a company is required to set aside a legal reserve in an amount equal to ten per cent. of its Earnings (less losses, if any, of previous years and applicable income taxes) until such time as its legal reserve equals its paid-in capital. The Articles further provide that, after recovering any past losses, paying all taxes and deducting the legal reserve, any balance thereof will be distributed as follows: (i) from one to three per cent. for remuneration to the Directors and Supervisors; (ii) not less than ten per cent. for employee bonuses; and (iii) the balance, if any, will be distributed to shareholders or retained by the Company in accordance with the resolution adopted at the shareholders’ meeting.

Distribution of Additional Shares

In addition to dividends paid out of Earnings of a company, the Company Law also permits a company to make distributions to shareholders in the form of additional shares from reserves (including its legal reserve referred to above, any special reserve and capital reserve). However, the capitalised portion payable out of a company’s legal reserve is limited to 50 per cent. of the total accumulated legal reserve, and such capitalisation can only be effected when and to the extent that the accumulated legal reserve exceeds 50 per cent. of the paid-in capital of such company. For information as to ROC taxes on cash and stock dividends, see ‘‘ROC Taxation of Non-Residents’’.

Pre-emptive Rights and Issue of Additional Common Stock

The Company Law provides that between ten per cent. and 15 per cent. of any new issue of shares of capital stock sold for cash must be offered first to the issuing company’s employees. In addition, the Securities and Exchange Law and the relevant securities regulations require that, if a public company listed on the TSE or GTSM intends to offer new shares for cash, at least ten per cent. of such issue must be offered to the public except under certain circumstances or when exempted by the SFC. This percentage can be increased by a resolution passed at a shareholders’ meeting, thereby reducing the number of new shares subject to the pre-emptive rights of existing shareholders. Unless the percentage of shares to be offered to the public is increased by shareholders, existing shareholders who are listed on the shareholders’ register as of the record date have pre-emptive rights to acquire the remaining 75 to 80 per cent. of the issue in proportion to their existing shareholdings. The shares not subscribed for by the employees and shareholders 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 public or specified person through the arrangement of the Board of Directors. The preemptive rights provisions will not apply to offering of new shares through a private placement approved at a shareholders’ meeting.

Employees Stock Option Plan

On 5 February, 2004, the Board of Directors of the Company approved a stock option plan to issue 40,000,000 Shares to the Company’s employees. Such stock option plan is subject to the approval of the SFC and the Company’s shareholders at the annual shareholders’ meeting to be held on 23 April, 2004.

Meetings of Shareholders

The ordinary meeting of shareholders of the Company is determined by the Board of Directors and is usually held in the Company’s head office in Hsin-Chu, Taiwan within six months after the end of each calendar year. Extraordinary meetings of shareholders may be convened by a resolution of the Board of Directors whenever they consider it necessary, or if it is so requested in writing by shareholders holding shares for more than one year and holding not less than three per cent. of the paid-in capital of the Company. Extraordinary meetings of shareholders may also be convened by a Supervisor of the Company when necessary. Notice in writing of ordinary and extraordinary shareholders’ meetings stating the place, time and purpose thereof must be dispatched to each shareholder of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting.

Voting Rights

A holder of common stock has one vote for each share of common stock. With respect to the election of Directors and Supervisors by shareholders, it is carried out on a cumulative voting basis.

In general, a resolution can be adopted by the holders of at least a majority of the Shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding Shares are present.

Notwithstanding the above, in order to approve certain major corporate actions, including, any amendment to the articles of incorporation (which is required for, inter alia, any increase in authorised share capital), the dissolution or amalgamation of a company, the entering into, amendment or termination of any contract for the lease of a company’s business in whole, or for entrusted business or for regular joint operation with third parties, the transfer of all or an important part of its business or its properties, the taking over of the whole of the business or properties of any other company which would have a significant impact on the acquiring company’s operations, or the distribution of any stock dividend or dissolution or amalgamation, 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 favour thereof. Alternatively, in the case of a public company, such as the Company, such a resolution may be approved by the holders of at least two-thirds of the common stock represented at a meeting of shareholders with a quorum of holders of at least a majority of issued and outstanding common stock.

A shareholder may be represented at a meeting or an extraordinary meeting by proxy. A valid proxy form must be delivered to the Company at least five days prior to the date fixed for the ordinary or extraordinary meeting. Voting rights attaching to the Shares exercised by proxy shall be subject to ROC proxy regulation.

Registration of Shareholders and Record Dates

The Company maintains the register of shareholders of the Company at its Share Registrar in HsinChu, Taiwan and 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 an Annual Dividend will be determined and announced by the Company. For the purpose of determining the shareholders of common stock entitled to Annual Dividends and other rights pertaining to the common stock, the Company Law provides that, for a public company, 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 record date, respectively.

Annual Financial Statements

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

Transfers of Common Stock

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

Acquisition by the Company of its own Common Stock

With other minor exceptions and the exceptions in the succeeding paragraphs, the Company cannot acquire its own common stock and any common stock acquired by the Company must be sold by the Company at the current market price within six months after its acquisition.

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

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

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

The Shares purchased by the Company pursuant to items (a) and (b) above shall be transferred to the intended transferees within three years after the purchase, otherwise the Shares shall be cancelled. For the Shares to be cancelled pursuant to item (c) above, the Company shall complete amendment registration for such cancellation within six months after the purchase.

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

Liquidation Rights

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

Transaction restrictions

The Securities and Exchange Law (i) requires each director, supervisor, manager or shareholder (together with its spouse, minor children and nominee) holding more than ten per cent. of the shares of a public company to report on a monthly basis, any changes in that person’s shareholding to the company; and (ii) limits the number of shares that can be sold or transferred on the TSE or on the GTSM by that person per day. The number of Shares that can be sold or transferred on the TSE and the GTSM by any such person per day is either (i) for a company with no more than 30 million outstanding Shares, 0.2 per cent. of the outstanding Shares of the company; for a company with more than 30 million outstanding Shares, the aggregate amount of 0.2 per cent. of the 30 million Shares plus 0.1 per cent. of the outstanding shares exceeding 30 million Shares; or (ii) five per cent. of the average trading volume (number of Shares) on the TSE or on the GTSM for the ten consecutive trading days preceding the reporting day on which day the director, supervisor, manager or a shareholder (together with its spouse, minor children and nominee) holding more than ten per cent. of the shares reports the intended share transfer to the SFC.

Notification to shareholders

Information concerning shareholders is published in the local newspapers and a notice is also sent to the shareholders according to the records maintained in the Company’s share register. The Company is responsible for the handling of any financial services with respect to the Company’s Shares.

TERMS AND CONDITIONS OF THE BONDS

Except in limited circumstances set out in the section ‘‘The Global Certificate’’, the Bonds will be issued in book-entry form. Accordingly, the following description of the Bonds which makes reference to Bonds in definitive form should be read in conjunction with the information set out in the section ‘‘The Global Certificate’’ contained elsewhere in this Offering Circular.

The following terms and conditions (subject to amendment and except for the sentences in italics) will be endorsed on the Definitive Certificates (if any) issued in exchange for the Global Certificate, and will be endorsed on such Global Certificate (subject to amendment and including the sentences in italics) issued in respect of the Bonds:

The issue of up to U.S.$120,000,000 Zero Coupon Convertible Bonds due 2009 (the ‘‘Bonds’’, which term includes the U.S.$100,000,000 zero coupon convertible bonds due 2009 (the ‘‘Firm Bonds’’) and up to U.S.$20,000,000 zero coupon convertible bonds due 2009 (the ‘‘Optional Bonds’’) of Sintek Photronic Corp. (the ‘‘Company’’) was authorised by a resolution of the Board of Directors of the Company adopted on 5 February, 2004. The Bonds are constituted by a trust deed (the ‘‘Trust Deed’’) dated as of 6 April, 2004 (the ‘‘Closing Date’’) and made between the Company and The Bank of New York, London branch (the ‘‘Trustee’’, which term includes any successor trustee under the Trust Deed), as trustee for the holders of the Bonds (the ‘‘Bondholders’’). The Company has entered into a paying and conversion agency agreement (the ‘‘Agency Agreement’’) dated as of 6 April, 2004 with the Trustee and The Bank of New York, New York branch as the registrar (the ‘‘Registrar’’) and The Bank of New York, London branch as the principal paying, conversion and transfer agent (the ‘‘Principal Agent’’, the ‘‘Paying Agent’’, the ‘‘Conversion Agent’’ and the ‘‘Transfer Agent’’, which terms include any successors thereto under the Agency Agreement) in relation to the Bonds. The Registrar, the Principal Agent, the Paying Agent, the Conversion Agent and the Transfer Agent are together referred to as the ‘‘Agents’’. The statements in these Terms and Conditions (‘‘Conditions’’) include summaries of, and are subject to, the detailed provisions of the Trust Deed. In the event of any inconsistency between the provisions of the Trust Deed, the Conditions or the Agency Agreement, the provisions of the Trust Deed shall prevail. Copies of the Trust Deed and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, at the date of issue of the Bonds at One Canada Square, 48th Floor, London E14 5AL, England and at the specified offices of each of the Agents. The Bondholders are entitled to the benefit of the Trust Deed and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

The owners shown in the records of Euroclear Bank S.A./N.V. as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’) of book-entry interests in the Bonds are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

1. STATUS

The Bonds constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Company and rank and will rank pari passu without any preference or priority among themselves and (subject as aforesaid and other than any obligations preferred by mandatory provisions of law) shall at all times rank at least equally with all other present and future direct, unconditional, unsubordinated and unsecured obligations of the Company.

2. FORM, DENOMINATION AND TITLE

(A) Form and Denomination

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds will be offered, sold and will be transferable in principal amounts of U.S.$1,000 or an integral multiple thereof. The Bonds are not issuable in bearer form.

The Bonds will initially be represented by a global certificate (the ‘‘Global Certificate’’) deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear Bank S.A./N.V., as operator of the Euroclear System and Clearstream, Luxembourg.

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

(B) Title

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

3. NEGATIVE PLEDGE

So long as any of the Bonds remain outstanding (as defined in the Trust Deed), the Company shall not create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance or security interest (each an ‘‘Encumbrance’’) upon the whole or any part of its undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined below) (i) payment of any sum due in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities without in any such case at the same time according to the Bonds, either the same security as is granted to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or other like obligation or such other security as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders.

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

4. NO INTEREST

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

5. TRANSFERS OF BONDS; ISSUE OF DEFINITIVE CERTIFICATES

(A) Transfers

Subject to Condition 5(D) below, a Bond may be transferred as follows: (i) upon the surrender at the specified office of any Transfer Agent of the Definitive Certificate in respect of the Bond to be transferred, together with the form of transfer obtainable from any of the Transfer Agents (the ‘‘Form of Transfer’’), duly completed and executed and any other evidence that such Transfer Agent may require, 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 require. In the case of a transfer of only part of a holding of Bonds in respect of which a Definitive Certificate is issued, a new Definitive Certificate shall be issued to the transferee in respect of the part

transferred and a further new Definitive Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. The Form of Transfer is available at the specified office of the Transfer Agent during normal business hours.

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

(B) Delivery of New Definitive Certificates

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

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

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

(C) Formalities Free of Charge

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

(D) No Transfer Periods

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

(E) Regulations

All transfers of Bonds and entries on the register of Bondholders will be made subject to the detailed regulations concerning transfer of Bonds (the ‘‘Regulations’’) set forth in the Agency Agreement. The Regulations may be changed by the Company with the prior written approval of the Trustee and the Registrar. A copy of the Regulations will be mailed (at the Company’s expenses) by the Registrar to any Bondholder upon written request.

6. CONVERSION

On exercise of the Conversion Right (as defined below), the converting Bondholders will receive Shares in ROC. To convert a Bond into Shares, the Bondholder must deposit the Bond and the Conversion Notice (as defined herein) with the Conversion Agent.

The Company shall, within five Trading Days (as defined in Condition 8(B) and subject to certain exceptions) after the relevant Conversion Date, issue and deliver the Shares converted from the Bond to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Agency Agreement being satisfied.

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

(A) Conversion Right

(i) Conversion Period: Subject to the terms set forth herein and in the Trust Deed, each Bondholder has the right during the Conversion Period (as defined below) to convert any Bond into the Company’s common shares, NT$10 par value per share (‘‘Shares’’), credited as fully paid as directed in the Conversion Notice (as defined in Condition 6(B)(i)) (the ‘‘Conversion Right’’). Subject to, and upon compliance with, the provisions of this Condition, the Conversion Right attaching to any Bond may be exercised, at the option of the holder thereof and as and to the extent provided herein, at any time on or after 6 May, 2004 and prior to the close of business (at the place where the Conversion Notice and the relevant Definitive Certificate, if issued, in respect of such Bond is deposited for conversion) on 7 March, 2009 (or if such date shall not be a business day (as defined below), on the immediately preceding business day at such place) (but in no event thereafter), or, if such Bond shall have been called for redemption prior to 7 March, 2009, then up to the close of business (at the place aforesaid) on the date seven days prior to the date fixed for redemption thereof (or if such day shall not be a business day at such place on the immediately preceding business day at such place) (the ‘‘Conversion Period’’); provided, however, that the Conversion Right shall be suspended during any Closed Period and the Conversion Period shall not include any such Closed Period.

For the purposes of these Conditions, ‘‘Closed Period’’ shall mean any period during which under the laws and regulations of the ROC the Company shall close its shareholders register, which period includes (a) 60 days prior to the date of an ordinary meeting of shareholders, (b) 30 days prior to an extraordinary shareholders’ meeting, and (c) the period from the third Taiwan Business Day prior to the date for reporting the record date for determination of shareholders entitled to receive annual dividend distributions or other benefits or rights to the Taiwan Stock Exchange (‘‘TSE’’) to such record date. In case any amendments are made to the aforesaid laws and regulations, the conversion shall be construed in accordance with the prevailing laws and regulations. The Company shall procure that the Bondholders are given not less than 7 days nor more than 60 days prior notice of any Closed Period in accordance with Condition 15.

In this Condition 6(A)(i), ‘‘business day’’ means a day (other than a Saturday or Sunday) on which commercial banks are open for business in London, and in the place where the Conversion Agent with whom the relevant Definitive Certificate, if issued, and the Conversion Notice are deposited is open for business.

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

Under current ROC law, regulation and policy, PRC persons are not permitted to hold or convert the Bonds or to register as a shareholder of the Company. Under current ROC law, a ‘‘PRC person’’ means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong or Macau, if so excluded by

applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership and other entity organised under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

Under current ROC law, a non-ROC converting Bondholder, before exercising its conversion right to convert a Bond into Shares, is required to register with the TSE and, if applicable, to obtain the approval from the Central Bank of China (if such holder is an offshore foreign institutional investor). A non-ROC converting Bondholder, when exercising its Conversion Right to convert a Bond into Shares is required to appoint a local agent in the ROC with such qualifications as are set by the SFC to open a securities trading account with a local brokerage firm and a NT dollar bank account, pay ROC withholding taxes, remit funds, exercise shareholders’ rights, handle conversion applications and perform such other matters as may be designated by such converting Bondholder (or its designee), on behalf of and as agent for such converting Bondholder (or its designee). In addition, such non-ROC converting Bondholder must also appoint a custodian bank to hold the securities for safekeeping, make confirmation and settlement, and report all relevant information. Under existing ROC laws and regulations, without opening such accounts, an investor in the Bonds would not be able to receive, hold, sell or otherwise transfer the Shares into which the Bonds may have been converted on the TSE or otherwise. See ‘‘Foreign Investment and Exchange Controls in the ROC’’ and ‘‘Description of the Shares’’.

(ii) Number of Shares Issuable on Conversion: The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT dollars at the fixed exchange rate of NT$33.195 = U.S.$1.00 (the ‘‘Fixed Exchange Rate’’)) by the Conversion Price (as defined in Condition 6(A)(iii)) in effect on the Conversion Date (as defined in Condition 6(B)(ii)).

If more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds so deposited. Fractions of Shares will not be issued on conversion, and cash adjustments will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of a consolidation or reclassification of Shares by operation of law or otherwise occurring after 6 April, 2004, the Company will upon conversion of the Bonds pay in U.S. dollars a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share not issued as aforesaid if such sum exceeds U.S.$10. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 6(A)(ii).

(iii) Initial Conversion Price: The price at which Shares will be issued upon conversion (as adjusted from time to time, the ‘‘Conversion Price’’) will initially be NT$28.66 per Share, but will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E).
(iv) Revival on Default: Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption on the date fixed for redemption thereof, the Conversion Right attaching to such Bond will continue to be exercisable up to and including the close of business (at the place where the relevant Definitive Certificate, if issued, in respect of such Bond and the Conversion Notice are 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 Bondholders.

(B) Conversion Procedure

(i) Exercise Procedure: To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at its own expense between 9: 00 a.m. and 3: 00 p.m. (local time at the specified office referred to below) on any business day (as defined below) during the Conversion Period at the specified office of a Conversion Agent outside the ROC:
(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 Bond;
(b) any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located; and
(c) any amount required to be paid by the Bondholder referred to in Condition 6(B)(ii) below.

A Conversion Notice or a Definitive Certificate deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with that Agent between 9: 00 a.m. and 3: 00 p.m. on the next following business day.

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

The Conversion Notice shall contain, inter alia, an appointment of a local agent by such converting Bondholder and an irrevocable instruction to convert the relevant Bond for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares are available and any other information required by ROC laws and regulations. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company, the Principal Agent and Trustee being immediately notified in writing of such written consent of the Company accompanied by the relevant Conversion Notice.

The Company, or a Conversion Agent on its behalf, may reject any incomplete or incorrect Conversion Notice or any Conversion Notice that is not accompanied by any amount payable under Condition 6(B)(ii) below. All costs and expenses incurred or caused by an incomplete or incorrect Conversion Notice shall be for the account of the relevant holder.

In this Condition 6(B)(i), ‘‘business day’’ means a day (other than a Saturday or Sunday) on which commercial banks are open for business in London, and in the city of the Conversion Agent with whom the relevant Definitive Certificate, if issued, and the Conversion Notice are deposited.

(ii) Taxes and Expenses; Deposit Date and Conversion Date: As condition precedent to the exercise of the Conversion Right attaching to any Bond, together with deposit of the Conversion Notice and delivery of the other documents referred to in Condition 6(B)(i) above, the Bondholder must pay to the relevant Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares on conversion of Bonds and all charges of the Conversion Agents in connection therewith as provided in the Agency Agreement. The date on which, in respect of any Bond, (a) the relevant Definitive Certificate (if issued); (b) the duly signed and completed

Conversion Notice (in duplicate) relating thereto, and (c) any certificates and other documents as may be required under applicable law, are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the ‘‘Deposit Date’’. The ‘‘Conversion Date’’ applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day and occurs during the Conversion Period.

(iii) Holder of Record: With effect from the opening of business in the ROC on the Conversion Date, the Company will deem the converting Bondholder (or its designee) as indicated in the Conversion Notice to have become the holder of record of the number of Shares to be issued upon such conversion to such holder (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and at such time, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds deposited for conversion shall cease (except rights arising under Conditions 6(B)(iv) and 6(B)(vi)).
(iv) Availability of Shares: The Company shall, as soon as possible and in any event, no later than five Trading Days after the Conversion Date, for the benefit of Bondholders, ensure that sufficient Shares which are listed on the TSE are available to satisfy the Conversion Right.
(v) Delivery of Shares: As of the Conversion Date, the Company will register the converting Bondholder (or its designee) in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds. Subject as set forth below and subject further to any applicable limitations then imposed by ROC laws and regulations and the obtaining of the TSE’s approval, if required, according to the request made in the relevant Conversion Notice, the Company shall deliver, as soon as practicable, and in any event within five Trading Days after the Conversion Date, to the local agent appointed by the converting Bondholder (for the benefit of the converting Bondholder) the following:
(a) the relevant Shares, through book-entry transfer to an account registered in the name of the converting Bondholder or the name of its designee at the Taiwan Securities Central Depositary Co., Ltd. or its successor;
(b) any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion; and
(c) such documents as may be required by law to effect the delivery thereof.
(vi) 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 6(C) and the Trust Deed 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 effective date of such adjustment of the Conversion Price, issue and deliver (to the local agent appointed by the converting Bondholder) such number of Shares as is equal to the excess of (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 at 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 6(B)(ii) and (v) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively). Fractions of Shares shall not be issued and no cash adjustment shall be made in respect thereof.

(vii) Dividends and Other Entitlements: The converting Bondholders will be entitled to the annual dividend distributions or other benefits if the Conversion Date falls prior to the third Taiwan Business Day prior to the date for reporting the record date for determination of shareholders entitled to receive such dividend distribution or benefits to the TSE.
(viii) Conversion Agents: The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to appoint further or other Conversion Agents; provided that the Company will at all times maintain a Conversion Agent having specified offices in London. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents will be given promptly by the Company to the Principal Agent, the Trustee, and the Bondholders in accordance with Condition 15.

The Company has certain disclosure obligations and reporting obligations under ROC law and regulation if:

(i) the person to be registered as a shareholder is a ‘‘related party’’ of the Company under Statements of Financial Accounting Standard No. 6 of the ROC and such person beneficially owns Shares converted from the Bonds; or
(ii) the person to be registered as a holder of Shares owns Shares converted from the Bonds and the Shares converted exceed ten per cent. of the total number of the Shares expected to be converted based on the conversion price at the time of issue of the Bonds.

Due to these obligations, the Company may ask the converting holders of the Bonds to disclose the name of the person to be registered as the shareholder and to provide proof of identity and genuineness of any signature and other documents before it will convert the Bonds. The conversion of the Bonds may be delayed until the Company receives the required information and satisfactory evidence of the compliance with relevant laws and regulations by the holders of the Bonds. The information that the holders of the Bonds are required to provide includes the name and nationality of the person to be registered as shareholder and the total number of Shares such person has or will receive as a result of the conversion of the Bonds it holds.

(C) Adjustments to Conversion Price

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

(i) the making of a free distribution or bonus issue of Shares;
(ii) subdivisions, consolidations or reclassifications of Shares;
(iii) the declaration of a dividend in Shares;

Under the terms of the Trust Deed, no account is to be taken of, or credit given for, the par value of Shares issued in any stock dividend in calculating an appropriate conversion price adjustment, so that the full dilutive effect of stock dividends is provided for.

(iv) the declaration of a cash dividend to shareholders;
(v) the grant, issue or offer to the holders of Shares (and/or employees or persons other than holders of Shares) of options, rights or warrants to subscribe for or purchase Shares at less than the then Current Market Price (as defined in the Trust Deed) or to subscribe for or purchase any securities convertible into or exchangeable for, or which confer rights to purchase, Shares at less than the then Current Market Price;

(vi) the distribution to the holders of Shares of evidences of indebtedness of the Company or of shares of capital stock of the Company (other than Shares) or of assets (other than regular periodic dividends in cash) or of rights or warrants to subscribe for or purchase shares or securities (other than those mentioned in (v) above);
(vii) the issue of securities (other than the Bonds and those mentioned in (v) and (vi) above) convertible into or exchangeable for Shares at less than the then Current Market Price or of rights or warrants (other than those mentioned in (v) and (vi) above) to subscribe for or purchase Shares at less than the then Current Market Price or to subscribe for or purchase securities convertible into or exchangeable for Shares at less than the then Current Market Price;
(viii) the issue of Shares (other than (a) Shares issued on conversion of convertible bonds, including the Bonds, or (b) Shares issued to shareholders of any company which merges with the Company upon such merger and in proportion to their shareholdings in such company immediately prior to such merger, or (c) in any of the circumstances described above; but including Shares issued under any employee bonus or profit-sharing arrangements) at less than the then Current Market Price; and

Under the terms of the Trust Deed, no account is to be taken of, or credit given for, the par value of Shares issued in any employee bonus or profit-sharing arrangements in calculating the appropriate Conversion Price adjustment, so that the full dilutive effect is provided for.

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

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

The Trust Deed provides that the Conversion Price may be reduced, as a result of any adjustment required by this Condition 6(C), below the par value of the Shares for the time being to the extent permitted by ROC law, provided that any Shares issued on conversion of Bonds at such reduced Conversion Price would be legally issued and fully-paid Shares that cannot be assessed to pay debts of the Company in the event of its bankruptcy and liquidation.

The Trustee will not be obliged to monitor whether any event has occurred which might fall within (i) to (viii) and shall assume that no such event has occurred above until it has actual knowledge by way of express notice in writing from the Company to the contrary.

(D) Conversion Price Reset

The Conversion Price may be adjusted on 6 October, 2004, 6 October, 2005, 6 October, 2006, 6 October, 2007 and 6 October, 2008 (each a ‘‘Reset Date’’) in the event that the average of the Closing Price (as defined in Condition 8(B)) of the Shares on the TSE for the 5 consecutive Trading Days (as defined in Condition 8(B)) immediately preceding the relevant Reset Date (the ‘‘Reset Closing Price’’) translated into U.S. dollars at the then Prevailing Rate (as defined below) is less than the Conversion Price in effect on the relevant Reset Date translated into U.S. dollars at the Fixed Exchange Rate, in accordance with the following formula:

Adjusted Conversion Price = Reset Closing Price x 110.0% x Fixed Exchange Rate Prevailing Rate

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

(i) any adjustment to the Conversion Price pursuant to this Condition 6(D) shall be limited so that the Conversion Price adjusted in accordance with this Condition 6(D) shall not be less than 80 per cent. of the initial Conversion Price (as adjusted to reflect any adjustments required under Condition 6(C) above, which may have occurred prior to the Reset Date);
(ii) the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to ensure that appropriate adjustments shall be made to any Closing Price to reflect any adjustments made to the Conversion Price in accordance with Condition 6(C) for the calculation of the Reset Closing Price; and
(iii) for the avoidance of doubt any adjustments to the Conversion Price made pursuant to this Condition 6(D) shall only be downward adjustments.

The ‘‘Prevailing Rate’’ for the translation of the Closing Prices shall be the arithmetic average of the closing rate for the purchase of U.S. dollars with NT dollars quoted by Taipei Forex Inc. (or any replacement entity selected by the Company with the written consent of the Trustee) at the close of business on each day during the relevant 20 consecutive Trading Days period.

For the purpose of the formula in this Condition, the Prevailing Rate shall be expressed as the number of NT dollars per U.S.$1.00.

Any such adjustment shall become effective as of the relevant Reset Date and the Bondholders and the Trustee shall be notified promptly of any adjustment to the Conversion Price in accordance with Condition 15.

(E) Mergers; Disposals

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

(F) Conversion Undertakings

The Company undertakes to ensure that any Closed Period is as short a period as is reasonably practicable having regard to applicable ROC laws, regulations and practices.

In the event of an adjustment to the Conversion Price in accordance with this Condition 6, the Bondholders and the Trustee will be notified in accordance with Condition 15.

(G) Company’s Undertakings

The Company will use its best efforts (a) to obtain and maintain a listing on the TSE for all the Shares, including Shares issued upon the conversion of the Bonds and (b) subject to the provisions of Condition 8(F), if the Company is unable to obtain or maintain such listing, to obtain and maintain a listing for all such Shares, including Shares issued upon the conversion of the Bonds, on any other exchanges as the Company may from time to time (with the written consent of the Trustee) determine. The Company will forthwith give notice to the Bondholders as soon as practicable in accordance with Condition 15 of the listing or delisting of such Shares by the TSE or any such stock exchange.

7. PAYMENTS

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

Payment of principal, premium (if any) and interest (if any) will be made (i) by transfer to the registered account of the Bondholder, or (ii) by U.S. dollar cheque drawn on a bank in New York City mailed to the registered address of the Bondholder if it does not have a registered account. Payments of principal, interest (if any) and premium (if any) of any Bond represented by a Definitive Certificate will only be made after surrender of the relevant Definitive Certificate at the specified office of any Agent. While making payments to Bondholders, fractions of one cent will be rounded down to the nearest cent.

(B) Registered Accounts

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

(C) Fiscal Laws

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

(D) Payment Initiation

Where payment is to be made by transfer to a registered account, payment instructions for value on the due date (or, if that date is not a business day, for value on the next following business day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the due date for payment, provided that payments in respect of a Bond represented by a Definitive Certificate, shall only be made on the business day on which the relevant Definitive Certificate is surrendered at the specified office of an Agent.

(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 four per cent. per annum from the due date. 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.

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

(F) Business Days

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

(G) Partial Payments

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

8. REDEMPTION, PURCHASE AND CANCELLATION

(A) Redemption at Maturity

Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will redeem the Bonds at 100 per cent. of their principal amount in U.S. dollars on 6 April, 2009 (‘‘Maturity Date’’).

The Bonds may be redeemed in whole or in part prior to that date only as provided in paragraphs (B), (C) and (D) below (but without prejudice to Condition 10).

(B) Redemption at the Option of the Company

The Company may, having given not less than 30 nor more than 60 days’ notice to the Bondholders (which notice will be irrevocable):

(i) redeem all, or a portion of, the Bonds at 100 per cent. of their principal amount, at any time after 6 April, 2005, if the Closing Price (as defined below) of the Shares on the TSE translated into U.S. dollars at the Prevailing Rate (as defined in Condition 6(D)) for each of the 20 consecutive Trading Days (as defined below), the last of which occurs not more than ten days prior to the date upon which notice of such redemption is given, is at least 130 per cent. of the Conversion Price then in effect, translated into U.S. dollars at the Fixed Exchange Rate, on each such Trading Day. If there shall occur an event giving rise to a change in the Conversion Price during any such 20 consecutive Trading Days period, appropriate adjustment for the relevant days shall be made for the purpose of calculating the Closing Price for such days. If the Closing Price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 20 Trading Days period; or
(ii) redeem all, but not less than all, the Bonds at 100 per cent. of their principal amount, at any time, if not less than 90 per cent. of the Bonds has been previously converted, redeemed, repurchased and cancelled.

Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which such notice relates at 100 per cent. of their principal amount at the date fixed for redemption.

For the purpose of these Conditions:

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

‘‘Closing Price’’ for any Trading Day means the last reported transaction price of the Shares on the TSE (or any Alternative Stock Exchange (as defined in the Trust Deed)) or, if no transaction takes place on such day, the average of the closing bid and offered prices of Shares on the TSE (or, as the case may be, such Alternative Stock Exchange) on the Trading Day immediately preceding such day, for such day as furnished by a leading independent securities firm licensed to trade on the TSE (or, as the case may be, such Alternative Stock Exchange) selected from time to time by the Company and approved by the Trustee for the purpose.

(C) Redemption at the Option of Bondholders

The Company will, at the option of the holder of any Bond, redeem the Bonds held by that Bondholder on 6 April, 2006 or 6 April, 2007 (each a ‘‘Put Date’’) at 100 per cent. of their principal amount.

To exercise such option, the holder must deposit the Definitive Certificate, if issued, in respect of such Bond with any Agent and a duly completed redemption notice in the form obtainable from any of the Agents, not more than 60 nor less than 30 days prior to the relevant Put Date. No Bond so deposited may be withdrawn (except as provided in the Agency Agreement) without the prior written consent of the Company and such written consent must be notified by the Company to the Principal Agent no later than seven days prior to the Put Date. The Company shall give the Bondholders not less than 30 nor more than 45 days notice of the commencement of the period for redemption of Bonds pursuant to this paragraph (C) in accordance with Condition 15. The exercise of the Bondholders’ option under this Condition 8(C) in respect of any Bonds then outstanding shall override any exercise of the Company’s right under Condition 8(B) with respect to those Bonds, irrespective of the dates fixed for redemption under Condition 8(B) and 8(C) or the timing of the notices given by the Bondholders or the Company pursuant thereto.

(D) Redemption for Taxation Reasons

At any time, the Company may, having given not less than 30 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(I) and 15 (which notice shall be irrevocable) redeem the Bonds, in whole but not in part, at 100 per cent. of their principal amount, if (i) the Company determines immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 9(C) as a result of any change in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 6 April, 2004 and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such additional amounts were a payment in respect of the Bonds then due. Prior to the giving of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate signed by two directors of the Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedents set out in (ii) above, in which event it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of redemption has been given under Condition 8(B), Condition 8(C) and Condition 8(F) shall not be affected by any notice given subsequently under this Condition 8(D).

(E) Purchase

The Company may at any time and from time to time purchase Bonds in the open market or otherwise. Bonds so purchased shall be surrendered to the Principal Agent for cancellation and may not be held and reissued or resold. If purchases by the Company are made by tender, the tender must be made to all Bondholders alike.

(F) Delisting Put Right

(i) In the event the Shares cease to be listed or admitted to trading on the TSE for a period of not less than five Trading Days (a ‘‘Delisting’’), each Bondholder shall have the right (the ‘‘Delisting Put Right’’), at such Bondholder’s option, to require the Company to purchase all (but not less than all) of the Bonds held by that Bondholder at 100 per cent. of their principal amount on a day (the ‘‘Delisting Put Date’’) that is the 20th business day (as defined in Condition 7(F)) after the Bondholder has been notified by the Company of the Delisting in accordance with Condition 8(F)(ii) below

(ii) Promptly after becoming aware of a Delisting, the Company shall notify the Bondholders and the Trustee of the Delisting and of their Delisting Put Right in accordance with Condition 15, which notice shall state:
(a) the Delisting Put Date;
(b) the date of such Delisting and, briefly, the events causing such Delisting;
(c) the date by which the Purchase Notice (as defined below) must be given;
(d) the amount payable in respect of any redemption of the Bonds under a Purchase Notice (such amount being 100 per cent. of their principal amount) and the method by which such amount will be paid;
(e) the names and addresses of all Paying Agents; and
(f) that a Purchase Notice, once validly given, may not be withdrawn.

To exercise its right to require the Company to purchase its Bonds, the Bondholder must deliver a written notice of the exercise of such right (a ‘‘Purchase Notice’’) to any Paying Agent on any business day (as defined in Condition 7(F)) prior to the close of business at the specified office of such Paying Agent on such day and which day is not less than 10 business days (as defined in Condition 7(F)) prior to the Delisting Put Date.

Upon exercise of the Delisting Put Right, payment of 100 per cent. of the principal amount in respect of any Bond for which a Purchase Notice has been delivered is conditional upon delivery of the Definitive Certificate, if issued, in respect of such Bond (together with any necessary endorsements) to any Paying Agent on any business day (as defined in Condition 7(F)) together with the delivery of such Purchase Notice and will be made promptly and no later than five days following the later of the Delisting Put Date or the time of delivery of such Certificate. If the Paying Agent holds on the Delisting Put Date money sufficient to pay 100 per cent. of the principal amount of the Bonds for which Purchase Notices have been delivered in accordance with the provisions hereof upon exercise of such right, then, whether or not such Bond is delivered to the Paying Agent, on and after such Delisting Put Date, (i) such Bond will cease to be outstanding, (ii) such Bond will be deemed paid; and (iii) all other rights of the Bondholder shall terminate (other than the right to receive payment of 100 per cent. in respect of such Bond).

(G) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(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 60 days and not less than 30 days prior to the date fixed for redemption.

(H) Cancellation

All Bonds which are redeemed, converted or purchased and surrendered to any Agent will forthwith be cancelled. The Definitive Certificates, if issued, in respect of all Bonds cancelled will be forwarded to, or to the order of, the Principal Agent and such Bonds may not be reissued or resold.

(I) Redemption Notices

All notices to Bondholders given by or on behalf of the Company pursuant to this Condition will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a partial redemption, a list of the Bonds called for redemption all in accordance with Condition 15.

TAXATION

Interest (if any) and premium (if any) payable on the Bonds to non-residents of the ROC is currently subject to a withholding tax in the ROC equal to 20% of the gross amount of such interest (if any) and premium (if any). A securities transaction tax of 0.3% levied on proceeds from the sale of common shares will be payable by the seller of the common shares.

(A) All payments of principal, premium (if any) and interest (if any) by the Company will be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law.
(B) Where such withholding or deduction is in respect of ROC withholding tax on premium (if any) or interest (if any) payments at the rate of up to and including 20 per cent., the Company will increase the amount of premium (if any) or interest (if any) paid by it to the extent required so that the net amount of premium (if any) or interest (if any) received by Bondholders (without prejudice to Condition 7) would be equal to the amounts which would have been receivable in the absence of any such withholding or deduction.
(C) In the event that any such withholding or deduction in respect of principal or any additional withholding or deduction in excess of 20 per cent. in respect of interest (if any) or premium (if any) is required, the Company will pay such additional amounts by way of principal, premium (if any) and interest (if any), as will result in the receipt by the Bondholders of the amounts which would have been receivable in the absence of any such withholding or deduction, except that no such additional amounts shall be payable in respect of any Bond:
(i) to, or on behalf of, a holder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his being connected with the ROC other than merely by holding such Bond or by the receipt of principal, premium (if any) or interest (if any) in respect of the Bond; or
(ii) to or on behalf of a holder of the Bond or its beneficial owner to the extent that such holder or beneficial owner would not be liable for or subject to such deduction or withholding by making a declaration of non-residence or other claims for exemption or deduction to the relevant tax authorities if such holder or beneficial owner fails to timely do so; or
(iii) if the Definitive Certificate, if issued, in respect of such Bond is surrendered more than 30 days after the relevant date, except to the extent that the holder would have been entitled to such additional amount on surrendering the relevant Definitive Certificate for payment on the last day of such 30 day period; or
(iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the provisions of the ECOFIN Council meeting of 26–27 November, 2000 on the taxation of savings, income, or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(v) to or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Bond to another Paying Agent in a Member State of the European Union; or
(vi) any combination of withholdings or deductions referred to in paragraph (i) to (v) above.

For this purpose, the ‘‘relevant date’’ in relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full amount of the monies payable on such due date has not been received by the Trustee or the Principal Agent on or prior to such due date) the date on which notice is duly given to the Bondholders that such monies have been so received.

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

10. EVENTS OF DEFAULT

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

(i) the Company fails to pay the principal of or interest (if any) or premium on any of the Bonds within seven business days (as defined in Condition 7(F)) after the same shall become due and payable in accordance with these Conditions; or
(ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay the principal, premium or interest (if any) in respect of the Bonds) set out in the Bonds or the Trust Deed which default is, in the opinion of the Trustee, incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy, such default is not in the opinion of the Trustee remedied within 30 days after written notice of such default shall have been given to the Company by the Trustee; or
(iii) any other present or future indebtedness of the Company for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred and is continuing equals or exceeds U.S.$5,000,000 or its equivalent in any other currency (determined as provided below); or
(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company and in any such case is not discharged or stayed within 120 days of having been so levied, sued out, commenced or issued; or
(v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance (as defined in Condition 3) upon the whole or any substantial part of the assets or revenues of the Company; or
(vi) the Company (a) becomes bankrupt or insolvent or is unable to pay its debts as they mature; or (b) applies for or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganisation, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company; or (c) takes any proceedings under any applicable law for a readjustment or an arrangement or composition with or for the benefit of the Company or its creditors; or (d) except as provided in these Conditions, the Company stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts; or

(vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed by the Company for the winding-up or dissolution of the Company (except for the purpose of and followed by a solvent reconstruction, merger, consolidation, amalgamation or other similar arrangement or an Extraordinary Resolution of the Bondholders); or
(viii) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company; or
(ix) proceedings shall have been initiated against the Company by its creditors under any applicable bankruptcy, insolvency or reorganisation law and such proceedings shall not have been discharged or stayed within a period of 120 days; or
(x) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Trust Deed, (ii) ensure that those obligations are legally binding and enforceable (subject to the qualifications set out in the legal opinion issued in connection therewith) and (iii) make the Bonds and the Trust Deed admissible in evidence in the courts of the ROC is not taken, fulfilled or done, and such case is incapable of remedy or, if in the opinion of the Trustee is capable of remedy, is not in the opinion of the Trustee remedied within 30 days after written notice requiring such remedy shall have been given to the Company by the Trustee; or
(xi) it is or will become unlawful for the Company to perform or comply with any of its obligations under or in respect of the Bonds or the Trust Deed; or
(xii) any representation, warranty or statement made under Clause 5.1 of the Subscription Agreement is or proves to have been incorrect when made or in the case of any representation and warranty in relation to assumptions, projections or forecasts, proves not to have been fair and reasonable when made; or
(xiii) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

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

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

11. PRESCRIPTION

Under ROC law, claims in respect of (a) principal and premium and (b) default interest will become unenforceable after 15 years and 5 years, respectively, from the relevant date for payment in respect thereof.

For the purposes of this Condition 11, ‘‘default interest’’ means interest that will accrue on any unpaid amount of the Bonds which are due and payable, in accordance with the Conditions herein.

12. ENFORCEMENT

At any time after the Bonds shall have become due and payable, the Trustee may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce payment of the Bonds together with premium and interest (if any) with respect thereto and to enforce the provisions of the Trust Deed, but it will not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the holders of at least 25 per cent. in principal amount of the Bonds then outstanding

or so directed by an Extraordinary Resolution and (b) it shall have been indemnified and/or been provided security to its satisfaction. No Bondholder will be entitled to proceed directly against the Company, unless the Trustee, having become bound to do so, fails to do so and such failure shall have continued for a period of 60 days and no direction inconsistent with such written request or Extraordinary Resolution has been given to the Trustee during such 60-day period by the holders of a majority in principal amount of the outstanding Bonds.

13. MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER

(A) Meetings

The Trust Deed contains provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Bonds or the provisions of the Trust Deed. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons holding or representing over 50 per cent. in principal amount of the Bonds for the time being outstanding or, at any such meeting which has been adjourned, two or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity date of the Bonds or the put right of the Bondholders under Conditions 8(C) and 8(F), (ii) to reduce or cancel the amount of principal, premium (if any) or interest (if any) payable in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify or cancel the Conversion Right (except in accordance with Conditions 6(B) and 13(B)) or to modify the circumstances in which the Bonds may be redeemed or converted at the option of the Company or to shorten the Conversion Period, (vi) to modify the provisions relating to the adjustment and resetting of the Conversion Price, (vii) to modify the provisions concerning the quorum required at any meeting of the Bondholders or the majority required to pass an Extraordinary Resolution or sign a resolution in writing, in which case the necessary quorum for passing an Extraordinary Resolution will be two or more persons holding or representing over two-thirds, or at any adjourned such meeting over one-third, in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are present at the meeting, and will be conclusive and binding upon all future Bondholders.

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

The Trust Deed defines ‘‘Extraordinary Resolution’’ as a resolution passed at a meeting of Bondholders duly convened and held in accordance with these provisions by a majority consisting of not less than three-quarters of the votes cast.

(B) Modification of Conversion Right

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

(C) Other Modifications and Waivers

The Trustee may (but shall not be in any way be obligated to) agree, in writing, without the consent of the Bondholders, to (i) any modification (except as mentioned above) of, or the waiver or authorisation of any breach or proposed breach of, the Bonds or the Trust Deed which is not materially prejudicial to the interests of the Bondholders or (ii) any modification of the Bonds or the Trust Deed

which is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. The Trustee’s agreement may be subject to obtaining, at the sole expense of the Company, an opinion of an investment bank or legal or other expert. The Trustee shall not take any action unless it has been indemnified and/or secured to its satisfaction. Any such modification, waiver or authorisation will be binding on the Bondholders and, unless the Trustee agrees otherwise, any such modification will be notified by the Company to the Bondholders in accordance with Condition 15 as soon as practicable thereafter.

(D) Exercise of Trustee’s Functions

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

14. REPLACEMENT OF DEFINITIVE CERTIFICATES

If any Definitive Certificate is mutilated, defaced or is alleged to be destroyed, stolen or lost, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company may reasonably require (which terms will require, inter alia, that if such Definitive Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company on demand such costs (equal to the principal, premium (if any) and interest (if any) due on the relevant Bond at the Fixed Exchange Rate). Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.

15. NOTICES

All notices to Bondholders shall be validly given if (i) made in writing, in English and mailed to them at their respective addresses in the register of Bondholders maintained by the Registrar or (ii) if published in a leading daily newspaper printed in English language and with general circulation in Asia (which is expected to be the Asian Wall Street Journal).

Any such notice shall be deemed to have been given on the later of the date of such publication and the seventh day after being so mailed. If it is impracticable to publish any notices to Bondholders as provided above, then any other form of notification approved by the Trustee shall constitute sufficient notice to such Bondholders for every purpose hereunder.

So long as the Bonds are represented by a Global Certificate and the Global Certificate is held on behalf of Euroclear or Clearstream, Luxembourg or the alternative clearing system (as defined in the Global Certificate), notices to holders of the Bonds may be given by delivery with the relevant notice to Euroclear or Clearstream, Luxembourg or the alternative clearing system, for communication by it to the entitled accountholder in substitution for notification as required by these Conditions, or if such notification is not practical, in a leading daily newspaper printed in English language having general circulation in Asia (which is expected to be the Asian Wall Street Journal).

16. INDEMNIFICATION

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

17. 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, provided that the Company will at all times maintain (a) a Principal Agent, (b) a Registrar maintaining a register of holders outside the United Kingdom, and (c) a

Paying Agent having specified offices in a European Union member state that will not be obliged to withhold or deduct tax pursuant to the European Council Directive 2003/48.EC or any other European Union Directive implementing the provisions of the ECOFIN Council Meeting of 26–27 November, 2000 on taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly by the Company to the Bondholders and the Trustee in accordance with Condition 15.

18. GOVERNING LAW AND JURISDICTION

(A) Governing Law

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

(B) Jurisdiction

The courts of England are to have jurisdiction over 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 (‘‘Proceedings’’) may be brought in such courts. The Company has in the Trust Deed irrevocably submitted to the jurisdiction of such courts.

(C) Agent for Service of Process

The Company has irrevocably appointed Law Debenture Corporate Services Limited at Fifth Floor, 100 Wood Street, London EC2V 7EX as its agent in England to receive service of process in any Proceedings in England based on any of the Bonds.

(D) Third Party Rights

No rights are conferred on any person to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

THE GLOBAL CERTIFICATE

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

Meetings

The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Bonds for which the Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which the Global Certificate has been issued to attend and speak (but not to vote) at a meeting of Bondholders on appropriate proof of his identity and interest.

Cancellation

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

Trustee’s Powers

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

Conversion

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

Payments

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

Notices

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear or Clearstream, Luxembourg or the Alternative Clearing System (as defined below), notices to Bondholders may be given by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg or the Alternative Clearing System, for communication by it to entitled accountholders in substitution for notification as required by the Conditions, or if such notification is not practical, in a leading daily newspaper printed in English language having general circulation in Asia (which is expected to be the Asian Wall Street Journal). Any such notice giving only by delivery as aforesaid shall be deemed to have been given on the seventh day after the date of such publication.

Put Options

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

Call Option

The call option exercisable by the Company in Conditions 8(B) and 8(D) may be exercised by the Company giving notice to the Bondholder within the time limits set out in and containing the information required by those Conditions and Condition 8(I).

Registration of Title

Certificates in definitive form for individual holdings of Bonds will not be issued in exchange for interests in Bonds in respect of which the Global Certificate is issued, except where either Euroclear or Clearstream, Luxembourg (or any alternative clearing system on behalf of which the Bonds evidenced by the Global Certificate may be held (the ‘‘the Alternative 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.

Transfers

Transfers of interests in the Bonds will be effected through the records of Euroclear and Clearstream, Luxembourg and their respective participants in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants.

Enforcement

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

Accountholders

For so long as any of the Bonds are represented by the Global Certificate and such Global Certificate is held on behalf of Euroclear and/or Clearstream, Luxembourg, each person who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of such Bonds (each an ‘‘Accountholder’’) (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such Bonds standing to the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Bonds for all purposes (including for the purposes of any quorum requirements of, or in the right to demand a poll at, meetings of the Bondholders) other than with respect to the payment of principal and premium and interest (if any) on such Bonds, the right to which shall be vested, as against the Company and the Trustee, solely in the holder of the Global Certificate in accordance with and subject to its terms and the terms of the Trust Deed. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the holder of the Global Certificate.

EXCHANGE RATES

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

The following table sets forth the period-end spot exchange rates in effect between the NT dollar and the U.S. dollar expressed in NT dollars per U.S. dollar, for the period indicated.

Period Year ended 31 December, 1998 . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . 2004 (through 27 February) . . . . . . .	New Taiwan dollars per U.S. dollar interbank spot market closingrate	New Taiwan dollars per U.S. dollar interbank spot market closingrate	New Taiwan dollars per U.S. dollar interbank spot market closingrate	New Taiwan dollars per U.S. dollar interbank spot market closingrate
	Average NT$ (of month end rates) 33.445 32.266 31.225 33.800 34.575 34.418 33.438(1)	High NT$ 34.896 33.170 33.180 35.127 35.168 34.944 33.976	Low NT$ 31.992 31.395 30.302 32.271 32.999 33.710 33.100	Period-end
				NT$ 32.216 31.390 33.992 34.999 34.753 33.978 33.365

(1) Average of daily rates during the period.

Source: Central Bank of China

The closing average spot exchange rate between the NT dollar and the U.S. dollar quoted by the Bank of Taiwan on 29 March, 2004 was NT$33.195 = U.S.$1.00.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The information presented in this appendix has been extracted from publicly available documents (including certain publications of the Taiwan Stock Exchange and other books, periodicals and internet websites) which have not been prepared or independently verified by the Company, the Joint Lead Managers, the Trustee or any of their respective affiliates or advisors in connection with the offering.

Foreign Investment

Historically, foreign investment in the ROC securities market has been restricted. From 1983 onwards, however, the ROC Government has from time to time enacted legislation and adopted regulations to make it possible for non-ROC persons (other than PRC persons) to invest in the ROC securities market.

On 30 September, 2003, the Executive Yuan approved the amendment to Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals (the ‘‘Regulations’’) which took effect on 2 October, 2003. According to the Regulations, the 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 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 recognised 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 approval, but a maximum investment ceiling will be separately determined by the 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 SFC promulgated regulations permitting ROC companies listed on the TSE to sponsor the issuance and sale to foreign investors of depositary receipts (‘‘DRs’’) evidencing depositary shares representing shares of capital stock of ROC companies. In December, 1994, new regulations were promulgated by the ROC MOF allowing companies whose shares are traded on the GTSM (formerly known as ROC Over-the-Counter Securities Exchange), in addition to companies listed on the TSE, to sponsor, upon approval by the SFC, the issuance and sale of DRs evidencing depositary shares representing shares of its capital stock.

In the past, for depositary shares that represented new shares, three months after the issuance of a DR, a holder could request the depositary to cause the underlying shares to be sold in the ROC or to withdraw the shares and deliver the shares to the holder (other than a citizen of the PRC and an entity organised under the laws of the PRC). For depositary shares that represented previously existing shares, a holder could, immediately after the issuance of DRs, request the depositary to cause the underlying shares to be sold in the ROC or to withdraw the shares and deliver the shares to the holder (other than a citizen of the PRC and an entity organised under the laws of the PRC). The Executive Yuan and the SFC recently amended the relevant regulations such that the three-month withdrawal restriction has been removed. Accordingly, a holder of DRs (other than a citizen of the PRC and an entity organised under the laws of the PRC) may now withdraw shares immediately after the issuance of a DR representing new shares. In practice, withdrawals may take place typically four business days after the DR issuance.

A non-ROC DR holder who wishes to withdraw shares represented by DRs in order to hold the shares is required to register with the TSE for making investments in the ROC securities market (and if such holder is an offshore foreign institutional investor, to obtain a prior approval of the CBC), and then appoint a qualified local agent to, among other things, open a general securities account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. If a DR holder is already a registered foreign investor, the common shares held in the special securities trading account that the DR holder has already

opened for withdrawing the shares represented by the DRs can be transferred into the general securities trading account upon filing an application with the appropriate government agency. In addition, the withdrawing holder is also required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmations, settle trades and report all relevant information. Without making this appointment, opening these accounts and obtaining prior approval of the TSE, the withdrawing holder would be unable to subsequently hold or sell the shares withdrawn from a depositary receipt facility on the TSE or otherwise. The withdrawing holder is also required to appoint a tax guarantor for filing tax returns and making tax payments.

Under existing ROC laws and regulations relating to foreign exchange control, a depositary or a DR holder may, without obtaining further approvals from the CBC or any other governmental authority or agency of the ROC, convert NT dollars to other currencies, including U.S. dollars, in respect of the proceeds of the sale of shares represented by DRs 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, also without any such approvals, 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 DRs. With respect to conversion from NT dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares, proceeds in excess of U.S.$100,000 per remittance may not be remitted overseas unless CBC approval is obtained. It is expected that the CBC will grant such foreign exchange approval as a routine matter.

Directed Share Offerings

The ROC government has promulgated regulations to permit ROC companies listed on the TSE or the GTSM to issue shares directly (not through depositary receipt facilities) overseas.

Overseas Corporate Bonds

Since 1989, the SFC has approved a series of overseas corporate bond issues (‘‘OCBs’’) by ROC companies listed on the TSE in offerings directed at non-ROC persons. Since December, 1994, the SFC has also permitted ROC companies whose shares are traded on the GTSM to issue and offer OCBs. Under the current ROC laws and policies, OCBs can be converted by bondholders (other than those who are persons of the PRC) into shares of the ROC companies or (subject to the SFC approval) may be converted into depositary receipts issued under the sponsorship of the same ROC company or under the sponsorship of the issuing company of the exchanged shares, in the 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 appoint a local agent (with such qualifications as are set by the SFC) to open a securities trading account with a local brokerage firm, pay ROC taxes, remit funds, exercise shareholder’s rights and perform such other matters as may be designated by such converting bondholder on behalf of and as agent for such converting bondholder. Any such converting bondholder is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make conformations, to settle trades and report all relevant information. In addition, such converting bondholder is required to appoint a tax guarantor for filing tax returns and making tax payments.

A converting holder who plans to convert the bonds is required to register with the TSE for making investments in the ROC securities market (and if such holder is an offshore foreign institutional investor, to obtain a prior approval of the CBC).

A ROC company may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT dollars to other currencies, including U.S. dollars, in respect of the proceeds of the redemption of the bonds or the repayment of principal upon maturity of, the bonds.

In addition, a converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert NT dollars into foreign currencies of net proceeds realised 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. 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.

Foreign Investment Approval

With the exception of investors under the Regulations 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 may 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 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 cash dividends attributable to such investment. Dividends attributable to such investment, investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other authorities have been obtained.

Prohibited and Restricted Industries

In addition to the general restriction against direct investment by non-ROC persons in shares of ROC companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC pursuant to 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 ROC MOF and by the Central Bank of China. Current regulations favour 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.

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 U.S.$50,000,000 (or its equivalent) and U.S.$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 U.S.$50,000,000 (or its equivalent) and U.S.$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 U.S. dollars or other foreign currencies. A requirement is also imposed on all enterprises to register medium and long-term foreign debt with the CBC.

In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each remittance. The above limit applies only to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.

THE SECURITIES MARKET OF THE ROC

The information presented in this appendix has been extracted from publicly available documents including certain publications of the Taiwan Stock Exchange and other books, periodicals and internet websites which have not been prepared or independently verified by the Company, the Joint Lead Managers, the Trustee or any of their respective affiliates or advisors in connection with the offering.

In 1960, the ROC Government established the Securities and Exchange Commission to supervise and control all aspects of the securities market. The Securities and Exchange Commission of the ROC was restructured in early 1997 and renamed as the SFC. In the 1970’s and the early 1980’s, the ROC Government implemented a number of steps designed to upgrade the quality and importance of the ROC securities market, such as encouraging listing on the TSE and establishing an over-the counter market. In the mid-1980’s, the ROC Government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalisation of the ROC securities market.

The Taiwan Stock Exchange

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

The TSE commenced operations in 1962. During the early 1980s, the SFC actively encouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 669 by 31 December, 2003. As of 31 December, 2003, the market capitalisation of companies listed on the TSE was NT$12.87 trillion.

Historically, Taiwan companies have listed only shares and bonds on the TSE. However, the SFC has encouraged companies to list other types of securities. In 1988, the SFC permitted the issuance of the Taiwan’s first convertible bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and Dragon Bonds issued by Asian Development Bank are also listed on the TSE or traded on the GTSM. The GTSM also has regulations which permit foreign issuers to list their equity securities directly on the TSE or through the use of depositary receipts. To date, four foreign issuers have listed their equity securities on the TSE through the use of depositary receipts in accordance with these regulations.

The TSE requirements for listing are based on the following company attributes:

the number and distribution of stockholders;
length of time in business;
amount of capital; and
profitability.

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

The GreTai Securities Market

To complement the TSE, the GTSM was established in September, 1982 on the initiative of the SFC to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of 31 December, 2003, 423 companies have listed equity securities on the GTSM and the total market capitalisation of those companies was NT$1,201 billion.

In addition, the Emerging Market was established on 2 January, 2002 on the initiative of the SFC to encourage trading of securities of companies that do not qualify for listing on the TSE or the GTSM. The price of shares is decided by negotiation between securities firms and investors.

Taiwan Stock Exchange Index

The TSE Index is calculated on the basis of a wide selection of listed shares weighted according to the number of shares outstanding. This weighted average method is also used for the Standard and Poor’s Index in the United States and the Nikkei Stock Average in Japan. The TSE Index is compiled by dividing the market value by the base day’s total market value for the index shares. The TSE Index is the oldest and most widely quoted market index in Taiwan.

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

The following table shows the periods indicated information relating to the TSE index.

Period ended 31 December, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 (through 27 February) . . . . . . . . . . .	Number of listed companies at period end 199 221 56 285 313 347 375 404 437 462 474 584 638 669 670	Index high 12,495.34 4,305.22 5,391.63 6,070.56 7,183.75 7,051.49 6,982.81 10,116.84 9,277.09 8,608.91 10,202.20 6,104.24 6,462.3 6,142.32 6,750.54	Index low Index at period end 2,560.47 4,530.16 3,316.26 3,377.06 3,327.67 4,600.67 3,135.56 6,070.56 5,194.63 7,124.66 4,503.37 5,173.73 4,690.22 6,933.94 6,820.35 8,187.27 6,418.43 6,251.38 5,475.00 8,448.84 8,349.91 8,842.63 3,446.26 5,551.24 3,850.04 4,452.45 4,139.50 5,890.69 6,041.56 6,750.54

Source: Taiwan Stock Exchange.

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

Price Limits, Commissions, Transaction Tax and Other Matters

The TSE has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots or more must be registered and executed pursuant to certain TSE guidelines. Fluctuations in the price of stock traded on the TSE are currently subject to a restriction of 7 per cent. 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 per cent. in the case of debt securities. Brokerage commissions are proposed by the TSE and approved by the SFC. The current approved maximum brokerage commission is 0.1425 per cent. of the transaction price for equity securities; however, a lower rate may be charged to clients by securities firms at their sole discretion, provided that they must report such rate to the TSE. A securities transaction tax, currently levied at the rate of 0.3 per cent. of the transaction price, is payable by the seller of equity securities and a tax at the rate of 0.1 per cent. of the transaction price is payable by the seller of debt securities other than government bonds. Such securities transaction taxes are withheld at the time of the transaction giving rise to such taxes. According to the amended Statute for Upgrading Industries effective as of 1 February, 2002, no securities transaction tax will be imposed on the sale of the Bonds from 1 February, 2002 to 31 December, 2009. Sales

of shares of companies listed on the TSE are currently sold in lots of 1,000 shares. Odd lot trading, or the purchase or sale of less than 1,000 shares, can be conducted in after-hours trading. Investors who desire to sell odd lots of shares of a listed company occasionally experience delays in effecting such sales.

Regulation and Supervision

The SFC has been under the jurisdiction of the Ministry of Finance since 1981. The SFC has extensive regulatory authority over companies listed on the TSE, companies whose shares are traded on the GTSM and unlisted public-issue companies. Such companies are generally required to obtain approval from, or registration with, the SFC for all securities offerings. The SFC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public-issue companies. In addition, the SFC is responsible for the establishment of standards for financial reporting and carries out licensing and supervision with respect to the other participants in the ROC securities markets. The SFC has responsibility for implementation of the Securities and Exchange Law and for overall administration of governmental policies in the ROC securities markets. It has extensive regulatory authority over the offering, issuing and trading of securities. In addition, the Securities and Exchange Law specifically empowers the SFC to promulgate rules under certain circumstances.

The Securities and Exchange Law prohibits market manipulation. For example, permits a company to recover certain short swing trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors and shareholders, together with their spouses, minor children and nominees, holding ten per cent. or more of the shares of the company, as well as spouses, minor children and nominees of these parties. The Securities and Exchange Law prohibits trading by ‘‘insiders’’ based on nonpublic information that materially affects share price movement. Pursuant to the Securities and Exchange Law, the term ‘‘insiders’’ includes:

(i) directors, supervisors, managers and shareholders (together with their spouses, minor children and nominees) having more than ten per cent. or more shareholding, as well as spouses, minor children and nominees of the parties;
(ii) any person who has learned such information due to an occupational or controlling relationship with the issuing company; and
(iii) any person who has learned such information from any of the foregoing.

Sanctions can include prison terms. In addition, damages may be awarded to persons injured by the transaction.

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

The Securities and Exchange Law also provides for, among other things, regulations relating to public offerings of securities; measures to strengthen the capital structure of issuers; civil liability for material misstatements or omissions made by issuers; more stringent regulation of the securities activities of officers, supervisors, directors and major shareholders of issuers; regulations regarding tender offers; and a significant expansion of the prohibitions against insider trading, including the imposition of treble civil damages and criminal sanctions.

The SFC does not have criminal or civil enforcement powers under the Securities and Exchange Law. Criminal actions may be pursued only by prosecutors. Under ROC law, civil actions may only be brought by plaintiffs who assert that they have suffered damages. The SFC is directly empowered to curb abuses and violations of applicable laws and regulations only through administrative measures including:

issuance of warnings;
temporary suspension of operations;
imposition of administrative fines; and
revocation of licenses.

In addition to providing a market for securities trading, the TSE has primary responsibility for reviewing applications by issuers to list securities on the TSE and the GTSM has primary responsibility for reviewing applications by issuers to list securities on the GTSM. The SFC reviews all securities offerings by listed companies. If issuers of listed securities violate relevant laws and regulations or encounter significant difficulties, the TSE and the GTSM may, with the approval of the SFC, delist securities of such issuers.

ROC TAXATION OF NON-RESIDENTS

The following is a summary under present law of the principal ROC tax consequences of the ownership and disposition of Bonds and Shares to a Non-Resident Individual or Non-Resident Entity that holds Bonds or Shares (each a ‘‘Non-ROC Holder’’). As used in the preceding sentence, a ‘‘Non-Resident Individual’’ is a foreign national individual who owns Bonds or Shares and is not physically present in the ROC for 183 days or more during any calendar year and a ‘‘Non-Resident Entity’’ is a corporation or a noncorporate body that owns Bonds or Shares and is organised 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 Bonds should consult their own tax advisers concerning the tax consequences of owning Bonds or Shares in the ROC and any other relevant-taxing jurisdiction to which they are subject.

Premium and Interest

Payments of premium or interest (if any) on a Bond to a Non-ROC Holder are subject to ROC withholding tax, currently at a rate of 20 per cent. at the time of payment. The Company has agreed to pay additional amounts in respect of such withholding tax on the payments of premium or interest (if any).

Conversion

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

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

Dividends on the Shares

Dividends (whether in cash or shares) declared by the Company out of its retained earnings and distributed to a Non-ROC Holder in respect of Shares are subject to ROC withholding tax, currently at the rate of 20%, on the amount of the distribution (in the case of cash dividends) or on the par value of the Shares (in the case of share dividends). Investors should consult their tax advisers with respect to such circumstances. The Company is subject to a 10% retained earnings tax on its after-tax earnings generated after 1 January, 1998, that are not distributed in the following year. The retained earnings tax so paid will further reduce the Company’s retained earnings available for future dividends. When the Company declares dividends out of those retained earnings, a maximum amount of up to 10% of the net dividends received will be credited against the 20% withholding tax imposed on the Non-ROC Holder. Consequently, the effective rate of withholding on dividends paid out of retained earnings previously subject to the retained earnings tax will be less than 20%.

Capital Gains

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

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 per cent. of the sales proceeds. Sale of Bonds and conversion of Bonds into Shares is not subject to ROC securities transaction tax.

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 two per cent. of the first NT$600,000 to 50 per cent. of amounts in excess of NT$100,000,000. Gift tax is imposed at rates ranging from four per cent. of the first NT$600,000 donated to 50 per cent. 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, New Zealand, Australia, South Africa, Gambia, Swaziland, Malaysia, Macedonia, the Netherlands, Vietnam and the United Kingdom. It is unclear whether a Non-ROC Holder will be considered to own Bonds or Shares for the purposes of such treaties. Accordingly, a holder of Bonds or Shares who is otherwise entitled to the benefit of a treaty should consult its own tax advisers concerning eligibility for benefit under the treaty with respect to Bonds or Shares.

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

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

ROC GAAP

U.S. 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 nonconsolidated financial statements are not allowed to be presented as the primary financial statements for any period.

2. Consolidation

Under ROC GAAP, a company is required to include in its annual consolidated financial statements only those subsidiaries, which are directly or indirectly over 50% owned. For subsidiaries (i) with total assets or operating revenues which are less than 10% of the Company’s non-consolidated total assets or operating revenues, or (ii) which are in a negative equity position, the company has the option of whether or not to consolidate such subsidiaries. Irrespective of the above test, if the combined revenues and total assets of all such non-consolidated subsidiaries exceeds 30% of the Company’s non-consolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues greater than 3% of the Company’s respective non-consolidated amounts shall be consolidated.

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 of ownership by one company, directly or indirectly, over 50% of the outstanding voting shares of another company is a condition pointing towards consolidation. The consolidation of all majorityowned 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’’.

ROC GAAP

U.S. GAAP

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

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

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

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

3. Employee bonus and remuneration to directors and supervisors

It is a statutory requirement that bonuses paid to employees and remuneration paid to directors and supervisors out of retained earnings in accordance with the ROC Company Law, applicable to the distribution from retained earnings in the year the stockholders approve the distribution of earnings. Under certain circumstances, employee bonuses may be paid in the form of newly issued stocks, in which case the stock issuance is recorded at par value and is reported as a distribution of retained earnings.

The stock bonus to employees is given retroactive effect in the computation of earnings per share.

Under U.S. GAAP, employee bonuses and remuneration issued to directors and supervisors are charged to income as compensation expenses in the year when related services are provided, irrespective of whether the bonuses are paid in the form of cash or stock. For bonuses paid in stock, the shares are valued using the fair value or the intrinsic value method.

Under U.S. GAAP, stock bonus to employees will affect computation of earnings per share in current period only.

ROC GAAP

U.S. GAAP

4. Stock dividends

Under ROC GAAP, 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.

Under U.S. GAAP, when the ratio of distribution is less than 20-25% of shares of the same class outstanding, stock dividends are generally recorded as a reduction of 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 as additional paid-in capital. Distribution in excess of 25% is generally considered as stock split.

5. Employee share purchase

In connection with a number of new shares issued to stockholders, the Company also issue shares to employees at the same issue price, which usually represented a discount to the quoted market price. Under ROC GAAP, such issues are recorded as capital contribution for the cash amount received from the employees.

Under U.S. GAAP, such issues would be recorded as capital contribution for the cash amount received from the employees. In addition, compensation expense would be recorded, for the difference between the shares issue price and the fair market value, during the period when such issues were made.

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

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

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

Under U.S. GAAP, equity investments of less than 20% that have readily determinable fair value and debt investments are classified in three categories and accounted as follows:

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

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

ROC GAAP

U.S. GAAP

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

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

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

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

8. Depreciation of fixed assets

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

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

9. Compensated absences

ROC GAAP has no specific accounting practice regarding compensated absences.

Under U.S. GAAP, compensated absences must be accrued 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.

10. Cost of sales

Under ROC GAAP, provisions for normal inventory scrap and obsolescence are recorded as non-operating expenses.

Under U.S. GAAP, provisions for normal inventory scrap and obsolescence are generally charged to cost of sales.

11. Statement of cash flows

Under ROC GAAP, certificates of time deposits with original maturities of greater than three months are classified as cash.

Under U.S. GAAP, certificates of time deposits with original maturities of over three months are classified as trading securities.

ROC GAAP

U.S. GAAP

12. Accounting for pensions

The Company adopted ROC Statement of Financial Accounting Standard No. 18 ‘‘Accounting for Pensions’’ in 2000. The Statement requires pension plan assets and the benefit obligation be determined on an actuarial basis and that the minimum pension liability be recorded for the excess of accumulated pension obligation over the fair value of plan assets. The net transition asset or obligation is amortised on a straight-line basis over twenty-five years. Gains or losses from the plan assets are amortised on a straight-line basis over the employees’ average remaining service period.

Under U.S. GAAP, the annual pension provision is recognised as a charge to results of operations over the employees’ service period in accordance with SFAS No. 87, ‘‘Employer’s Accounting for Pensions’’. SFAS No. 87 focuses on the plan’s benefit formula as the basis for determining the benefit earned, and therefore the cost incurred, for each year. The determination of the benefit earned is actuarially determined, and includes components for service cost, time value of money, return on plan assets and gains or losses from changes in previous assumptions. In certain cases, a minimum liability is recognised through a direct charge to stockholders’ equity.

SFAS No. 87 was effective for the fiscal year ended December 31, 1987. The unrecognised net transition obligation should be amortised on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan, except that, (a) if the average remaining service period is less than 15 years, the employer may elect to use a 15-year period, and (b) if all or almost all of a plan’s participants are inactive, the employer shall use the inactive participants’ average remaining life expectancy period.

With respect to the pension plan disclosure, under U.S. GAAP, changes in plan assets and benefit obligations are required to be disclosed.

13. 10% additional income tax on undistributed earnings

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

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

14. 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 US GAAP. Comprehensive income includes all changes in stockholders’ equity during a period, except changes resulting from investments by or distributions to owners.

ROC GAAP

U.S. GAAP

15. Bond payable

Under ROC GAAP, prior to the maturity of the convertible bonds, the issuers of the bonds can exercise their redemption right or conversion right to purchase the bonds in the open market. In case of early redemption, gain or loss on the transaction is recorded as extraordinary gain or loss.

Under U.S. GAAP, the gain and loss on early redemption of convertible bonds is recorded as ordinary gain or loss.

When the convertible bond issued is denominated in a currency other than the Company’s share price (i.e. NT$) which can be converted to the Company’s share based on a pre-fixed exchange rate, such pre-fixed exchange rate is considered as a foreign exchange option which requires to be bifurcated from the bond payable and be fair valued on the balance sheets in accordance with SFAS 133.

16. Accounting for derivative instruments and hedging activities

ROC GAAP has no specific accounting practice regarding derivative instruments. The definition of a hedge in ROC GAAP is less restrictive than in U.S. GAAP.

Forward exchange contracts

Foreign currency denominated assets and liabilities arising from the currency forward contracts undertaken for purposes other than trading are recorded at the contracted forward rates on the contract starting dates. Upon settlement, gains/losses on the forward contracts are credited or charged to current income. On the balance sheet dates, gains or losses on the outstanding forward contracts arising from the differences between the forward rates prevailing over the respective remaining contract periods and the exchange rates on the balance sheet date are credited or charged to current income. Balances of the receivables and payables arising from the forward contracts are netted at year-end and the net amount is recorded as an asset or liability.

Under U.S. GAAP SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’, all derivative instruments are recorded at fair value. On the date derivative contracts are entered into, the Company designates the derivative as either (a) a hedge of changes in the fair value of a recognised asset or liability or of an unrecognised firm commitment (fair value hedge), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognised asset or liability (cash flow hedge), (c) a hedge of a net investment in a foreign operation (net investment hedge), or (d) a non-hedge instrument.Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and depending on the type of hedge transaction.

ROC GAAP

U.S. GAAP

Interest rate swaps

For interest rate swaps entered into for trading purposes, interest received or paid upon each settlement, or accrued on the balance sheet date, is recorded as revenue or expense.

For non-hedge instruments, the changes in the fair value of the derivative instrument are recorded to profit and loss in the period the change occurs.

For interest rate swaps entered into to hedge the Company’s interest rate exposure in certain bonds and loans, the interest differential at each reporting date or each settlement date is recorded as adjustment to the revenue or expense of the hedged items.

For fair value hedge relationships, changes in the fair value of the derivative instrument are also recorded to profit and loss in the period the change occurs. To the extent the hedge is effective changes in the fair value of the hedged item, attributable to the risk being hedged, are recorded to profit and loss in the period the change occurs.

Options

An option that purchased by the Company, gives the Company, in return for paying a premium, the right, but not the obligation, to buy or sell a specified amount of an underlying asset at a specified price on or before the expiration date. The nominal principal amount or the contract amount is recorded in the memorandum account on the contract starting date. Premiums paid for buy options are recorded as prepaid expense, whereas those received for sell options are recorded as deferred income. Losses are assessed at the end of each month.

On the expiration date or upon closure of the option position, the memorandum account is reversed and the premiums are amortised over option contract period.

An option that sold by the Company will have similar treatment, except that the unrealised loss arises from the option contract value and the prevailing market price, is recorded as a charge to earnings when incurred.

For cash-flow hedge relationships, to the extent a hedge is effective, changes in the fair value of the derivative instrument are reported in other comprehensive income (a component of stockholders equity). Amounts recorded to other comprehensive income are reclassified to profit and loss in the period the hedged item affects income. The ineffective portion of changes in fair value of the derivative is recorded to profit and loss in the period the change occurs.

For net investment hedge relationships, to the extent the hedge is effective, changes in the fair value of the derivative instrument are recorded as a component of the foreign currency translation account that is also included in other comprehensive income. Amounts recorded to other comprehensive income are reclassified to income statement in the period the hedged item affects income. The ineffective portion of changes in fair value of the derivative is recorded to profit and loss in the period the change occurs.

The management of the Company has not quantified the effects of the aforementioned differences between ROC GAAP and U.S. GAAP. Accordingly, there can be no assurance on the effects on balance sheet, net income and stockholders’ equity reported in accordance with ROC GAAP if determined in accordance with U.S. GAAP.

SUBSCRIPTION AND SALE

Pursuant to a subscription agreement (the ‘‘Subscription Agreement’’) dated 29 March, 2004 between FB Gemini Limited and Fubon Securities Co., Ltd. (each a ‘‘Joint Lead Manager’’ and together, the ‘‘Joint Lead Managers’’) and the Company, the Joint Lead Managers have jointly and severally agreed with the Company to subscribe and pay for the Bonds, other than the Optional Bonds in the principal amounts therein specified at the issue price of 100 per cent. of their principal amount (less an agreed underwriting commission and a selling concession). The Subscription Agreement provides that the obligations of the Joint Lead Managers to subscribe and pay for the Bonds are subject to certain conditions precedent (including, without limitation, reimbursement by the Company to the Joint Lead Managers for certain of their expenses in connection with the issue of the Bonds and indemnification for the Joint Lead Managers against certain liabilities). If these conditions precedent are not satisfied, the Joint Lead Managers will be entitled to terminate the Subscription Agreement prior to making payment to the Company.

The Company has granted to Managers an option, exercisable in whole or in part and on one or more occasions at any time from the date of this Offering Circular to and including the date falling 30 days after the date of this Offering Circular to purchase up to a further U.S.$20,000,000 aggregate principal amount of the Bonds (the ‘‘Optional Bonds’’) at the issue price of 100 per cent. of their principal amount (less an agreed underwriting commission and a selling concession).

The Joint Lead Managers, or their affiliates, may 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 Joint Lead Managers may make a market with respect to the Bonds but are 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 in the Subscription Agreement that, except as described below, neither it nor any person acting on its behalf will issue, offer, sell, contract to sell, or otherwise dispose of, any interest in any Shares or any securities of the same class as the Bonds or Shares or any securities convertible into, exchangeable for or which carry rights to subscribe or purchase the Bonds, Shares or securities of the same class as the Bonds, Shares or other instruments representing interests in the Bonds, Shares or other securities of the same class as them, in any such case without the prior written consent of the Joint Lead Managers between the date thereof and the date which is 90 days after the Closing Date (both dates inclusive).

The foregoing lock-up provisions shall not be applied to: (i) the issue and sale of the Bonds, (ii) the issuance by the Company of any Shares upon conversion of the Bonds, (iii) the issuance by the Company of such amount of Shares represented in the form of global depositary receipts or domestic rights issuances as shall be agreed in good faith between the Company and the Joint Lead Managers, (iv) the issuance by the Company of any Shares upon the exercise of options issued pursuant to any employee share option schemes of the Company or the issuance of further options under such schemes, (v) the distribution by the Company of dividends or employee dividends in the form of Shares, (vi) the issuance by the Company of any Shares upon conversion of the Euro-convertible bonds previously issued by the Company, or (vii) the issuance by the Company of Shares in connection with a merger and acquisition; provided, however, in the case of (vii) above, (a) the persons to whom Shares are issued by the Company will not sell, contract to sell or otherwise dispose of any interest in the Shares issued as a result of such merger and acquisitions between the date of the effective date of merger and acquisitions and the date which is 90 days after the Closing Date, and (b) the Joint Lead Managers shall be notified by five-day prior notice of these issuances.

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, sold or delivered, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisements in connection with the Bonds or 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, U.S. 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 under the Securities Act (‘‘Regulation S’’).

Each Joint Lead Manager has agreed that it will not offer or sell the Bonds or the 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 Closing Date, within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells the Bonds or the 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 the Shares to be issued upon conversion of the Bonds, as the case may be, within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S.

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

In addition, until 40 days after the later of the commencement of the offering of the Bonds and the latest closing date for an issue of Bonds, an offer or sale of the Bonds or the 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

Each Joint Lead Manager has represented and agreed that:

(1) it has not offered or sold and prior to the date six months after the issue of the Bonds will not offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offer of Securities Regulations 1995, as amended;
(2) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’) with respect to anything done by it in relation to the Bonds or Shares in, from or otherwise involving the United Kingdom; and
(3) it has only communicated or caused to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the Securities in circumstances in which section 21(1) of the FSMA does not apply to the Issuer.

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

Each Joint Lead Manager has represented and agreed that (1) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong; and (2) it has not issued or had in its possession and will not issue or have in its possession any advertisement, invitation or document relating to the Bonds, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

Singapore

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

Japan

Each Joint Lead Manager has represented and agreed that the Bonds have not and will not be registered under the Securities and Exchange Law of Japan. Each Joint Lead Manager has represented and agreed that the Bonds which it subscribes will be subscribed by it as principal. Each Joint Lead 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 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 organised 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 of Japan and other applicable laws and regulations of Japan.

GENERAL INFORMATION

Listing

No application has been made to list the Bonds on any stock exchange.

Authorisations

The Company has obtained all necessary consents, approvals and authorisations in connection with the issue of the Bonds. The issue of the Bonds was authorised by a resolution of the Board of Directors of the Company passed on 5 February, 2004.

Material Change

Except as disclosed in this Offering Circular, there has been no material adverse change in the financial position or prospects of the Company since 31 December, 2003.

Litigation

Save as disclosed in the section ‘‘Business of the Company — Litigation and Legal Issues’’, the Company is not involved in any litigation or arbitration proceedings which may have, or have had during the 12 months preceding the date of this Offering Circular, a significant effect on the financial position of the Company, and so far as the Company is aware, there are no such proceedings pending or threatened.

Independent Accountants

The financial statements of the Company as of 31 December, 2001, 2002 and 2003 and for the years then ended, have been audited by Diwan, Ernst & Young Certified Public Accountants, independent certified public accountants to the extent indicated in their report thereon. The Company is not required to prepare consolidated financial statements under the ROC laws.

Documents Available

Copies of the Trust Deed and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, at the date of issue of the Bonds at One Canada Square, 48th Floor, London E14 5AL, England and at the specified offices of each of the Agents.

Clearing Systems

The Bonds have been accepted for clearance through the facilities of Euroclear and Clearstream, Luxembourg. Relevant trading information for the Bonds is set forth below:

Common Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 018857162 ISIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XS0188571623

This page is intentionally left blank

INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED 31 DECEMBER 2001, 2002 AND 2003

The Board of Directors and Shareholders SINTEK PHOTRONIC CORPORATION

We have audited the accompanying consolidated balance sheets of Sintek Photronic Corporation and its subsidiary as of December 31, 2001, 2002 and 2003, and the related statements of income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2001, 2002 and 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

We had previously issued an unqualified opinion on Sintek Photronic Corporation’s financial statements for the year ended December 31, 2002 on February 6, 2003. As indicated in note 10.c. to the financial statement, Securities and Futures Commission informed the Company that Sintek Photronics Corporation’s sales transaction through Ru Yuan International Corp. should have been recognized only when the merchandising risk and compensation were completely transferred to the customers of Ru Yuan International Corp.. Sintek Photronic Corporation’s financial statements for the year ended December 31, 2002 were restated accordingly.

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Sintek Photronic Corporation and its subsidiary as of December 31, 2001, 2002 and 2003, and the results of its operations and the cash flows for the years ended December 31, 2001, 2002 and 2003, in conformity with ‘‘Regulations Governing the Preparation of Financial Statements by Securities’ Issuers’’ and accounting principles generally accepted in the Republic of China in Taiwan.

January 30, 2004

Taipei, Taiwan, R.O.C.

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.

F-1

SINTEK PHOTRONIC CORPORATION RESTATED BALANCE SHEETS December 31, 2001, 2002 and 2003

(Amounts in thousands)

ASSETS CURRENT ASSETS Cash and cash equivalents . . . . . . . . . Short-term investments. . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . Receivables from related parties, net . . Inventories, net . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . Others current assets . . . . . . . . . . . . . Deferred tax assets-current . . . . . . . . . Restricted current assets. . . . . . . . . . . Total Current Assets . . . . . . . . . . LONG-TERM EQUITY INVESTMENTS . PROPERTY, PLANT AND EQUIPMENT Cost Land . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements. . . . . . Machinery and equipment . . . . . . . Transportation equipment . . . . . . . . Office equipment . . . . . . . . . . . . . Miscellaneous equipment . . . . . . . . Total cost. . . . . . . . . . . . . . . . . . Less: accumulated depreciation . . . . . Construction in progress. . . . . . . . . . . Advance payments for equipment . . . . Advance payments for land and building Net Property, Plant and Equipment INTANGIBLE ASSETS . . . . . . . . . . . . . OTHER ASSETS . . . . . . . . . . . . . . . . . Deferred tax assets-non-current . . . . . . Deferred cost . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . .	NOTES 2 & 4a 2 & 4b 2 & 4c 2 & 5 2 & 4d 2, 4e & 5 2 & 4t 4f & 6 2 & 4g 2, 4h, 5 & 6 2 & 4i 2 & 4t 2 2		31 December, 2002 (Restated) 2003 NT$ NT$ US$ 444,564 169,583 4,992 649,283 2,933,251 86,348 537,247 315,688 9,293 320,669 1,435,860 42,268 614,827 527,737 15,535 395,766 16,762 494 165,019 337,351 9,931 191,006 279,527 8,229 231,312 488,313 14,375 3,549,693 6,504,072 191,465 50,000 201,610 5,935 217,085 217,085 6,391 1,393,925 1,687,337 49,671 5,964,774 6,330,167 186,346 1,272 963 28 211,508 378,832 11,152 1,392,683 895,480 26,361 9,181,247 9,509,864 279,949 (798,100) (1,713,432) (50,440) 0 1,548,425 45,582 129,526 5,009,908 147,481 0 98,075 2,887 8,512,673 14,452,840 425,459 984,985 1,587,686 46,738 790,669 1,224,449 36,045 485,718 837,417 24,652 304,024 358,764 10,561 927 28,268 832 13,888,020 23,970,657 705,642	31 December, 2002 (Restated) 2003 NT$ NT$ US$ 444,564 169,583 4,992 649,283 2,933,251 86,348 537,247 315,688 9,293 320,669 1,435,860 42,268 614,827 527,737 15,535 395,766 16,762 494 165,019 337,351 9,931 191,006 279,527 8,229 231,312 488,313 14,375 3,549,693 6,504,072 191,465 50,000 201,610 5,935 217,085 217,085 6,391 1,393,925 1,687,337 49,671 5,964,774 6,330,167 186,346 1,272 963 28 211,508 378,832 11,152 1,392,683 895,480 26,361 9,181,247 9,509,864 279,949 (798,100) (1,713,432) (50,440) 0 1,548,425 45,582 129,526 5,009,908 147,481 0 98,075 2,887 8,512,673 14,452,840 425,459 984,985 1,587,686 46,738 790,669 1,224,449 36,045 485,718 837,417 24,652 304,024 358,764 10,561 927 28,268 832 13,888,020 23,970,657 705,642
		2001 NT$ 1,022,313 611,862 205,146 639,940 388,190 6,814 99,954 91,842 445,513 3,511,574 0 216,851 1,137,659 2,888,291 1,272 166,988 926,943 5,338,004 (267,999) 2,570 298,433 0 5,371,008 1,104,484 530,895 330,519 193,139 7,237 10,517,961	2002 (Restated) NT$ 444,564 649,283 537,247 320,669 614,827 395,766 165,019 191,006 231,312 3,549,693 50,000 217,085 1,393,925 5,964,774 1,272 211,508 1,392,683 9,181,247 (798,100) 0 129,526 0 8,512,673 984,985 790,669 485,718 304,024 927 13,888,020
				NT$ 169,583 2,933,251 315,688 1,435,860 527,737 16,762 337,351 279,527 488,313 6,504,072 201,610 217,085 1,687,337 6,330,167 963 378,832 895,480 9,509,864 (1,713,432) 1,548,425 5,009,908 98,075 14,452,840 1,587,686 1,224,449 837,417 358,764 28,268 23,970,657

(Continued)

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

F-2

SINTEK PHOTRONIC CORPORATION RESTATED BALANCE SHEETS

December 31, 2001, 2002 and 2003 — continued

(Amounts in thousands)

	31 December,	31 December,	31 December,
2001 NT$ 903,682 400,000 76,453 303,285 0 269,605 170,514 0 68,991 2,192,530 0 2,400,000 2,400,000 0 4,592,530 4,000,000 1,572,216 9,744 343,471 0 5,925,431 10,517,961	2002 (Restated) NT$ 1,407,979 0 0 435,955 65,244 189,623 600,333 737,068 121,542 3,557,744 800,000 2,797,339 3,597,339 0 7,155,083 4,000,000 1,572,216 35,321 1,125,400 0 6,732,937 13,888,020	2003
		NT$ 1,817,515 400,000 0 710,445 91,541 667,248 654,539 925,354 39,793 5,306,435 908,181 7,294,535 8,202,716 573 13,509,724 6,129,333 1,736,329 120,750 1,123,391 1,351,130 10,460,933 23,970,657	US$ 53,504 11,775 0 20,914 2,695 19,642 19,268 27,240 1,171
			156,209
			26,735 214,734
			241,469
			17
			397,695
			180,434 51,114 3,555 33,070 39,774
			307,947
			705,642

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

F-3

SINTEK PHOTRONIC CORPORATION RESTATED STATEMENTS OF INCOME

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands, except for earnings per share)

OPERATING REVENUES . . . . . . . . . . . COST OF GOODS SOLD . . . . . . . . . . . GROSS PROFIT . . . . . . . . . . . . . . . . . . OPERATING EXPENSES Selling expenses . . . . . . . . . . . . . . . . Administrative expenses. . . . . . . . . . . Research and development expenses . . Total operating expenses . . . . . . . . OPERATING INCOME (LOSS) . . . . . . . NON-OPERATING INCOME Interest income . . . . . . . . . . . . . . . . . Gain on disposal of investment . . . . . . Investment income recognized under equity method . . . . . . . . . . . . . . . . Foreign exchange gain, net . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . Total Non-operating Income . . . . . . NON-OPERATING EXPENSES Interest expense . . . . . . . . . . . . . . . . Foreign exchange loss, net . . . . . . . . . Inventory loss provision . . . . . . . . . . . Suspension of work losses . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . Total Non-operating Expenses. . . . . INCOME (LOSS) BEFORE INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . INCOME TAX BENEFIT. . . . . . . . . . . . MINORITY INTEREST INCOME NET . . NET INCOME . . . . . . . . . . . . . . . . . . . BASIC EARNINGS (LOSS) PER SHARE (Dollar) . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income tax . . . . . Income tax benefit. . . . . . . . . . . . . . . Minority interest income, net . . . . . . . Net income. . . . . . . . . . . . . . . . . . . .	NOTES 2–4 & 5 5 4t 2 & 4u	2001 NT$ 1,575,158 1,515,767 59,391 23,992 86,288 65,503 175,783 (116,392) 80,392 11,465 0 28,018 43,951 163,826 78,872 0 0 36,213 15,907 130,992 (83,558) 339,332 0 255,774 (0.18) 0.74 0.00 0.56	2002 (Restated) NT$ 3,293,258 2,180,576 1,112,682 88,026 155,033 70,656 313,715 798,967 22,494 36,925 0 9 12,107 71,535 105,578 0 10,000 132,437 2,089 250,104 620,398 187,108 0 807,506 1.22 0.37 0.00 1.59	2003 NT$ US$ 6,910,274 203,423 5,259,694 154,834 1,650,580 48,589 237,240 6,984 273,852 8,062 92,191 2,714 603,283 17,760 1,047,297 30,829 6,432 187 40,015 1,178 1,610 47 0 0 11,622 342 59,679 1,756 230,830 6,795 107,654 3,169 22,609 666 110,155 3,243 40,808 1,201 512,056 15,074 594,920 17,511 347,566 10,232 (169,410) (4,987) 773,076 22,756 1.08 0.00 0.63 0.00 (0.31) 0.00 1.40 0.00
				NT$ 6,910,274 5,259,694 1,650,580 237,240 273,852 92,191 603,283 1,047,297 6,432 40,015 1,610 0 11,622 59,679 230,830 107,654 22,609 110,155 40,808 512,056 594,920 347,566 (169,410) 773,076 1.08 0.63 (0.31) 1.40

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

F-4

SINTEK PHOTRONIC CORPORATION RESTATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the years ended December 31, 2001, 2002 and 2003 (Amounts in thousands)

Balance, December 31, 2000. . Transfer of accumulated profit during inception period to undistributed retained earnings. . . . . . Appropriations to legal reserve . . . . . . . . . . . . Stock issuance for cash . . . Net income, 2001 . . . . . . . Balance, December 31, 2001. . Appropriations to legal reserve . . . . . . . . . . . . Net income, 2002 (restated) Balance, December 31, 2002. . Appropriations to legal reserve . . . . . . . . . . . . Capital increase from capital reserve . . . . . . . . . . . . Stock dividends. . . . . . . . . Stock bonus paid to employees . . . . . . . . . . Remuneration paid to directors and supervisors Convertible bonds converted to common stock . . . . . Net income, 2003 . . . . . . . Minority Interests . . . . . . . Balance, December 31, 2003. . Balance, December 31, 2003- US$ . . . . . . . . . . . . . . . .	Common Stock NT$ 3,600,000 0 0 400,000 0 4,000,000 0 0 4,000,000 0 400,000 600,000 68,965 0 1,060,368 0 0 6,129,333 180,434	Capital Reserve NT$ 1,172,216 0 0 400,000 0 1,572,216 0 0 1,572,216 0 (400,000) 0 0 0 564,113 0 0 1,736,329 51,114	Legal Reserve NT$ 0 0 9,744 0 0 9,744 25,577 0 35,321 85,429 0 0 0 0 0 0 0 120,750 3,555	Accumulated profit during inception period NT$ 97,441 (97,441) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0	Undistributed Retained Earnings NT$ 0 97,441 (9,744) 0 255,774 343,471 (25,577) 807,506 1,125,400 (85,429) 0 (600,000) (68,965) (20,691) 0 773,076 0 1,123,391 33,070	Minority Interests NT$ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,351,130 1,351,130 39,774	Stockholders’ Equity
							NT$ 4,869,657 0 0 800,000 255,774
							5,925,431 0 807,506
							6,732,937 0 0 0 0 (20,691) 1,624,481 773,076 1,351,130
							10,460,933
							307,947

The accompanying notes are integral part of the financial statements.

F-5

SINTEK PHOTRONIC CORPORATION RESTATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2001, 2002 and 2003 (Amounts in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: minority interest income. . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suspension of work losses . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment. . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income under equity method. . . . . . . . . (Increase) decrease in short-term investments . . . . . (Increase) decrease in accounts receivable . . . . . . . (Increase) decrease in receivables from related parties (Increase) decrease in inventories . . . . . . . . . . . . . (Increase) decrease in prepayments . . . . . . . . . . . . Increase in other current assets . . . . . . . . . . . . . . . Increase in deferred income tax assets — current . . Increase in deferred income tax assets — non-current Increase (Decrease) in notes payables . . . . . . . . . . Increase in accounts payable. . . . . . . . . . . . . . . . . Increase in income tax payable . . . . . . . . . . . . . . . Increase (Decrease) in accrued expenses. . . . . . . . . Compensation interest payable . . . . . . . . . . . . . . . Increase (Decrease) in other current liabilities. . . . . Net cash provided for (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment . . . . . . Purchases of long-term equity investments . . . . . . . Proceeds from disposal of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred assets . . . . . . . . . . . . . . . . . . Increase in intangible assets . . . . . . . . . . . . . . . . . Increase in refundable deposits . . . . . . . . . . . . . . . (Increase) decrease in restricted time deposits . . . . . Net cash used in investing activities . . . . . . . . .	2001 NT$ 255,774 0 230,548 36,213 43 71,809 0 334,668 (188,845) (639,940) (335,355) 3,246 (44,952) (91,542) (248,319) 62,503 270,079 0 46,950 0 60,800 (166,310) (3,600,311) 0 3,150 (185,573) (581,997) (85) 184,407 (4,180,409)	2002 (restated) 2003 NT$ NT$ US$ 807,506 773,076 22,756 0 169,410 4,987 406,180 805,417 23,710 125,334 110,155 3,243 0 16 0 221,353 354,313 10,430 0 (1,610) (47) (37,421) (2,283,968) (67,235) (332,101) 221,559 6,522 319,271 (1,115,191) (32,828) (226,637) 87,090 2,564 (388,952) 379,004 11,157 (65,065) (172,332) (5,073) (99,1640 (88,521) (2,605) (155,199) (351,698) (10,353) (76,453) 0 0 132,670 274,490 8,080 65,244 26,297 774 (220) 322,119 9,482 0 23,641 696 52,575 (82,118) (2,417) 748,921 (548,851) (16,157) (3,247,299) (6,801,966) (200,235) (50,000) (150,000) (4,416) 3,939 417 12 (205,032) (270,961) (7,976) (87,469) (620,847) (18,276) (690) (11,993) (353) 221,201 (257,001) (7,566) (3,365,350) (8,112,351) (238,810)

(Continued)

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

F-6

SINTEK PHOTRONIC CORPORATION RESTATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2001, 2002 and 2003 — (Continued) (Amounts in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans . . . . . . . . . . . . . . . . . Increase (Decrease) in short-term bills payable . . . . Increase (Decrease) in security deposits . . . . . . . . . Stock issuance for cash . . . . . . . . . . . . . . . . . . . . Remuneration paid to directors and supervisors . . . . Increase in long-term loans. . . . . . . . . . . . . . . . . . Increase in corporate bonds payable. . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period . . Cash and cash equivalents at end of period. . . . . . . SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Long-term loans-current portion . . . . . . . . . . . . . . SUPPLEMENTAL DISCLOSURES OF PARTLY- CASH INVESTING AND FINANCING ACTIVITIES Additions to fixed assets . . . . . . . . . . . . . . . . . . . Add: payables on equipment, beginning of period . . Less: payables on equipment, end of period . . . . . . Cash payables made for purchases of fixed assets . . Additions to intangible assets . . . . . . . . . . . . . . . . Add: payables on intangible assets, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: payables on intangible assets, end of period . . Cash payments made for purchases of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 NT$ 756,186 400,000 1 800,000 0 2,400,000 0 0 4,356,187 9,468 1,012,845 1,022,313 86,259 9,994 0 3,583,402 187,423 (170,514) 3,600,311 280,799 481,294 (180,096) 581,997	2002 (restated) NT$ 504,297 (400,000) (24) 0 0 1,134,407 800,000 0 2,038,680 (577,749) 1,022,313 444,564 98,610 2,011 737,068 3,677,118 170,514 (600,333) 3,247,299 7,707 180,096 (100,334) 87,469	2003 NT$ US$ 409,536 12,056 400,000 11,775 574 17 0 0 (20,691) (609) 4,685,482 137,930 1,729,600 50,916 1,181,720 34,787 8,386,221 246,872 (274,981) (8,095) 444,564 13,087 169,583 4,992 210,130 6,186 66,356 1,953 925,354 27,240 6,856,172 201,830 600,333 17,672 (654,539) (19,268) 6,801,966 200,234 776,353 22,854 100,334 2,953 (255,840) (7,531) 620,847 18,276
			NT$ 409,536 400,000 574 0 (20,691) 4,685,482 1,729,600 1,181,720 8,386,221 (274,981) 444,564 169,583 210,130 66,356 925,354 6,856,172 600,333 (654,539) 6,801,966 776,353 100,334 (255,840) 620,847

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

F-7

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

1. ORGANIZATION AND BUSINESS

(1) Sintek Photronic Corporation (‘‘the Company’’) was incorporated under the Company Law of the Republic of China (‘‘ROC’’) on September 18, 1999. After a development phase from September 18, 1999 to December 31, 2000, the Company started its principal business activities. The Company’s principal business activities include the sale, manufacturing and research and development of color filter products. The Company’s share capital was NT$200,000 at inception. After several issuances of additional common shares, the Company’s capital increased to NT$6,129,333 as of December 31, 2003.

The Company established a subsidiary, South Sintek Photronic Corporation (‘‘South Sintek’’) in 2003. During the development phase as of December 31, 2003, South Sintek was mainly engaged in financial planning, capital gathering, purchasing of property, setting up plant and equipment, training and developing employees and preparation for production. South Sintek did not generated operating income in 2003, accordingly.

As of December 31, 2003, the Company had 912 employees.

(2) Summary of consolidated policies

(a) Parent Company: Sintek Photronic Coporation (‘‘the Company’’)
(b) Subsidiaries:

Name South Sintek Photronic Coporation (‘‘South Sintek’’). . . . . . . . . . . . . . . Sin Hsin Investment Ltd. . . . . . . . . . . . Changes in consolidated entities Entities	Ownership percentages Consolidated Type of business December 31, 2003 2003 CF Manufacturing and trading 66.24 Yes Investment 100.00 No Reason . . . . . Established by the Company in 2003. The ownership percentage was 66.24% as of December 31, 2003.	Consolidated
		2003
		Yes No
South Sintek. . . . . . . . . . . . . . . . . . . . . .	Established by the Company in 2003. The ownership percentage was 66.24% as of December 31, 2003.

(d) Non-consolidated entities

Subsidiaries with total assets and revenues less than 10% of the Company’s non-consolidated total assets and revenues were not consolidated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with ‘‘Regulations Governing the Preparation of Financial Statements by Securities’ Issuers’’ and accounting principles generally accepted in the Republic of China in Taiwan. The Company’s significant accounting policies were summarized as follows:

a. Cash equivalents

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

b. 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. Except for mutual funds which are recorded individually, cost is calculated by the moving weighted average method. No income is recognized when stock dividends are received. Instead, the number of shares increases and the cost per share is recalculated.

F-8

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

c. Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on estimated collectibility and aging analysis of notes receivables, accounts receivable, and other receivables.

d. Inventories

Inventories are recorded at cost when acquired and stated at the lower of cost or market value. Cost is determined by the weighted-average method. Market value is based on net realizable value, except for raw materials where replacement cost is used.

e. Long-term equity investments

Long-term investments are stated at cost when acquired. The equity method is used to account for long-term equity investments when the Company owns 20% or more of the investee’s voting stock or where the Company exercises significant influence over the investee’s operations and financial decisions. The difference between the original cost and the net equity of the investee companies when such investment is made is amortized over five years. Long-term investments are stated at cost when the Company owns less than 20% of the investee’s voting stock or has no material influence over the investee companies.

When selling the stock of a subsidiary, the cost is calculated using the weighted-average method.

Unrealized gains or losses from the transactions between the Company and the investees accounted for using the equity method are eliminated.

f. Property, plant and equipment

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

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3–35 years
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3–25 years
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5 years
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3–6 years
Miscellaneous equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2–15 years

Improvements and replacements are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance whose amounts were less than NT$60 or whose useful life were less than two years are expensed as incurred.

Gains or losses resulting from the disposal of property, plant and equipment are recorded as non-operating income (expenses) or extraordinary gains (loss).

g. Intangible assets

Intangible assets consist primarily of patents and technical know-how. Intangible assets are recorded at cost and are amortized on the straight-line basis over their estimated useful lives (5~8 years).

h. Deferred costs

Deferred costs mainly consist of major repairs and maintenances, which are amortized over 1~5 years using the straightline method.

The costs of issuing corporate bonds are amortized starting from the date of bond issuance to the redemption date.

i. Bonds payable

When convertible bonds are converted into common stock equivalents, the unamortized issuance costs, interest payable, compensation interest payable and the face value of the bonds are written off. The amount written off in excess of the face value of common stock equivalent is recorded as capital reserve.

F-9

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

Prior to the maturity of the convertible bonds, the issuers of the bonds can exercise their redemption right or conversion right to purchase the bonds in the open market. In case of early redemption, gain or loss on the transaction is recorded as extraordinary gain or loss.

j. Pension plan

The Company has a retirement plan covering substantially all of its employees. Under this plan, employees are entitled to 2 base points for every year of service for the first 15 years and 1 base point for every additional year of service after 15 years up to a maximum of 45 base points. Employee pension obligation is determined based on the years of service and average salaries or wages for the 6 months prior to approved retirement. In accordance with the Labor Standards Law of the ROC, the Company makes a monthly contribution equal to 2% of the wages and salaries paid during the period to a pension fund maintained with the Central Trust of China. The fund is administered by the Employees’ Retirement Fund Committee and is deposited in the committee’s name. Therefore, the pension fund is not included in the financial statements of the Company.

The Company adopted ROC Statement of Financial Accounting Standard No. 18, ‘‘Accounting for Pensions’’ in 2000. The Statement requires pension plan assets and the benefit obligation be determined on an actuarial basis and that the minimum pension liability be recorded for the excess of accumulated pension obligation over the fair value of plan assets. The net transition asset or obligation is amortized on a straight-line basis over twenty-five years. Gains or losses from the plan assets are amortized on a straight-line basis over the employees’ average remaining service period.

k. Legal reserve and capital reserve

Capital reserve

According to the ROC Company Law, capital reserve derived from additional paid-in capital shall be exclusively utilized to offset a deficit or to use as a capital increase.

Legal reserve

According to the ROC Company Law, 10% of the Company’s net income, after deducting previous years’ losses, if any, is appropriated as legal reserve prior to any distribution until such reserve is equal to the Company’s paid-in capital. Legal reserve may be utilized to offset a deficit or to use as a capital increase but not as cash dividends.

l. Revenue recognition

The Company adopted ROC Statement of Financial Accounting Standard No. 32 ‘‘Accounting for Revenue Recognition’’ to recognize its revenue.

m. Income tax

In accordance with ROC statement of Financial Accounting Standards No. 22, ‘‘Accounting for Income Tax,’’ deferred income tax liabilities are recognized for tax consequences of taxable temporary differences by applying enacted statutory tax rates, and deferred income tax assets are recognized for tax consequences of deductible temporary differences, operating loss carry forwards and investment tax credits. A valuation allowance is provided when a portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are classified as current and non-current items according to the classification of the related assets and liabilities. If deferred income tax assets or liabilities are not related to any assets or liabilities, they are classified according to the period of realization.

Undistributed earnings are subject to a 10% additional tax. This undistributed earnings tax is recorded as an expense on the date of the stockholders’ resolution on earnings distribution.

In accordance with ROC Statement of Financial Accounting Standards No. 12, ‘‘Accounting for Income Tax Credits,’’ the Company adopts the flow-through method to record income tax credits derived from purchases of equipment, research and development expenditures, and investments in equity stock. This method recognizes the entire reduction in income tax payable in the year when the credit arises.

F-10

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

n. Foreign currency transactions

Transactions denominated in foreign currencies are recorded in New Taiwan dollars at the exchange rate prevailing on the date of the transactions. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date. Gains or losses resulting from settlement of such transactions or translation of foreign currency assets and liabilities at the balance sheet date are credited or charged to the income statement in the period incurred.

Speculative forward contracts are recorded at forward rates throughout the terms of the contracts. At the balance sheet date, receivables and payables denominated in foreign currencies are adjusted to reflect the exchange rate for the remaining terms of the contract. Gains or losses resulting from speculative forward contracts are credited to or charged against current income.

If foreign exchange forward contracts are designated to hedge the foreign exchange rate fluctuations on net assets or net liabilities denominated in foreign currencies, the related foreign currency assets and liabilities are recorded based on the transaction rate indicated in the forward contracts. At the date of settlement, gains or losses resulting from the different exchange rates between the contact date and the date of settlement are credited or charged to the statement of operations in the current period. At the balance sheet date, the outstanding forward contracts are adjusted by the expected exchange rate for the remaining period in the contract, and the related gains or losses are credited or charged to the statement of operations in the current period.

Option contracts, which are entered to hedge foreign currency exposures, are not recorded as assets or liabilities when the contracts are signed. When purchasing (selling) foreign currency options to hedge, associated premiums received (paid) are credited (charged) to the statement of operations. Unrealized gains or losses from option transactions, which are intended to hedge committed or uncommitted future foreign currency exposures, are not credited or charged to the statement of operations at the balance sheet date, but are deferred until the underlying transaction is settled at the actual settlement date.

o. Government subsidy

Government subsidies are recognized as income where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Expenses related to the grant will be capitalized and charged as expenses over the periods necessary to match the grant on a systematic basis.

p. Earnings per share

The Company adopted ROC SFAS No. 24 ‘‘Earnings per share.’’ Under SFAS No. 24, basic net income (loss) per share excludes dilutive potential common stock and is calculated as net income (loss) divided by the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and dilutive potential common shares outstanding during the period. Subscriptions received under the Company’s rights offering are considered common share equivalents in the calculation of primary and fully diluted net income per share.

q. Information expressed in US dollars

The financial statements are stated in New Taiwan dollars, the national currency of the ROC. Translation of New Taiwan dollar amounts into US dollar amounts is included solely for the convenience of readers outside of Taiwan and has been made at the rate of NT$33.97 to US$1, the approximate exchange rate on December 31, 2003. No representation is made that the New Taiwan dollar amounts could have been, or could be, converted into US dollars at any other rate.

3. REASONS AND EFFECTS OF A CHANGE IN ACCOUNTING POLICIES

None.

F-11

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

4. DETAILS OF SIGNIFICANT ACCOUNTS

a.
Cash and cash equivalents

	December 31,	December 31,	December 31,
2001 NT$ 498 217 91,098 930,500 1,022,313 2.10%~2.40%	2002 NT$ 447 11,574 422,543 10,000 444,564 1.55%	2003
		NT$ 419 109 124,959 44,096 169,583 1.04%	US$ 12 3 3,679 1,298
			4,992
			1.04%

b. Short-term investments

	December 31,	December 31,
2001 Cost Market value NT$ NT$ 174,900 174,918 436,962 464,058 — — 611,862 638,976 — 611,862	2002 Cost Market value NT$ NT$ 643,754 643,754 — — 5,529 6,146 649,283 649,900 — 649,283		2003
Cost NT$ 174,900 436,962 — 611,862 — 611,862	Cost NT$ 643,754 — 5,529 649,283 — 649,283	Cost NT$ 2,918,817 — 18,541 2,937,358 (4,107) 2,933,251	Market value NT$ 2,918,846 — 14,434 2,933,280	Cost US$ 85,923 — 546 86,469 (121) 86,348	Market value
					US$ 85,924 — 425
					86,349

As of December 31, 2001, 2002 and 2003, government bonds sold under a repurchase clause amounted to NT$107,228, NT$0 and NT$0, respectively. The Company was entitled to repurchase the bonds at a specified date at an agreed price of NT$90,465, including interest. Refer to Note 6 for details of short-term investments pledged as collateral.

c. Accounts receivable

	December 31,	December 31,	December 31,
2001 NT$ 205,146 — 205,146	2002 NT$ 556,247 (19,000) 537,247	2003
		NT$ 351,996 (36,308) 315,688	US$ 10,362 (1,069)
			9,293

As of December 31, 2001, 2002 and 2003, the total amount of factoring accounts receivable were NT$0, NT$363,314 and NT$872,473, respectively, of which the Company received NT$0, NT$290,620 and NT$704,678, before the respective year-end. Refer to Note 7.(j) for details.

F-12

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

d. Inventories

	December 31,	December 31,	December 31,
2001 NT$ 56,089 37,268 239,878 56,211 1,135 390,581 (2,391) 388,190 600,000	2002 NT$ 126,840 77,844 55,098 367,436 — 627,218 (12,391) 614,827 390,000	2003
		NT$ 273,869 67,004 162,267 59,528 69 562,737 (35,000) 527,737 500,000	US$ 8,062 1,972 4,149 1,036 2
			16,565 (1,030)
			15,535
			14,719

e. Other current assets

	December 31,	December 31,	December 31,
2001 NT$ — 11,536 — 19,328 43,908 0 25,182 99,954	2002 NT$ 30,763 11,536 — 19,807 — 72,694 30,219 165,019	2003
		NT$ 27,568 9,731 74,927 23,665 — 168,257 33,203 337,351	US$ 812 286 2,217 697 — 4,953 966
			9,931

(1) Temporary payments — CDA project represented the subsequent payments for restoring the impaired equipment caused by the fire that occurred on December 31, 2000. These payments will be refunded once the insurance compensation is finalized. Please refer to Note 7.(e) for details of temporary payments — CDA project.
(2) Other receivables — F.K.I. represented the insurance compensation receivable for the explosion of Taiwan F.K.I. Corporation. This claim was settled in 2002 and the Company did not suffer any significant losses.
(3) Other receivables — factoring accounts receivable included receivables resulted from factoring of accounts receivable. Please refer to Note 4.(c) for details.
(4) Other current assets — others, as of December 31, 2002, included partially the output taxes on pro forma invoices to Ru Yuan International Corp.

(5) Refer to Note 10.a.(3) for details of forward contracts receivables.

f. Restricted current assets

	December 31,	December 31,	December 31,
2001 NT$ 445,513 2.10%~4.80%	2002 NT$ 231,312 1.35%~2.30%	2003
		NT$ 488,313 0.5%~1.525%	US$ 14,375
			0.5%~1.525%

Please refer to Note 6 for details of restricted time deposits pledged as collateral.

F-13

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

g. Long term equity investments

		December 31,	December 31,
2001		2002		2003
Amount	Percentage of ownership	Amount	Percentage of ownership	Amount		Percentage of ownership 100%
NT$ —	—	NT$ 50,000	100%	NT$ 201,610	US$ 5,935

(1) For the year ended December 31, 2003, the Company recognized investment income under the equity method amounted to NT$1,610.
(2) Sin Hsin Investment Ltd.’s (Sin Hsin) total assets and revenues for the year ended December 31, 2003 were less than 10% of the Company’s total assets and revenues and the Company did not consolidated Sin Hsin into its consolidated financial statements.

h. Property, plant and equipment

	December 31,	December 31,	December 31,
2001 NT$ 216,851 1,137,659 2,888,291 1,272 166,988 926,943 2,570 298,433 — 5,639,007 20,438 138,987 246 13,973 94,355 267,999 5,371,008	2002 NT$ 217,085 1,393,925 5,964,774 1,272 211,508 1,392,683 — 129,526 — 9,310,773 45,734 460,651 458 25,251 266,006 798,100 8,512,673	2003
		NT$ 217,085 1,687,337 6,330,167 963 378,832 895,480 1,548,425 5,009,908 98,075 16,166,272 115,715 1,238,527 394 72,471 286,325 1,713,432 14,452,840	US$ 6,391 49,671 186,346 28 11,152 26,361 45,582 147,481 2,887
			475,899
			3,406 36,460 12 2,133 8,429
			50,440
			425,459

(1) Land

	December 31,	December 31,	December 31,
2001 NT$ 146,139 70,712 216,851	2002 NT$ 146,139 70,946 217,085	2003
		NT$ 146,139 70,946 217,085	US$ 4,302 2,088
			6,390

(2) The insurance coverage for property, plant and equipment amounted to NT$4,594,900, NT$5,330,725 and NT$7,778,098 as of December 31, 2001, 2002 and 2003, respectively. In addition, the insurance coverage for the set-ups of South Sintek’s property, plant, and equipments amounted to NT$5,000,000 as of December 31, 2003.

(3) As of December 31, 2003, miscellaneous machinery equipment with a book value of NT$641,683 was temporarily suspended and will be used for production and R&D purposes after the arbitration between the Company and insurance company is settled. The related depreciation expense amounted to NT$36,213, NT$125,334 and NT$110,155 for the years ended December 31, 2001, 2002 and 2003, respectively, was recorded as ‘‘suspension of work losses’’.

F-14

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(4) Capitalized interest expense for construction in progress and advance payments for equipment amounted to NT$15,334, NT$35,004 and NT$14,640 for the years ended December 31, 2001, 2002 and 2003, respectively.
(5) Please refer to Note 6 for details of property, plant and equipment pledged as collateral.
(6) Please refer to Note 5.(6).(c) for details of advance payments for land and building.
(7) Construction in progress and advance payment for equipment indicated above were relevant expenditures incurred for establishing South Sintek’s 5.0 generation color filter plant.

i. Intangible assets

Technical know-how . . . . . . . . . . . . . . . . . . .		December 31,	December 31,	December 31,
	2001 NT$ 1,104,484	2002 NT$ 984,985	2003
			NT$ 1,587,686	US$ 46,738

Technical know-how included the technical know-how of color filter manufacturing.

j. Short-term loans

Type	December 31, 2001	December 31, 2001	December 31, 2002	December 31, 2002	December 31, 2003	December 31, 2003	December 31, 2003
	Interest rate %	Amount	Interest rate %	Amount	Interest rate %	Amount NT$ 1,617,515 200,000 — — 1,817,515	Amount
Letters of Credits . . . . . . . . . . . Credits Loans . . . . . . . . . . . . . . Secured Loans . . . . . . . . . . . . . Reverse Repurchase Agreement. . Total . . . . . . . . . . . . . . . . . . . .	0.74-5.27 4.40-6.15 4.45 4.75	NT$ 471,698 261,719 80,000 90,265	0.85-4.36 2.30-2.50 — —	NT$ 1,270,338 137,641 — —	0.50-2.03 1.45-1.50 — —		US$ 47,616 5,888 — —
		903,682		1,407,979			53,504

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

k. Short-term notes payable

Guarantor	December 31, 2001	December 31, 2001	December 31, 2002	December 31, 2002	December 31, 2003	December 31, 2003	December 31, 2003
	Interest rate %	Amount	Interest rate %	Amount	Interest rate %	Amount NT$ — 100,000 100,000 — — 100,000 100,000 400,000	Amount
Hsinchu International Bank. . . . . Chung Hsing Bills Finance Corp. International Bills Finance Corp. . Ta Ching Bills Finance Corp. . . . Dan Chung Bills Finance Corp . . China Bills Finance Corp. . . . . . Taiwan Finance Corp. . . . . . . . . Total . . . . . . . . . . . . . . . . . . . .	2.75 2.95 2.45 2.50 2.77 — —	NT$ 100,000 100,000 100,000 50,000 50,000 — —	— — — — — — —	NT$ — — — — — — —	— 1.05 0.99 — — 1.00 1.20		US$ — 2,944 2,944 — — 2,944 2,943
		400,000		—			11,775

F-15

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

l. Corporate bonds payable
(1) There were no corporate bonds as of December 31, 2001

First issuance of secured corporate bonds . . . . . . . . . First issuance of European convertible bonds . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Compensation interest payable. . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31, 2002 NT$ 800,000 — 800,000 — 800,000	December	31, 2003
		NT$ 800,000 105,462 905,462 2,719 908,181	US$ 23,553 3,102
			26,655 80
			26,735

(2) First Issuance of secured corporate bonds

The Company issued its first secured corporate bonds on December 11, 2002. The significant terms of the corporate bonds were as follows:

(1) Total amount issued: NT$800,000
(2) Face value: NT$1,000 par value.
(3) Issued period: December 11, 2002 to November 16, 2007 (5 years)
(4) Issuance price: As face value
(5) Interest: 2.7% per annum
(6) Method of repayment: Repayable at 33%, 33% and 34% of face value at the end of 3rd year, 4th year and 5th year, respectively.
(7) Method of interest payment: Annual payment
(8) Trustee: Hwa Nan International Bank etc.
(9) Guarantor: Hwa Nan International Bank.
(10) Please refer to Note 6 for the assets pledged as collateral for corporate bonds payable.
(3) First Issuance of European convertible bonds

The Company issued its first European Convertible Bonds on March 12, 2003. The significant terms of this bonds were as follows:

(1) Total amount issued: US$50,000 thousand
(2) Issued date: March 12, 2003
(3) Issued period: Five year
(4) Interest rate: 0%
(5) Conversion period: April 11, 2003 to February 11, 2008
(6) Conversion object: Common stock of the Company
(7) Trustee: Bank of New York

F-16

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(8) Conversion price:

The initial conversion price was NT$19.4. However, the conversion price shall be properly adjusted according to the formula of issuing terms in the event that there is a change in the number of common stock of the Company after the issuance of bonds, as of December 31, 2003, the conversion price was NT$15.3.

(9) Conditions for early redemption:
a. The bond can be redeemed after two years, in the event that the closing price during any 20 consecutive trading days is over the conversion price by 130%.
b. At least 90% of the principle amount has already been converted.
(10) Redemption at the option of the bondholders
a. Redemption date: March 12, 2005
- Redemption price: 106.01% of face value.
b. Redemption date: March 12, 2006 Redemption price: 109.15% of face value.
(11) Method of redemption: Redeem according to face value by cash in US$ at maturity.
(12) The conversion and redemption of the outstanding convertible bonds as of December 31, 2003 were summarized as follows:

Issued amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Conversion in 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconverted and unredeemed amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 31, 2003 US$ 50,000 (46,900) 3,100

As of December 31, 2003, the accumulated converted amount was US$46,900, and number of common shares converted was 106,037 thousand shares.

F-17

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

m. Long-term loans

Bank Syndication loan (type A) from Taishin Bank Syndication loan (type B) from Taishin Bank Chiao Tung Bank Chiao Tung Bank (Note 1) Chiao Tung Bank (Note 2) Syndication loan (type A) from Hwa Nan International Bank I.C.B.C. Hwa Nan International Bank (Note 3) Chiao Tung Bank etc. (Note 4) Subtotal Less: current portion Total	Maturity 06.27.2001- 03.08.2006 03.08.2001- 03.08.2006 02.2002- 04.2006 06.28.2002- 06.28.2005 11.14.2003- 11.14.2011 03.11.2002- 03.11.2008 11.08.2002- 11.08.2007 07.08.2002- 05.30.2003 09.14.2003- 12.24.2004	Interest rate % 2.75 5.45 — 3.10 0.89 2.82 3.07 0.66- 4.74 0.87- 2.19		December 31, 2002 2003 NT$ NT$ US$ 2,000,000 1428,572 42,054 400,000 285,714 8,411 17,650 14,650 431 150,000 300,000 8,831 — 111,930 3,295 50,000 1,574,080 46,337 143,000 134,560 3,961 773,757 — — — 4,370,383 128,654 3,534,407 8,219,889 241,974 (737,068) (925,354) (27,240) 2,797,339 7,294,535 214,734	December 31, 2002 2003 NT$ NT$ US$ 2,000,000 1428,572 42,054 400,000 285,714 8,411 17,650 14,650 431 150,000 300,000 8,831 — 111,930 3,295 50,000 1,574,080 46,337 143,000 134,560 3,961 773,757 — — — 4,370,383 128,654 3,534,407 8,219,889 241,974 (737,068) (925,354) (27,240) 2,797,339 7,294,535 214,734	Repayment terms
			2001 NT$ 2,000,000 400,000 — — — — — — — 2,400,000 — 2,400,000	2002 NT$ 2,000,000 400,000 17,650 150,000 — 50,000 143,000 773,757 — 3,534,407 (737,068) 2,797,339
					NT$ 1428,572 285,714 14,650 300,000 111,930 1,574,080 134,560 — 4,370,383 8,219,889 (925,354) 7,294,535	Syndication loans with an aggregate credit limit of NT$2,400,000 from 15 banks; repayable in 7 semi-annual installments, beginning 24 months after the first draw-down. 12 installments settled by issuing promissory notes within 3 months after the completion of planned products 5 semi-annual installments, beginning 1 year after the first draw- down. 10 semi-annual installments beginning 2.5 years after the first draw- down. Syndication loan with an aggregate credit limit of NT$2,400,000 (including a credit line for corporate bonds payable) from 11 banks; repayable in 6 semi- annual installments, beginning 30 months after the first draw-down. 17 quarterly installments, beginning 1 year after the first draw- down Usance L/C Usance L/C

F-18

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(1) The NT$300,000 loan from Chiao Tung Bank was subject to a financial covenants for which the current ratio (current assets divided by current liabilities) should not be lower than 100%, and the debt-equity ratio (liabilities divided by net assets) should not exceed 150%.
(2) The South Sintek’s NT$111,930 loan from Chiao Tung Bank was subject to a financial covenants for which the current ratio (current assets divided by current liabilities) should not be lower than 100%, the debt-to-equity ratio (liabilities divided by net assets) should not exceed 150%, and that the interest coverage ratio should not be lower than 150%.
(3) The loan from usance letters of credits of Hwa Nan International Bank was to purchase machinery equipment for the 4.0 generation TFT-LCD color filter production line. As the loans were to be refinanced by a long-term syndication loan from Hwa Nan International Bank, they were classified as long-term loans.
(4) NT$4,370,383 of letter of credit loan represented South Sintek’s syndicated loan from Chiao Tung Bank and other banks, for which the loan was used to purchase and set up South Sintek’s 5.0 generation production line. In accordance with the loan agreement, the related line of credit was NT$5,000,000, and this loan was recorded as long-term loan since the Company would finance this loan at long-term basis.
(5) Please refer to Note 6 for assets pledged as collateral for long-term loans.

n. Pension

In accordance with SFAS No. 18, ‘‘Accounting for Pensions,’’ the Company recognized net periodic pension costs starting in 2000. The Company carried out actuarial valuations with measurement dates of December 31, 2000, 2001 and 2002. The reconciliation of the funded status and accrued pension liability as of December 31, 2000, 2001 and 2002 is summarized below:

Benefit obligations: Vested benefit obligations . . . . . . . . . . . . . Non-vested benefit obligations . . . . . . . . . . Accumulated benefit obligations . . . . . . . . . Additional benefits based future salaries. . . . Projected benefit obligations . . . . . . . . . . . . Fair value of plan assets. . . . . . . . . . . . . . . . . Funded status . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition benefit obligations. . . . Unrecognized pension gains . . . . . . . . . . . . . . Additional accrued pension liabilities. . . . . . . . Prepaid pension expense, balance . . . . . . . . . . Accrued pension liabilities, balance . . . . . . . . .	2001 NT$ — (1,851) (1,851) (1,845) (3,696) 4,001 305 (102) 715 — (918) —	2002 NT$ — (5,529) (5,529) (3,348) (8,877) 8,651 (226) (93) 1,246 — (927) —	2003 NT$ US$ — — (7,331) (216) (7,331) (216) (14,618) (430) (21,949) (646) 15,497 456 (6,452) (190) 1,822 54 6,846 202 (367) (11) 2,422 72 (573) (17)
			NT$ — (7,331) (7,331) (14,618) (21,949) 15,497 (6,452) 1,822 6,846 (367) 2,422 (573)

F-19

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

The pension expense for 2001, 2002 and 2003, based on the actuarial reports of 2001, 2002 and 2003, were NT$2,482, NT$4,501 and NT$7,083, respectively. The components of net pension costs for the years ended December 31, 2001, 2002 and 2003 were summarized as follows:

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . Amortization of pension loss. . . . . . . . . . . . . . Net pension costs . . . . . . . . . . . . . . . . . . . . .	2001 NT$ 2,625 31 (187) (9) 22 2,482	2002 NT$ 4,573 166 (241) (9) 12 4,501	2003	2003
			NT$ 7,037 403 (432) 62 13 7,083	US$ 207 12 (13 2 1
				209

Actuarial assumptions are as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Salary increase rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . . . . . . . . . . . . . . .	2001 4.50% 3.00% 4.50%	2002 3.50% 2.00% 3.50%	2003
			3.50% 4.00%-5.00% 3.50%

o. Common shares

The change of common shares as of December 31, 2003, was summarized below:

Common shares, beginning . . . . . . . . . . . . . . . Stock issuance for cash . . . . . . . . . . . . . . . . . Capital increase through capitalizing earnings . . Capital increase through capitalizing capital reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible bonds converted to common shares. Stock bonus paid to employees . . . . . . . . . . . . Common shares, ending . . . . . . . . . . . . . . . . .	2001 NT$ 3,600,000 400,000 — — — — 4,000,000	2002 NT$ 4,000,000 — — — — — 4,000,000	2003	2003
			NT$ 4,000,000 — 600,000 400,000 1,060,368 68,965 6,129,333	US$ 117,751 — 17,663 11,715 31,215 2,030
				180,434

As of December 31, 2003, the Company’s issued capital was NT$6,129,333, divided into 612,933 thousand shares at NT$10 par value.

The increases of capital since incorporation were all approved by Ministry of Finance, R.O.C. The details were as follows:

Initial issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital increase by cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital increase by Technical know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital increase from retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital increase from capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible bonds converted to common shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock bonus paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Amount
	$200,000 3,741,200 58,800 600,000 400,000 1,060,368 68,965
	$6,129,333

Initial issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital increase by cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital increase by Technical know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital increase from retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital increase from capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible bonds converted to common shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock bonus paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$200,000
3,741,200
58,800
600,000
400,000
1,060,368
68,965

$6,129,333

F-20

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

p. Capital reserve

	December 31,	December 31,	December 31,
2001 NT$ 1,572,216 — 1,572,216	2002 NT$ 1,572,216 — 1572,216	2003
		NT$ 1,172,216 564,113 1,736,329	US$ 34,507 16,607
			51,114

q. Earnings distributions

(1) The Company’s articles of incorporation provide that the earnings shall be appropriated as follows:

10% of the Company’s net income, after deducting the previous years’ losses and taxes, must first be appropriated as the legal reserve. Up to 3% of the remainder, if any, is appropriated as remuneration to directors and supervisors’ service. The rest may be appropriated or distributed with no less than 10% as employee bonuses upon the resolution of a shareholders’ meeting.

(2) Pursuant to the resolution of the shareholders’ meeting in 2002, except for the appropriation to the legal reserve, no other distributions from 2001 earnings were made.
(3) The appropriations of the 2002 earnings were resolved by the shareholders’ meeting on April 24, 2003, details are summarized as follows:

Stock dividend paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock bonus paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remuneration paid to directors and supervisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2002
	$2.5 per share NT$68,965 NT$20,690

(4) The stockholders’ resolution to appropriate employee bonus and the remuneration to the directors and supervisors for 2003 were provided on web site of the Market Observation Post System.

r. Operating revenues

Sales of Merchandise. . . . . . . . . . . . . . . . . . . Construction revenue . . . . . . . . . . . . . . . . . . . Royalty revenue . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . Gross operating revenues . . . . . . . . . . . . . . . . Less: Sales return and discounts . . . . . . . . . . Operating revenue, net . . . . . . . . . . . . . . . . . .	2001 NT$ 1,491,215 101,130 — — 1,592,345 (17,187) 1,575,158	2002 NT$ 3,517,965 — 64,500 4,320 3,586,785 (293,527) 3,293,258	2003	2003
			NT$ 7,797,793 — — — 7,797,793 (887,519) 6,910,274	US$ 229,550 — — —
				229,550 (26,127
				203,423

Additionally, South Sintek did not generate operating income in 2003 since it was in the development phase.

F-21

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

s. Operating expenses

The salaries, depreciation and amortization expense for the year ended 2001, 2002 and 2003 were summarized as follows:

Employee expenses Salaries expense . . . . . . . . Labor and health insurance expense . . . . . . . . . . . . Pension expense . . . . . . . . Depreciation expense . . . . . Amortization expense. . . . .	2001 Costs of Goods Sold Operating expense $121,427 $43,202 $6,738 $2,584 $1,336 $1,118 $247,008 $20,530 $77,715 $16,227	2002 Costs of Goods Sold Operating expense $133,406 $69,946 11,551 4,930 2,821 1,211 386,487 19,679 172,896 4,184	2003	2003
	Costs of Goods Sold $121,427 $6,738 $1,336 $247,008 $77,715	Costs of Goods Sold $133,406 11,551 2,821 386,487 172,896	Costs of Goods Sold $222,693 15,137 3,891 759,642 303,259	Operating expense
				$112,804 6,076 920 45,774 14,919

t. Income taxes

	December 31,	December 31,	December 31,
2001 NT$ 476,967 4,606 50,000 440,838 2,391 142,125 18,424 — — —	2002 2003 NT$ NT$ US$ 846,724 1,392,036 40,979 — — — 170,000 275,092 8,098 827,165 1,335,346 39,310 12,391 35,000 1,030 — 19,135 563 3,742 81,130 2,388 — 74,033 2,179 62,371 — — — 17,500 515 December 31,	2003
			US$ 40,979
			—
			8,098
			39,310
			1,030
			563
			2,388
			2,179
			—
			515

2001 NT$ 96,448 (4,606) 91,842 380,519 (50,000) 330,519	2002 NT$ 191,006 — 191,006 655,718 (170,000) 485,718	2003
		NT$ 279,527 — 279,527 1,112,509 (275,092) 837,417	US$ 8,229 —
			8,229
			32,750 8,098
			24,652

F-22

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(4) Current income tax expense for continuing operation for the years ended 2001, 2002 and 2003 are as follow:

Current income tax expense for continuing operations . . . . . . . . . . . . . . . . . . . . . . Prior years’ income tax adjustment . . . . . . . Deferred tax benefit (expense) resulting from temporary differences: Investment tax credits . . . . . . . . . . . . . . Inventory provision . . . . . . . . . . . . . . . . Loss carryforward . . . . . . . . . . . . . . . . . Valuation allowance for deferred tax assets Bad debt provision . . . . . . . . . . . . . . . . Appropriate employees’ benefit . . . . . . . . Net foreign exchange losses . . . . . . . . . . Unrealized gross profit. . . . . . . . . . . . . . Individually taxed income tax . . . . . . . . . Income tax benefit for continuing operations.	2001 NT$ 475 — (367,593) (298) (26,577) 50,000 — — 4,606 — 55 (339,332)	2002 NT$ 67,255 — (386,327) (2,500) 35,531 120,000 — — (5,474) (15,593) — (187,108)	2003 NT$ US$ 91,912 2,706 741 22 (508,181) (14,960) (5,652) (166) (4,774) (141) 105,092 3,094 (18,508) (545) (4,375) (129) (19,414) (572) 15,593 (459) — — (347,566) (10,232)
			NT$ 91,912 741 (508,181) (5,652) (4,774) 105,092 (18,508) (4,375) (19,414) 15,593 — (347,566)

Income tax benefit for continuing operations.

(5) The reconciliation of income tax and income tax payable for December 31, 2001, 2002 and 2003 was as follows:

Income (loss) before income tax . . . . . . . . . Tax adjustments Gains on sales of short-term investments, net . . . . . . . . . . . . . . . . . . . . . . . . . Bad debt provision . . . . . . . . . . . . . . . . Investment income under equity method. . Inventory provision . . . . . . . . . . . . . . . . Unrealized gross profit. . . . . . . . . . . . . . Unrealized foreign exchange gains. . . . . . Non-appropriate employees’ benefit . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . Loss carryforward . . . . . . . . . . . . . . . . . Estimated taxable income . . . . . . . . . . . . . . Estimated income tax. . . . . . . . . . . . . . . . . Add (less): Undistributed earnings tax . . . . Tax credits . . . . . . . . . . . . . . . Individually taxed income tax . . Current income tax expense for continuing operations . . . . . . . . . . . . . . . . . . . . . . Less: prepaid income tax . . . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . . . . Income tax (receivable) . . . . . . . . . . . . . . .	2001 NT$ (83,558) (11,465) — — 1,191 — (17,981) — (2,504) — (114,317) — 949 (475) 55 529 (9,993) — (9,464)	2002 NT$ 620,398 (36,925) — — 10,000 62,371 3,472 — 18,364 (139,600) 538,080 134,510 — (67,255) — 67,255 (2,011) 65,244 —	2003 NT$ US$ 594,920 17,513 (39,791) (1.171) 67,785 1,995 (1,610) (47) 22,609 666 (62,371) (1,836) 77,658 2,286 17,500 515 58,634 1,726 — — 735,334 21,647 183,824 5,412 — — (91,912) (2,706) — — 91,912 2,706 (638) (19) 91,541 2,695 (267) (8)
			NT$ 594,920 (39,791) 67,785 (1,610) 22,609 (62,371) 77,658 17,500 58,634 — 735,334 183,824 — (91,912) — 91,912 (638) 91,541 (267)

(6) The ROC tax authorities had examined and assessed the Company’s income tax returns for all years through 2000.

F-23

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(7) As of December 31, 2003, the Company’s tax-exempt holidays to reduce future taxable income were as follows:

Item Total tax credits Unused tax credits Year of expiry NT$ NT$ Sintek- Purchase of machinery and equipment . . . . . . . . . 757,090 604,822 2007 Research and development expenditures . . . . . . . . 51,378 43,263 2007 South-Sintek- Purchase of machinery and equipment . . . . . . . . . 687,261 687,261 2007 Information regarding imputation income tax system December 31, 2001 2002 2003 NT$ NT$ NT$ US$ Shareholders’ tax credits balance. . . . . . . . . — 2,011 23,541 693 December 31, 2001 2002 2003 Estimated percentage of shareholders’ tax credit . . . . — 0.14% 10.16% Undistributed earnings December 31, 2001 2002 2003 2003 NT$ NT$ NT$ US$ 1998 and after . . . . . . . . . . . . . . . . . . . . . 343,471 1,125,400 1,123,391 33,070	Total tax credits Unused tax credits NT$ NT$ 757,090 604,822 51,378 43,263 687,261 687,261 December 31,	Total tax credits Unused tax credits NT$ NT$ 757,090 604,822 51,378 43,263 687,261 687,261 December 31,	Total tax credits Unused tax credits NT$ NT$ 757,090 604,822 51,378 43,263 687,261 687,261 December 31,	Year of expiry	Year of expiry
				2007 2007 2007
		2002 2003 NT$ NT$ US$ 2,011 23,541 693 December 31,	2003
					US$ 693

	2001 2002 — 0.14% December 31,				2003
					10.16%

2001 NT$ 343,471		2002 NT$ 1,125,400	2003		2003
					US$ 33,070

u. Earnings (loss) per share

The company issued convertible bonds on March 12, 2003, resulting in a complex capital structure. The convertible bonds are potential common stock with a dilutive effect on earnings per share (‘‘EPS’’) of the year ended December 31, 2003. As a result, the company’s EPS was presented in basic EPS and diluted EPS.

(1) Basic earning per share:

Weighted average number of common shares outstanding (in thousand shares) . . . . . . . Income (loss) before income tax . . . . . . . . . Income tax benefit. . . . . . . . . . . . . . . . . . . Minority interest income . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . Basic earnings (loss) per share (dollar) Income (loss) before income tax . . . . . . . Income tax benefit. . . . . . . . . . . . . . . . . Minority Interest Income . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . .	2001 459,817 NT$(83,558) 339,332 — 255,774 NT$(0.18) 0.74 — 0.56	2002 506,897 NT$620,398 187,108 — 807,506 NT$1.22 0.37 — 1.59	2003	2003
			552,094 NT$594,920 347,566 (169,410) 773,076 NT$1.08 0.63 (0.31) 1.40	552,094
				US$17,511 10,232 (4,987)
				22,756
				US$— — —
				—

F-24

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued

For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(2) Weighted average number of common shares outstanding

Weighted average number of common shares outstanding for the year ended December 31, 2001:

Number of shares, beginning of the period. . . . . . . . . . . . . . . . . . . . Stock issues for cash . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . .	Number of common shares outstanding (In thousands) 360,000 40,000 400,000	Outstanding period 365/365 26/365	Rate of adjustment 1+26.72% 1+26.72%	Weighted average number of common shares outstanding
				(In thousands) 456,207 3,610
				459,817

Weighted average number of common shares outstanding for the year ended December 31, 2002:

Number of shares, beginning of the period. . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . .	Number of common shares outstanding (In thousands) 400,000 400,000	Outstanding period 365/365	Rate of adjustment 1+26.72%	Weighted average number of common shares outstanding
				(In thousands) 506,897
				506,897

Weighted average number of common shares outstanding for the year ended December 31, 2003:

Number of shares, beginning of the period . . . . . . . . Capital increase derived from capital reserve . . . . . . Stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . Stock bonus paid to employees . . . . . . . . . . . . . . . . Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of common shares outstanding (In thousands) 400,000 40,000 60,000 6,897 106,036 612,933	Outstanding period 365/365 365/365 365/365 365/365 —	Weighted average number of common shares outstanding
			(In thousands) 400,000 40,000 60,000 68,965 45,197
			552,094

(3) Diluted effect on the treasury stock owned by subsidiaries:

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest expense for convertible bonds . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Convertible bonds transfer to common shares . . . . . . . . . . . . . . . . Total shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted EPS (in dollar) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2003	2003
	NT$ 773,076 19,061 792,137 552,094 45,859 597,953 1.32	US$ 22,758 561
		23,319
		— —
		—
		—

F-25

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

5. RELATED PARTY TRANSACTION

a. Name and relationship with related parties

Name Ho Tung Chemical Corporation. . . . . . . . . . Helix Technology Inc. . . . . . . . . . . . . . . . . Dai Nippon Printing Co., Ltd. . . . . . . . . . . . Dai Nippon Printing (Taiwan) Co., Ltd. . . . . Chia Ho Genome Express, Inc. (‘‘Chia Ho’’). Ru Yuan International Corp. (‘‘Ru Yuan’’) . .	Relationship
	The Company’s director was the Chairman of the board of directors of Ho Tung Chemical Corporation Same Chairman of the board of directors Major shareholder who held more than 10% of the Company’s common shares Its parent company was a major shareholder of the Company The Company’s director was the Chairman of the board of directors of Chia Ho Genome Express, Inc. Related party in substance

b. Significant related party transactions
(1) Sales:

2001 Amount % NT$ 796,825 50.59 — — 796,825 50.59	2002 Amount % NT$ 1,559,077 47.34 35,666 1.08 1,594,743 48.42	2003
Amount NT$ 796,825 — 796,825	Amount NT$ 1,559,077 35,666 1,594,743	Amount NT$ US$ 4,507,493 132,690 382,482 11,259 4,889,975 143,949	%
		NT$ 4,507,493 382,482 4,889,975	65.23 5.53
			70.76

The sales prices and terms of collection with the related party were not significantly different from those with non-related parties, except for those with Ru Yuan, which were based on its collection status from its customers.

(2) Purchases:

Dai Nippon Printing Co., Ltd.	2001 Amount % NT$ 526,490 39.67	2002 Amount % NT$ 41,051 2.38	2003
	Amount NT$ 526,490	Amount NT$ 41,051	Amount NT$ US$ 203,698 5,996	%
			NT$ 203,698	6.96

The purchase prices and terms of payment with the related party were not significantly different from those with non-related parties.

F-26

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(3) Receivables and payables

	December 31,	December 31,
2001 Amount % NT$ 639,940 75.72 — — 639,940 75.72 — — 2,155 9.25 2,155 9.25	2002 Amount % NT$ 309,848 36.54 10,821 1.28 320,669 37.82 18,965 11.49 1,753 1.06 20,718 12.55		2003
Amount NT$ 639,940 — 639,940 — 2,155 2,155	Amount NT$ 309,848 10,821 320,669 18,965 1,753 20,718	Amount NT$ 1,393,869 41,991 1,435,860 — 60 60	Amount US$ 41,032 1,236 42,268 — 2 2	%
				97.08 2.92
				100.00
				— —
				—

Other receivables included the output VAT Taxes on the pro forma invoices to Ru Yuan. Refer to Note 10.c for details.

(4) Payables to related parties

	December 31,	December 31,
2001 Amount % NT$ 202,756 66.85 29,944 17.56 2,756 1.62 32,700 19.18 191,804 71.14 2,292 0.85 194,096 71.99	2002 Amount % NT$ — — 119,310 19.87 36,314 6.05 155,624 25.92 108,166 99.85 166 0.15 108,332 100.00		2003
Amount NT$ 202,756 29,944 2,756 32,700 191,804 2,292 194,096	Amount NT$ — 119,310 36,314 155,624 108,166 166 108,332	Amount NT$ — 92,289 22,191 114,480 292,798 — 292,798	Amount US$ — 2717 653 3,370 8,619 — 8,619	%
				—
				14.10 3.39
				17.49
				— —
				43.88

Lessor\lessee Lessee — Helix Technology Inc. . . . .	Location 8,9 F, 2–1, Wenhua Rd, Hukou, Hsin-Chu county	Lease term 3.16.2001– 3.15.2002	Rental reven	Rental reven	ue (expense)	ue (expense)
			2001 NT$ 6,810	2002 NT$ 649	2003
					NT$ —	US$ —

F-27

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(6) Property plant and equipment transactions

(a) Purchases of production equipment from related parties were summarized as follows:

1. Helix Technology Inc. a. In-Line Sputtering System NEW ARISRO 1400 — Total contract price . . . — Amount paid . . . . . . . . b. In-Line Sputtering System NEW ARISRO 1200L — Total contract price . . . — Amount paid . . . . . . . . c. Other equipments — Total contract price . . . — Amount paid . . . . . . . .	2001 NT$ 260,000 260,000 439,824 226,211 212,020 182,076	2002 NT$ 0 0 439,824 384,329 49,586 24,793	2003	2003
			NT$ 0 0 460,225 384,329 51,331 51,331	US$ 0
				0
				13,548
				11,314
				1,511
				1,511

     - Transaction prices for the above transactions were calculated at 10% mark-up of the estimated cost (a. and b. above) or 5% mark-up of the estimated cost (c. above).

     - d. Additionally, Helix Technology Inc. provided technical support to the Company for the improvement of manufacturing process. The related remuneration amounted to NT$30,000.

  2. During 2001, 2002 and 2003, the Company purchased equipment from Dai Nippon Printing Co., Ltd. for NT$10,555, NT$0 and NT$1,007, respectively.

  3. During 2001, 2002 and 2003, the Company purchased equipment from Dai Nippon Printing (Taiwan) Co., Ltd. for NT$125,109, NT$90,668 and NT$84,965, respectively.

(b) The Company purchased real estate, including land and building (located in Hsinchu county), from Helix Technology Inc. in 2000. The transaction price of NT$700,087, was based on an appraisal value of NT$700,835. As of December 31, 2000, the advanced payment was NT$350,043. The remainder was settled in full in 2001.
(c) The Company entered into a real estate contract with Chia Ho on March 20, 2003 to purchase land and building (located in Taipei county) to be used as its office building. As at December 31, 2003, the ownership transfer was not complete.
(7) The Company entered into a product development contract with Helix Technology Inc. in 2001. The contract expired in May 2001. As of December 31, 2001, the total contract for NT$3,000 (VAT inclusive) had been settled in full.
(8) The Company entered into a technology transfer agreement with Dai Nippon Printing Co., Ltd. Refer to note 7.(d) for details.

F-28

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

6. COLLATERAL

Assets pledged as collateral Restricted time deposits . . Short-term investment — government bonds . . . . Property, plant and equipment — land . . . . . . . . . . — buildings and improvements . . . . — Machinery and miscellaneous equipment (including advance payments) . . . . . . Accounts receivable. . . . . Total . . . . . . . . . . . . . . .		Book value December 31, 2002 December 31, 2003 NT$ NT$ US$ 231,312 488,313 14,375 — — — 217,085 217,085 6,390 1,015,132 1,321,230 38,894 4,358,652 5,064,477 149,087 — — — 5,822,181 7,091,105 208,746	Book value December 31, 2002 December 31, 2003 NT$ NT$ US$ 231,312 488,313 14,375 — — — 217,085 217,085 6,390 1,015,132 1,321,230 38,894 4,358,652 5,064,477 149,087 — — — 5,822,181 7,091,105 208,746	Secured financial institutions Land Bank, Dai-Ichi Kangyo Bank, China Trust, International Bank of Taipei, Mizuho Bank, Bank of Panshin, Hua Nan Bank Chung Hsing Securities Corp. Taishin Bank Hwa Nan Bank etc. Taishin Bank Hwa Nan Bank etc. Taishin Bank Hwa Nan Bank etc. Tai Chung Bank	Purposes
	December 31, 2001 NT$ 452,513 107,243 146,139 1,011,904 3,219,899 10,276 4,947,974	December 31, 2002 NT$ 231,312 — 217,085 1,015,132 4,358,652 — 5,822,181
			NT$ 488,313 — 217,085 1,321,230 5,064,477 — 7,091,105		Short-term loans, Bonded goods, Guaranty for foreign labor, Guaranty for agreement with, Industrial Development Bureau. Short-term loans Syndication loans Syndication loans Syndication loans Short-term loans

Additionally, in accordance with the loan agreements between South Sintek and the banks, South Sintek’s property, plant, and equipments were to be pledged as collateral once they were completely established.

7. COMMITMENTS AND CONTINGENCIES

The Company’s commitments and contingencies not recorded in the financial statements as of December 31, 2003 were as follows:

The unused letters of credit for purchase of raw materials and machinery were as follow:

Currency
USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

61
3,925,473
2,148
44,250

b. The Company’s unpaid tariffs taxes for importing raw materials amounted to NT$30,420.
c.
The details of the Company’s significant construction and equipment contracts were as follows:

Item Building & Utility Systems. . . . . . . . . . . . . . . . . . . . Machinery Equipment . . . . . . . . . . . . . . . . . . . . . . .	Total Contract Amount NT$1,784,013 EUR$1,420 NT$78,075 USD$60 EUR$46,882 JPY$20,166,752	Paid NT$1,344,268 EUR$1,136 NT$26,344 USD$0 EUR$42,104 JPY$14,664,680	Unpaid
			NT$439,745
			EUR$284
			NT$51,731
			USD$60
			EUR$4,778
			JPY$5,502,072

F-29

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

d. The Company entered into technology transfer agreement with Dai Nippon Printing Co., Ltd. Dai Nippon Printing Co., Ltd. agreed to transfer technology for color filter production to the Company for 5 to 8 years starting from the date when the targeted production rate achieved. The details of the technology transfer fees and royalty fees were as follows:

Item 3.5th generation . . . . . . . . . . 4.0th generation . . . . . . . . . . 5.0th generation . . . . . . . . . .	Technology transfer fees JPY 2,500,000 JPY 1,000,000 JPY 2,500,000	Basis of royalty
		2% of net sales of jointly-produced products 1–2% of net sales of jointly-produced products 2% of net sales of jointly-produced products

For the years ended 2001, 2002 and 2003, the royalty fee were NT$14,175, NT$41,504 and NT$112,641, respectively.

The remuneration for the 5.0th generation color filter technology transfer amounted to JPY$2,500,000, of which JPY$1,700,000 had been paid as of December 31, 2003. The remainder was recorded as accrued expenses. The Company issued a stand-by non-cancellable letter of credit to guarantee the payment of the remuneration. The letter of credit will be due in the end of September 2004.

e. On December 31, 2000, a fire damaged the Company’s production machinery. The damaged machinery was repaired using the insurance proceeds provided by the insurance company. However, the Company claimed that the machinery could not maintain its previous productive capacity. The Company made further claims disputing the adequacy of the insurance compensation and the arbitration between the Company and the insurance company was still in progress.
f. The Company entered into a color filter patent agreement with IBM, Japan, effective for five years (expires to 2004).
g. The stand-by guarantee notes for the long-term and short-term loans, contractors and equipment suppliers amounted to NT$4,321,126.
h. The Company entered into an agreement with the Industrial Development Bureau of the Ministry of Economic Affairs to develop materials for color filters. According to the terms of the agreement, the Company will pay 2% of revenues as the royalty to the Industrial Development Bureau. The maximum royalty payment will be 40% of the loan receivable which amounted to NT$17,650.
i. The Company signed factoring agreements of accounts receivable with several banks. Upon signing of the agreements, the Company was entitled to receive 80% of the amounts of accounts receivable factored, but was required to pay bank service charges and interests during the customer payment period. As of December 31, 2003, the total amount of factored accounts receivable was NT$704,678.
j. The Company promised to keep its ownership percentage of South Sintek no less than 50% during the period where the NT$5,000,000 syndicated loan from Banks remains outstanding.
k. South-Sintek leased the land in Tainan Industrial Park for the period from February 15, 2003 to December 31, 2022. The monthly rent payment is NT$1,311.

8. SIGNIFICANT DISASTER LOSS

None.

IMPORTANT SUBSEQUENT EVENTS

None.

10. FINANCIAL INSTRUMENTS

a. Derivatives:
(1) The Company uses derivatives such as foreign exchange contracts and options to reduce foreign exchange risk exposures arising from the fluctuations in foreign exchange rates of engaged and expected transactions.

F-30

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(2) Options

As of December 31, 2001, 2002 and 2003, the Company’s outstanding foreign currency option contracts were summarized as follows:

	December 31, 2001
Principal ($1,000) JPY2,832,000 EUR 3,000 USD24,610 USD44,660 JPY5,503,875 EUR 3,000	Strike Price 126–131 (USD:JPY) 0.87 (USD:EUR) 126–131 (USD:JPY) 0.87 (USD:EUR) 126–135 (USD:JPY) 0.87 (USD:EUR) 126–135 (USD:JPY) 0.87 (USD:EUR) December 31, 2002	Maturity
		2002.01.24–2002.12.11 2002.02.04 2002.01.24–2002.12.11 2002.01.24–2002.12.11 2002.01.24–2002.12.11 2002.02.04
Principal ($1,000) JPY7,586,600 EUR 5,000 USD66,050 USD149,760 JPY18,736,220	Strike Price 123–125 (USD:JPY) 1.010 (USD:EUR) 123–125 (USD:JPY) 123–127.1 (USD:JPY) 123–127.1 (USD:JPY) December 31, 2003	Maturity
		2003.01.06–2004.02.05 2003.04.16 2003.01.06–2004.02.05 2003.01.30–2004.02.05 2003.01.30–2004.02.05
Principal ($1,000) JPY300,000 NTD 93,885 USD 2,000 JPY 900,000 NTD 67,000 NTD 281,655	Strike Price 0.31295 (JPY:NTD) 0.31295 (JPY:NTD) 33.5 (USD:NTD) 0.31295 (JPY:NTD) 33.5 (USD:NTD) 0.31295 (JPY:NTD)	Maturity
		2004.01.19–2004.03.18 2004.01.19–2004.03.18 2004.05.13 2004.01.19–2004.03.18 2004.05.13 2004.01.19–2004.03.18

The Company expected to have significant foreign currency requirements as it has committed to raw material purchases and equipment acquisitions in 2004. In order to hedge the risk of foreign exchange rates fluctuations, the Company entered into option contracts with several banks.
The net premiums received from option contracts were NT$3,055, NT$10,320 and NT$3,722 in 2001, 2002 and 2003 respectively. The premiums were recorded as non-operating income.
Foreign exchange gains resulting from foreign exchange contracts and options amounted were to NT$62,958, NT$6,972 and NT$57,087 for the year ended December 31 2001, 2002 and 2003, respectively.
(3) Forward Exchange Contracts

There were no forward exchange contracts as of December 31, 2002.

F-31

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

As of December 31, 2001 and 2003, details of the outstanding forward exchange contracts were as follows:

	December 31, 2001	December 31, 2001
Maturity 2001.2.26–2001.3.27	Exchange Currency USD	Contract Amount 7,000	Amount NT$
			Receivable 236,239 236,239	Payable
				245,490
				245,490 (236,239) (1,829)
				7,422

	December 31, 2003	December 31, 2003
Maturity 2004.01.16–2004.01.18 2004.01.18–2004.07.27 2004.01.07–2004.01.14 2004.05.05 2004.01.07–2001.06.25 2004.03.22–2004.07.22 2004.03.22–2004.07.27	Exchange Currency JPY JPY USD EUR JPY JPY USD	Contract Amount 552,550 3,996,630 7,000 8,190 985,037 1,060,198 13,939	Amount (NT$)
			Receivable 176,761 1,278,438 238,140 352,661 315,040 339,157 474,205 3,174,402 (3,092,683) (6,792) 74,927	Payable
				170,100 1,244,135 237,894 328,057 308,034 331,286 473,177
				3,092,683

(4) Credit risks

Credit risks represent risks associated with transaction defaults. The Company enters into financial instrument contracts only with financial institutions with a good credit standing. In addition, to reduce credit risks, the transactions are settled in net balances. Therefore, the likelihood of the credit risk being realized is minimal.

(5) Market risks

Market risks, represent risks associated with fluctuations in interest rates or foreign exchange rates, may cause the Company to suffer losses as a result of engaging in related transactions.

The exercise prices of the options are determined based on the market price, and the terms are based on the payment dates of payables settled in foreign currencies and future cash flow requirements. Therefore, at the end of the term, when the Company is to exercise the options, the foreign currency payables are settled accordingly. As a result, the fluctuation of exchange rates has a minimal effect on the Company. In addition to control market risks, the Company engages in these transactions only within a set limit.

The Company enters into forward exchange contracts to reduce foreign exchange exposures. The Company purchases or sells foreign currency at a pre-determined foreign exchange rate under the forward exchange contracts. Therefore, the effect of any fluctuation of exchange rates and the market risks to the Company is minimal.

(6) Liquidity Risk

Liquidity risk represents the uncertainty of future cash flow requirements which includes the risk in raising funds to meet commitments or the risk that cash flows with monetary assets will fluctuate significantly. The Company utilizes financial instruments from the money markets and foreign exchange markets to manage its cash flow requirements.

F-32

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

b. Fair Value of Financial Instruments

	December 31,	December 31,
2001 Book value Fair Value NT$ NT$ 1,022,313 1,022,313 452,513 452,513 611,862 638,976 845,086 845,086 379,738 379,738 269,605 269,605 3,703,682 3,703,682 — — 170,514 170,514	2002 Book value Fair Value NT$ NT$ 444,564 444,564 231,312 231,312 649,283 649,900 857,916 857,916 435,955 435,955 189,623 189,623 4,942,386 4,942,386 800,000 800,000 600,333 600,333		2003
Book value NT$ 1,022,313 452,513 611,862 845,086 379,738 269,605 3,703,682 — 170,514	Book value NT$ 444,564 231,312 649,283 857,916 435,955 189,623 4,942,386 800,000 600,333	Book value NT$ 169,583 488,313 2,933,251 1,751,548 710,445 667,248 10,437,404 908,181 654,539	Book Value US$ 4,992 14,375 86,348 51,562 20,914 19,642 307,253 26,735 19,268	Fair Value NT$ 169,583 488,313 2,933,280 1,751,548 710,445 667,248 10,437,404 908,181 654,539	Fair Value
					US$ 4,992 14,375 86,349 51,562 20,914 19,642 307,253 26,735 19,268

The assumptions and methods in deriving fair value of the financial instruments are as follows:

(1) The current financial instruments’ fair values are the book values on the balance sheet since they have short-term maturities. This method is applied to cash, cash equivalents, restricted assets, accounts and notes receivables, accrued expenses, payables on equipment, short-term loans and accounts and notes payables.
(2) For securities where market value information is available, the market value is determined to be the fair value. Other financial information is used if market value information is not available.
(3) The fair values of the long-term loans are determined based on their present values using the borrowing rates as the discount rates.
(4) The fair values of the convertible bonds payable, which calculate their interests using the fixed interest rates, are determined based on their present values using the borrowing rate as the discount rates. The borrowing rates are determined using the interest rates of similar type of bonds.

c.

Restated Financial Statements

(1) Ru Yuan International Corp. was the Company’s related party in substance whose principal business included the sale of the Company’s products.
(2) In 2002, the Company manufactured a large amount of certain products in accompany with its major customer, Hannstar’s sales projection. Nevertheless, due to the economic downturn in the fourth quarter of 2002, Hannstar was unable to purchase those products as originally planned. After several rounds of negotiation, the parties came to a resolution to let Ru Yuan International Corp. to purchase a portion of the products, and then sell those products to Hannstar. The Company would then collect the proceeds from Ru Yuan International Corp. according to Ru Yuan International Corp.’s collections from its customers.
(3) In accordance with Securities and Futures Commision’s Letter No. 0920004205, the Company’s sales transaction through Ru Yuan International Corp. should have been recognized only when if the relevant revenue recognition requirements were met, where the merchandising risk and compensation were completely transferred to the customers of Ru Yuan International Corp. Consequently, the Company’s financial statements for the year ended December 31, 2002 were restated according to this revenue recognition principle. This restatement caused decreases in revenues, after-tax net income and retained earnings figures on its financial statements for the year ended December 31, 2002 in the amounts of NT$379,305 thousand, NT$46,778 thousand, and NT$46,778 thousand, respectively.

F-33

SINTEK PHOTRONIC CORPORATION NOTES TO FINANCIAL STATEMENTS — continued For the years ended December 31, 2001, 2002 and 2003

(Amounts in thousands except share, per share and percentages)

(4) The consequence of restated financial statement was summarized as follow:

Account Accounts receivable. . . . . . . . . . . . . . . . . . . Receivables from related parties, net . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . Other Current Assets . . . . . . . . . . . . . . . . . . Deferred tax assets — current . . . . . . . . . . . . Net Sales Revenue . . . . . . . . . . . . . . . . . . . Cost of Goods Sold . . . . . . . . . . . . . . . . . . . Income Tax Benefit . . . . . . . . . . . . . . . . . . . Undistributed Earnings. . . . . . . . . . . . . . . . .	Amount before Restated $ 946,338 309,848 297,893 146,054 175,413 3,672,563 2,497,510 171,515 1,172,178	Debit $ — 10,821 316,934 18,965 15,593 379,305 — — 46,778	Credit $409,091 — — — — — 316,934 15,593 —	Amount After Restated
				$ 537,247 320,669 614,827 165,019 191,006 3,293,258 2,180,576 187,108 1,125,400

11. SEGMENT FINANCIAL INFORMATION

a. Financial information by industry

Not applicable.

b. Financial information by geographic area

Not applicable.

c. Export sales information

Not applicable.

d. Major customers information

Customer A . . . . . . . . . . . . . . B . . . . . . . . . . . . . .	2001 Amount Percentages of total sales NT$ % 796,825 50.59 372,252 23.63	2002 Amount Percentages of total sales NT$ % 1,559,077 47.34 972,252 29.52		2003
	Amount NT$ 796,825 372,252	Amount NT$ 1,559,077 972,252	Amount NT$ 4,507,493 1,445,654	Amount US$ 132,690 42,557	Percentages of total sales
					% 65.23 20.92

F-34

Restated 2002 financial statements

In 2003, the Company was informed by the SFC to restate its 2002 financial statements due to a difference in opinion in the recognition of income of sale of products. According to the SFC’s opinion, the recognition of income of sale of products should be at the time of the actual delivery of products to customers rather than delivery of products to its sale agent, Ru Yuan International Corp., which is also a related party of the Company. The restatement decreases changes in operating revenue, net income after tax and retained earnings in the financial statements for the year ended 31 December, 2003 in the amounts of NT$379.3 million, NT$46.8 million and NT$46.8 million, respectively. Unrecognised income and revenue from 2002 was recognised in full in 2003.

Set forth below are the effects to the financial statements after the restatement of the 2002 financial statements:

Account Accounts receivable. . . . . . . . . . . . . . . . . Receivables from related parties, net . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . Deferred tax assets — current . . . . . . . . . . Net sales revenue . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . Income tax benefit. . . . . . . . . . . . . . . . . . Undistributed earnings . . . . . . . . . . . . . . .	Amount before restatement (NT $,000) 946,338 309,848 297,893 146,054 175,413 3,672,563 2,497,510 171,515 1,172,178	Debit (NT$,000) — 10,821 316,934 18,965 15,593 379,305 — — 46,778	Credit (NT$,000) $409,091 — — — — — 316,934 15,593 —	Amount after restatement (NT$,000)
				537,247 320,669 614,827 165,019 191,006 3,293,258 2,180,576 187,108 1,125,400

F-35

This page is intentionally left blank

HEAD OFFICE OF THE COMPANY

SINTEK PHOTRONIC CORP.

No. 2-1, Wenhua Rd., Hsin-Chu Industrial Park Hukou Shiang, Hsin-Chu County, Taiwan ROC

TRUSTEE

REGISTRAR

The Bank of New York, London branch One Canada Square 48th Floor, London E14 5AL England

The Bank of New York, New York branch 101 Barclay Street 21st Floor West New York, New York 10286 United States of America

PRINCIPAL PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York, London branch

One Canada Square 48th Floor, London E14 5AL England

LEGAL ADVISERS

ROC Legal Advisers to the Company

Legal Advisers to the Joint Lead Managers

Lee and Li, Attorneys-at-Law Sidley Austin Brown & Wood 7th Floor, 201 Tun-Hwa N. Road 39th Floor Taipei, Taiwan Two International Finance Centre ROC 8 Finance Street Central Hong Kong

AUDITORS

Diwan, Ernst & Young

Certified Public Accountants 9th Floor, 333 Keelung Road, Section 1 Taipei, Taiwan ROC

Printed by ROMAN 9145-1

AI assistant

HannsTouch — Capital/Financing Update 2019

52281_rns_2019-07-29_3f01f186-e3d8-492a-ade9-abe0bf1c72ba.pdf

SINTEK PHOTRONIC CORP.

U.S.$120,000,000 Zero Coupon Convertible Bonds due 2009 (comprising U.S.$100,000,000 Firm Bonds and U.S.$20,000,000 Optional Bonds)

Issue Price: 100 per cent.

Joint Lead Manager

IBT Securities Co., Ltd.

GC Capital (Asia) Limited

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

TABLE OF CONTENTS

SUMMARY

Sintek Photronic Corp.

Summary of the Offering

RISK FACTORS

Risks Relating to the Company and its Business

High dependence on the performance of Taiwanese TFT-LCD manufacturers and the TFT-LCD market

High reliance on technology transferred from DNP

Limited operating history

Highly competitive market for colour filters

Potential downward pressure on margins

The commencement of the Company’s new production facilities may be delayed

Highly dependent on access to key components

Highly dependent on key customers for a substantial portion of the Company’s net sales

No long-term supply contracts with its customers and possible cancellation, reduction or postponement of customers’ orders

Possible inability to develop new products or keep pace with technological change

Risk of delivery delays or material product defects which will harm the Company’s results of operations and corporate reputation

Possible inability to manage growth effectively

Intellectual property and litigation

Foreign currency exchange rate fluctuations

Reliance on key personnel

Risk of violation of environmental regulations

The Company may not be able to meet all of its financial covenants to lenders

A fire, earthquake or other natural calamity at any of the facilities of the Company may occur

Other factors affecting the Company’s operating results

Risks Relating to the Bonds and the Shares

Limitation on the investors’ ability to exercise conversion rights

Liquid market for the Bonds may not develop and the market for the Company’s Shares may not be liquid

Transfers of the Bonds and Shares are restricted

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

The imposition of foreign exchange restrictions may have an adverse effect on foreign investors’ ability to acquire ROC securities, including the Company’s securities, or repatriate the interest, dividends or sale proceeds from those securities

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

Risks Relating to doing business in the ROC

Volatility of the ROC Securities Market

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

Forecasted financial information reported by the Company pursuant to SFC requirements may not be reliable

The political status and international relations of the ROC may affect the Company and the Bonds

Any future outbreak of severe acute respiratory syndrome (‘‘SARS’’) may adversely affect the Company’s results of operations

CAPITALISATION

Introduction

Industry Overview

Colour Filter Market

Business Strategy

Establish partnerships with major TFT-LCD and colour filter manufacturers

Continue to enhance product quality and emphasise low cost and efficient manufacturing

Enhance customer-focused logistics and fulfilment network

Products of the Company

Raw material costs of a TFT-LCD (%)

Sales and Marketing

Raw Materials and Components

Research and Development

Competition

Production Facilities

Quality Control

Patents and Licenses

Environmental Protection

Litigation

Insurance

Employees

Subsidiaries

Directors and Supervisors

Executive Officers

Share Ownership and Compensation

PRINCIPAL SHAREHOLDERS

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

Basis of Presentation

Revenues

Cost of Goods Sold

Gross Margin

HannsTouch Capital/Financing Update 2019