Shuttle - Capital/Financing Update 2013

INFORMATION MEMORANDUM

Shuttle Inc.

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

U.S.$12,000,000

Zero Coupon Convertible Bonds due 2008

Issue Price: 100%

The Bonds will be direct, unconditional, unsecured and unsubordinated general obligations of Shuttle Inc. (“ Shuttle ” or the “ Company ”) and rank at least equally with all other outstanding and future unsecured and unsubordinated general obligations of the Company. The Bonds will not bear interest except in limited circumstances. Bondholders may convert the Bonds into the Company’s common shares, par value NT$10 per share (the “ Shares ”) on or after August 9, 2003 and prior to the close of business on June 30, 2008. The Conversion Price will initially be NT$40.85 per Share, which is equivalent to U.S.$1.1813 per Share, based on a fixed rate of exchange of NT$34.58 = U.S.$l.00, subject to adjustment in certain events. In addition, the Conversion Price will be adjusted from time to time in certain circumstances relating to the then prevailing closing price of the Shares relative to the Conversion Price. The Shares are listed on the Taiwan Stock Exchange (the “ TSE ”) and application will be made to list the Shares issued upon conversion of the Bonds on the TSE. On June 24, 2003, the closing price of the Shares on the TSE was NT$45.70 per Share.

Bondholders have the option to require the Company to redeem all or part of the Bonds held by that Bondholder on July 10, 2005 at 105.06% of principal amount. The Company has the option to redeem all, or part only, of the Bonds on or at any time after July 10, 2005 at Early Redemption Amount (as defined herein) in the event that the closing price of the Shares on the TSE in U.S. Dollars, calculated at the prevailing exchange rate, for each of the 20 consecutive Trading Days (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% of the Conversion Price in effect on each such Trading Day translated into U.S. Dollars at the fixed exchange rate of NT$34.58 = U.S.$1.00. The Company may, at any time, redeem all of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at Early Redemption Amount if at least 95% in principal amount of the Bonds have already been redeemed, converted, or repurchased and cancelled. The Company may also redeem the Bonds in whole, but not in part, at their Early Redemption Amount in the event of certain changes relating to Republic of China taxation that would result in additional costs to the Company. The Company will redeem the Bonds at their principal amount at maturity on July 10, 2008, unless the Bonds have been previously redeemed, repurchased and cancelled or converted.

For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see “Risk Factors” on page 1 herein.

No application has been or will be made to list the Bonds on any stock exchange. It is expected that delivery of the Bonds will be made in book entry form through the facilities of Euroclear and Clearstream, Luxembourg (each as defined herein) on July 10, 2003 (the “ Closing Date ”).

The Bonds, and the Shares deliverable 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 may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds will be offered and sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The Bonds may not be offered in the Republic of China.

Sole Bookrunner Lead Manager

Barits Securities (Hong Kong) Limited

Information Memorandum dated July 7, 2003

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

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

No person is authorized in connection with the issue, offering or sale of the Bonds to give any information or to make any representation not contained in this Information Memorandum and any information or representation not contained herein must not be relied upon as having been authorized by the Company or the Manager. Neither the delivery of this Information Memorandum 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 Bonds will be represented by beneficial interests in a permanent global certificate (the “ Global Certificate ”) in registered form, which will be registered in the name of a nominee of, and shall be deposited on or about July 10, 2003 with a common depositary for, Euroclear Bank S.A./N.V. as operator of the Euroclear System (“ Euroclear ”) and Clearstream Banking, socie´te´ anonyme (“ Clearstream, Luxembourg ”).

The Company has prepared the audited consolidated financial statements as at and for the years ended December 31, 2001 and 2002, and unaudited non-consolidated financial statements as at and for the three-month periods ended March 31, 2002 and 2003 contained herein in accordance with accounting principles generally accepted in the ROC.

NOTICE TO INVESTORS

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

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

(1) it is purchasing the Bonds for its own account or for an account with respect to which it exercises sole investment discretion, and it and any such account is outside the United States and is not a U.S. person;
(2) it acknowledges that neither the Bonds nor the Shares issued upon conversion of the Bonds have been or will be registered under the Securities Act or with any securities regulatory authority of any jurisdiction and may not be offered or sold within the United States except as set forth below;
(3) it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any Bond or beneficial interest therein, or any Shares issued upon conversion of the Bonds, it may do so only (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S, (ii) pursuant to an exemption from registration under the Securities Act, if available, or (iii) pursuant to an effective registration statement under the Securities Act, and in each of cases (ii) and (iii), in accordance with applicable securities laws of the states of the United States;
(4) if it is purchasing Bonds prior to the expiration of 40 days after the later of the commencement of the offering and the latest closing date (the “ distribution compliance period ”), it is purchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S and the Bonds will not be sold, pledged or otherwise transferred to, or for the account or benefit of, any U.S. person outside the United States or any person in the United States during the distribution compliance period;
(5) it agrees to, and each subsequent holder is required to, notify any purchaser from it of a Bond or beneficial interest therein of the resale restrictions referred to in sections (3) and (4) above, if then applicable;
(6) it understands that, except in the circumstances referred to under the heading “The Form of the Bonds”, the Bonds, and beneficial interests therein, will be represented by the Global Certificate (as defined herein);
(7) it understands that the Global Certificate will bear a legend to the following effects (unless otherwise agreed by the Company):

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

THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF 40 DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2008 OF SHUTTLE INC.” ; and

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

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

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

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

Any final judgment obtained against the Company or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds, or the shares issuable upon conversion of the Bonds, will not be enforced by the courts of the ROC without further review of the merits if any of the following situations shall apply to such final judgment:

the court rendering the judgment does not have jurisdiction over the subject matter according to the laws of the ROC;
the judgment is contrary to the public order or good morals of the ROC;
if the judgment was rendered by default by the court rendering the judgment, except where the Company or such persons were served within the jurisdiction of such court, or process was served on the Company or such persons with judicial assistance of the ROC; and
judgments of the courts of the ROC are not recognized and enforceable in the court rendering the judgment on a reciprocal basis.

A party seeking to enforce a foreign judgment in the ROC would be subject to the Foreign Exchange Control statute and related regulations as described in Appendix A hereof for the payment out of the ROC of any amounts recovered in connection with the judgment denominated in a currency other than NT Dollars.

iii

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

TAX CONSULTANCY REQUIRED

The Bonds may be deemed by taxing authorities in various jurisdictions to be issued with original issue discount. Prospective investors should consult their own adviser concerning the tax consequences of an investment in Bonds or Shares.

TABL	E OF	CONTENTS
	Page		Page
Risk Factors . . . . . . . . . . . . . . . . . . . . . . .	1	Underwriting . . . . . . . . . . . . . . . . . . . . . .	50
Terms and Conditions of the Bonds . . . . . .	8	Legal Matters . . . . . . . . . . . . . . . . . . . . . .	53
The Form of the Bonds . . . . . . . . . . . . . . .	29	Independent Auditors . . . . . . . . . . . . . . . .	53
Use of Proceeds . . . . . . . . . . . . . . . . . . . .	32	General Information . . . . . . . . . . . . . . . . .	54
Selected Financial Information . . . . . . . . .	33	Summary of Significant Differences
The Company . . . . . . . . . . . . . . . . . . . . . .	35	Between ROC GAAP and U.S. GAAP . .	56
Management and Employees . . . . . . . . . . .	46	Index to Financial Statements . . . . . . . . . .	F-1

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Except where the context otherwise requires, all references herein to “ Shuttle ” are to Shuttle Inc. and all references to the “ Company ” are to Shuttle or Shuttle and its consolidated 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 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 reference herein to the “ SFC ” are to the Securities and Futures Commission of the ROC. All references herein to the “ TSE ” are to the Taiwan Stock Exchange. All references herein to the “ GTSM ” are to the GreTai Securities Market (previously known as the ROC Over-the-Counter Securities Exchange).

The Company’s financial statements are prepared using ROC GAAP, and are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions, including the United States, other than those in the ROC. Certain financial amounts presented herein may not correspond directly to the Company’s financial statements included elsewhere herein or may not add up due to rounding.

The Company publishes its financial statements in New Taiwan Dollars, the lawful currency of the ROC. Except as otherwise indicated, all financial information set forth herein with respect to various members of the Company has been presented in New Taiwan Dollars. All references herein to “ New Taiwan Dollars ”, “ NT Dollars ” and “ NT$ ” are to New Taiwan Dollars, all references herein to “ United States Dollars ”, “ U.S. Dollars ” and “ U.S.$ ” are to United States Dollars, all references herein to “ C= ” are to Euros, all references herein to “ HK$ ” are to Hong Kong Dollars, and all references herein to “ JPY ” are to Japan Yen. All translations from New Taiwan Dollars to United States Dollars were made on the basis of the average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollar as certified by the Bank of Taiwan of NT$34.750 = U.S.$1.00 as of December 31, 2002 and NT$34.745 = U.S.$1.00 as of March 31, 2003. All amounts translated into United States Dollars as described above are unaudited and are provided solely for the convenience of the reader, and no representation is made that the NT Dollar or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or NT Dollars, as the case may be, at any particular rate, the above rates or at all. The closing rate between the NT Dollar and the U.S. Dollar on July 7, 2003 was NT$34.405 = U.S.$1.00.

RISK FACTORS

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

Risks Relating to the Company’s Business

The Company’s performance depends on its ability to maintain cost leadership in motherboards and computer add-on cards production

The ability to offer motherboard and computer add-on card products comparable in specification and performance to competitors’ products but at lower costs is central to the Company’s strategy. In order to be able to pursue this strategy, the Company must maintain a cost structure lower than that of its competitors. The Company currently aims to reduce per unit costs of its motherboards and computer add-on cards by maintaining a high sales volume and managing the sourcing of raw material components. The Company believes that its current cost structure is very competitive compared with those of its competitors in the motherboard industry, and thus it is able to offer its products at competitive prices while generating satisfactory margins to sustain its operations. However, there can be no assurance that the Company will continue to be able to produce products at lower or even comparable prices as compared to its competitors in the future while maintaining its margins. Should the Company be unable for any reason to maintain its cost leadership in the future, its results of operations and financial conditions would likely be materially adversely affected.

The Company does not usually enter into long-term supply contracts with its OEM/ODM customers and therefore some of its customers may cancel their orders, change production quantities or delay production

The Company does not generally enter into firm, long-term supply contract 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 without incurring any penalty. Cancellations, reductions or postponements of purchase orders by a significant customer or by a group of customers could cause the Company to hold excess inventory, which could seriously 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 the Company’s customers’ commitments and the possibility of rapid changes in demand for their products reduce the Company’s ability to estimate accurately future customer requirements. On occasion, customers may require rapid increases in production, which can stress 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.

The Company’s future revenues will depend on continuing demand for personal computers and related products

A substantial amount of the Company’s net sales was attributable to motherboards, add-on cards and barebone system sales, which historically have been dependent on personal computer sales. The Company is therefore vulnerable to adverse changes in the personal computer industries. The personal computer (“ PC ”) industries have been in the past highly cyclical and accordingly, the business of the Company is dependent, among other things, on the cycles of the personal computer industries. Industry downturns have in the past resulted in reduced demand for the Company’s products, lower average selling prices and reduced margins. There can be no assurance that industry downturns will not continue to adversely and materially affect the Company’s results of operations and financial position.

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

The Company recorded sales growth of 28.2% for year 2002. This level of sales growth may not be sustained in future periods. As the Company continues to develop and expand its operations and production capacity, its operating costs and expenses will continue to increase, putting pressure on gross margins and operating margins. In addition, competition could result in price pressure, lower sales, reduced margins and lower market share, any of which could materially and adversely affect the Company’s results of operations. Therefore, period-to-period comparisons of operating results may not be meaningful and investors should not rely on the results of any period as an indication of future performance.

Since the end of 2000, the global personal computer market has been experiencing severe volatility resulted from general worldwide economic downturn. In addition, the recent outbreak of Severe Acute Respiratory Syndrome (“ SARS ”) in the greater China area and North America, and the potential terrorist attacks worldwide all have had significant negative effects on the timing of global economic recovery. It is not possible for the Company to predict as to when the personal computer market will fully recover, if ever. If the market downturn continues, the Company’s results of operations and financial position may be materially adversely affected.

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

The motherboards and barebone system industry is characterized by rapid changes in design and technology. Most motherboard and barebone system products have relatively short product lives due to frequent product introductions, rapidly changing technology and evolving industry standards. The Company’s success will depend in part on its ability to keep pace with technological and design developments and emerging industry standards and to develop and introduce new products. The Company has established cooperative relationships with leading companies in the high technology industry, including major chipset suppliers of the Company such as Advanced Micro Devices Inc. (“ AMD ”), Intel Corporation (“ Intel ”), n VIDIA Technology Inc. (“ n VIDIA ”), VIA Technologies inc. (“ VIA ”) and Silicon Integrated Systems Corp. (“ SiS ”). There can be no assurance that the Company will be able to maintain these relationships or, in any case, will be able to keep pace with technological developments in the industries in which its businesses operate. Failure to do so could have a material adverse effect on the Company’s results of operations and financial conditions.

The motherboards, add-on cards and computer barebone systems manufacturing industries are highly competitive

The Company principally produces motherboards and add-on cards for PC OEM/ODM customers, distributors and system integrators. The PC industry, including the motherboard, add-on card and barebone system sectors, is subject to rapid changes in market demand as a result of technological developments, as well as intense competition among rival motherboard, add-on card and barebone system manufacturers. Such competition, combined with significant consolidation in the PC market, has resulted in the Company experiencing increasing pressure on prices and margins. In response to current demand and in anticipation of continued growth in demand for its products, the Company is continuing to expand its production, distribution and after-sales service capabilities. The Company’s operating results could be adversely affected if the Company fails successfully compete with other motherboard, add-on card and barebone system manufacturers. A number of the Company’s competitors are much larger and have greater manufacturing, financial, research and development and marketing resources than the Company. Some of these competitors also carry product lines that the Company does not carry and provide services that the Company does not provide. Although the Company believes that it will continue to maintain its competitive position in the motherboard, add-on card and barebone system sectors, there can be no assurance that the Company will be able to continue to compete successfully in its relevant markets.

The Company’s operating results may vary significantly

The Company may experience significant fluctuations in its results of operations. The factors which contribute to fluctuations include:

the timing of customer orders;

the volume of these orders relative to the Company’s capacity;
market acceptance of customers’ new products;
changes in demand for customers’ products and product obsolescence;
the timing of the Company’s expenditure in anticipation of future orders;
the Company’s effectiveness in managing manufacturing processes;
changes in the cost and availability of labor and components;
changes in the Company’s product mix;
changes in economic conditions; and
local factors and events that may affect the Company’s production volume, such as local holidays.

The markets for the Company’s customers’ products are subject to a certain degree of seasonality. These markets exhibit particular strength toward the end of each year in connection with holiday season sales. Accordingly, the Company’s third- and fourth-quarter revenues are usually higher, and its first- and second-quarter sales are usually lower than average.

The Company may experience shortages of raw materials and components

The Company’s production depends on obtaining adequate supplies of components on a timely basis. The Company purchases its main components from a limited number of component manufacturers which can satisfy its quality standards and meet its volume requirements. Key components for motherboards and add-on cards include chipsets, printed circuit boards (“ PCBs ”), connectors, memory chips, integrated circuits (“ ICs ”) and sockets. From time to time periodic shortages of such components have occurred. Principal components of barebone systems in addition to the motherboards that the Company produces in-house, are chassis, thermal and cooling modules, and power supply units. A shortage in any of these components would likely increase their prices and would depress the Company’s margins to the extent that the Company is unable to pass these higher component prices on to its customers. In addition, any shortage in a key component could limit the number of units of relevant products that can be manufactured. The Company believes that such shortages are cyclical, and there can be no assurance that shortages of key components will not occur in the future or that any such shortages will not have a material adverse effect on the operations of the Company.

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

The manufacturing processes for the Company’s products are highly complex and require specialized equipment. There is a risk that from time to time there will be production difficulties that could cause delivery delays and reduced output. There can be no assurance that the Company will not experience manufacturing or sourcing problems in achieving acceptable output, and/or product delivery delays in the future as a result of, among other things, capacity constraints, difficulties in upgrading or expanding existing facilities, difficulties in changing manufacturing line technologies or delays in delivery of equipment, any of which could result in a loss of future revenues.

The Company may be unable to manage its 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 may be adversely affected.

The Company may not be able to protect its intellectual property

The Company has proprietary intellectual property rights and information with respect to certain of its products and manufacturing processes. Accordingly, the Company has taken appropriate steps to protect this proprietary information and actively seeks to protect its intellectual property rights. Notwithstanding these steps, the Company’s protective measures may not be sufficient to prevent the misappropriation or unauthorized disclosure of the Company’s property or information. There can be no assurance that the Company will be successful in its own intellectual property enforcement actions. Even if the Company is successful, it may have to incur significant costs and time to litigate its enforcement claims.

Seeking patent protection can be expensive and time consuming. There can be no assurance that patents will be issued from pending or future applications or that, if patents are issued, they will provide meaningful protection or other commercial advantage to the Company. Moreover, there can be no assurance that any patent rights will be upheld in the future.

The Company may be involved in intellectual property disputes

The Company may from time to time receive communications from third parties asserting patent rights to the Company’s products and, in such circumstances, it will enter into discussions with such parties as to their respective positions and the terms of any possible licenses in respect of such patent rights. Although the Company actively seeks to protect the intellectual property rights for its products and its internal know-how, there can be no assurance that claims will not be brought by third parties against the Company from time to time. Irrespective of the validity or successful assertion of these claims, the Company could incur significant costs with respect to the defense thereof which could have a material adverse effect on the Company’s business such as stoppage of utilizing some key components manufactured by certain suppliers, financial condition, results of operations and future prospects.

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

The Company’s success depends to a significant extent on the skills and efforts of key managerial and technical and other employees and on its ability to continue to attract, retain and motivate qualified personnel. The Company competes with other electronics manufacturers as well as other manufacturing companies for technical and other employees, and the competition for such employees is intense. There can be no assurance that the Company will be able to continue to attract and retain the services of qualified employees essential for the Company’s growth. The loss of the services of certain of these employees or an inability to attract or retain qualified employees could have a material adverse effect on the Company.

The Company is exposed to the risks of currency exchange rate fluctuations

Historically, a majority of the operating costs and expenses of the Company have been denominated in U.S. Dollars and NT Dollars and the Company’s revenue has been denominated primarily in U.S. Dollars, Euros and NT Dollars. Accordingly, a portion of the Company’s consolidated costs of sales, operating expenses and revenues are exposed to fluctuations between the U.S. Dollars and NT Dollars. Although the Company attempts to mitigate the effects of exchange rate fluctuations primarily through the use of foreign currency borrowings and option contracts, fluctuations in exchange rates may have an adverse impact on the Company’s future gross and operating margins and results of operations.

The Company’s operation may be adversely affected by natural disaster in the ROC

The Company’s present corporate headquarters located in Taipei, Taiwan are vulnerable to natural disasters. Disruption of operations of the Company, including work stoppages, power outages, fire, earthquakes, flooding or other natural disasters, would cause delays in processing shipments of certain products, which could lead customers to obtain products from other sources. For example, the Company experienced major power outages on July 29 and September 21, 1999, each of which resulted in a brief suspension of production. In September 1999, a major earthquake occurred, with its epicenter in central Taiwan. The earthquake caused interruptions to power supply and significant damage to buildings across Taiwan. As a result of the earthquake, the Company was obliged to suspend its manufacturing operation in Taiwan for one day. After the 1999 earthquake, there were a number of earthquakes in Taiwan in 2000, 2001 and 2002. Similar incidents may occur in the future, which could have a material adverse effect on its results of operations.

Risks Relating to the Offering

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 of the Bonds. Purchasers of the Bonds will not be able to exercise their conversion right during the Closed Periods, as defined in the terms and conditions of the Bonds. Under current ROC law, regulations and policy, PRC persons are not permitted to convert the Bonds or to register as shareholders of the Company.

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 “Underwriting”.

An active trading market for the Bonds may not develop

The Bonds are a new issue of securities for which there is currently no trading market. The Company cannot predict whether an active trading market for the Bonds will develop or be sustained. If an active trading market were to develop, the Bonds could trade at prices that may be lower than the initial offering price. Whether or not the Bonds could trade at lower prices depends on many factors including:

prevailing interest rates and the markets for similar securities;
general economic conditions; and
the Company’s financial conditions, historic financial performance and future prospects.

If an active market for the Bonds fails to develop or be sustained, the trading price of such Bonds could be materially adversely affected. The Company does not intend to apply for listing of the Bonds on any securities exchange. The Bonds may not be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where registration may be required.

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 Shares, it cannot assure that one or more of the 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 common shares in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the Shares.

Holders of the Bonds will be required to appoint several local agents in Taiwan if they convert the Bonds into Shares, which may make ownership burdensome

Non-ROC persons wishing to convert the Bonds into Shares are required under current ROC laws and regulations to appoint a tax agent, who also has to serve as a tax guarantor, in Taiwan for filing tax returns and making tax payments on their behalf. A tax guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment, becomes a guarantor of the holder’s ROC tax obligations. Holders wishing to repatriate profits derived from the sale of Shares received upon conversion or cash dividends or interest derived from any such Shares, will generally be required to submit evidence of appointment of a tax guarantor and the approval of the appointment by the ROC tax authorities. There is no assurance that holders of the Bond will be able to appoint and obtain approval for a tax guarantor in a timely manner.

In addition, under current ROC law, non-ROC holders of the Bonds who exercise their conversion rights to receive Shares will be required to appoint a local agent in Taiwan to, among other things, open a securities trading account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. They must also appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without this local agent, the custodian and the opening of the trading account, they will not be able to hold, sell or otherwise transfer Shares.

Risks Relating to the ROC

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

The Company’s principal executive offices 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 the ROC and does not recognize 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. Although significant economic and cultural relations have been established in recent years between the ROC and the PRC, the government in the PRC has refused to renounce the possibility that it may at some point use force to gain control over the ROC. Relations between the ROC and the PRC and aspects of the ROC’s political environment could negatively affect the Company’s business and the market price of the Shares.

The adverse economic conditions in Taiwan and Asia may affect the Company and the Bonds

Many economies in Asia, including the ROC and the PRC, have recently experienced significant downturns and related difficulties. As a result of the decline in the value of the region’s currencies, many Asian governments and companies have had difficulties in servicing foreign currencydenominated debt and many corporate borrowers have defaulted on their payment obligations. The currency fluctuations, as well as higher interest rates and other factors, have materially and adversely affected the economies of many countries and regions, including the ROC and the PRC. The NT Dollar significantly weakened against the U.S. Dollar in the first half of 2001 negatively impacting the results of operations of many companies. Economic developments in Asia could materially and adversely affect the Company’s business, results of operations and financial condition.

Foreign exchange approvals may be required

Under existing ROC law, foreign exchange approvals must be obtained from the Central Bank of China (the “ CBC ”) on a payment-by-payment basis for the conversion into foreign currencies of the net proceeds realized from sale of the Shares issued upon conversion of Bonds or any dividends relating to such Shares, or of any cash dividends or other cash distributions in respect of such Shares, as well as for inward remittances of subscription payments in connection with a rights issue. 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. There can be no assurance that any such approval will be obtained in a timely manner or at all.

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

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

In particular, the Company paid at least 8% of the distributable after-tax profits as employee bonuses in the form of Shares or cash or combination of the two subject to shareholders’ approval. The Company granted an aggregate of 1,800,000 Shares in the year 2002 to its employees. In such case, the number of Shares distributed is determined by dividing the total nominal NT Dollar amount of the bonus by the par value of the Shares rather than their market value, which has generally been substantially higher than par value. Under ROC GAAP, the distribution of employee bonus shares is treated as an allocation from retained earnings when the distribution of employees bonuses is approved by the shareholders and the relevant regulatory authorities, and the Company is not required to, and does not, charge the value of the employee bonus shares to income. Under U.S. GAAP, however, the Company would be required to initially accrue the 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 would be material.

In addition, because the Shares issued under the employee 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 is adjusted for such issuances.

TERMS AND CONDITIONS OF THE BONDS

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

The issue of U.S.$12,000,000 Zero Coupon Convertible Bonds Due 2008 (the “ Bonds ”) of Shuttle Inc. (the “ Company ”) was authorized by resolutions of the board of directors of the Company adopted on May 29, 2003. The Bonds are constituted by an indenture (the “ Indenture ”) to be dated as of July 10, 2003 and to be made between the Company and J.P. Morgan Corporate Trustee Services Limited (the “ Trustee ”), which term includes any successor trustee under the Indenture for the holders of the Bonds (the “ Bondholders ”). The Company will enter into a paying and conversion agency agreement (the “ Agency Agreement ”) to be dated as of July 10, 2003 with the Trustee, JPMorgan Chase Bank, as the registrar (the “ Registrar ”) and as the principal paying, transfer and conversion agent (the “ Principal Agent ”) and J.P. Morgan Bank Luxembourg S.A., as paying, transfer and conversion agent, appointed thereunder (the “ Paying Agent ”, the “ Conversion Agent ” and the “ Transfer Agent ” and such expression shall include the Principal Agent) in relation to the Bonds. The Registrar, the Principal Agent, the Paying Agent, the Conversion Agent and the Transfer Agent together are referred to as the “ Agents ”. The statements in these Terms and Conditions (“ Conditions ”) include summaries of, and are subject to, the detailed provisions of the Indenture. Copies of the Indenture and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, being at the date hereof at Trinity Tower, 9 Thomas More Street, London E1W 1YT, England, and at the specified offices of each of the Agents. The Bondholders are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all the provisions of the Indenture and the Agency Agreement.

1. Status

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

2. Form, Denomination and Title

(A) Form and Denomination

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds will be offered and sold in principal amounts of U.S.$1,000 or an integral multiple thereof and will be transferable in principal amounts of U.S.$1,000 or an integral multiple thereof. The Bonds are not issuable in bearer form. The Bonds will initially be represented by a global certificate (the “ Global Certificate ”) deposited with, and registered in the name of a nominee for, 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 ”).

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

(B) Title

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

3. Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Indenture) or any amount is due under or in respect of any Bond or otherwise under the Indenture, the Company shall not, and shall ensure that none of its Principal Subsidiaries (as defined below), if any, will, create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance (each an “ Encumbrance ”) upon the whole or any part of its, or, as the case may be, any such Principal Subsidiary’s, if any, 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 Indenture) of the Bondholders.

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

“ Principal Subsidiary ” means any Subsidiary which engages in manufacturing, production and distribution businesses, (i) whose net operating revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary, are at least 10% of the net operating revenues of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company or (ii) whose total assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary are at least 10% of the total assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company, which may be acquired or formed by the Company from time to time during the term of the Bonds.

“ Subsidiary ” means any corporation or other business entity more than 50% of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company.

4. No Interest

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

5. Transfers of Bonds; Issue of Definitive Certificates

(A) Transfers

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

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 upon receipt by the Transfer Agent (including the Transfer Agent in Luxembourg) at its specified office of the relevant Definitive Certificate and the Form of Transfer. Delivery of the new Definitive Certificates shall be made at the specified office of such Transfer Agent to whom the relevant Definitive Certificate and the Form of Transfer shall have been surrendered or delivered or, at the option of the holder making such delivery or surrender as aforesaid and as specified in the relevant Form of Transfer or otherwise in writing, be mailed within five Business Days of receipt by the Transfer Agent of the relevant Definitive Certificates and the Form of Transfer by uninsured post at the risk of the holder(s) entitled to the new Definitive Certificates to such address as may be so specified, unless such holder(s) request(s) otherwise and pay(s) in advance to the relevant Transfer Agent the costs of such other method of delivery and/or such insurance as it may specify.

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

For the purposes of this Condition 5, “ Business Day ” means a day (other than a Saturday or Sunday) on which banks are open for business in the ROC, Luxembourg and the city in which the specified office of the relevant Transfer Agent with whom a Definitive Certificate is deposited or surrendered in connection with a transfer, conversion or redemption is located.

(C) Formalities Free of Charge

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

(D) Restricted Transfer Periods

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

(E) Regulations

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

6. Conversion

On exercise of the Conversion Right (as defined in Condition 6(A)(i)), each converting Bondholder pursuant to the election made by such Bondholder may: (i) elect to receive Shares in Taiwan, or (ii) in the event the Company establishes a depositary receipt facility following the closing and subject to compliance with the terms and conditions of the deposit agreement established with such depositary receipt facility and the relevant laws and regulations, elect to receive depositary shares representing the interests in the Shares and the Bondholder may direct the Company to procure that Shares transferred and delivered upon conversion of the Bonds are deposited with the custodian for the DR Depositary (as defined in Condition 6(A)(i)) for the issuance and delivery of the DRs (as defined in Condition 6(A)(i)) by the DR Depositary.

In the event that the Company establishes a depositary receipt facility, it may procure additional Shares for deposit with the custodian for the DR Depositary subject to compliance with the terms and conditions of the deposit agreement and applicable laws and regulations. Such Shares could be procured by issuing new Shares, subject to compliance with applicable ROC laws and regulations and the Company’s Articles of Incorporation.

In the event the Company does establish a depositary receipt facility, the procedure for Bondholders to convert the Bonds into DRs will be substantially similar to the conversion procedure for Bondholders to convert the Bonds into Shares. In each case, the Bondholder will deposit the individual Definitive Certificate (if issued) in respect of a Bond and the Conversion Notice (as defined in Condition 6(B)(i)) with the Conversion Agent. However, in the case of conversion into DRs, the Bondholder will direct that all or some only of the Shares issuable upon conversion be deposited with the relevant DR Depositary for issuance of DRs.

The Company shall, within five Trading Days (as defined in Condition 8(B)) from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, issue and deliver the Shares converted from the Bonds to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Indenture and in these terms and conditions being satisfied.

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

(A) Conversion Right

(i) Conversion Period : Each Bondholder has the right during the Conversion Period (as defined below) to convert any Bond into Shares, credited as fully paid, and may, if a depositary receipt facility has been established and depositary receipts representing the Shares (“ DRs ”) have been issued, and subject to compliance with the terms and conditions of the relevant deposit agreement, direct in the Conversion Notice (as defined in Condition 6(B)(i)) that all or some only of the Shares issuable upon conversion be deposited with the relevant DR depositary (the “ DR Depositary ”) for issuance of DRs on and subject to the terms set forth herein (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 August 9, 2003 and prior to the close of business (at the place where the Conversion Notice and the individual Definitive Certificate (if issued) in respect of such Bond are deposited for conversion) on June 30, 2008 (or if such date shall not be a business day, on the immediately preceding business day at such place) (but in no event thereafter), or, if such Bond shall have been called for redemption prior to that date, then up to the close of business (at the place aforesaid) on the seventh day prior to the date fixed for redemption thereof (or if such day shall not be a business day at such place, on the immediately preceding business day at such place) (the “ Conversion Period ”); provided, however, that the Conversion Right during any Closed Period shall be suspended and the Conversion Period shall not include any such Closed Period. “ Closed Period ” shall mean any period during which, under the laws of the ROC or otherwise, the Company shall close its shareholders register, which period includes (a) 60 days prior to the date of the annual general meeting of shareholders (“ AGM ”), (b) 30 days prior to an extraordinary shareholders’ meeting, (c) five days prior to a record day for determining the identity of shareholders entitled to receive dividends, other rights or benefits, (d) the period from the seventh day prior to the date of the meeting of the board of directors determining the proposed dividends distribution for the preceding fiscal year or the period from the closure of the Company’s shareholders’ register before the annual general meeting (whichever earlier) to the relevant record date, (e) the period from the 15th Trading Day (as defined in Condition 8(B)) before the closure of the Company’s shareholders’ register for the Company’s rights issue where shareholders are entitled to subscribe for new Shares to the relevant record date, and (f) such other periods determined by ROC law applicable from time to time that the Company is required to close its shareholders’ register. The Company shall procure that the Bondholders and the Trustee are given not less than 10 days’ nor more than 60 days’ prior notice of any Closed Period in accordance with Condition 15.

Under current ROC law, regulation and policy, PRC persons are not permitted to 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 Peoples’ Republic of China (the “ PRC ”), a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong or Macau, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership and other entity organized under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

Under current ROC law, a non-ROC converting Bondholder when exercising his Conversion Right to convert the Bonds into Shares is required (unless the Bondholder has the option under these Conditions to elect, and elects to receive DRs with respect to the Bonds to be converted. In such case, the Shares will be delivered to and deposited with a custodian appointed by the relevant DR Depositary) to appoint a local agent in the ROC with such qualifications as are set by the Securities and Futures Commission of the ROC (the “ ROC SFC ”), to open a securities trading account with a local brokerage firm, pay ROC withholding taxes, remit funds, exercise shareholders’ rights and perform such other 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.

(ii) Number of Shares and/or DRs Issuable on Conversion : The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT Dollars at the fixed rate of NT$34.58 = U.S.$1.00) by the Conversion Price (as defined in Condition 6(B)(iii)) in effect on the Conversion Date as defined in Condition 6(B)(ii) (translated into NT Dollars at the fixed rate of NT$34.58 = U.S.$1.00). Fractional Shares will not be issued or paid in cash, or in any other means. The number of DRs to be issued upon conversion of any Bond (if applicable) will be determined by dividing the principal amount of the Bond by the Conversion Price in effect on the Conversion Date, and multiplying or dividing, as the case may be, the Conversion Price by the number of Shares represented by each DR on the Conversion Date.

If a Definitive Certificate or Definitive Certificates in respect of more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares (and/or DRs, if applicable) to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds in respect of which the Definitive Certificate(s) were so deposited. Fractions of Shares (and/or DRs, if applicable) will not be issued upon 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 (and DRs, if applicable) by operation of law or otherwise occurring after July 10, 2003, the Company will upon conversion of the Bonds pay in U.S. Dollars a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share (and/or DR, if applicable) 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 in this Condition 6(A)(ii).

(iii) Initial Conversion Price : The price at which Shares will be issued upon conversion (the “ Conversion Price ”) will initially be NT$40.85 per Share, which is equivalent to U.S.$1.1813 per Share based on the fixed exchange rate of NT$34.58 = U.S.$1.00 but will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E). The price at which DRs will be issued upon conversion, in the event that the Company establishes a depositary receipt facility, will be determined by multiplying, or dividing, as the case may be, the Conversion Price by the number of Shares represented by each DR on the Conversion Date and will be subject to adjustment in the manner provided in Conditions 6(C), 6(D) and 6(E). In the event that a depositary receipt facility is established and DRs may be issued upon conversion, the term “ Conversion Price ” shall be understood to mean the price at which DRs will be issued or the price at which Shares will be issued, as the situation dictates.

(iv) Revival on Default : Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption prior to July 10, 2008 on the date fixed for redemption thereof, the Conversion Right attaching to such Bond will continue to be exercisable up to and including the close of business (at the place where the relevant individual Definitive Certificate (if issued) in respect of such Bond and the Conversion Notice (as defined in Condition 6(B)(i)) are deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the Bondholders.

(B) Conversion Procedure

(i) Exercise Procedure : To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at 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 of the ROC, a notice of conversion (a “ Conversion Notice ”) in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant individual Definitive Certificate (if issued) and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located and any amount to be paid by the Bondholder. A Conversion Notice, or the relevant individual Definitive Certificate (if issued), deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with the Conversion Agent between 9:00 a.m. to 3:00 p.m. on the next business day.

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

If a DR facility has been established and DRs have been issued, the Conversion Notice shall contain an option for the Bondholder to elect to receive Shares and/or DRs upon such conversion. The Conversion Notice shall contain, inter alia , an appointment of a local agent by such converting Bondholder and an irrevocable instruction to exchange for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares are available. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company. The Company shall immediately notify in writing the Conversion Agents, Principal Agent and Trustee of such written consent of the Company accompanied by the relevant Conversion Notice. The price at which such Bonds will be converted will be the Conversion Price in effect on the Conversion Date.

In this Condition, “ business day ” means a day on which commercial banks are open for business in London, and in the place where the Conversion Agent with whom the relevant individual Definitive Certificate (if issued) and the Conversion Notice are deposited is open for business.

(ii) Taxes and Expenses; Deposit Date and Conversion Date : As conditions precedent to conversion, together with the Conversion Notice, the Bondholder must pay to the relevant Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares (and/or DRs, if applicable) 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 (and/or DRs, if applicable) on conversion of Bonds and all charges of the Conversion Agents (and the relevant DR Depositary, if applicable) in connection therewith as provided in the Indenture and Agency Agreement. The date on which any Definitive Certificate and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law or otherwise pursuant to this Condition 6 or a relevant deposit agreement (if applicable), are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the “ Deposit Date ”. The “ Conversion Date ” applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day as defined in Condition 8(B) and occurs during the Conversion Period. Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day following the last day of that Closed Period.

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

In the event that a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs, with effect from the opening of business in the ROC on the Conversion Date, the Company will deem the relevant DR Depositary to have become the holder of record of the number of Shares represented by such DRs to be issued upon such conversion (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and upon delivery by the relevant DR Depositary to the Bondholder of the number of DRs into which the Bonds are convertible, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi)).

(iv) Availability of Shares : The Company shall, for the benefit of Bondholders, ensure that sufficient Shares are available as soon as possible, but in any event within five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent.

(v) Delivery of Shares and/or DRs : On the Conversion Date, the Company will register the converting Bondholder (or its designee) or the relevant DR Depositary (or its designee), as applicable, in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, deliver to the local agent appointed by the converting Bondholder, and/or to the relevant custodian, as agent for the relevant DR Depositary (if the converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs), a certificate or certificates for the relevant Shares, by electronic credit to the account established by the relevant local agent for the conversion of the Bonds, through the facilities of the Taiwan Securities Central Depositary Co., Ltd., registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof. If the converting Bondholder has not created the required account, the Company will deliver the Shares after such account has been set up. For the purpose of this Condition 6(B)(v), the term “ Trading Day ” means a day on which the TSE is open for business.

In the event a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs on exercise of its Conversion Right, the Company agrees to deliver to and deposit with the relevant custodian, as agent for the relevant DR Depositary, a sufficient number of Shares to represent the DRs such Bondholder is entitled to receive upon conversion. Such Shares will be registered in the name of the relevant DR Depositary or its nominee and deposited in accordance with the terms of the relevant deposit agreement.

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

(vii) Dividends and Other Entitlements : To the extent permitted under the laws and regulations of the ROC, the converting Bondholders will be entitled to the annual dividend distributions or other benefits if the Conversion Date falls prior to the third Trading Day (as defined in Condition 6(B)(v)) before the Company’s notification to the TSE in respect of a record date (and the relevant closure of shareholders’ register) for determining the identity of shareholders who are entitled to such dividend distributions.

(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, the United Kingdom. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents will be given promptly by the Company to the Bondholders in accordance with Condition 15.

(C) Adjustments to Conversion Price

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

(i) the making of a free distribution or bonus issue of Shares;
(ii) subdivisions, consolidations or reclassifications of Shares;
(iii) the declaration of a dividend in Shares;
(iv) the grant, issue or offer to the holders of Shares of rights or warrants to subscribe for or purchase Shares at less than the then Current Market Price (as defined in the Indenture) or to subscribe for or purchase any securities convertible into or exchangeable for Shares at less than the then Current Market Price;
(v) the distribution to the holders of Shares of evidences of indebtedness of the Company or of shares of capital stock of the Company (other than Shares) or of assets (other than regular periodic dividends in cash) or of rights or warrants to subscribe for or purchase shares or securities (other than those mentioned in (iv) above);
(vi) the issue of securities (other than the Bonds and those mentioned in (iv) above) convertible into or exchangeable for Shares at less than the then Current Market Price or of rights or warrants (other than those mentioned in (iv) above) to subscribe for or purchase Shares at less than the then Current Market Price or to subscribe for or purchase securities convertible into or exchangeable for Shares at less than the then Current Market Price;
(vii) the issue of Shares (other than Shares issued upon conversion of convertible bonds, including the Bonds, or 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
(viii) any other event or circumstance which would have in the determination of the Company or the Trustee an analogous effect to any of the events in (i) to (vii) above including, but not limited to, issues of receipts or certificates entitling holders to receive securities.

For the purposes of this Condition 6(C), the “ Current Market Price ” per Share on any date means the average of the daily closing prices (as defined below) of the relevant Shares for the 20 consecutive Trading Days before such date. If the Company has more than one class of share capital comprising Shares, then the relevant Current Market Price for Shares shall be the price for that class of Shares the issue of which (or of rights or warrants in respect of, or securities convertible into or exchangeable for, that class of Shares) gives rise to the adjustment in question.

No adjustment will be made where such adjustment would be less than 1% of the Conversion Price then in effect; provided, however, that any adjustment that would otherwise be required to be made will be carried forward and taken into account in determining any subsequent adjustment. Any adjustment will be notified promptly by the Company to the Bondholders in accordance with Condition 15.

The Indenture 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 non-assessable Shares.

The Trustee will not be obliged to monitor whether any event has occurred which might fall within Condition 6(C)(i) to (viii) above and until it has actual knowledge by way of express notice in writing from the Company to the contrary, shall be entitled to assume that none has.

(D) Conversion Price Reset

The Conversion Price shall be adjusted (the “ Adjusted Conversion Price ”) on the date which is 45 days prior to each anniversary after the date on which the Bonds are issued (the “ Reset Dates ” and each a “ Reset Date ”), in the event that the average closing price of the Shares on the TSE translated into U.S. Dollars at the then Prevailing Rate (defined below) for 20 consecutive Trading Days immediately prior to a Reset Date (the “ Average Closing Price ”) is less than the Conversion Prices then in effect on the relevant Reset Date, in accordance with the following formula:

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ACP = Adjust Conversion Price

FER = Fixed Exchange Rate

PR = Prevailing Rate CP = Average Closing Price

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% of the initial Conversion Price prevailing on July 10, 2003 (as adjusted to reflect any adjustments required under Condition 6(C) above which may have occurred prior to the relevant Reset Date);
(ii) the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to ensure that appropriate adjustments shall be made to any Closing Price to reflect any adjustments made to the Conversion Price in accordance with Condition 6(C) during the period of calculation of the Average Closing Price;
(iii) the Conversion Price shall not be reduced below the par value of the Shares (currently NT$10 per share) unless, under applicable law then in effect, the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares; and
(iv) for the avoidance of doubt (x) any adjustments to the Conversion Price made pursuant to this Condition 6(D) shall only be downward adjustments and (y) an adjustment may be made in respect of a Reset Date notwithstanding that an adjustment may have been made in respect of a preceding Reset Date, if any.

The “ Prevailing Rate ” for the translation of the Closing Prices shall be the arithmetic average of the closing rate for the purchase of U.S. Dollars with NT Dollars quoted by Taipei Forex Inc. at the close of business on each day of the 20 consecutive Trading Days preceding the relevant Reset Date. For the purpose of the formula in this Condition, the Prevailing Rate shall be expressed as the number of NT Dollars per U.S.$1.00. The “ Fixed Exchange Rate ” is NT$34.58 = U.S.$1.00.

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

(E) Alternative Conversion Price Reset

To stimulate Bondholders’ interest to exercise their Conversion Right, Condition 6(E) provides an alternative. This is set in accordance with the regulations for underwriters’

assistance for public companies in the issuance of securities, which were amended by the Chinese Securities Association and were then filed for recordation with the ROC SFC. The alternative Conversion Price (the “ Alternative Conversion Price ”) and the period of exercise (i.e. seven Trading Days) are set based on that regulations.

The Company may (but shall not be obliged to) grant the Bondholders options, within a seven Trading-Day period (the “ Alternative Conversion Period ”) starting from the date to be determined by the Company after June 10, 2005 and June 10, 2008 (each an “ Alternative Reset Date ”) and before the Put Date (as defined in Condition 8(C)(i)) or the Maturity Date (as defined in Condition 8(A)), to convert the Bonds into Shares based on the reset Alternative Conversion Price, which would be 86.52% and 90.91% of the then Market Price, respectively.

The above-mentioned “ Market Price ” is the lowest among the average closing prices of the Shares on the TSE translated into U.S. Dollars at the Prevailing Rate for 10, 15 and 20 Trading Days immediately preceding the Alternative Reset Date before the Put Date or the Maturity Date.

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

(i) that the Alternative Conversion Price is only in effect during the Alternative Conversion Period;
(ii) the Market Price;
(iii) the Alternative Conversion Price; and
(iv) the Alternative Conversion Period.

The Alternative Conversion Prices will only be applicable within the relevant seven Trading-Day Alternative Conversion Period described in this Condition 6(E). The Conversion Price will be applicable to any conversion before or after such Alternative Conversion Period.

(F) 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 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 an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares (and/or DRs, if applicable) into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture. Such supplemental indenture will provide for adjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this Condition. The above provisions of this Condition 6(F) will apply in the same way to any subsequent or further consolidations, amalgamations, mergers, sales or transfers.

(G) Conversion Undertakings

(i) Depositary receipts : Subject to the ROC SFC’S separate approval, if required, the Company may, at its option, but is not required to, make arrangements satisfactory to the Trustee for the Bonds to be converted into depositary receipts or other scrip evidencing Shares. Any such arrangements shall be in addition to the provisions of these Conditions relating to conversion into Shares.

The Company has not at the date of this Information Memorandum established or authorized the establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently available. If in the future a depositary receipt facility is established or authorized by the Company, the Company will, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for Shares issued on conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such depositary receipt facility, subject always to the terms of such depositary facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of Shares issued on conversion of Bonds. There can be no assurance that the Company will in future establish or authorize any depositary facility or that any arrangements for the deposit of Shares into such depositary facility would be available to all Bondholders.

The Company shall give notice to the Conversion Agents, the Principal Agent, the Trustee and the Bondholders in accordance with Condition 15 within 14 days of the establishment of any depositary receipt facility.

(ii) Closed Periods : The Company undertakes to ensure that any Closed Period is as short a period as is reasonably practicable having regard to applicable ROC laws and regulation and practices.

7. Payments

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

Payment of principal, premium and interest (if any) will be made against surrender of the relevant certificate at the specified office of any Agent by transfer to the registered account of the Bondholder or by U.S. Dollar check drawn on a bank in The City of New York, U.S.A., mailed (provided that the Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement) to the registered address of the Bondholder if it does not have a registered account. Payments of principal and premium will only be made after surrender of the relevant individual Definitive Certificate (if issued) at the specified office of any Agent.

(B) Registered Accounts

A Bondholder’s registered account means the U.S. Dollar account maintained by or on behalf of it with a bank in The City of New York, U.S.A., details of which appear on the register of Bondholders at the close of business on the second business day (as defined in Condition 7(F)) before the due date for payment and a Bondholder’s registered address means its address appearing on the register of Bondholders at that time.

(C) Fiscal Laws

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

(D) Payment Initiation

Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that date is not a business day, for value the next following business day) will be initiated and, where payment is to be made by check, the check will be mailed (provided

that the Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement), on the later of the due date for payment and the business day on which the relevant Definitive Certificate is surrendered (if applicable) at the specified office of an Agent.

(E) Payment Delay

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

(F) Business Days

In this Condition, “ business day ” means a day on which commercial banks are open for business in The City of New York, U.S.A. and London, United Kingdom and, in the case of the surrender of a Definitive Certificate in the place where the Definitive Certificate is surrendered.

(G) Partial Payments

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

Distribution of payments with respect to the Global Certificates held through Euroclear or Clearstream, Luxembourg will be made to the holders holding through participants of Euroclear or Clearstream, Luxembourg, as the case may be, to the account of JPMorgan Chase Bank, as Principal Agent and will be credited by Euroclear and Clearstream, Luxembourg, as the case may be, to the cash accounts of the participants of Euroclear or Clearstream, Luxembourg, in accordance with the relevant system’s rules and procedures, to the extent received by the Principal Agent.

8. Redemption, Purchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, converted or repurchased and cancelled as herein provided, the Company will redeem the Bonds at their principal amount in U.S. Dollars on July 10, 2008 (the “ Maturity Date ”). The Bonds may be redeemed in whole or in part prior to that date only as provided in Condition 8(B), (C) and (D) below (but without prejudice to Condition 10).

(B) Redemption at the Option of the Company

On or at any time after July 10, 2005, the Company may, to the Bondholders in accordance with Conditions 8(H) and 15 (which notice will be irrevocable), redeem all or part of the Bonds at Early Redemption Amount (as defined in this Condition 8(B)) if the closing price of the Shares translated into U.S. Dollars at the Prevailing Exchange Rate for each of the 20 consecutive Trading Days is at least 130% of the Conversion Price then in effect, translated into U.S. Dollars at the fixed exchange rate of NT$34.58 = U.S.$1.00, on each such Trading Day. If there shall occur an event giving rise to a change in the Conversion Price during any such 20 Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the closing price for such days. If the closing price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 20 Trading Day period.

Notwithstanding the foregoing paragraph, the Company may, at any time, redeem all or some of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at Early Redemption Amount (as defined in this Condition 8(B)) if at least 95% in principal amount of the Bonds has already been redeemed, converted, or purchased and cancelled.

Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which such notice relates at the price aforesaid applicable at the date fixed for redemption.

The term “ Trading Day ” means a day on which the TSE is open for business but does not include a day when (a) no last transaction price or closing bid and offered prices (as referred to below) are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no closing bid and offered prices (as referred to below) are furnished as aforesaid. The “ closing price ” of the Shares for each Trading Day shall be the last reported transaction price of the Shares on the TSE for such day or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TSE in effect on the Trading Day immediately preceding such day or, if the Shares are not listed or admitted to trading on such exchange, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE selected by the Company for the purpose. The term “ Prevailing Exchange Rate ” in this Condition 8(B) means the closing rate of U.S. Dollars to NT Dollars quoted by Taipei Forex Inc. at the close of business on any relevant Trading Day.

The “ Early Redemption Amount ” of each Bond means its principal amount plus a premium (the “ Premium ”) rounded up to the nearest cent determined in accordance with the following formula:

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Days Outstanding = the number of days from, and including the date that the Bonds are issued (the “ Closing Date ”) to, but excluding the date for redemption, calculated on the basis of a year of 360 days consisting of 12 months of 30 days each.

(C) Redemption at the Option of Bondholders

Unless previously redeemed, converted or repurchased and cancelled as herein provided, the Company will, at the option of the holder of any Bond, redeem all or part of the Bonds held by that Bondholder on July 10, 2005 (the “ Put Date ”) at 105.06% of their principal amount.

To exercise such option the holder must deposit the individual Definitive Certificate in respect of such Bond (if issued) with any Agent and a duly completed redemption notice in the form obtainable from any of the Agents not more than 60 days nor less than 20 days prior to the 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 more than 45 days’ nor less than 30 days’ notice of the commencement of the period for the deposit of individual Definitive Certificates (if issued) for redemption in accordance with Condition 15.

For the purpose of this Condition 8(C), “ business day ” shall mean a day on which commercial banks are open for business in London, New York City and Taipei.

(D) Redemption for Taxation Reasons

At any time, the Company may in accordance with Conditions 8(H) and 15 (which notice shall be irrevocable) redeem all but not some of the Bonds at Early Redemption Amount (as defined in Condition 8(B)), if (i) the Company determines immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 9 as a result of any change in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after July 10, 2003 and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such additional amounts were a payment in respect of the Bonds then due. Prior to the 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 conditions precedent set out in (ii) above, in which event it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of redemption has been given under Condition 8(B) and Condition 8(C) shall not be affected by any notice given subsequently under this Condition 8(D).

(E) Repurchase

The Company may at any time and from time to time repurchase Bonds in the open market or otherwise. Bonds so repurchased will be surrendered and deemed cancelled and may not be reissued or resold.

(F) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(B), where individual Definitive Certificates have been issued, the Bonds to be redeemed will be selected individually by lot by the Principal Agent, in such place as the Trustee shall approve and in such manner as the Trustee shall deem to be appropriate and fair not more than 60 days and not less than 30 days prior to the date fixed for redemption or, where the Bonds are represented by a Global Certificate, in accordance with the relevant rules of the relevant clearing system.

(G) Cancellation

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

(H) Redemption Notices

All notices to Bondholders given by or on behalf of the Company pursuant to this Condition 8 will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a partial redemption, a list of the Bonds called for redemption.

9. Taxation

(A) All payments of principal, premium and interest (if any) by the Company will be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law.
(B) Where such withholding or deduction is in respect of ROC withholding tax on premium or interest payments at the rate of up to and including 20%, the Company will increase the amount of premium or interest (if any) paid by it to the extent required so that the net amount of premium or interest (if any) received by Bondholders (without prejudice to Condition 7) would be equal to the amounts which would have been receivable in the absence of any such withholding or deduction.
(C) In the event that any such withholding or deduction in respect of principal or any additional withholding or deduction in excess of 20% in respect of interest (if any) or premium is required, the Company will pay such additional amounts by way of principal, premium and interest (if any), as will result in the receipt by the Bondholders of the amounts which would have been receivable in the absence of any such withholding or deduction, except that no such additional amounts shall be payable in respect of any Bond:
(i) to, or on behalf of, a holder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal in respect of the Bond; or
(ii) if the individual Definitive Certificate in respect of such Bond (if issued) is surrendered more than 30 days after the relevant date except to the extent that the holder would have been entitled to such additional amount on surrendering the relevant Definitive Certificate for payment on the last day of such 30 day period. For this purpose, the “ relevant date ” in relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full amount of the monies payable on such due date has not been received by the Trustee or the Principal Agent on or prior to such due date) the date on which notice is duly given to the Bondholders that such monies have been so received.
(D) References in these Conditions to principal, premium or interest shall be deemed also to refer to any increased or additional amounts which may be payable in respect thereof under this Condition or any undertaking given in addition to or substitution for it under the Indenture.

10. Events of Default

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

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

(ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay the principal, premium or interest (if any) in respect of the Bonds) set out in the Bonds or the Indenture which default is incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy, such default is not in the opinion of the Trustee remedied within 30 days after written notice of such default shall have been given to the Company by the Trustee; or
(iii) any other present or future indebtedness of the Company, or any of its Principal Subsidiaries, for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company or any of its Principal Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this Condition 10(iii) have occurred and is continuing equals or exceeds U.S.$5,000,000 or its equivalent in any other currency (determined as provided below), and provided further that where two or more of the Company and/or its Principal Subsidiaries are/is liable for the payment of the same relevant indebtedness or guarantee (whether liable jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be counted once only; or
(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its Principal Subsidiaries and in any such case is not discharged or stayed within 60 days of having been so levied, sued out, commenced or issued, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or
(v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance upon the whole or any substantial part of the assets or revenues of the Company or any Principal Subsidiary and the same is not stayed, discharged, released or satisfied (as the case may be) within 60 days of such proceedings, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or
(vi) the Company or any of its Principal Subsidiaries becomes bankrupt or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by the Trustee or an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company or any of its Principal Subsidiaries or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company or any of its Principal Subsidiaries or the Company or any of its Principal Subsidiaries stops, 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 the terms of which are approved by the Trustee or an Extraordinary Resolution of the Bondholders); or

(viii) the Company shall merge, amalgamate or consolidate with any other corporation or entity (with the Company not being the continuing entity) or shall sell or dispose of substantially all its business or assets whether as a single transaction or a number of transactions, related or not, to any person, unless the Company shall have notified the Bondholders of such event in accordance with Condition 15 and the Company and such corporation, entity or person shall have executed an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee and the Agents providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of Shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture; provided that such agreement by such other person shall not be required if such assumption shall be effective by operation of law; or
(ix) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company; or
(x) proceedings shall have been initiated against the Company or any of its Principal Subsidiaries under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall not have been discharged or stayed within a period of 60 days, unless the Company or such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and regulations; or
(xi) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Indenture, and (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 such case is incapable of remedy or is not in the opinion of the Trustee remedied within such period (being not less than 30 days) as the Trustee may consider reasonable; or
(xii) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

For the purposes of Condition 10(iii) above, any indebtedness which is in a currency other than U.S. Dollars shall be translated into 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.

Upon any such notice being given to the Company by the Trustee, the Bonds will immediately become due and payable at 100% of their principal amount, and overdue interest on the amounts due, from the date on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of 6% per annum.

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

11. Prescription

Claims in respect of (a) principal and premium and (b) interest (if any) will become unenforceable after 10 years (in the case of (a)) and five (5) years (in the case of (b)), from the relevant date for payment in respect thereof.

12. Enforcement

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

13. Meetings of Bondholders, Modification and Waiver

(A) Meetings

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

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

The Company shall prepare a supplement to this Information Memorandum and notify the Bondholders in accordance with Condition 15 in respect of any proposed Extraordinary Resolution relating to items (i) to (vi) above in this Condition 13(A).

(B) Modification of Conversion Right

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

(C) Other Modifications and Waivers

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

(D) Exercise of Trustee’s Functions

In connection with the exercise of its functions, powers, trusts, authorities and discretions (including but not limited to those in relation to any proposed modification, authorization or waiver) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders. No Bondholders shall 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 or other consequences of any such exercise upon individual Bondholders.

14. Replacement of Definitive Certificates

If any Definitive Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company or the Registrar 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 at the fixed exchange rate of NT$34.58 for each U.S.$1.00 of the principal amount of such Bond). Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.

15. Notices

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

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.

16. Indemnification

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

17. Agents

The names of the initial Agents and Registrar and their specified offices are set out at the end of this Information Memorandum. The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of further or other Agents, provided that the Company will at all times maintain Agents having specified offices in London, a Registrar and a Principal Agent. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly in accordance with Condition 15 by the Company to the Bondholders and the Trustee.

18. Governing Law and Jurisdiction

(A) Governing Law

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

(B) Jurisdiction

The courts of the State of New York sitting in the Borough of Manhattan, The City of New York, and the federal courts of the United States sitting in the Borough of Manhattan, The City of New York, have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Indenture or the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Indenture or the Bonds (“ Proceedings ”) may be brought in such courts. The Company has in the Indenture irrevocably, for the benefits of the Trustee and the Bondholders submitted to the jurisdiction of such courts.

(C) Agent for Service of Process

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

THE FORM OF THE BONDS

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

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

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

Payments, transfers, exchanges and other matters relating to interests in the Bonds may be subject to various policies and procedures adopted by Euroclear and Clearstream, Luxembourg from time to time. Transfers between participants in Euroclear and Clearstream, Luxembourg, and conversions through participants in Euroclear and Clearstream, Luxembourg, will be effected in the ordinary way in accordance with the rules and operating procedures of Euroclear and Clearstream, Luxembourg. None of the Company, the Trustee, the Agents (as defined in the terms and conditions of the Bonds) or any of their respective agents will have any responsibility or liability for the performance by Euroclear and Clearstream, Luxembourg or their participants of their respective obligations under the rules and procedures governing their operations, or for payments made on account of, or records relating to, interests in the Bonds held through Euroclear and Clearstream, Luxembourg and their participants.

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates in respect of their interests in the Bonds except in the limited circumstances described below under “— The Global Certificate — Registration of Title”.

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

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

The Global Certificate

The Global Certificate contains provisions which apply to the Bonds that are represented by the Global Certificate, some of which modify the effect of the terms and conditions of the Bonds (the “ Conditions ”) set out in this Information Memorandum. Terms defined in the Conditions have the same meaning in the paragraphs below. The following is a summary of those provisions:

Meetings

The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Bonds for which the Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which the Global Certificate has been issued to attend and speak at a meeting of Bondholders on appropriate proof of his identity and interest.

Cancellation

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

Trustee’s powers

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

Conversion

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

Payment

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

Notices

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg or the Alternative Clearing System (as defined below), notices to Bondholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg, for communication by it to entitled accountholders.

Redemption at the option of the Company

Any drawing of Bonds required under Condition 8(F) in the event that the Company exercises its call option pursuant to Condition 8(B) in respect of less than the aggregate principal amount of Bonds in respect of which the Global Certificate is issued shall be made in accordance with the relevant rules of the clearing system. Notices will be made by the Company in accordance with the previous paragraph and the Luxembourg Stock Exchange will be informed should the Company exercise the call option.

Redemption at the option of bondholders

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

Registration of title

Definitive Certificates in definitive form for individual holdings of Bonds will not be issued in exchange for interests in Bonds in respect of which the Global Certificate is issued, except in case that (a) either Euroclear or Clearstream, Luxembourg (or any clearing system designated by the Company and approved in writing by the Trustee (the “ Alternative Clearing System ”) on behalf of which the Bonds evidenced by the Global Certificate may be held) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, or (b) the Bonds become immediately due and payable in accordance with the provisions of Condition 10 or if in connection with judicial proceedings brought by the Trustee, the Trustee has been advised that it is necessary or appropriate for Definitive Certificates to be executed and delivered.

Transfers

Transfers of interests in the Bonds with respect to which the Global Certificate is issued shall be effected through the records of the relevant clearing system and its participants in accordance with the Conditions, the Agency Agreement and the rules and procedures of the relevant clearing system.

Enforcement

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

USE OF PROCEEDS

The net proceeds from the offering are approximately U.S.$11,860,000. The Company will use the net proceeds for overseas investments.

SELECTED FINANCIAL INFORMATION

The following table presents selected financial information for the Company. The selected consolidated financial information as of and for the years ended December 31, 2000, 2001 and 2002 and non-consolidated financial information as of and for the three months ended March 31, 2002 and 2003 presented in this table are derived from the Company’s audited or reviewed consolidated and non-consolidated financial statements and notes thereto that are included elsewhere in this Information Memorandum. The Company’s financial statements were prepared using ROC GAAP and are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in other countries and jurisdictions, including the United States and United Kingdom. ROC GAAP differs in many material respects from U.S. GAAP. See “Risk Factors — Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance”. The selected financial information set forth below should be read in conjunction with the Company’s financial statements and the notes to those statements included elsewhere in this Information Memorandum.

Balance Sheet Data: ROC GAAP Total revenues.................. Cost of Revenues ............. Unrealized Profit on intercompany sales....... Gross profit ..................... Total operating expenses .. Operating income (loss) ... Non-operating income ...... Non-operating expenses ... Income (Loss) before tax . Income tax (benefit)......... Net income (loss)............. (Minority interest rate income) ....................... Consolidated net income (loss) ........................... Per Share Data: Earnings per Share — net income (loss) (in dollars)..............		As of December 31,	As of December 31,		As	of March 31,	of March 31,
	2000	2001	2002	2002	2002	2003	2003
	NT$ NT$ NT$ U.S.$(1) (consolidated, audited) (in thousands) 4,835,174 4,205,487 5,392,334 155,175 4,544,166 4,088,636 4,456,167 128,235 — — — — 291,008 116,851 936,167 26,940 373,053 436,579 519,756 14,957 (82,045) (319,728) 416,411 11,983 117,812 109,877 69,895 2,011 92,995 54,227 123,374 3,550 (57,228) (264,078) 362,932 10,444 (26,544) (68,043) 74,984 2,158 (30,684) (196,035) 287,948 8,286 (1) — — — (30,685) (196,035) 287,948 8,286 (0.25)(2) (1.53)(2) 2.14(2) 0.06(2)				NT$ NT$ U.S.$(1) (non-consolidated, unaudited) 1,314,428 1,639,977 47,200 1,111,009 1,269,524 36,538 (12,073) (12,336) (355) 191,346 358,117 10,307 95,856 120,875 3,479 95,490 237,242 6,828 10,993 39,149 1,127 20,117 646 19 86,366 275,745 7,936 8,558 63,390 1,824 77,808 212,355 6,112 — — — — — — 0.61 1.55 0.04

		Year ended	December 31,		Three months ended	Three months ended	March 31,
	2000	2001	2002	2002	2002	2003	2003
	NT$	NT$	NT$	U.S.$(1)	NT$	NT$	U.S.$(1)
		(consolidated, audited)			(non-consolidated, unaudited)
			(in thousands,	except per	Share data)
Balance Sheet Data:
ROC GAAP
Cash and cash
equivalents ..................	691,883	721,421	851,417	24,501	694,849	710,811	20,458
Current assets ..................	1,954,092	2,029,829	2,536,723	72,999	1,932,936	2,626,441	75,592
Working capital................	1,268,254	943,050	910,914	26,213	1,071,118	1,186,056	34,136
Long-term investments .....	217,224	250,945	264,370	7,608	405,832	327,630	9,430
Property, plant and
equipment ....................	1,165,308	907,236	914,970	26,330	920,282	884,270	25,450
Total assets ......................	3,438,519	3,506,312	4,009,725	115,388	3,449,209	4,026,161	115,877
Current liabilities.............	685,838	1,086,779	1,625,809	46,786	861,818	1,440,385	41,456
Total liabilities.................	1,262,317	1,542,993	1,652,251	47,547	1,272,799	1,467,574	42,238
Income tax expense
(benefit).......................	(26,544)	(68,043)	74,984	2,158	8,558	63,390	1,824
Stockholders equity..........	2,176,202	1,963,319	2,357,474	67,841	2,176,410	2,558,587	73,639

(1) Translated into United States Dollars using the average of buying and selling rates published by the Bank of Taiwan at December 31, 2002 of NT$34.750 = U.S.$1.00, and at March 31, 2003 of NT$34.745 = U.S.$1.00. Such translation amounts are unaudited and should not be construed as representations that the NT Dollar amounts were, or have been, or could be, converted into U.S. Dollars at that or any other rate.
(2) Earnings per Share are calculated by dividing net income by the weighted average number of Shares outstanding during each year.

THE COMPANY

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

Overview

The Company designs, develops and produces motherboards and add-on cards for personal computers (“ PCs ”). In recent years, the Company, by leveraging its technological expertise in PC motherboards, has been focusing on promoting small form factor computer (“ SFF computer ” or “ XPC ”). SFF computers, or XPCs, which are different from regular desktop PCs whose specifications have been precisely defined by International Business Machines Inc. (“ IBM ”), are more compact while maintaining consistently high performance. The Company believes that this relatively new XPC will be one of the fast-growing products in the PC industry as they provide the end users with combined benefits offered by notebook PCs and desktop PCs, namely compactness, stylish and performance.

The Company manufactures and assembles a substantial number of its products in its own manufacturing facilities located in Taoyuan Hsien, Taiwan. The Company’s manufacturing facilities and headquarters are accredited with ISO9001 and ISO14001 quality standards. A limited number of the Company’s motherboard and add-on card products are manufactured by other companies in southern China on an original equipment manufacture (“ OEM ”) basis.

The Company distributes its motherboard, add-on card and XPC products under its own brand name, Shuttle�, and on an OEM or original design manufacture (“ ODM ”) basis. The Company distributes its products carrying Shuttle� brand to system integrators and end users through its sales forces throughout the world, including the United States, Germany, Japan, Hong Kong and Taiwan. The Company’s OEM/ODM customers include some of the best-known and most reputable industry leaders such as Creative Technology Ltd., Carrefour SA and Elitegroup Computer Systems.

The Company’s research and development facilities are located in Taiwan, where it controls the core technologies. The Company believes that its ability to provide time-to-market system solutions by leveraging strong research and development capability and reliable product quality, together with technical know-how applied to large-scale production give it a competitive advantage in an industry that is capital- and technological-intensive. The Company also believes that it is one of the few companies in the market that are able to define new specifications for state-of-the-art personal computing systems, namely the XPCs. Currently, the Company owns four patents and have other 35 patents pending under its name, all of which are related to motherboards and the XPCs.

The consolidated total revenues of the Company have grown at a compound annual growth rate of 11.5% from NT$4,835.2 million in 2000 to NT$5,392.3 million (U.S.$155.2 million) in 2002. In 2002, the Company recorded consolidated total revenues of NT$5,392.3 million (U.S.$155.2 million) and consolidated net income of NT$287.9 million (U.S.$8.3 million), respectively, compared to consolidated total revenues of NT$4,205.5 million and consolidated net loss of NT$196.0 million in 2001. In the first three months of 2003, the Company’s total revenues and net income on a non-consolidated basis were NT$1,640.0 million (U.S.$47.2 million) and NT$212.4 million (U.S.$6.1 million), respectively, compared to NT$1,314.4 million and NT$77.8 million, respectively in the comparable period in 2002.

Competitive Strengths

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

Introduction of new products on a timely basis : the Company places particular emphasis on introducing new products to the market as early as possible to take advantage of the high premium typically attached to products at the leading edge of PC technology. Examples including the Company’s newest generation of motherboards, which are equipped with sockets for Intel Pentium 4 CPU and Intel 865 series chipset, as well as the patented SFF computers.
Strong research and development programs : the Company invests significant resources in research and development through in-house research and development activities and strong incentives to employees. The focus of the Company’s research and development activities includes new product development, process and technology improvement and costs efficiency. With its strong research and development programs, the Company is able to continue positioning itself in the technological forefront.
Established material and component supply network : manufacturing of motherboards, add-on cards and SFF computer barebone systems utilizes a substantial amount of parts and components, such as chipsets, printed circuit boards (“ PCBs ”), connectors, power supply modules, and other electronic components. The Company maintains good relationships with key suppliers of such materials and components to ensure that it controls the quality and delivery time of all of its products.
Well-established sales and marketing channels : The Company has established extensive sales channels for its products in Taiwan and other countries, including the United States, Germany, Japan, and Hong Kong, which enable the Company to provide efficient services to its customers such as system integrators, distributors and end users. The Company’s strategy to locate in close proximity to its customers is expected to further concrete existing customer relationships.
Reputable and well-recognized brand : Most of the Company’s products, including motherboard, add-on card and XPC products are distributed to the end users under the Shuttle� brandname. The Company believes that the Shuttle� brandname is synonymous with quality and value, and is well recognized by its customers.

Business Strategies

The Company’s principal business objective is to continue increasing its sales, cash flow, profitability and market share by pursuing the following key strategic initiatives:

Focus on high-growth markets while retaining flexibility : the Company will focus its product development efforts on high-growth markets, such as the SFF computer market. The Company believes that the rate of turnover in these areas will increase rapidly with evolving new production standards, increasing functionality of each successive generation and increasing rates of penetration.
Utilize partnerships and alliances with industry leaders : the Company believes that the joint development arrangements and alliances it has established with other companies in the PC hardware industry have been fundamental to its success. The Company’s strategy is to continue to build on these alliances and partnerships. Maintaining close links with major computer and chip vendors, including industry leaders such as Intel, VIA, Silicon Integrated Systems, Inc. (“ SiS ”), Advanced Micro Devices Inc. (“ AMD ”) and n VIDIA Technology Inc. (“ n VIDIA ”), ensures that the products developed and introduced by the Company are relevant, up-to-date, and at the leading edge of technology in the industry.

Improve after-sales service : product quality and reliability and after-sales service are key factors in ensuring customer loyalty and in maintaining the Company’s good reputation. The Company intends to further improve the quality of its products by continuing to refine its quality control procedures, training staff in quality control, expanding its overseas sales network and investing in testing equipment used in the quality control process.
Continue to research and develop new products : the Company believes that SFF computer systems will be one of the primary growing areas of computer systems. To meet current and anticipated future demands, the Company will further commit significant resources to the research and development of related products and accessories and seek multi-national patent protections of innovative products, standards and processes.

Corporate Information and Organization

In general

The Company was founded on June 10, 1983. Its original product line focused on the design and manufacture of motherboards and add-on cards for PCs. In 2001, the Company self-developed the SFF computer system and added XPC mini-barebone systems and accessories into its product line. Before 2002, sales of DRAM modules and motherboards consisted of a significant portion of the Company’s revenues. Since early 2002, the Company has terminated its sales of DRAM products, which are characterized as volatile, to reduce impacts from DRAM price fluctuations.

The Company’s corporate headquarters and principal place of business are located at No. 30, Lane 76, Rei Kuang Road, Neihu District, Taipei, Taiwan, ROC. The Company’s web-site is www.shuttle.com. Information contained in the Company’s website is not incorporated into and is not a part of this Information Memorandum.

Listing information

On December 8, 1998, the Company’s Shares are listed on the GTSM, under the trading code of 5366. Since March 17, 2000, the Company has shifted the trading market for its Shares from the GTSM to the TSE, under the new trading code of 2405. Since the Company’s Shares have been listed on the TSE, the highest closing rate of the Shares was NT$67.00 per Share, on April 11, 2000, and the lowest closing rate of the Shares was NT$5.80 per Share, on January 2, 2001. The following diagram illustrates the movement of the Share price since March 18, 2000 to June 28, 2003:

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60
TWSE/Close/Trade/TWD
Last 46.18 on 06/28/03
High 50.591 on 04/15/00 50
Ave 24.324
Low 6.32 on 12/30/00
40
30
20
10
0
22MAY00 31JUL 9OCT 18DEC 26FEB01 7MAY 16JUL 24SEP 3DEC 11FEB02 22APR 1JUL 9SEP 18NOV 27JAN03 7APR 16JUN
----- End of picture text -----

The average daily trading volume of the Company’s Shares from January 1, 2003 to date is approximately 4,699,000 shares.

Corporate structure

The following diagram shows the structure of the Company and its consolidated subsidiaries, as of March 31, 2003, together with details of the Company’s direct and indirect equity interests in such subsidiaries:

==> picture [408 x 169] intentionally omitted <==

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

SHUTTLE INC.
100% 100% 100%
Gold Fountain Hon Yi Investment
Holco (BVI) Inc. [(1)]
Limited [(3)] Co., Ltd. [(7)]
(“ Holco ”)
(“ Gold Fountain ”) (“ Hon Yi ”)
99.99% 100% 100% 100%
Holco Computer Shuttle Computer Shuttle Computer Shuttle Computer
(H.K.) Ltd. [(2)] International Inc. [(4)] Group Inc. Handels GmbH [(6)]
(“ HCK ”) (“ SCI ”) (“ SCG ”) [(5)] (“ SCH ”)
----- End of picture text -----

(1) Holco was established in the British Virgin Islands on July 15, 1996 as an investment holding subsidiary of Shuttle. Its registered office is at Citco Building, P.O. Box 662, Road Town, Tortola, British Virgin Islands. The paid-in capital of Holco as at December 31, 2002 was U.S.$50,000.
(2) HCK was established in Hong Kong Special Administrative Region, the PRC on August 19, 1996. Its registered office is at Unit A, 19/F, Dragon Center, 79 Wing Hong Street, Cheung Sha Wan, Kowloon, Hong Kong. The paid-in capital of HCK as at December 31, 2002 was U.S.$1,000. HCK is the Company’s primary sales and marketing office in Hong Kong, whose main business is to sell and promote the Company’s products in Hong Kong area.
(3) Gold Fountain was established in the Cayman Islands on October 7, 1997 as an investment holding subsidiary of Shuttle. Its registered office is at Huntlaw Building, PO Box 2804, George Town, Grand Cayman, Cayman Islands. The paid-in capital of Golden Fountain as at December 31, 2002 was U.S.$7,022,000.
(4) SCI was established in the State of California, the United States, on January 9, 1990. Its registered office is at 939 Radecki Court, City of Industry, CA 91748, U.S.A. The paid-in capital of SCI as at December 31, 2002 was U.S.$3,400,000. SCI is the Company’s primary sales and marketing office in the United States, whose main business is to sell and promote the Company’s products in North America.
(5) SCG was established in the State of California, the United States., on July 10, 1990. Its registered office is at 939 Radecki Court, City of Industry, CA 91748, U.S.A. The paid-in capital of SCG as at December 31, 2002 was U.S.$2,500,000. SCG is the Company’s primary sales and marketing office in the United States, whose main business is to gather market information and sell and promote the Company’s products in the North America.
(6) SCH was established in Germany, on June 6, 1991. Its registered office is at Fritz Strassmann Str. 5, D-25337 Elmshorn, Germany. The paid-in capital of SCH as at December 31, 2002 was U.S.$1,118,000. SCH is the Company’s primary sales and marketing office in Germany, whose main business is to sell and promote the Company’s products in Europe.
(7) Hon Yi was established in the ROC on February 23, 2000 as an investment subsidiary of Shuttle. Its registered office is at 3Fl, No. 2, Lane 107, Sec. 3, Ming Shen East Road, Taipei, Taiwan, R.O.C. The paid-in capital of Hon Yi as at December 31, 2002 was NT$89,100,000.

Products

The Company capitalizes on its research and development capability and industrial engineering expertise and its expertise in low cost, high quality mass production to offer quality and time-to-market products to its customers. The products manufactured by the Company can be categorized as follows:

motherboards;
add-on cards, including mainly VGA cards;
XPC mini-barebone systems and accessories; and
other products and services including surface mounting technology (“ SMT ”) processing services.

The Company distributes the products under the Shuttle� brand and also supplies its products on an OEM/ODM basis to major producers of PC components. The table below sets out the Company’s non-consolidated total net sales by product category for the period indicated:

Year ended December (non-consolidated)	Year ended December (non-consolidated)	31,	Three months ended March 31, (non-consolidated)	Three months ended March 31, (non-consolidated)
2000 NT$’000 1,644,312 3,941 — 1,485,183 449,530 749,628 4,332,594 (51,143) 4,281,451 16,768	2001 NT$’000 1,983,113 299,974 137,384 902,704 84,730 577,721 3,985,626 (97,469) 3,888,157 63,858	2002 NT$’000 2,419,884 312,797 1,221,954 423,275 354,367 514,768 5,247,045 (157,014) 5,090,031 135,558	2002 NT$’000 617,732 174,774 123,337 129,973 247,462 7,831 1,301,109 (34,288) 1,266,821 47,607	2003
				NT$’000 577,488 11,416 832,742 60,398 6,224 164,623
				1,652,891 (21,739)
				1,631,152 8,825
4,298,219	3,952,015	5,225,589	1,314,428	1,639,977

(1) Including mainly computer components.

Motherboards

Along with CPU and mass storage devices such as hard disks and optical storage drives, a motherboard is one of the main pieces of hardware in a computer, and determines the performance and stability of a computer. A motherboard comprises a PCB on which various semiconductor components including discrete devices, ICs and chipsets are connected to each other by electronic circuitry. The design layout determines the quality of motherboards.

Two of the key determining factors of the design of a motherboard are the dimensions or “form factor” of the PC in which it is to be incorporated and the type of CPU it is designed to support. The chipsets mounted on a motherboard are also selected by reference to the type of CPU which the motherboard is designed to support. Each chipset typically comprises two or three application specific integrated circuit (“ ASIC ”) chips depending on the desired functionality of the PC in which the motherboard is incorporated. In 2001, the Company developed and delivered over 25 different motherboard models, which comprise Intel, SiS or VIA chipsets. The Company’s motherboards are capable of incorporating most types of CPUs and chipsets and being installed in a variety of different PC chassis.

For the years ended December 31, 2000, 2001 and 2002, sales of motherboards accounted for 38.0%, 49.8% and 46.1% of the Company’s consolidated total sales. For the three months ended March 31, 2002 and 2003, sales of motherboards accounted for 47.5% and 34.9% of the Company’s non-consolidated total sales.

VGA cards

The Company sells add-on cards manufactured by several major add-on cards manufacturers. The add-on cards traded by the Company are mainly VGA cards, which are display controller cards providing enhanced graphics functions for computer monitors. Most of the VGA cards traded by the Company incorporate chipsets manufactured by n VIDIA, the world’s largest manufacturer of chipsets for graphics accelerator cards. The Company currently sells approximately ten different models of VGA cards.

For the years ended December 31, 2001 and 2002, sales of add-on cards accounted for 7.5% and 6.0% of the Company’s consolidated total sales. For the three months ended March 31, 2002 and 2003, sales of add-on cards accounted for 13.4% and 0.7% of the Company’s non-consolidated total sales.

XPC mini-barebone systems and accessories

The Company introduced its first model of SFF computer barebone system, an XPC minibarebone system, in late 2001. Soon after the introduction, XPC mini-barebone systems and accessories were recognized by the PC market as an alternative to tower-style desktop PCs. The XPC mini-barebone system is contained in a relatively smaller box, measuring roughly 10.5” x 7.5” x 6.75” and weighing around eight pounds, and is able to contain everything a PC user could need in a small PC, such as a hard drive, DVD or CD-RW drive, floppy drive, and even a PCI card. The XPC mini-barebone systems are also equipped with state-of-the-art I/O plugs, such as mouse, keyboard, USB, serial port, VGA, S-Video, parallel port, composite video, dual IEEE 1394 (Firewire), Ethernet RJ-45, audio in, audio out, that enables the users to connect peripherals as necessary.

Each XPC mini-barebone system manufactured by the Company has personalized design. The Company believes that those personalized cosmetic design and modernized shape of the products will attract buyers who pursue not just the functionality, but also the uniqueness of style, of their desktop computers. The Company has licenses from certain on-line gaming platform providers to paint popular characters of computer games on its XPC mini-barebone systems in order to attract on-line game lovers.

All XPC mini-barebone systems are equipped with the small form factor motherboards manufactured by the Company in-house, which comprise Intel, SiS or n VIDIA chipsets and support Intel or AMD CPUs. The Company currently carries 11 models of XPC mini-barebone systems, supporting a wide range of CPU sockets, from Intel Celeron 533A MHz, AMD Athlon XP2600+, to Intel Pentium 4 3.06GHz, as follows:

Model SB61G2.......................... SN45G ........................... SB52G2.......................... SS51G v.2.0 ................... SN41G2 ......................... SK41G ........................... SB51G ........................... SS51G............................ SS40G............................ SS50C ............................ SV25..............................	Motherboard FB61 FN45 FB52 FS51 v.2.0 FN41 FX41 FB51 FS51 FS40 FS50 FV25	CPU Socket 478 Socket A Socket 478 Socket 478 Socket A Socket A Socket 478 Socket 478 Socket A Socket 478 Socket 370	Chipset
			Intel 865G _n_VIDIA _n_Force 2 Ultra 400 Intel 845 GV SiS 651B _n_VIDIA _n_Force 2 IGP VIA KM266 Intel 845 GE SiS651 SiS740 SiS650 VIA Twister-T PN133T

The Company believes that most users will treat the XPC as not only a desktop PC, but also as a compact home electronic appliance. As such, the Company continues to introduce accessories to the XPC that give the entire system more interesting appearance, higher performance and broader connectability. For example, the users may acquire from the Company a patented thermal management solution for Intel Socket 478 XPC mini-barebone systems. The Integrated Cooling Engine (“ I.C.E. ”) technology enhances quietness, stability, cooling effects and performance of an XPC. The I.C.E. is developed by the Company and manufactured by professional thermal solution providers in the United States for the Company.

Other important accessories include:

Accessories SPDIF card USB card TV out/DVI card TV-out/DVI card USB 2.0 card reader Printer cable Color plate EL lamp plat Colorful color XPC makeover kit XPC bag Bluetooth USB dongle Remote control	Description
	A Sony Philips Digital Interface Format (“SPDIF”) in, SPDIF out optional kit which supports shuttle products. Extended USB ports SiS315 AGP TV Intel 845GE/865 Support various flash memory cards that are widely used on many popular applications, such as digital camera, video camcorder, PDA, IA devices, etc. And all cards can be accessed at the same time D-sub 25 pin female solder type Colorful changeable face panel EL lamp kit Car painting colorful cover changeable kit Assembling tools for XPCs XPC carrying bag Bluetooth adapting module A wireless remote and USB receiver module that allows remote operation of a Shuttle XPC via access to 19 Windows “hot keys”, on-screen mouse cursor.

Accessories
SPDIF card
USB card
TV out/DVI card
TV-out/DVI card
USB 2.0 card reader
Printer cable
Color plate
EL lamp plat
Colorful color
XPC makeover kit
XPC bag
Bluetooth USB dongle
Remote control

Description

A Sony Philips Digital Interface Format (“SPDIF”) in, SPDIF out optional kit
which supports shuttle products.
Extended USB ports
SiS315 AGP TV
Intel 845GE/865
Support various flash memory cards that are widely used on many popular
applications, such as digital camera, video camcorder, PDA, IA devices, etc.
And all cards can be accessed at the same time
D-sub 25 pin female solder type
Colorful changeable face panel
EL lamp kit
Car painting colorful cover changeable kit
Assembling tools for XPCs
XPC carrying bag
Bluetooth adapting module
A wireless remote and USB receiver module that allows remote operation of a
Shuttle XPC via access to 19 Windows “hot keys”,
on-screen mouse cursor.

For the years ended December 31, 2001 and 2002, sales of XPC mini-barebone systems and accessories accounted for 3.4% and 23.3% of the Company’s consolidated total sales. For the three months ended March 31, 2002 and 2003, sales of the products accounted for 9.5% and 50.4% of the Company’s non-consolidated total sales.

Manufacturing

In general

The Company’s sole and principal manufacturing facility located in No. 9-7, Tai Pu, 13 Lin, Wu Chuan Tsan, Tai Yuan Hsiang, Taoyuan Hsien, Taiwan, occupying approximately 12,000 square meters of manufacturing space. The Company has five state-of-the-art SMT lines that build more than 40,000 pieces of motherboards and add-on cards each month. At one shift per day, the Company’s production capacity can be as large as 200,000 pieces per month. In addition, the Company operates two assembly lines to produce the XPC barebone systems. As of March 31, 2003, 181 direct labors were employed to the Company’s manufacturing facilities.

The Company’s manufacturing facilities are accredited ISO9001 and ISO14001 quality standards.

Motherboards and add-on cards

A motherboard and an add-on card consist of PCBs with various semiconductor components attached to them, including ICs, chipsets, SRAMs and connectors. These components are connected to each other by electronic circuitry. The two main technologies used to fix components onto the Company’s motherboards and add-on cards are SMT and direct insert procedure (“ DIP ”) technology, which are incorporated in separate production lines at the Company’s manufacturing facilities.

Raw materials are first processed on an SMT production line, where components are mechanically soldered onto a PCB. The DIP lines involve manual component insertion and application of flux and wave welding. After these processes, the motherboards undergo vibration testing, visual inspection, in-circuit testing, and function testing. After passing all such tests products are sent to the Company’s warehouses. Once an order for the products is received, the motherboards and add-on cards are packed and shipped.

Production of the Company’s products manufactured in-house involves a series of precise SMT and testing processes. Quality control is therefore an important factor to the Company’s success. Quality control tests are conducted on raw materials used in the production process. In addition, quality control procedures and tests are conducted at each manufacturing and assembly stage. The Company also arranges for certain of its customers to conduct periodic on-site quality inspections.

XPC mini-barebone systems

XPC mini-barebone system production process consists of PCB assembly and testing, insertion by SMT, testing, power supply module assembling, partial performance testing, full performance testing, packaging and quality inspection.

Production of the Company’s products manufactured in-house involves a series of precise assembly processes. Quality control is therefore an important factor to the Company’s success. In addition, quality control procedures and tests are conducted at each manufacturing and assembly stage. The Company also arranges for certain of its customers to conduct periodic on-site quality inspections.

Although the Company has installed computerized equipment to increase the automation of its production process, it believes that manual assembly will continue to be one of the important elements in the production of certain of its products.

Sales and Marketing

The Company has a global sales network, consisting of direct sales forces and customer service representatives. To conduct its sales and marketing activities, the Company has sales offices located in Taipei, Taiwan; City of Industry, U.S.A.; Hamburg, Germany; and Beijing, the PRC. Each office is responsible for developing new customers, providing sales and customer support and maintaining existing customer relationships. As of March 31, 2003, the Company had more than 50 sales representatives worldwide.

The Company currently sells its products to two major categories of customers: distributors and system integrators, with limited number of products placed to the OEM/ODM customers. For the years ended December 31, 2002, approximately 85.0%, 12.1% and 2.9% of the Company’s products are sold to distributors, system integrators and OEM/ODM customers, respectively.

Distributors

Distributors are wholesalers who sell the Company’s products to value-added resellers and end users. The Company sells its products to distributors worldwide by itself or through members of the Company in the U.S., Europe and Asia. Net sales to distributors are made in U.S. Dollars (or in local currencies based on U.S. Dollar prices). Such sales are made on the basis of cash in advance to a credit term of generally as long as 90 days and with an medium of 30 days, depending on the customer’s credit standing and track record assessed by the Company.

System integrators

System integrators are principally PC vendors who are generally regional brand-name leaders and are typically regional-level PC assemblers. System integrators purchase parts from various sources, and assemble them into complete PCs, typically for sale under their own brandnames.

The Company does not enter into long-term contracts with its system integrator customers. Although the Company’s system integrator customers do not typically provide the Company with rolling forecasts of their demand outlook, it keeps in close contacts with its system integrator customers and discusses probable requirements with each system integrator customer at least once a month. The Company’s system integrator customers generally place firm orders with the Company on a monthly basis.

The Company sells its products to system integrators through its sales offices and affiliates in the U.S., Europe and Asia. Sales of memory modules to system integrators are made in U.S. Dollars (or in local currencies based on U.S. Dollar prices), with average credit terms of seven days to ten days.

Geographical Regions

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

							Three months ended	Three months ended	Three months ended
		Year ended		December	31,			March	31,
	2000		2001		2002		2002		2003
			(Non-Consolidated)				(Non-consolidated)
				(NT$ millions, except percentages)
		%		%		%		%		%
Taiwan....................................	873	20.3	501	12.7	1,186	22.7	325	24.7	189	11.5
America..................................	1,361	31.7	1,248	31.6	1,150	22.0	375	28.5	408	24.9
Asia (other than Taiwan) ........	430	10.0	661	16.7	1,055	20.2	248	18.9	262	16.0
Europe....................................	1,528	35.6	1,479	37.4	1,757	33.6	337	25.7	752	45.9
Others ....................................	106	2.4	63	1.6	78	1.5	29	2.2	29	1.7

Research and Development

The Company believes that research and development is critical to the future success of the Company and it is committed to devoting increasing efforts in research and development. The Company is involved in ongoing research and development directed toward new products and packages, as well as continued improvement of quality and reliability in existing products. In 2000,

2001 and 2002, the Company spent approximately NT$64.9 million, NT$52.1 million and NT$60.2 million (U.S.$1.7 million), respectively, on research and development activities. The Company’s research and development staff also work closely with the marketing staff to learn the market trends and to develop new products that meet market’s demand or specific customers’ needs.

Efforts in recent years are directed towards development of the SFF computer systems. In addition, efforts are directed at development of accessories for XPC systems, such as replaceable chassis and cables.

As at March 31, 2003, the Company had more than 65 engineers engaged in research and development, all of whom were working in Taiwan. The research and development improvements have helped the Company to manufacture advanced and innovative products in a cost-effective manner.

Intellectual Property

As of March 31, 2003, the Company owned three patents and had pending patent applications for 30 patents to be registered in Taiwan, Japan, the PRC, the European Union and the United States for products and technologies developed solely through its own efforts. Most of the Company’s patents and patent applications are related to the XPC. The Company intends generally to continue to seek patent protection on new inventions in design or process technology, which the Company believes are essential to its business development.

The Company has registered 20 trademarks in Taiwan, two trademarks in the PRC, Hong Kong and Germany, respectively.

Environmental Matters

The Company’s manufacturing processes involve mainly assemblies with limited environmental concerns. These processes generate no liquid waste, and limited amount of solid waste and gaseous emissions. The Company has not been subject to any material fines or legal action involving non-compliance with any relevant environmental regulations, nor is it aware of any threatened or pending action by any environmental regulatory authority in Taiwan or elsewhere.

The Company has adopted environmental compliance and abatement programs generally accepted in the industry for all its industrial processes. Under the Company’s guidelines, gaseous emissions are filtered before releasing to the air and solid waste is either recycled or removed under contract by waste management services. The Company has been accredited with ISO14001 since February 2000.

Legal Proceedings

Neither Shuttle nor any member of the Company is involved in any litigation or other proceedings the outcome of which the Company believes might, individually or taken as a whole, materially affect the financial results or operations of Shuttle or any member of the Company.

Insurance

The Company maintains insurance policies with independent third parties in respect of buildings, goods in transit, equipment and certain inventories covering loss due to fire and explosion. While the Company believes its insurance policies to be adequate and in line with industry norms in Taiwan, significant damage to any of the Company’s production facilities, whether as a result of fire or other causes, could have a material adverse effect on the Company. Insurance coverage on property (including those leased to the third party), plant and equipment of the Company, on a non-consolidated basis, amounted to approximately NT$1,025.6 million, NT$656.3 million and NT$647.1 million (U.S.$18.6 million) as of December 31, 2000, 2001 and 2002, respectively. The Company does not have any third-party liability insurance covering it product liability. The Company does not carry business interruption insurance or key-personnel insurance or any policy of a similar nature.

Related Party Transactions

The Company, its subsidiaries and certain of its affiliates, in the ordinary course of business or from time to time, enter into transactions with each other. The Company believes that all such transactions were based on general commercial practice, where the prices and payment terms made from and to the Company may depend upon the overall financial status of the Company and such affiliates. See Note 18 to the “Consolidated Financial Statements as at and for the years ended December 31, 2000, 2001 and 2002” and Note 18 to the “Non-consolidated Financial Statements as at and for the three-month periods ended March 31, 2002 and 2003”.

MANAGEMENT AND EMPLOYEES

Directors

The Company’s board of directors is elected by the shareholders in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The Chairman is elected by the board from among the directors. The Company’s seven-member board of directors is responsible for the management of the Company’s business.

The term of office for the Company’s directors is three years from the date of election. Directors may serve any number of consecutive terms and may be removed from office at any time by the approval of at least two-thirds of the Shares represented at a shareholders’ meeting in which a quorum of at least a majority of all issued and outstanding Shares are represented. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special meeting of shareholders will be convened to elect directors to fill the vacancies.

The following table sets forth the name of each of the Company’s current directors, his/her position in the Company, the percentage of Shares held, his/her highest education and other significant positions held by him/her.

Name Hung-Huei Yu Hong-Yi Yu Cheng-Kui Hung Tsun-Se Yu Chen Shih-Tien Cheng Yeong-Shang Lin Hung-Chang Lin	Positions Chairman, President and Director Executive Vice President and Director Senior Vice President and Director Director Vice President and Director Director Director	Percent of Shares held(1) 11.56% 5.96% 1.54% 0.55% 0.40% 0.13% 0.02%	Highest education Entrepreneur MBA Program, National Chengchi University Entrepreneur MBA Program, National Chengchi University Private Taipei Senior High School Peitou Elementary School Master in Electrical Engineering, National Taiwan University PhD, The University of Utah Master in Mathematics, The University of Texas in the U.S.A.	Other significant position
				Board of Director, Chin Ku Investment Corp., Ltd. Chairman, Hon Yi Investment Corp., Ltd. Chairman, Chin Ku Investment Corp., Ltd. Board of Director, Hon Yi Investment Corp., Ltd. Chairman, Broptics Communication Corp. — — — President, Broptics Communication Corp. Vice President, Tai Shing Corp. Ltd.

(1) As of April 30, 2003.

Supervisors

The Company currently has three supervisors, each serving a three-year term. Supervisors are typically elected at the time when directors are elected. The supervisors’ duties and powers include investigation of the Company’s business condition, inspection of the Company’s corporate records, verification and review of financial statements presented by the Company’s board of directors at the shareholders’ meetings, convening of shareholders’ meetings under certain circumstances, representing the Company in negotiations with the Company’s directors and notification, when appropriate, to the board of directors to cease acting in contravention of any applicable law or regulation, the Company’s Articles of Incorporation (the “ Articles ”) or any resolution made at a shareholders’ meeting. Each supervisor is elected by the Company’s shareholders and cannot concurrently serve as a director, management officer or other staff member. For a public company, such as Shuttle, the ROC Company Law requires that at least two supervisors be in office at all times and that a supervisor’s term of office be no more than three years.

The following table sets forth the name of each of the Company’s current supervisors, his/her position in the Company, the percentage of Shares held, his/her highest education and other significant positions held by him/her.

Name Mei-Chih Kao Pan Ho-Mei Wang Hung-Yang Yu	Position Supervisor Supervisor Supervisor	Percent of Shares held(1) 0.30% 0.02% 0.67%	Highest education Panchiao Elementary School Bachelor’s degree in Industrial Economics from Takamg University Bachelor’s degree in Mathematics from National Tsing Hua University	Other Significant Position
				— — Chairman, Ares International Corp. Supervisor, Hon Yi Investment Corp. Ltd.

(1) As of April 30, 2003.

In accordance with ROC law, each of the Company’s directors and supervisors owes fiduciary duties to all shareholders. Currently, the Company does not have any independent directors or supervisors.

Executive Officers

The following table sets forth information relating to the Company’s executive officers. All executive officers listed below can be contacted at the registered office of the Company.

Name Hung-Huei Yu Hong-Yi Yu Cheng-Kui Hung Shih-Tien Cheng Li-Na Yu Shou-Chung Yi Gary Li An Chi Shen-Huan Cho Chung-Hou Huang Fen-Fang Lee Chan-Tsung Lin Chih-Wei Lee	Positions Chairman, President and Director Executive Vice President and Director Senior Vice President and Director Vice President of Research and Development Department and Director Vice President of Administration Headquarter Vice President of System Development Department Vice President of ODM Sales Division Vice President of Sales & Marketing Division Vice President of System Development Department Director of Purchasing Department Director of Sales & Marketing Division Director of Manufacturing Unit	Highest education Entrepreneur MBA Program, National Chengchi University Entrepreneur MBA Program, National Chengchi University Private Taipei Senior High School Master in Electrical Engineering, National Taiwan University Entrepreneur MBA Program, National Chengchi University Bachelors in Automation, Fen Chia University Bachelors of Science in Electrical Engineering, University of Toronto Master in Industrial Engineering, New Mexico State University Bachelors in Electronic, Southern Taiwan University of Technology National Taipei Institute of Technology MBA in Management of Information System, California State University, U.S.A. MS in Industrial Engineering and Management, Yuan Ze University	Significant experience before joining the Company
			— — — Via Technology, Inc. ASUS Computer, Inc. Acer, Inc. TAIPEIBANK Co., Ltd Arrow/Ally, Inc. Oak Technology, Inc. OPTI, Inc., Taiwan Branch LexiComp Inc., Tainan Motorola Information Systems (Canada) Giga-Byte Technology Co., Ltd Intel Co., Taiwan Branch Owens Classic Pacific Co. Pacific Wastech Inc. — Giga-Byte Technology Co., Ltd. TECO Information System Co., Ltd Lectron Co., Ltd Tailyn Communication Co., Ltd Uniwill Computer Co.

Compensation of Directors, Supervisor and Executive Officers

In 2002, the Company paid to its directors, supervisors, president and vice presidents approximately NT$17.3 million in aggregate cash remuneration.

Interests of Management in Certain Transactions

Several of the Company’s directors, supervisors and executive officers also serve as directors, supervisors or executive officers of companies with which the Company does business. These companies include Shuttle’s affiliates. The Company conducts these transactions on an arms-length basis. See Note 18 to the “Consolidated Financial Statements as of and for the years ended December 31, 2000, 2001 and 2002”.

Employees

Overview

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

						As of
			As of December 31,			March 31,
	2000		2001	2002		2003
Administrative ...............................................		52	26		28	29
Research and development .............................		44	44		74	92
Manufacturing................................................		216	125		166	181
Sales and marketing .......................................		25	24		40	31
Others............................................................		9	18		21	25
Total ..............................................................		346	237		329	358

As of March 31, 2002, all of the Company’s employees worked on a full-time basis. The average age of the employees is 31 years old. None of the Company’s employees is represented by collective bargaining organization, such as a union, or subject to any bargaining agreements.

As of March 31, 2003, all of the Company’s research and development personnel held a bachelor’s degree or higher educational qualification and approximately 84.8% of the Company’s senior to mid-ranking management and administration personnel held a bachelor’s degree or higher educational qualification. The Company places considerable importance on the recruitment, training and retention of qualified and experienced engineers to oversee and manage the Company’s manufacturing operations.

The Company’s employees in the ROC are not unionized and neither the Company nor any of its subsidiaries has experienced any significant labor disputes in the past five years.

Employee Remuneration

Employee salaries are reviewed annually. Salaries are adjusted based on industry standards, inflation, operation results and individual performance. As an incentive, additional bonuses in cash may be paid to employees at the discretion of management based on the performance of individuals. In addition, employees may also participate in annual profit distribution pursuant to the Articles.

The Articles provide that after the Company pay all taxes, recover any past losses and allocate legal reserve, at least 8% of the remaining portion of the surplus earnings shall be allocated to employees as employee bonuses in the form of cash or shares. In addition, the ROC laws require that employees be given preemptive rights to subscribe for between 10% to 15% of any rights issues or share offerings of the Company, except issuance in connection with exercises of employee stock options, exercises of warrants, conversion of bonds, mergers and spin-offs or by way of a private placement.

UNDERWRITING

Barits Securities (Hong Kong) Limited (the “ Lead Manager ”) will, pursuant to a Subscription Agreement to be dated on or about July 8, 2003 (the “ Subscription Agreement ”), agree with the Company to subscribe and purchase the Bonds at the issue price of 100% of their principal amount less the combined management and underwriting commission and selling fee.

The Company will agree in the Subscription Agreement to indemnify the Lead Manager with certain liabilities, including the liabilities under the Securities Act, in connection with the offering of the Bonds.

The Company has agreed in the Subscription Agreement that, for a period of 180 days from the date of the Subscription Agreement, neither it nor any person acting on its behalf will issue, offer, pledge, sell, contract to sell, grant any option to purchase or otherwise dispose of, any equity securities, or any securities convertible or exchangeable for equity securities, or any rights, warrants or options to subscribe for equity securities of the Company, or apply to the ROC SFC in connection with any of such offering or sale during such 180-day period, in any case outside of Taiwan or denominated in a currency other than NT Dollars, other than pursuant to employee benefit plans or employee stock option plans or distributions of dividends or employee bonuses in the form of Shares and conversion of the Bonds, or the issue of Shares to sponsor any DR facility, in any such case without the prior written consent of the Lead Manager, such consent may not be unreasonably withheld.

The Bondholders who purchase the Bonds from the Lead Manager may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the issue price of the Bonds.

Selling Restrictions

No action has been or will be taken in any jurisdiction that would permit a public offering of the Bonds or the Shares issuable upon conversion of the Bonds, or the possession, circulation or distribution of this Information Memorandum or any other material relating to the Company, the Bonds or the Shares issuable upon conversion of the Bonds, in any jurisdiction where action for the purpose is required. Accordingly, neither the Bonds nor any Shares issuable upon conversion of the Bonds may be offered or sold, directly or indirectly, and neither this Information Memorandum nor any other offering material or advertisements in connection with the Bonds or the Shares issuable upon conversion of the Bonds may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction.

United States

The Lead Manager has acknowledged and agreed that the Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the Securities Act, and may not (i) as part of their distribution at any time or (ii) prior to the 40th day after the closing of the offering of the Bonds be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S.

In addition, until 40 days after the closing of the offering of the Bonds, an offer or sale of the Bonds or the Shares to be issued upon conversion of the Bonds within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

United Kingdom

The 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 and will not offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offer of Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed onto any person in the United Kingdom any document received by it in connection with the issue of the Bonds, if that person is of a kind described in Articles 19, 47 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or is a person to whom such document may otherwise lawfully be issued or passed on.

The ROC

The Lead Manager has acknowledged and agreed that the Bonds may not be offered, sold or delivered in the ROC, as part of the distribution of the Bonds.

Hong Kong

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

Japan

The Bonds and Shares have not been and will not be registered under the Securities and Exchange Law of Japan. Accordingly, the Manager has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds or Shares in Japan or to, or for the benefit of, any resident of Japan, except that the Manager may offer and sell such Bonds or Shares pursuant to an exemption from the registration requirements of, and otherwise in compliance with the Securities and Exchange Law of Japan and other applicable laws and regulations of Japan. As used in this paragraph, “ resident of Japan ” means any person resides in Japan, including any corporation or other entity organized under the laws of Japan.

Singapore

The Lead Manager has acknowledged and agreed that this Information Memorandum has not been and will not be registered as a prospectus with the Monetary Authority of Singapore (the “ MAS ”) under the Securities and Futures Act 2001 (Act 42 of 2001) of Singapore (the “ Securities and Futures Act ”). Accordingly, the Manager has acknowledged and agreed that it has not offered or sold or made the subject of an invitation for subscription or purchase nor circulated or distributed this Information Memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the Bonds nor will it offer, sell or make the subject of an invitation for subscription or purchase or distribute this Information Memorandum or any other document or material in connection with the subscription or purchase of the Bonds whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person falling within Section 274 of the Securities and Futures Act, (ii) to a sophisticated investor (as defined in Section 275 of the Securities and Futures Act) and in accordance with the conditions specified in Section 275 of the Securities and Futures Act or (iii) pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.

LEGAL MATTERS

Certain legal matters with respect to the Bonds will be passed upon for the Company by Transpac International Law Offices, and for the Manager by Baker & McKenzie. Baker & McKenzie will rely upon Transpac International Law Offices with respect to certain matters of ROC law. Transpac International Law Offices will rely upon Baker & McKenzie with respect to certain matters of United States federal and New York laws.

INDEPENDENT AUDITORS

The consolidated financial statements of the Company, prepared in accordance with ROC GAAP as of December 31, 2000 and 2001 and for the three years ended December 31, 2000 and 2001 included in this Information Memorandum, have been audited by T N Soong & Co, an associate member firm of Deloitte Touche Tohmatsu, effective April 22, 2002 (formerly a member firm of Andersen Worldwide, SC), Taipei, Taiwan, the Republic of China, as stated in their audit reports appearing herein. TN Soong & Co. and Deloitte & Touche (Taiwan) established Deloitte & Touche effective June 1, 2003.

GENERAL INFORMATION

Registered Office and Principal Place of Business

The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 20980880. The Company’s registered office is located at NO. 30, Lane 76, Rei Kuang Rd., Nei-Hu Dist., Taipei City, ROC.

Company Confirmation

The Company, having made all reasonable inquiries, confirms that this Information Memorandum contains all information with respect to the Company, the Company and its subsidiaries as a whole, the Bonds, and the Shares which is material in the context of the issue and offering of the Bonds (including all information required by applicable laws of the ROC); that the information contained herein (save as set out below) is true and accurate in all material respects and is not misleading; that the opinions and intentions expressed herein are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions; that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this Information Memorandum as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects; that all reasonable inquiries have been made by the Company to verify the accuracy of such information; and that this Information Memorandum 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.

Authorizations

The offering of the Bonds was authorized and approved by the Company’s board of directors on May 29, 2003 and approved by the ROC SFC on June 20, 2003.

Listing

Application has not been and will not be made to list the Bonds on any stock exchange.

Documents Available

Copies of the following documents may be inspected and freely obtainable during normal business hours at the specified office of the Paying Agent in London:

a copy of the annual reports of the independent accountants, containing the audited consolidated and non-consolidated financial statements of the Company as at and for the years ended December 31, 2001 and 2002;
a copy of the reports of the independent accountants, containing the unaudited financial statements of the Company as at and for the periods ended March 31, 2002 and 2003;

the Subscription Agreement relating to the Bonds; and

the Indenture constituting the Bonds (which includes the form of the Global Certificate) and the Paying and Conversion Agency Agreement (which includes the Regulations concerning transfer of Bonds).

In addition, copies of this Information Memorandum and the most recent consolidated annual financial statements of the Company will be available during normal business hours at the specified office of the Paying Agent in London.

Paying, Conversion and Transfer Agents

The Company will at all times maintain paying, conversion and transfer agents having specified offices in London. The names of the initial agents and their specified offices are set out at the end of this Information Memorandum.

No Material Adverse Change

Except as disclosed herein, there has been no material adverse change in the financial position of the Company and its subsidiaries since December 31, 2002, the date of the latest audited consolidated financial statements contained herein.

Governing Law

The Subscription Agreement, the Paying and Conversion Agency Agreement and the Indenture in connection with the Offering are governed by the laws of the State of New York, the United States.

Clearance

The Bonds have been accepted for clearance by Euroclear and Clearstream, Luxembourg. Relevant clearance and settlement information for the Bonds is set forth below:

Common Code: 017226029 ISIN: XS0172260290

Litigation

Save as disclosed in the section entitled “Risk Factors” and “Business”, the Company is not involved in any legal or arbitration proceedings which may have, or have had in the past twelve months, a material adverse effect on the consolidated financial position of the Company and the Company’s subsidiaries, taken as a whole, and which are material in the context of the issue of the Bonds, nor is the Company aware that any such proceedings are pending or threatened. For detailed information, see “The Company — Legal Proceedings”.

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

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

ROC GAAP

U.S. GAAP

1. Consolidation

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

The consolidated financial statements should include the financial statements of the parent company and, as a general rule, all its subsidiaries. A Subsidiary is an enterprise (including those in non-corporate form) that is controlled through the ownership of more than 50% of the enterprise’s outstanding voting shares or other evidences of equity ownership.

U.S. GAAP

ROC GAAP

2. Investments in debt and equity securities

Short-term investments are stated at the lower of cost or market value. Long-term investments in debt securities are stated at the lower of amortized cost or market value. Long-term investments listed equity securities in respect of which the company does not exercise significant influence on operating and financial decisions of the investee are stated at the lower of cost or market value, and unrealized losses are deducted from stockholders’ equity. Investments in non-listed equity securities in respect of which the company does not exercise significant influence on operating and financial decisions of the investee common stock ownership are stated at cost, subject to a permanent impairment test.

Stock dividends are received as an increase in voting stock not as investment income.

Investment in marketable equity securities are classified in one of three categories: trading, held-to-maturity, or available-for-sale. Marketable equity securities classified as trading securities are reported at fair value with unrealized gains and losses included in earnings, debt securities classified as held-to-maturity securities are reported at amortized cost and debt and marketable equity securities classified as available-for-sale securities are reported at fair value with unrealized gains and losses reported in a separate component of stockholders’ equity.

Stock dividends received are recorded as investment income based on fair value of the stock.

3. Bonuses to employees, directors and supervisors

According to ROC regulations and the Articles of Incorporation of the Company, a portion of distributable earnings should be set aside as bonuses to employees, directors and supervisors. Bonuses to directors and supervisors are always paid in cash. However, bonuses to employees may be granted in cash or stock or both. All of these appropriations, including stock bonuses which are valued at par value, are charged against retained earnings under ROC GAAP, after such appropriations are formally approved by the shareholders in the following year.

All bonuses and remuneration are charged to current income in the year incurred. Stock issued as part of these bonuses is recorded at fair market value. Since the amount and form of such bonuses are not finally determinable until the shareholders’ meeting in the subsequent year, the total amount of the aforementioned bonuses is initially accrued based on management’s estimate regarding the amount to be paid based on the company’s Articles of Incorporation. Any difference between the initially accrued amount and the fair market value of the bonuses settled by the issuance of shares is recognized in the year by shareholders of approval.

4. Stock dividends

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

Stock dividends are recorded as a reduction to retained earnings based on the fair value of the stock issued and a like amount is recorded to the capital stock and capital surplus accounts.

U.S. GAAP

ROC GAAP

5. Capital surplus

The following items are treated as capital surplus:

a. Premium on issuance of common stock;
b. Gain, net of applicable income tax, on disposal of properties;

Items a. and c. are the same as under ROC GAAP; item b. is recorded as part of net income which is then included as a component of retained earnings and items d. and e. of the preceding column are not permitted.

c. Donated surplus;
d. Revaluation increment on properties; and
e. The value of the assets of a company acquired in a merger in excess of assumed liabilities and the consideration paid for the shares of such company in connection with the acquisition.

6. Accounting for pensions

ROC Statement of Financial Accounting Standards (SFAS) No. 18, “Accounting for Pensions”, is similar to US SFAS No. 87 and provides accounting regulations regarding an employer’s accounting for employee retirement plans, including pension of companies covered by the Labor Standards Law which require contribution of a percentage of wages and salaries costs to an independent fund. ROC SFAS No. 18 is effective for financial statements in the year ended December 31, 1995. In the year of adoption, certain additional disclosures are required related to pension-related assets and liabilities as determined pursuant to an actuarial valuation; however, net periodic pension cost is not calculated pursuant to an actuarial valuation until the year ended December 31, 1996. Prior to 1996, pension expense under ROC GAAP was generally calculated as a fixed percentage of total annual salaries and wages.

The annual pension provision is recognized in accordance with SFAS No. 87. US SFAS No. 87 is substantially similar to ROC SFAS No. 18. However, the unrecognized transitional asset/liability balance, representing the initial difference between the projected benefit obligation and the fair value of the plan assets upon initial adoption, would be different under US SFAS No. 87. Under SFAS No. 87, the difference will need to be split pro rata with a portion recorded in retained earnings while the remainder be amortized over the remaining service period.

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

ROC GAAP has no specific standards that address impairment of long-lived assets. Normally such assets would be carried at cost less accumulated depreciation.

US SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Ling-Lived Assets to Be Disposed of”, require that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In assessing recoverability, the entity estimates the future cash flows, undiscounted and without interest charges, expected to result from the use of the asset and its eventual disposal. If the sum of such expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized, otherwise, it is not.

US SFAS No. 121 also requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell.

U.S. GAAP

ROC GAAP

8. Derivative Financial Instrument transactions

Derivatives that do not qualify as hedges are not required to be recorded on the balance sheet at fair value. As such, significant assets or obligations, if represented by derivatives, will not be recognized for accounting purposes until the payments become due. Because the rules are flexible, different companies may apply different accounting practices to derivatives.

Derivative contracts which do not qualify as hedges are all recognized on the balance sheet at their fair values, the measurement of which takes account of all contractually committed future cash flows under the contract regardless of when they will be paid.

9. Deferred expenses

Deferred expenses include organization costs, issuance costs of bonds, testing costs of reinstallation of machinery and equipment. Deferred expenses are amortized by systematic charges to income over the periods estimated to be benefited.

All start-up costs must be expensed as incurred.

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. Retained earnings tax

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

The income tax expense related to the 10% retained earnings tax would be recorded in the statement of income in the year that the profits were earned based on management’s estimate of the amount of profits to be retained.

12. Deferred income tax

Under ROC SFAS No. 22 “Accounting for Income Taxes”, current liabilities are recognized for estimated taxes payable for the current period ROC GAAP requires that all temporary differences between the carrying values of assets and liabilities and their respective tax bases be recognized as deferred income tax liabilities or assets. A valuation allowance is provided on deferred income tax assets to the extent that it is not “more likely than not” such deferred income tax assets will be realized. A change in tax rate or law requires an adjustment to such deferred income tax assets and liabilities in the period of enactment, and is reported as a part of results of operations.

The requirements under US SFAS No. 109 “Accounting for Income Taxes” are similar to ROC SFAS No. 22. However, application of the “more likely than not”, criteria related to the recognition of a deferred income asset valuation allowance under ROC GAAP may be less stringent as compared to US GAAP.

U.S. GAAP

ROC GAAP

13. Compensated absences

ROC GAAP has no specific accounting practice regarding compensated absences.

Compensated absences must be accrued based on the liability for employees’ rights to receive compensation for future absences when the benefits can be accumulated or vested over the service period.

14. Earnings per share

Computation of earnings per share is based on the weighted average number of outstanding shares retroactively adjusted for stock dividends and new common stock issuance issued through unappropriated earnings and capital surplus. No consideration is required to be given to convertible securities with a less 3% dilutive effect.

Under US GAAP, when a simple capital structure exists, computation of basic earnings per share is based on the weighted average number of shares outstanding. When a complex capital structure exists, diluted earnings per share is based on the weighted average number of shares outstanding plus the number of additional shares that would have been outstanding if dilutive potential common shares had been issued, with appropriate adjustments to income or loss that would result from the assumed conversions of those potential common shares. The materiality of the dilutive effect is not considered. Basic and diluted earnings per share calculations are not retroactively adjusted for new common stock issued through unappropriated earnings and capital surplus.

15. Comprehensive income

There is no requirement to present comprehensive income.

Effective for the fiscal year following December 31, 1997, comprehensive income and its components (revenues, expenses, gain and losses) must be presented in a full set of financial statements. Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from investments by or distributions to owners, including certain items not included in the current results of operations.

16. Statement of cash flows

Under ROC GAAP, cash flows are generally reported at their net amount for the period. In addition, certain disclosures of non-cash investing and financing activities are not generally made, and certificates of time deposits with original maturities of greater than three months are classified as cash.

Under U.S. GAAP, cash flows are generally reported at their gross amounts, rather than netting inflows against outflows for related items (such as netting payment on long-term debt against proceeds from issuance of new long-term debt instruments.) In addition, separate disclosure is required of all investing and financing activities that do not result in cash flows. Certificates of time deposits with original maturity of over three months are classified as trading securities.

The information set forth above do not in any way attempt to quantify the effects of the aforementioned differences between ROC GAAP and US GAAP and the impact such differences would have on net income or shareholders’ equity under US GAAP.

INDEX TO FINANCIAL STATEMENTS

		Page
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-2
Consolidated Balance Sheets as of December 31, 2001 and 2002	. . . . . . . . . . . . . . . . . . . . .	F-4
Consolidated Statements of Income for the years ended
December 31, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-6
Consolidated Statements of Changes in Stockholders’ Equity
for the years ended December 31, 2001 and 2002 . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-10
Notes to Consolidated Financial Statements for the years ended
December 31, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-12
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-39
Non-Consolidated Balance Sheets as of March 31, 2002 and 2003	. . . . . . . . . . . . . . . . . . . .	F-40
Non-Consolidated Statements of Income for the
years ended March 31, 2002 and 2003 . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-42
Non-Consolidated Statements of Cash Flows for the
years ended March 31, 2002 and 2003 . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-44
Notes to Non-Consolidated Financial Statements for the
years ended March 31, 2002 and 2003 . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . .	F-46

These English financial statements expressed in thousands of New Taiwan Dollars were translated from the financial statements prepared originally in the Chinese language.

F-1

English Translation of a Report Originally Issued in Chinese

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Shuttle Inc.

We have audited the accompanying consolidated balance sheets of Shuttle Inc. (the Corporation) and subsidiaries as of December 31, 2001 and 2002 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended, all expressed in New Taiwan dollars. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Hong-Yi Investment Inc. (Hong-Yi) and Broptics Communication Corporation (Broptics) as of and for the years ended December 31, 2001 and 2002; the investments in which are reflected in the accompanying consolidated financial statements using the equity method of accounting. The carrying value of these equity-method investments in Hong-Yi and Broptics totaled NT$64,916 thousand and NT$83,892 thousand as of December 31, 2001 and 2002, respectively, and reflect total assets of 1.85% and 2.09% at December 31, 2001 and 2002, respectively, of the related consolidated totals. The investment loss in Hong-Yi and Broptics totaled NT$5,530 thousand and NT$16,639 thousand for the years ended December 31, 2001 and 2002, respectively, and reflect total income (loss) before income tax of (2.10%) and 4.58% in 2001 and 2002, respectively, of the related consolidated totals.

The financial statements of the equity-method investments in Hong-Yi and Broptics were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for those companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with Regulations for Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 consolidated financial statement presentation. We believe that our audits and the reports of other auditors referred to above, provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements of the Corporation and subsidiaries referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of the Corporation and subsidiaries as of December 31, 2001 and 2002, and the results of their operations, changes in equity and cash flows for the years then ended in conformity with Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally accepted in the Republic of China.

F-2

We have also reviewed the translations of New Taiwan dollar financial statements as of December 31, 2002 into U.S. dollars, which have been included solely for the reader’s convenience, on the basis stated in Note 3 to the financial statements and in our opinion, the U.S. dollars amounts have been properly translated on such basis. The convenience translations should not be construed as representations that the New Taiwan dollars amounts have been, could have been or could in the future be, converted into U.S. dollars at this or any other exchange rate.

T N Soong & Co An Associate Member Firm of Deloitte Touche Tohmatsu Effective April 22, 2002 (Formerly a Member Firm of Andersen Worldwide, SC) Taipei, Taiwan The Republic of China March 12, 2003

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

F-3

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2002

(In Thousands of Dollars, Except Number of Shares and Par Value)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 Amount % $721,421 21 77,087 2 589 — 468,322 14 203 — 565,767 16 50,069 2 51,876 1 94,495 2 2,029,829 58 250,945 7 400,073 11 354,677 11 242,835 7 13,323 — 21,144 1 16,730 — 1,048,782 30 141,546 4 907,236 26 279,814 8 38,488 1 318,302 9	2002 Amount % $851,417 21 159,899 4 5,766 — 582,402 14 533 — 774,310 19 62,718 2 29,872 1 69,806 2 2,536,723 63 264,370 7 401,963 10 407,595 10 247,773 6 12,648 — 22,721 1 16,702 1 1,109,402 28 194,432 5 914,970 23 231,299 6 62,363 1 293,662 7	2002
		Amount
		$24,501 4,601 166 16,760 15 22,282 1,805 860 2,009
		72,999
		7,608
		11,567 11,730 7,130 364 654 480
		31,925 5,595
		26,330
		6,656 1,795
		8,451
$3,506,312 100	$4,009,725 100	$115,388

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

(Forward)

F-4

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS — (Continued) December 31, 2001 and 2002

(In Thousands of Dollars, Except Number of Shares and Par Value)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 Amount % $8,657 — 62,989 2 930,922 27 — — 42,868 1 25,662 1 15,681 — 1,086,779 31 431,405 12 24,801 1 8 — 1,542,993 44 1,368,500 39 835,018 24 — — 133 — — — 835,151 24 58,663 2 (196,035) (6) (137,372) (4) — — 15,333 — (118,293) (3) 1,963,319 56	2002 Amount % $150,000 3 217,084 5 1,051,486 26 70,859 2 66,705 2 38,723 1 30,952 1 1,625,809 40 — — 26,434 1 8 — 1,652,251 41 1,368,500 34 835,018 21 15,450 — — — 1,540 — 852,008 21 — — 150,709 4 150,709 4 (24,370) — 10,627 — — — 2,357,474 59	2002
		Amount
		$4,317 6,247 30,259 2,039 1,919 1,114 891
		46,786
		—
		761 —
		47,547
		39,381
		24,029 445 — 44
		24,518
		— 4,337
		4,337
		(701)
		306
		—
		67,841
$3,506,312 100	$4,009,725 100	$115,388

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

F-5

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2001 and 2002

(In Thousands of Dollars, Except Number of Shares and Net Income Per Share)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 Amount % $4,177,883 99 36,254 1 4,141,629 98 63,858 2 4,205,487 100 4,088,636 97 116,851 3 199,372 5 185,145 4 52,062 1 436,579 10 (319,728) (7) 27,660 1 19,146 — 16,432 — 19,191 — 27,448 1 109,877 2 — — 39,686 1 5,530 — 9,011 — 54,227 1 (264,078) (6) (68,043) (1)	2002 Amount % $5,392,530 100 135,754 3 5,256,776 97 135,558 3 5,392,334 100 4,456,167 83 936,167 17 334,714 6 124,828 3 60,214 1 519,756 10 416,411 7 17,843 — 16,870 — 9,318 — 6,400 — 19,464 1 69,895 1 76,920 1 20,393 1 16,639 — 9,422 — 123,374 2 362,932 6 74,984 1	2002
		Amount
		$155,181 3,907
		151,274 3,901
		155,175 128,235
		26,940
		9,632 3,592 1,733
		14,957
		11,983
		514 485 268 184 560
		2,011
		2,213 587 479 271
		3,550
		10,444 2,158
$(196,035) (5)	$287,948 5	$8,286

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

(Forward)

F-6

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — (Continued) For the Years Ended December 31, 2001 and 2002

(In Thousands of Dollars, Except Number of Shares and Net Income Per Share)

2001 NT$ Loss Before Income Tax Expense Net Loss $(2.06) $(1.53)	2002	2002	2002
	NT$ Income Before Income Tax Expense Net Income $2.70 $2.14	US$ (Note 3)
Loss Before Income Tax Expense $(2.06)	Income Before Income Tax Expense $2.70	Income Before Income Tax Expense $0.08	Net Income
			$0.06

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

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									TOTAL	STOCKHOLDERS’	EQUITY	$2,176,202		—		(21,820)			4,972	(196,035)	1,963,319		—		—			1,540	133,743			(24,370)			(4,706)	287,948	$2,357,474
						TREASURY	STOCK	(COMMON	STOCK)	(Notes 2	and 14)	$(96,473)		—		(21,820)			—	—	(118,293)		—		—			—	118,293			—			—	—	$—
English Translation of Financial Statements Originally Issued in Chinese	SHUTTLE INC. AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	For the Years Ended December 31, 2001 and 2002	(In Thousands of New Taiwan Dollars)	CAPITAL SURPLUS (Notes 2, 13 and 14)	CAPITAL STOCK Gain on Equity in Capital RETAINED EARNINGS (DEFICIT) (Notes 2, 13 and 15) UNREALIZED LOSS ON		Paid-in Disposal of Surplus of INVESTMENTS CUMULATIVE Issued Unappro-	Capital in Treasury Property, Equity- IN SHARES TRANSLATION priated	Excess of Stock Plant and Accounted OF STOCK ADJUSTMENTS Legal Earnings Shares	Par Value Transactions Equipment Investees Total (Notes 2 and 8) (Note 2) Reserve (Deficit) Total (Thousands) Amount	136,850 $1,368,500 $835,018 $— $133 $— $835,151 $67,387 $(8,724) $58,663 $— $10,361		— — — — — — — (8,724) 8,724 — — —		— — — — — — — — — — — —			— — — — — — — — — — — 4,972	— — — — — — — — (196,035) (196,035) — —	136,850 1,368,500 835,018 — 133 — 835,151 58,663 (196,035) (137,372) — 15,333		— — — — — — — (58,663) 58,663 — — —		— — — — (133) — (133) — 133 133 — —			— — — — — 1,540 1,540 — — — — —	— — — 15,450 — — 15,450 — — — — —			— — — — — — — — — — (24,370) —			— — — — — — — — — — — (4,706)	— — — — — — — — 287,948 287,948 — —	136,850 $1,368,500 $835,018 $15,450 $— $1,540 $852,008 $— $150,709 $150,709 $(24,370) $10,627	The accompanying notes are an integral part of the consolidated financial statements.	(With T N Soong & Co report dated March 12, 2003)
												BALANCE, JANUARY 1, 2001......	Equity in the offsetting of legal	reserve and deficit ...................	Acquisitions of treasury stocks -	2,210 thousand shares ...............	Translation adjustment on foreign-	currency long-term investments	in shares of stock .....................	Net loss in 2001 .............................	BALANCE, DECEMBER 31, 2001 .	Equity in offsetting of legal	reserve and deficit ...................	Reversal of gain on disposal of	property, plant and equipment ..	Equity in the changes in capital	surplus reported by equity	accounted investees .................	Treasury stock sold to employees ..	Equity in the unrealized loss on	long-term investments in listed	stocks .......................................	Translation adjustment on foreign-	currency long-term investments	in shares of stock .....................	Net income in 2002 ........................	BALANCE, DECEMBER 31, 2002 .

F-8

									TOTAL	STOCKHOLDERS’	EQUITY	$56,175	323		—		—			44	3,849			(701)			(135)	8,286	$67,841
						TREASURY	STOCK	(COMMON	STOCK)	(Notes 2	and 14)	$(3,385)	(19)		—		—			—	3,404			—			—	—	$—
SHUTTLE INC. AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY — (Continued)	For the Years Ended December 31, 2001 and 2002	(In Thousands of New Taiwan Dollars)	CAPITAL SURPLUS (Notes 2, 13 and 14)	RETAINED EARNINGS (DEFICIT)	CAPITAL STOCK Equity in (Notes 2, 13 and 15) UNREALIZED	Gain on Capital LOSS ON	Paid-in Disposal of Surplus of INVESTMENTS CUMULATIVE Issued Unappro-	Capital in Treasury Property, Equity- IN SHARES TRANSLATION priated	Excess of Stock Plant and Accounted OF STOCK ADJUSTMENTS Legal Earnings Shares	Par Value Transactions Equipment Investees Total (Notes 2 and 8) (Note 2) Reserve (Deficit) Total (Thousands) Amount	136,850 $39,156 $23,892 $— $4 $— $23,896 $1,678 $(5,609) $(3,931) $— $439	— 225 137 — — — 137 10 (32) (22) — 2		— — — — — — — (1,688) 1,688 — — —		— — — — (4) — (4) — 4 4 — —			— — — — — 44 44 — — — — —	— — — 445 — — 445 — — — — —			— — — — — — — — — — (701) —			— — — — — — — — — — — (135)	— — — — — — — — 8,286 8,286 — —	136,850 $39,381 $24,029 $445 $— $44 $24,518 $— $4,337 $4,337 $(701) $306	The accompanying notes are an integral part of the consolidated financial statements.	(With T N Soong & Co report dated March 12, 2003)
												BALANCE, JANUARY 31, 2002 ....	Translation adjustment (Note 3)......	Equity in offsetting of legal	reserve and deficit ...................	Reversal of gain on disposal of	property, plant and equipment ..	Equity in the changes in capital	surplus reported by equity	accounted investees .................	Treasury stock sold to employees ..	Equity in the unrealized loss on	long-term investments in	listed stocks..............................	Translation adjustment on foreign-	currency long-term investments	in shares of stock .....................	Net income in 2002 ........................	BALANCE, DECEMBER 31, 2002 .

F-9

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 and 2002 (In Thousands of New Taiwan Dollars and U.S. Dollars)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $(196,035) (19,191) 66,845 (7,439) — 5,530 63,024 (64,902) 3,420 135,523 44,452 2,699 (39,368) (22,920) (7,097) (169,260) 549,712 (6,511) — (6,089) (13,123) 319,270 (59,247) (37,545) (36,072) — (6,170) — 983 (138,051)	2002 $287,948 (6,092) 54,729 76,920 5,008 16,639 25,524 (2,637) 3,954 (5,177) (134,708) (330) (159,190) (12,498) 37,829 154,095 136,328 — 70,859 23,548 15,286 588,035 (160,550) (4,016) (82,634) 29,910 (14,025) 205 (1,737) (232,847)	2002
		$8,286 (175) 1,576 2,213 144 479 735 (76) 114 (149) (3,877) (10) (4,581) (360) 1,089 4,434 3,923 — 2,039 678 440
		16,922
		(4,620) (116) (2,378) 861 (403) 6 (50)
		(6,700)

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

(Forward)

F-10

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) For the Years Ended December 31, 2001 and 2002 (In Thousands of New Taiwan Dollars and U.S. Dollars)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $6,378 (137,742) (21,820) 4,288 — (148,896) (2,785) 29,538 691,883	2002 $141,343 (418,091) — (2,829) 133,743 (145,834) (79,358) 129,996 721,421	2002
		$4,067 (12,031) — (81) 3,848
		(4,197)
		(2,284)
		3,741 20,760
$721,421 $40,306 $2,409 $— $211,144 $25,662	$851,417 $21,505 $6,762 $45,652 $— $38,723	$24,501
		$619
		$195
		$1,314
		$—
		$1,114

The accompanying notes are an integral part of the consolidated financial statements. (With T N Soong & Co report dated March 12, 2003)

F-11

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2002 (Amounts are Expressed in Thousands of New Taiwan Dollars and U.S. Dollars, Except as Otherwise Stated)

1. GENERAL

The Corporation was incorporated in June 1983 in the Republic of China (ROC). The shares of stock of the Corporation are traded on the Taiwan Stock Exchange.

The Corporation manufactures and markets motherboards, barebones, memory cards and other equipment for computers.

The Corporation has the following majority owned subsidiaries:

==> picture [315 x 158] intentionally omitted <==

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

Shuttle Inc.
99%
100% 100%
Hong-Yi
Gold Fountain
Holco (BVI) Inc. Investment Inc.
Limited
(Hong-Yi)
99.99% 100% 100%
100%
Shuttle Computer Shuttle Computer Shuttle Computer Shuttle Computer
(H.K.) Co., Ltd. International Inc. Group Inc. Handels GmbH
(H.C.K.) (S.C.I.) (S.C.G.) (S.C.H.)
----- End of picture text -----

Holco (BVI) Inc., Gold Fountain Limited and Hong-Yi Investment Inc. are engaged in the investment in equity securities. H.C.K., S.C.I., S.C.G. and S.C.H. market motherboards, barebones, memory cards and other equipment for computers.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Corporation and subsidiaries (hereinafter referred to as the “Group”), which conform to Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally accepted in the ROC, are summarized below.

Basis of consolidated financial statements

The consolidated financial statements include the accounts of the Corporation and majority owned subsidiaries (both directly and indirectly owned) from the date of their acquisitions except for majority owned subsidiaries whose individual total assets or total operating revenues were less that 10% of the non-consolidated total assets and operating revenues of the Corporation. Significant transactions between companies included in the consolidation are eliminated. Negative Goodwill is the difference between the acquisition cost of the investments and the Group’s proportionate equity in the fair value of the net assets of the investee companies, and is amortized over five years.

The consolidated financial statements included the accounts of the Corporation, Holco (BVI) Inc., Gold Fountain Limited, H.C.K., S.C.I., S.C.G. and S.C.H.

The accounts of Hong-Yi Investment Inc. as of and for the year ended December 31, 2001 and 2002, were excluded from the consolidated financial statements, as its individual total assets and total operating revenues were less than 10% of the Corporation.

Cash equivalents

Repurchase agreements for securities that mature within three months from the date of purchase.

F-12

Short-term investments

These investments are carried at the lower of aggregate cost or market value. An allowance for losses is recognized when the aggregate carrying value of the investments exceeds the total market value of the portfolio with the related provision for losses charged to income in the current year. Any recovery in the market value (to the extent of the original carrying value) is recognized as income in the year that the recovery occurred. Costs of investments sold are determined using the weighted-average method.

Allowances for doubtful receivable

Allowances for doubtful notes and accounts receivable are provided based on a review of the collectibility of individual notes and accounts receivables.

Inventories

Inventories are stated at the lower cost (weighted average) or market (net realizable value or replacement cost).

Long-term investments

The long-term investments in shares of stock of the following are accounted for using the equity method: (a) those where the equity interests of the Group represent more than 20% but less than 50% of their outstanding common shares, (b) those where the Group’s equity interest is less than 20% of their outstanding capital stock but where the Group exercises significant influence in their financial and operating policy decisions, and (c) majority owned subsidiaries not included in consolidation. Under the equity method, the Group’s investment is initially stated at cost and subsequently adjusted for the proportionate share of the Group in the net income or net loss of the investee companies. Any cash dividends received from such investee companies are accounted for as a reduction in the carrying value of the related investments.

The differences between the acquisition cost of the investments and the Group’s proportionate equity in the fair value of the net assets of the investee companies, at the time the investments are acquired or when the equity method is initially adopted, are amortized over five years.

The increase in the Group’s proportionate share in the net assets of its investee company resulting from its subscription to additional shares of such investee company’s capital stock, issued by such investee company, at a rate not proportionate to its existing equity ownership in such investee company, is credited to a capital surplus account. Any decrease in the Group’s proportionate share in the net assets of the investee company resulting from such transactions is first debited against the existing balance of the capital surplus account arising from similar transactions with any excess debited against unappropriated retained earnings.

Other long-term investments in shares of stock with quoted market prices are accounted for using the cost method. An allowance for decline in market value of shares is recognized when the cost of the investment exceeds the market value with the corresponding amount debited to stockholders’ equity. Any recovery is credited to stockholders’ equity to the extent that the amount of the decline exceeds the amounts previously debited to such account. An other than temporary decline in market value of shares is recognized in the current period. The carrying values of long-term investments in shares of stock with no quoted market prices are reduced to recognize an other than temporary decline in their values with the related provision for losses recognized in income. Cash dividends are recorded as income.

Stock dividends received are recorded only as increases in the number of shares held and not as investment income. The investment carrying value per share is recalculated on the basis of the increased number of shares.

Costs of investments sold are determined using the weighted-average method.

Property, plant and equipment, properties leased to others

These assets are carried at cost or cost less accumulated depreciation. Major betterments or renewals are capitalized, while maintenance and repairs are charged to the current period.

The initial estimate of the service lives in years of property, plant and equipment is as follows: buildings, 5 to 60; machinery and equipment, 2 to 6; transportation equipment, 5; office equipment, 3 to 5; and other equipment 2 to 10. Under the straight-line method of depreciation, the foregoing service lives plus one year to represent the estimated salvage value are used to depreciate the cost of the assets using the straight-line method. Under the double-decliningbalance depreciation, salvage value is not used in the computations; however, it is generally recognized that depreciation should not continue once the book value is equal to the salvage value. The salvage value of the property, plant and equipment still in service at the end of their initially estimated service lives is further depreciated using the best estimate of their remaining service lives.

Upon retirement or disposal of the assets, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income.

F-13

Deferred income

The entire gains arising from sales of products and investments in shares of stock to majority owned subsidiaries by the Group are deferred (shown as deferred income) until the gains are realized through the subsequent sale of the related products and investments in shares of stock to unrelated parties. Also, the equity of the Group on the gains on the sales of products by the majority owned subsidiaries to the Group is not recognized by the Group until such gains are realized also through the subsequent sale of the related products to unrelated parties.

Pension plan

Pension costs are recognized based on actuarial calculations. Unrecognized net transition obligations are amortized over 15 years.

The Corporation’s subsidiaries do not currently have pension plans for employees.

Treasury stock

Reacquisition of issued stock is accounted for by the cost method. Under this method, treasury stock is shown at the cost for acquiring the shares. This cost is shown as a deduction to arrive at stockholders’ equity. If treasury stock is sold, any difference between the selling price and the reacquisition price is credit (debited) to capital surplus from treasury stock transactions. If the balance of capital surplus from treasury stock transactions is not enough for debiting purposes, the remainder is recorded as a reduction of retained earnings.

Revenue recognition

Sales are recognized when titles of products and risks of ownerships are transferred to customers, primarily upon shipment.

Sales returns and allowances

Allowance and related provisions for sales returns and allowances are estimated on the basis of historical experience. The provisions are deducted from sales in the year the products are sold and the related costs are deducted from cost of sales.

Income tax

The Group adopts the inter-period tax allocation method. Deferred tax assets are recognized for the tax effects of deductible temporary differences and unused operating loss carryforwards and deferred tax liabilities are recognized for the tax effects of taxable temporary differences. A valuation allowance is provided for deferred income tax assets that it will not be realized. Deferred tax assets or liabilities are classified as current or noncurrent on the basis of the classification of related assets or liabilities for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to net loss carryforwards, are classified based on the expected reversal date of the temporary difference.

The tax credits on investments for certain machinery and other equipment, research and development expenses and personnel training expenses are accounted for as a reduction in current year’s income tax expense.

Adjustments to prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Income taxes of 10% on undistributed earnings of Taiwan Entities generated starting January 1, 1998 are recorded as expenses in the year the stockholders have resolved that the earnings shall be retained.

Foreign-currency transactions

The Group maintains its accounts and prepares its financial statements in New Taiwan dollars. The transactions of the Group (except forward exchange contracts) that are denominated in currencies other than the New Taiwan dollars (the “foreign currency”) are recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. The increases or decreases in the expected New Taiwan dollar cash flows of the foreign currency assets and/or liabilities arising from the change in the exchange rates between the New Taiwan dollar and the foreign currency are recognized as gains and losses in the period in which the exchange rate changes. In addition, the gains or losses (measured from transaction date or the most recent intervening balance sheet date, whichever is later) realized upon the settlement of a foreign currency transaction are included in the period in which the transaction is settled.

The year-end balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates, and the resulting differences are recorded as follows:

a. Investments in shares of stock accounted for using the equity method - as foreign exchange translation adjustment under stockholders’ equity.

F-14

b. Other assets and liabilities - credited or charged to income.

The financial statements of the Corporation’s subsidiaries overseas have been converted and stated in New Taiwan dollars for consolidation. Balance sheet accounts are converted at the exchange rate of the balances sheet date and those in the income statement are converted at the average exchange rate of the year. Differences from the convention of exchanges are recorded as cumulative translation adjustments as a component of equity.

Forward exchange contract

The foreign currency amounts of forward exchange contracts that are entered into as hedges for existing liabilities or assets are recorded in New Taiwan dollars as receivables and/or payables using the spot rates on the inception dates of the contracts. The premium or discount, computed using the foreign currency amount of the contract multiplied by the difference between the contracted forward rate and the spot rate at the inception date of the contract, is also recognized. The premiums or discounts are amortized using the straight-line method over the term of the contract with the amortization charged to income. On the balance sheet dates, the gains or losses on the contracts, computed by multiplying the foreign currency amount of the contracts by the difference between the spot rates at the balance sheet dates and the spot rates at the inception dates (or the spot rates last used to measure a gain or loss on that contract for an earlier period), are charged to income.

Foreign currency options

Premiums paid or received for the call or put options bought for hedging purposes are recorded as assets or liabilities. Any resulting gain or loss upon settlements is credited or charged to income in the period of settlement.

Currency swap contracts

Foreign-currency spot-position assets or liabilities arising from currency swap contracts, which are used mainly to accommodate customers’ needs or to manage the Bank’s own currency positions, are recorded at spot rates when the transactions occur, while the corresponding forward-position assets or liabilities are recorded at the contracted forward rates. The difference between the contract date rate and the contracted forward rate is amortized using the straight-line method over the term of the contract and recorded as interest income or expense. As of balance sheet date, the receivables arising from outstanding contracts are netted against the related payables.

3. TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS

The Corporation maintains its accounts and expresses its financial statements in New Taiwan dollars. The translations of the New Taiwan dollars into U.S. dollars are included solely for the convenience of the reader, using the exchange rate on December 31, 2002 as published by Bank of Taiwan, which was NT$34.75 to US$1.00. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other exchange rate.

F-15

4. SIGNIFICANT ELIMINATING ENTRIES

Company	Account	Amount (New Taiwan Dollars) Debit (Credit)	Transaction Entity
2001 The Corporation ................... S.C.I. .................................... S.C.G. ................................... S.C.H. ................................... 2002	Sales Sales Sales Cost of sales Receivables from related parties Receivables from related parties Receivables from related parties Sales Cost of sales Cost of sales Cost of sales Payables to related parties Sales Sales Sales Cost of sales Cost of sales Cost of sales Inventories Receivables from related parties Payables to related parties Payables to related parties Sales Sales Cost of sales Cost of sales Inventories Receivables from related parties Payables to related parties Payables to related parties	$1,375,381 870,564 164,172 (17,369) (6,395) (328,527) (501,628) 14,770 (164,172) (6,899) (513) 6,395 5,884 6,899 17,369 (850,292) (13,756) (14,770) (20,272) (6,112) 328,527 9,908 513 13,756 (1,351,737) (5,884) (23,644) (9,908) 501,628 6,112	S.C.H. S.C.G. S.C.I. S.C.G. S.C.I. S.C.G. S.C.H. S.C.G. Shuttle Inc. S.C.G. S.C.H. Shuttle Inc. S.C.H. S.C.I. Shuttle Inc. Shuttle Inc. S.C.H. S.C.I. Shuttle Inc. S.C.H. Shuttle Inc. S.C.H. S.C.I. S.C.G. Shuttle Inc. S.C.G. Shuttle Inc. S.C.G. Shuttle Inc. S.C.G.
The Corporation ................... S.C.I. .................................... S.C.G. ................................... S.C.H. ...................................	Sales Sales Receivables from related parties Receivables from related parties Receivables from related parties Payables to related parties Sales Cost of sales Inventories Payables to related parties Cost of sales Cost of sales Inventories Payables to related parties	$1,504,471 826,840 (2,188) (367,038) (547,335) 2,188 1,640 (802,762) (24,078) 367,038 (1,469,560) (1,640) (34,911) 547,335	S.C.H. S.C.G. S.C.I. S.C.G. S.C.H. Shuttle Inc. S.C.H. Shuttle Inc. Shuttle Inc. Shuttle Inc. Shuttle Inc. S.C.G. Shuttle Inc. Shuttle Inc.

F-16

5. CASH AND CASH EQUIVALENTS

Cash Cash on hand ........................................................................ Checking and demand deposits ............................................. Time deposits - interest of 1.06% to 3.60% yield in 2001 and 0.90% to 1.38% yield in 2002 ....................... Cash equivalents Repurchase agreements ........................................................	New Taiwan Dollars 2001 2002 $222 $192 213,463 433,798 507,736 382,647 721,421 816,637 — 34,780 $721,421 $851,417	U.S. Dollars (Note 3)
	2001 $222 213,463 507,736 721,421 — $721,421	2002
		$6 12,483 11,011
		23,500 1,001
		$24,501

6. SHORT-TERM INVESTMENTS - NET

This account consists of:

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $8,738 — 8,738 69,900 — — 69,900 — 78,638 1,551	2002 $8,688 11,100 19,788 69,500 69,450 70,000 208,950 10,000 238,738 78,839	2002
		$250 319
		569
		2,000 1,999 2,014
		6,013
		288
		6,870 2,269
$77,087	$159,899	$4,601

F-17

7. INVENTORIES - NET

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $149,112 395,575 23,521 17,028 585,236 19,469	2002 $190,835 499,847 66,485 31,717 788,884 14,574	2002
		$5,491 14,384 1,913 913
		22,701 419
$565,767	$774,310	$22,282

Insurance coverage on inventories as of December 31, 2002 amounted to NT$641,618 (US$18,464).

8. LONG-TERM INVESTMENTS - NET

New Taiwan Dollars	New Taiwan Dollars	U.S Dollars
2001 Carrying Value % of Owner- Ship $46,470 99.00 18,446 25.00 64,916 28,500 0.10 38,500 0.39 59,614 5.57 126,614 34,950 3.68 24,465 1.03 59,415 186,029 — 186,029	2002 Carrying Value % of Owner- Ship $65,292 99.00 18,600 19.00 83,892 77,059 0.19 38,500 0.39 30,214 2.78 145,773 34,750 3.70 24,325 1.03 59,075 204,848 24,370 180,478	2002
Carrying Value $46,470 18,446 64,916 28,500 38,500 59,614 126,614 34,950 24,465 59,415 186,029 — 186,029	Carrying Value $65,292 18,600 83,892 77,059 38,500 30,214 145,773 34,750 24,325 59,075 204,848 24,370 180,478	Carrying Value
		$1,879 535
		2,414
		2,218 1,108 869
		4,195
		1,000 700
		1,700
		5,895 701
		5,194
$250,945	$264,370	$7,608

The carrying values of the equity-accounted investments are based on audited financial statements.

Broptics Communication Corporation issued shares of common stock in March 2002 and the Corporation did not acquire its proportionate share of the equity offering, resulting in the Company’s ownership percentage being reduced from 25% to 19%. However, the Corporation still can exercise significant influence over Broptics, and as such will continue to account for the investment by the equity method.

F-18

The related market value and net asset value of long-term investments in shares of stock accounted for by the cost method are as follows:

Market value with quoted value................................................. Net asset value with no quoted value ........................................	New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
	2001	2002	2002
	$51,817 46,000	$52,689 34,604	$1,516 996

The rights of subsidiaries’ investments in preferred stock of Tera Fiberoptics Inc. and Kinan Inc. are summarized as follows: Subject to the right of preferred stock that may from time to time come into existence, the holders of preferred stock shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefore, cash dividends at the rate of eight percent (8%) of the original issue price (as defined below) per annum on each outstanding share of preferred stock (as adjusted for any stock dividends, combinations, splits recapitalizations and the like with respect to such shares). The original issue price of the preferred stock shall be two U.S. Dollars. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative.

Any shares of preferred stock may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of common stock.

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of preferred stock shall be entitled to be paid out of the assets of the Company an amount per share of preferred stock equal to the original issue price plus all declared and unpaid dividends on such shares of preferred stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of preferred stock held by them.

9. PROPERTY, PLANT AND EQUIPMENT

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $12,554 98,646 8,588 12,820 8,938	2002 $29,288 133,092 6,356 16,158 9,538	2002
		$843 3,830 183 465 274
$141,546	$194,432	$5,595

Depreciation on properties utilized in the Company’s operations and properties leased to others amounted to NT$52,899 in 2001 and NT$51,712 (US$1,488) in 2002.

10. PROPERTY HELD FOR RENT AND LEASED TO OTHERS - NET

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $140,205 155,546 1,038 296,789 16,479 496 16,975	2002 $140,069 101,402 1,032 242,503 10,702 502 11,204	2002
		$4,031 2,918 30
		6,979
		308 15
		323
$279,814	$231,299	$6,656

F-19

11. SHORT-TERM BANK LOANS

Unsecured loans. These bear interest at a rate of 3.3% in 2001 and rates ranging from 1.875% to 2.100% in 2002. ............... Secured loans. This bear interest at a rate of 2.1% in 2002. ......	New Taiwan Dollars 2001 2002 $8,657 $110,000 — 40,000 $8,657 $150,000	U.S. Dollars (Note 3)
	2001 $8,657 — $8,657	2002
		$3,166 1,151
		$4,317

The Company had unused credit lines that were available for short-term bank loans amounting to NT$766,238 (US$22,050) as of December 31, 2002.

12. LONG-TERM BANK LOAN

The bank secured loans which were expected to pay off periodical from July 1998 till September 2020 were reimbursed early in February 2003. The loans bore interest at rates ranging from 5.125% to 6.475% and at 4.625% as of December 31, 2001 and 2002, respectively.

The assets having been pledged or mortgaged as collaterals for long-term bank loans are disclosed in Note 19.

13. STOCKHOLDERS’ EQUITY

Under the regulations, capital surplus arising from investments in shares of stock accounted for using the equity method cannot be used for any purpose while the other capital surplus items can be used to offset a deficit. Furthermore, additional capital surplus (subject to specified limits) can also be declared as stock dividends.

The Corporation’s Articles of Incorporation provide that a portion of the annual net income, less any deficit and 10% legal reserve, together with the cumulative unappropriated earnings of prior years, can be retained based on operating requirements and the remainder shall be distributed as follows:

a. At least 8% as employees’ bonus.
b. The remaining earnings may then be distributed as either stock dividends or cash dividends. Cash dividend shall be between 0% to 50% of total dividends paid or distributed.

The foregoing appropriations are approved by the stockholders in the following year and given effect to in the financial statements of that year. The dividend policy of the Corporation takes into account future capital expenditure outlays and the cash requirements. In this regard, a portion of the earnings may be retained to finance such capital expenditures.

The ROC Corporation Law requires that legal reserve be set aside until the accumulated legal reserve equals the aggregate par value of the Corporation’s outstanding capital stock. The Corporation is also permitted to make earnings distributions by capitalizing reserve. However, the portion capitalized out of legal reserve is limited to 50% of the total accumulated legal reserve and the capitalization can only be effected when the accumulated legal reserve exceeds 50% of the aggregate par value of the Corporation’s outstanding capital stock. The legal reserve can also be offset against deficit.

In May 2002, the board of stockholders of the Corporation approved no appropriation or distributions of any bonus to employees and directors of the cumulative deficit of the Corporation.

F-20

The appropriations and distributions of the 2002 earnings of the Corporation have not been approved by the board of directors and stockholders on the issuance date of the independent auditors’ report. Related information can be accessed through the Market Observation Post System on the Web site of the Taiwan Stock Exchange.

Under the Income Tax Law, individual ROC resident stockholders are entitled to income tax credit upon the distribution of dividends arising from earnings generated starting January 1, 1998. The income tax credit is based on an income tax credit ratio that is determined on the date of dividend distribution.

14. TREASURY STOCK (COMMON STOCK)

Reason of Repurchase 2001	Reason of Repurchase 2001	Number of Thousand Shares	Changes in Current Fiscal Year	Changes in Current Fiscal Year	Number of Thousand
	on of Repurchase	(Beginning of Year)	Increase	Decrease	Shares (End of Year)
2001
For possible transfer to employees ................. 2002		6,733	2,210	—	8,943

For possible transfer to employees .................		8,943	—	8,943	—

In compliance with the Securities and Exchange Law, the maximum number of treasury stock purchased should not exceed 10% of the total outstanding shares and the aggregate purchase cost should not be in excess of the total of the balances of the retained earnings, additional paid-in capital in excess of par value, capital surplus arising from gain on disposal of property, plant and equipment and capital surplus arising from donations received. The Corporation cannot pledge the treasury stock and it cannot exercise the rights of stockholders in respect to those stocks.

The Corporation sold 8,943 thousands shares of treasury stock to employees by NT$15 dollars per share in March 2002. The acquisition amount $133,743, net of securities transaction tax, is deducted from book value of treasury stock NT$118,293, and the balance is reported as capital surplus.

15. INCOME TAX

Income tax expense consists of the following:

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $27 (64,902) (3,168)	2002 $77,621 (2,637) —	2002
		$2,234 (76 —
$(68,043)	$74,984	$2,158

F-21

Current and non-current net deferred income tax assets comprised of the following:

Deferred income tax assets - current Investment tax credit............................................................. Deferred income.................................................................... Allowance for doubtful accounts ........................................... Loss carryforwards ................................................................ Allowance for loss on inventories ......................................... Unrealized foreign exchange gain.......................................... Deferred income tax assets - noncurrent Loss carryforwards ................................................................ Accrued pension costs .......................................................... Cumulative equity in net loss of investee companies ............ Others ................................................................................... Net, shown as part of other assets .............................................	New Taiwan Dollars 2001 2002 $19,451 $— 10,979 14,747 10,253 12,113 9,754 2,593 2,754 1,154 (1,315) (735) $51,876 $29,872 $30,374 $30,200 4,965 5,954 — 23,639 57 56 $35,396 $59,849	U.S. Dollars (Note 3)
	2001 $19,451 10,979 10,253 9,754 2,754 (1,315) $51,876 $30,374 4,965 — 57 $35,396	2002
		$— 424 349 75 33 (21)
		$860
		$869 171 680 2
		$1,722

As of December 31, 2002, the Corporation’s loss carryforwards and investment tax credit have been used to be deducted from its income tax payable of 2002. The balance of the Group’s loss carryforwards as of December 31, 2002 is due to the deficit of subsidiaries.

Income tax returns through 2000 have been examined and cleared by the tax authorities in the ROC.

The balances of the ICA were NT$2,701 and NT$4,463 (US$128) as of December 31, 2002 and 2003, respectively.

There was no creditable tax ratio for 2001 because of a deficit. The ratio of the ICA and earnings generated starting January 1, 1998 (tax credit ratio) as of December 31, 2002 was expected to be 2.96%. The income tax credit available for allocation to the shareholders is calculated on the basis of the balance of the ICA on the date of distribution of dividends.

The unappropriated retained earnings as of December 31, 2001 and 2002 did not include any earnings generated before January 1, 1998.

The statutory tax rates used for deferred income tax are both 25% as of December 31, 2001 and 2002.

F-22

16. CONSOLIDATED EARNINGS (LOSSES) PER SHARE

Consolidated earnings (loss) per share are computed as follows:

Numerator Income (Loss) Before Income Tax Expense (Benefit) Net Income (Loss) $(264,078) $(196,035) $362,932 $287,948 $10,444 $8,286	Per Share (Dollars)	Per Share (Dollars)
Income (Loss) Before Income Tax Expense (Benefit) $(264,078) $362,932 $10,444	Income (Loss) Before Income Tax Expense (Benefit) $(2.06) $2.70 $0.08	Net Income (Loss)
		$(1.53)
		$2.14
		$0.06

17. PENSION PLAN

The Corporation has a pension plan covering all regular employees. The plan provides benefits that are based on years of service and the average basic pay of the last six months before their retirement.

The Corporation makes monthly contributions, equal to 2% of salaries, to pension funds (the “Funds”). The Funds are administered by the employees, pension fund committee and deposited in their names in the Central Trust of China.

F-23

Certain information on pensions of the Corporation is as follows:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
	2001 $4,375 1,523 (867) 418	2002 $4,613 1,790 (779) 334	2002
			$132 51 (22 10
	$5,449	$5,958	$171
	$— 19,523 19,523 16,283 35,806 (14,589) 21,217 (6,269) 5,262	$— 19,812 19,812 14,036 33,848 (16,790) 17,058 (5,851) 12,957	$— 570
			570 404
			974 (483
			491 (168 372
	$20,210 $24,164 $— $— 2001 2002 5.0% 4.0% 4.0% 3.5% 5.0% 4.0% New Taiwan Dollars		$695
			$—
			U.S. Dollars (Note 3)
... ...
	2001	2002	2002
	$2,029 $1,099	$2,004 $154	$58
			$5

F-24

18. RELATED PARTY TRANSACTIONS

The Group had significant transactions with related parties in the normal course of business. The relationships are summarized as follows:

Related Parties Partner Tech Corporation (Partner) Ares International Corporation (Ares) Broptics Communication Corporation (Broptics) Hong-Yi Investment Inc. (Hong-Yi) David Yu Simon Yu	Relationships
	A member of the board of directors of the Company The Corporation’s chairman is an immediate family member of Ares’ chairman The Corporation’s equity-accounted investee Subsidiaries of the Corporation The Corporation’s chairman The Corporation’s vice president

Except for Notes 20 and 21, the transactions with the foregoing related parties are summarized as follows:

		New Taiwan Dollars	New Taiwan Dollars	New Taiwan Dollars		U.S. Dollars (Note 3)
................................................. ................................................. .................................................		2001	% — — —	2002	% — — —	2002
		Amount $3,030 696 —		Amount $— 210 20		Amount
						$— 6 1
		$3,726 $5,456	— 20	$230 $5,374	— 58	$7
						$155
	e ...................................... ......................................	$203 —	100 —	$— 533	— 100	$— 15

David Yu and Simon Yu pledged their personal held stocks of Shuttle Inc. to Elitegroup Computer Systems Inc. for the Corporation’s purchasing credit line. The highest amount and ending balance of shares pledged as of and for the year ended 2001 and 2002 were 4,000 thousand shares and 6,000 thousand shares, respectively.

The Corporation sold 1,000 thousand shares of stock of Partner Tech Corporation to Hong-Yi Investment Inc. in July 2002, and the disposal amount and carrying value totaled NT$29,910 (US$861) and NT$29,400 (US$846), respectively. The unrealized gain NT$510 (US$15) was deferred to be a part of other liabilities.

F-25

19. ASSETS PLEDGED OR MORTGAGED

The following assets have been pledged or mortgaged as collaterals for short-term and long-term bank loans and other credit financing:

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2001 $37,545 828,207 278,494	2002 $41,561 758,920 230,635	2002
		$1,196 21,839 6,637
$1,144,246	$1,031,116	$29,672

20. COMMITMENTS AND CONTINGENT LIABILITIES AS OF DECEMBER 31, 2001

a. The Corporation entered into a patent license agreement with IBM. Under the agreement, the Corporation should pay US$368 to IBM for the patent in 2003 and 2004, respectively.
b. Unused letters of credit aggregating about NT$45,940 (US$1,322).
c. The Corporation leased partial buildings and equipments to Broptics Communication Corporation, and the lease agreement will expire in December 2003; the annual rental income is NT$1,440 approximately.

21. SUBSEQUENT EVENT

S.C.I. sold its operating facilities in February 2003, and the disposal amount and carrying value were US$2,550 and US$1,934, respectively. Then, S.C.I. sold its transportation equipment to S.C.G on March 4, 2003, and the disposal amount and carrying value were US$20 both. S.C.I. terminated business operations and entered into the process of liquidation under the resolution of the board of directors, and expected the completion of liquidation in April 2003.

22. FINANCIAL INSTRUMENTS

The Corporation entered into derivative financial instrument transactions in 2001 and 2002 to manage exposures related to foreign-currency denominated receivables or payables. The strategy is to manage its market price risks. Certain information on these contracts as of December 31, 2001 and 2002 are as follows:

a. Contract value, credit risk, and fair value

The outstanding contracts as of December 31, 2001 and 2002 are summarized as following:

Type of transaction	Type of transaction		2001			2002
		Notional Amount	Credit Risk	Fair Value	Notional Amount	Credit Risk	Fair Value
Foreign currency options Sell call options Sell put options Buy put options		EUR4,000 US$8,976 EUR5,000 US$2,000	NT$— — — 137	US$(27) US$(48) US$(138) US$4	EUR5,000 — — —	NT$— — — —	US$(625) — — —

Credit risk represents the positive settlement amount of those contracts with positive fair value on the balance sheet date. The positive settlement amount represents the loss incurred by the Group if the counter-parties breached the contracts. The Group entered into the transactions of selling call (put) options, thus no credit risks was expected to occur.

The Corporation incurred losses of NT$4,118 and NT$820 in 2001, and losses of NT$19,788 (US$569) and gains of NT$1,682 (US$48) in 2002 on foreign currency option contracts and forward exchange contracts, respectively.

The Corporation incurred gains of NT$452 in 2001 on currency swap contracts.

F-26

b. Market price risk

The Corporation is exposed to market risks arising from fluctuations in exchange rates. The Group uses foreign currency option, currency swap and forward contracts to hedge the effect of foreign currency fluctuations on net assets and net liabilities. The Corporation manages market price risk exposures by using as hedge instruments those instruments whose changes in their fair values or cash flows offsets the changes in the fair values or cash flows of the hedge items. Thus, market price risks are believed to be minimal.

c. Liquidity risk, cash flow risk and uncertainty of amount and term of future cash demand

The Corporation contracted or entered into foreign currency option contracts, currency swap contracts and forward exchange contracts for hedging exchange rate fluctuation on net assets and net liabilities.

The expected cash inflow (outflow) upon settlement of derivative transactions will be offset against the inflow (outflow) of hedged receivable and payables. The Corporation has sufficient operating capital to meet the above cash demand. In addition, the exchange rate of foreign currency option contracts, currency swap contracts and forward exchange contracts have been fixed. Therefore, there is no material fund raising risk and cash flow risk.

d. The purpose of derivative financial instruments held or issued and the strategies to meet the purpose

The Corporation uses derivative financial instruments completely for purposes other than trading. The Corporation entered into foreign currency option contracts, currency swap contracts and forward contracts to hedge the effect of foreign currency fluctuations on net assets and net liabilities. The Corporation has designated as hedging instruments those instruments whose changes in their fair values offset the changes in fair values of the hedged items. The Group also periodically evaluates the effectiveness of the hedge relationships.

e. Fair values of financial instruments

Nonderivative Financial Instruments Assets Cash and cash equivalents ..................... Short-term investments - net.................. Notes receivable .................................... Accounts receivable - net ...................... Receivable from related parties.............. Pledged time deposits ............................ Long-term investments - net .................. Refundable deposits............................... Liabilities	Nonderivative Financial Instruments Assets Cash and cash equivalents ..................... Short-term investments - net.................. Notes receivable .................................... Accounts receivable - net ...................... Receivable from related parties.............. Pledged time deposits ............................ Long-term investments - net .................. Refundable deposits............................... Liabilities		New Taiwan Dollars	New Taiwan Dollars		U.S. Dollars (Note 3)
	rivative Financial Instruments nd cash equivalents ..................... term investments - net.................. receivable .................................... nts receivable - net ...................... able from related parties.............. d time deposits ............................ erm investments - net .................. dable deposits............................... ties	December	31, 2001 Fair Value $721,421 77,087 589 468,322 203 37,545 162,733 576	December	31, 2002 Fair Value $851,417 159,899 5,766 582,402 533 41,561 171,185 42,121	2002
		Carrying Value $721,421 77,087 589 468,322 203 37,545 250,945 576		Carrying Value $851,417 159,899 5,766 582,402 533 41,561 264,370 42,121		Amount
Assets						$24,501 4,601 166 16,760 15 1,196 4,926 1,212
Cash a Short- Notes Accou Receiv Pledge Long-t Refun Liabili
Short-term bank loans............................ Notes payable ........................................ Accounts payable................................... Current portion of long-term liabilities .. Long-term liabilities .............................. Guarantee deposits.................................		$8,657 62,989 930,922 25,662 431,405 5,850	$8,657 62,989 930,922 25,662 431,405 5,850	$150,000 217,084 1,051,486 38,723 — 294	$150,000 217,084 1,051,486 38,723 — 294	$4,316 6,247 30,258 1,114 — 8

The methods and assumptions used in estimating fair values are as follows:

1) The carrying values approximate the fair values of the following instruments: Cash and cash equivalents, notes receivable and payable, accounts receivable and payable, receivables from related parties, pledged time deposits, refundable and guarantee deposits, short-term bank loans, and current portion of long-term liabilities.
2) Fair values of short-term investments and long-term investments are based on quoted market prices, or on the Group’s proportionate share of the investees’ net assets or carrying value.

F-27

3) The fair values of the long-term liabilities are estimated using discounted cash flow analysis, based on the Group’s current incremental borrowing rates for similar types (similar maturity date) of borrowings.

23. ADDITIONAL DISCLOSURES

a. Followings are the additional disclosures required by the SFC from the Corporation and investee companies:
1) Financing provided: None.
2) Endorsement/guarantee provided: None.
3) Short-term and long-term stock investments held: Table 1.
4) Securities acquired and disposed of at costs or prices of at least NT$100 million dollars or 20% of the capital stock: Table 2.
5) Lands and buildings acquired at costs of at least NT$100 million dollars or 20% of the capital stock: None.
6) Lands and buildings disposed at prices of at least NT$100 million dollars or 20% of the capital stock: None.
7) Total purchases from or sales to related parties amounting to at least NT$100 million dollars or 20% of the capital stock: Table 3.
8) Receivables from related parties amounting to at least NT$100 million dollars or 20% of the capital stock: Table 4.
9) Names, locations, and related information of investees on which the Company exercises significant influence: Table 5.
10) Derivative financial transactions: Note 22.
b. Investments in Mainland China: None.

24. SEGMENT INFORMATION

a. Industry segment information: The Group is engaged only in a single industry: Manufacturing and marketing equipments of computer.
b. Geographic information: Summarized in Table 6.
c. Export sales:

Geographical Area	Geographical Area	New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
		2001	2002	2002
Europe............................................................................. America........................................................................... Asia ............................................................................... Others .............................................................................		$1,641,303 1,431,471 661,249 62,896	$1,849,510 1,224,838 1,055,197 77,949	$53,223 35,247 30,365 2,243

d. Customers with sales exceeding 10% of the total sales: None.

F-28

							Note		Note 2	Note 2
				Market	Value or	Net Asset	Value		$70,602	35,618	65,292		16,307		14,240		52,689	6,763	8,982		67,322	70,027		9,227
			December 31, 2002	Percentage	of	Carrying Ownership	Value (%)		$70,602 100.00	35,618 100.00	65,292 99.00		18,600 19.00		30,214 2.78		77,059 0.19	38,500 0.39	11,100 —		69,450 —	70,000 —		10,000 —
MARKETABLE SECURITIES HELD	December 31, 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)				Relationship with Financial Statement Shares/	Securities Type and Name the Company Account Units	Stocks	Holco (BVI) Inc. A subsidiary Long-term investment 50,000	Gold Fountain Limited A subsidiary Long-term investment 7,021,838	Hong-Yi Investment Inc. An equity-method accounted Long-term investment 8,910,000	investee	Broptics Communication Corporation An equity-method accounted Long-term investment 2,850,000	investee	Partner Tech Corporation A member of the board of Long-term investment 1,110,240	directors of the company	Elitegroup Computer Systems Co., Ltd. — Long-term investment 803,571	TwinMOS Technologies Inc. — Long-term investment 805,000	World Peace Industrial Co., Ltd. — Short-term investment 300,000	Fund	Global Strategic Fund 1 — Short-term investment 198,700	Shenghua 1699 Fund — Short-term investment 6,011,937.99	Indebenture Bond	SSC1 — Short-term investment 100,000
							Held Company Name	Shuttle Inc.

F-29

							Note		Note 2							Note 2	Note 2	Note 2
				Market	Value or	Net Asset	Value		28,229		10,545	352		3,989		$26,609	19,177	—			19,465		9,785	8,098				4,502	3,147
			December 31, 2002	Percentage	of	Carrying Ownership	Value (%)		28,229 99.99		34,750 3.70	8,688 —		69,500 —		$26,609 100.00	19,177 100.00	— 100.00	(Note 1)		41,923 3.80		6,552 1.64	20,961 —				9,937 —	4,953 —
MARKETABLE SECURITIES HELD — (Continued)	December 31, 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)				Relationship with Financial Statement Shares/	Securities Type and Name the Company Account Units	Limited company	Shuttle Computer (H.K.) Co., Ltd. A subsidiary Long-term investment —	Stocks	Tera Fiberopotics Inc. (preferred stock) — Long-term investment 750,000	Titan Corporation (formerly Global Net Inc.) — Short-term investment 25,000	Fund	Chatwell Tech Mutual Fund Ltd. — Short-term investment 20,000,000	Stocks	Shuttle Computer International Inc. A subsidiary Long-term investment 1,200,000	Shuttle Computer Group Inc. A subsidiary Long-term investment 230,000	Shuttle Computer Handels GmbH A subsidiary Long-term investment 2,000,000		Stocks	Partner Tech Corporation A member of the board of Long-term investment 1,518,048	directors of the company	Gvision Incorporated — Long-term investment 900,000	Ares International Corporation The Corporation’s chairman is Short-term investment 692,546	an immediate family	member of Hong-Yi’s	chairman	United Microelectronics Corp. — Short-term investment 188,600	Elitegroup Computer Systems Co., Ltd. — Short-term investment 48,000
							Held Company Name	Holco (BVI) Inc.							Gold Fountain Limited					Hong-Yi Investment Inc.

F-30

							Note
				Market	Value or	Net Asset	Value		18,047	25,480		3,056
			December 31, 2002	Percentage	of	Carrying Ownership	Value (%)		17,289 —	25,000 —		24,325 1.03
MARKETABLE SECURITIES HELD — (Continued)	December 31, 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)				Relationship with Financial Statement Shares/	Held Company Name Securities Type and Name the Company Account Units	Broptics Communication Fund	Corporation HSBC Fu-Thai Bond Fund — Short-term investment 1,283,358.9	Barits Bau-Yuan Fund — Short-term investment 2,219,933.2	Shuttle Computer (H.K.) Stocks	Co., Ltd. Kinzan Inc. (preferred stock) — Long-term investment 175,000	Note 1: The accumulated net value as of December 31, 2002 was $11,974, shown as part of other liabilities.	Note 2: Eliminated.

F-31

LONG-TERM AND SHORT-TERM INVESTMENTS ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF	AT LEAST NT$100 MILLION DOLLARS OR 20% OF THE CAPITAL STOCK	For the Year Ended December 31, 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Beginning Ending	Balance Acquisition Disposal Balance	Securities Type Financial Statement Counter- Nature of Carrying Gain on	and Name Account Party Relationship Units Amount Units Amount Units Amount Value Disposal Units Amount	Fund	Taiwan Gili Bond Fund Short-term investment — — — $— 7,179,118.413 $110,000 7,179,118.413 $110,136 $110,000 $136 — —	Barits Bau-Yuan Fund Short-term investment — — — — 11,005,957.2 125,000 11,005,957.2 125,220 125,000 220 — —
						Company	Name	Shuttle Inc.

F-32

Company Name Related Party Nature of Relationship Transaction Details Abnormal Transaction Note/Accounts Payable or Receivable Note Purchase/ Sale Amount % to Total Payment Terms Unit Price Payment Terms Ending Balance % to Total SHUTTLE INC. AND INVESTEES TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION DOLLARS OR 20% OF THE CAPITAL STOCK For the Year Ended December 31, 2002 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Related Party Nature of Relationship Note Purchase/ Sale Amount % to Total Payment Terms Unit Price Payment Terms Ending Balance % to Total	Shuttle Inc. Shuttle Computer Handels GmbH A subsidiary of Gold Fountain Limited Sale $1,504,471 30 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly. $547,335 45 Shuttle Computer Group Inc. A subsidiary of Gold Fountain Limited Sale 826,840 16 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly. 367,038 30 Shuttle Computer Handels GmbH Shuttle Inc. Parent company of Gold Fountain Limited Purchase 1,504,471 99 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly. 547,335 97 Shuttle Computer Group Inc. Shuttle Inc. Parent company of Gold Fountain Limited Purchase 826,840 99 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly. 367,038 100

F-33

Company Name Related Party Nature of Relationship Ending Balance Turnover Rate Overdue Amounts Received in Subsequent Period Allowance for Bad Debts Amount Action Taken December 31, 2002 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Related Party Nature of Relationship Ending Balance Turnover Rate in Subsequent Period for Bad Debts Amount Action Taken	Shuttle Inc. Shuttle Computer Handels GmbH Parent company of Gold Fountain Limited $547,335 2.87 $— — $379,483 $— Shuttle Computer Group Inc. Parent company of Gold Fountain Limited 367,038 2.38 — — 162,931 —

F-34

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2002 Net Income (Loss) of the Investee Investment Gain (Loss) (Note 3) Notes Dec. 31, 2001 Dec. 31, 2002 Shares Percentage of Ownership Carrying Value NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE December 31, 2002 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Investee Company Location Main Businesses and Products of the Investee Gain (Loss) (Note 3) Notes Dec. 31, 2001 Dec. 31, 2002 Shares Percentage of Ownership Carrying Value	Shuttle Inc. Holco (BVI) Inc. B.V.I. Holding company $1,382 $1,382 50,000 100.00 $70,602 $(71,895) $(71,895) Gold Fountain Limited Cayman Islands Holding company 240,335 240,335 (Note 1) 7,021,838 100.00 35,618 28,030 28,030 Hong-Yi Investment Inc. 3F., No. 2, Lane 107, Minsheng E. Rd., Sec. 3, Songshan District, Taipei City 105, Taiwan (R.O.C.) Holding company 89,100 59,400 8,910,000 99.00 65,292 (10,988) (10,878) Broptics Communication Corporation 3F., No. 58, Fusing N. Rd., Songshan District, Taipei City 105, Taiwan (R.O.C.) Investment 29,375 25,000 2,850,000 19.00 18,600 (25,930) (5,761) (Note 4) Holco (BVI) Inc. Shuttle Computer (H.K.) Co., Ltd Unit A 19/F, Dragon Center, 79 Wing Hong St., Cheung Sha Wan, Kowloon H.K. Electronic components marketing 36 36 — 99.99 28,229 52 52

F-35

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2002 Net Income (Loss) of the Investee Investment Gain (Loss) (Note 3) Notes Dec. 31, 2001 Dec. 31, 2002 Shares Percentage of Ownership Carrying Value NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH — (Continued) THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE December 31, 2002 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Investee Company Location Main Businesses and Products of the Investee Gain (Loss) (Note 3) Notes Dec. 31, 2001 Dec. 31, 2002 Shares Percentage of Ownership Carrying Value	Gold Fountain Limited Shuttle Computer International Inc. 939 Radecki Court City Of Industry, CA 91748 U.S.A. Electronic components marketing 86,063 40,742 1,200,000 100.00 26,609 2,099 4,477 (Note 4) Shuttle Computer Group Inc. 939 Radecki Court City Of Industry, CA 91748 U.S.A. Electronic components marketing 116,554 7,839 230,000 100.00 19,177 (1,732) (1,421) (Note 4) Shuttle Computer Handels GmbH Fritz-Strassmann Str. 5 D-25337 Elmshorn, Germany Electronic components marketing 37,586 37,586 2,000,000 100.00 — (Note 2) 27,700 25,150 (Note 4) Note 1: Including prepaid investment in shares of stock NT$154,036 in 2002. Note 2: The accumulated net value as of December 31, 2002 was $11,974, shown as part of other liabilities. Note 3: The investment gain (loss) of the equity-accounted investments are based on audited financial statements. Note 4: The differences are between the acquisition cost of the investment and the Company equity in the fair value of the net assets of the investee companies. Note 5: Eliminated.

F-36

							Total	(Note A)	$5,392,334		—	$5,392,334	$593,191		(16,639)	69,895	(263,122)	(20,393)	$362,932	$3,745,355	264,370	$4,009,725
					Adjustment	and	Elimination	(Note E)	$—		(2,332,951)	$(2,332,951)	$(14,986)							$(975,550)
								Others	$—		—	$—	$—							$11,547
				2002			North	America	$901,282		1,640	$902,922	$11,828							$457,290
SHUTTLE INC. AND INVESTEES	INDUSTRY SEGMENT INFORMATION	For the Years Ended December 31, 2001 and 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	2001	Adjustment	and	North Elimination Total	Domestic Europe America Others (Note E) (Note A) Domestic Europe	$1,541,898 $1,522,703 $1,140,886 $— $— $4,205,487 $2,894,278 $1,596,774		2,410,117 14,269 44,922 — (2,469,308) — 2,331,311 —	$3,952,015 $1,536,972 $1,185,808 $— $(2,469,308) $4,205,487 $5,225,589 $1,596,774	$36,830 $(14,046) $(66,344) $(45) $(38,916) $(82,521) $550,622 $45,727		(5,530)	109,877	(246,218)	(39,686)	$(264,078)	$3,125,775 $488,307 $437,414 $84,338 $(880,467) $3,255,367 $3,709,569 $542,499	250,945	$3,506,312
								Industry Information	Sales to customers ............................	Inter-division sales	(Note D).......................................	Total revenue ..................................	Segment operation income (Note B) .	Equity in net loss of investee	company .....................................	Unallocated income .........................	Unallocated expenses ......................	Interest expense ...............................	Income before income tax ...............	Identifiable assets (Note C) ..............	Investments in shares of stock .........	Total assets.......................................

F-37

INDUSTRY SEGMENT INFORMATION — (Continued)	INDUSTRY SEGMENT INFORMATION — (Continued)	For the Years Ended December 31, 2001 and 2002	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)		The Company operates principally in four segment: Domestic, European, North American and other foreign operating segments.	The Company operates principally in four segment: Domestic, European, North American and other foreign operating segments.	Segment operation income represents segment revenue minus costs and operating expense. Operating expenses include costs and expenses that are directly identifiable to an industry segment,	excluding general and administrative expenses and interest expense.	Segment identifiable assets represent tangible assets that are used by the industry segment, excluding:	a. Assets maintained for general corporate purpose.	a. Assets maintained for general corporate purpose.	b. Advances or loans to another industry segment.	c. Long-term stock investments under equity method.	Inter-division sales are evaluated under cost basis.	For the equal balance of segment information and financial statements, the column of adjustment and elimination are included as following:	a. Inter-division sales are $2,469,308 and $2,332,951 in 2001 and 2002, respectively.	a. Inter-division sales are $2,469,308 and $2,332,951 in 2001 and 2002, respectively.	b. Inter-division operation income are $38,916 and $14,986 in 2001 and 2002, respectively; the foregoing income are the net amount of segment operation revenue ($2,469,308 and $2,332,951	respectively in 2001 and 2002) minus segment costs and related expenses ($2,430,392 and $2,317,965 respectively in 2001 and 2002).	c. Inter-division identifiable assets are $880,467 and $916,562 in 2001 and 2002, respectively.
				Notes:	A.		B.		C.					D.	E.

F-38

English Translation of a Report Originally Issued in Chinese

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Stockholders Shuttle Inc.

We have reviewed the accompanying balance sheets of Shuttle Inc. (the Corporation) as of March 31, 2002 and 2003 and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our review in accordance with Statements of Auditing Standards No. 36 “Review of Financial Statements” issued by the Auditing Committee of the Accounting Research and Development Foundation of the Republic of China, except for the items mentioned in the third paragraph. A review of interim financial statements consists primarily of applying analytical procedures to financial data and making inquiries of company personnel responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

As disclosed in Note 7 to the financial statements, the following amounts related to equity-accounted investments were based on unreviewed financial statements: (i) carrying values of NT$230,515 thousand and NT$217,469 thousand as of March 31, 2002 and 2003, respectively; (ii) equity in income of NT$4,893 thousand and NT$27,357 thousand for the three months ended March 31, 2002 and 2003, respectively.

Based on our review, except for the effects of such adjustments, if any, as might have been necessary had we reviewed the financial statements of the investee companies as explained in the preceding paragraph, we are not aware of any material modifications that should be made to the financial statements referred to in the first paragraph for them to be in conformity with Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally accepted in the Republic of China.

We have also reviewed the translations of New Taiwan dollar financial statements as of March 31, 2003 into U.S. dollars, which have been included solely for the reader’s convenience, on the basis stated in Note 3 to the financial statements and in our opinion, the U.S. dollars amounts have been properly translated on such basis. The convenience translations should not be construed as representations that the New Taiwan dollars amounts have been, could have been or could in the future be, converted into U.S. dollars at this or any other exchange rate.

T N Soong & Co An Associate Member Firm of Deloitte Touche Tohmatsu Effective April 22, 2002 (Formerly a Member Firm of Andersen Worldwide, SC) Taipei, Taiwan The Republic of China April 24, 2003

Notice to Readers

The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.

F-39

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

BALANCE SHEETS March 31, 2002 and 2003

(In Thousands of New Taiwan Dollars and U.S. Dollars, Except Number of Shares and Par Value)

					U.S. Dollars
	New	Taiwan	Dollars		(Note 3)
	2002		2003		2003
	Amount	%	Amount	%	Amount
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4) ..........................	$694,849	20	$710,811	18	$20,458
Short-term investments - net (Notes 2 and 5).......................	—	—	158,400	4	4,559
Notes receivable (Note 2) ....................................................	1,241	—	7,403	—	213
Accounts receivable - net of allowance for doubtful
receivables of NT$51,647 in 2002 and NT$60,590
(US$1,744) in 2003 (Note 2) ...........................................	293,641	9	356,818	9	10,270
Receivables from related parties (Notes 2 and 18) ...............	685,574	20	1,025,245	25	29,508
Other current financial assets...............................................	229	—	4,154	—	120
Inventories - net (Notes 2 and 6) .........................................	140,671	4	264,155	7	7,602
Pledged time deposits (Note 19) ..........................................	42,163	1	41,567	1	1,196
Other current assets (Notes 2 and 14) ..................................	74,568	2	57,888	1	1,666
Total Current Assets ............................................................	1,932,936	56	2,626,441	65	75,592
LONG-TERM INVESTMENTS (Notes 2, 7 and 18)
Equity method ....................................................................	230,515	7	217,469	5	6,259
Cost method .......................................................................	175,317	5	110,161	3	3,171
Total Long-term Investments ...............................................	405,832	12	327,630	8	9,430
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 8 and 19)
Cost
Land................................................................................	395,235	12	396,275	10	11,405
Buildings.........................................................................	389,085	11	391,892	10	11,279
Machinery and equipment................................................	241,105	7	246,237	6	7,087
Transportation equipment ................................................	8,599	—	8,583	—	247
Office equipment .............................................................	12,382	—	12,585	—	362
Other equipment .............................................................	13,989	1	15,926	1	459
Total cost ........................................................................	1,060,395	31	1,071,498	27	30,839
Less - accumulated depreciation ..........................................	140,113	4	187,228	5	5,389
Net Property, Plant and Equipment ......................................	920,282	27	884,270	22	25,450
OTHER ASSETS
Properties leased to others - net (Notes 2, 9 and 19) ...........	168,110	5	164,088	4	4,722
Refundable deposits ...........................................................	6,359	—	317	—	9
Miscellaneous (Notes 2 and 14)...........................................	15,690	—	23,415	1	674
Total Other Assets ...............................................................	190,159	5	187,820	5	5,405
TOTAL ASSETS ..................................................................	$3,449,209	100	$4,026,161	100	$115,877

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

(Forward)

F-40

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

BALANCE SHEETS — (Continued)

March 31, 2002 and 2003

(In Thousands of New Taiwan Dollars and U.S. Dollars, Except Number of Shares and Par Value)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 Amount % $— — 39,643 1 620,579 18 — — 81,575 2 25,580 1 23,257 1 55,989 2 15,195 — 861,818 25 386,368 11 3,356 — 21,257 1 — — 24,613 1 1,272,799 37 1,368,500 40 835,018 24 15,450 1 133 — 1,540 — 852,141 25 58,663 2 (118,227) (4) (59,564) (2) — — 15,333 — 15,333 — 2,176,410 63	2003 Amount % $511 — 273,037 7 886,617 22 129,407 3 74,409 2 480 — — — 71,325 2 4,599 — 1,440,385 36 — — 1,760 — 24,919 — 510 — 27,189 — 1,467,574 36 1,368,500 34 835,018 21 15,450 — — — 1,540 — 852,008 21 — — 363,064 9 363,064 9 (35,612) (1) 10,627 1 (24,985) — 2,558,587 64	2003
		Amount
		$15 7,858 25,518 3,724 2,142 14 — 2,053 132
		41,456
		—
		51 717 14
		782
		42,238
		39,387
		24,033 445 — 44
		24,522
		— 10,449
		10,449
		(1,025) 306
		(719)
		73,639
$3,449,209 100	$4,026,161 100	$115,877

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

F-41

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

STATEMENTS OF INCOME

For the Three Months Ended March 31, 2002 and 2003 (In Thousands of New Taiwan Dollars and U.S. Dollars, Except Number of Shares and Earnings Per Share)

					U.S. Dollars
	New	Taiwan	Dollars		(Note 3)
	2002		2003		2003
	Amount	%	Amount	%	Amount
REVENUES
Gross sales .........................................................................	$1,301,109	99	$1,652,891	101	$47,572
Less: Sales returns and allowances ......................................	34,288	3	21,739	2	626
Net Sales (Notes 2 and 18)..................................................	1,266,821	96	1,631,152	99	46,946
Processing services income .................................................	47,607	4	8,825	1	254
Total Revenues ....................................................................	1,314,428	100	1,639,977	100	47,200
COST OF REVENUES (Note 15) ........................................	1,111,009	85	1,269,524	77	36,538
GROSS PROFIT BEFORE UNREALIZED PROFIT ON
INTERCOMPANY SALES...............................................	203,419	15	370,453	23	10,662
UNREALIZED PROFIT ON INTERCOMPANY SALES
(Note 2) ..........................................................................	(12,073)	(1)	(12,336)	(1)	(355)
GROSS PROFIT ..................................................................	191,346	14	358,117	22	10,307
OPERATING EXPENSES (Note 15)
Sales and marketing expenses ..............................................	71,149	5	80,353	5	2,313
General and administrative expenses....................................	12,694	1	15,460	1	445
Research and development expenses ....................................	12,013	1	25,062	1	721
Total Operating Expenses ...................................................	95,856	7	120,875	7	3,479
INCOME FROM OPERATIONS ..........................................	95,490	7	237,242	15	6,828
NON-OPERATING INCOME AND GAIN
Equity in net income of investee companies - net ................	4,893	—	27,357	2	788
Foreign exchange gain - net ...............................................	—	—	5,245	—	151
Reversal of provision for decline in value of
short-term investments ...................................................	—	—	3,383	—	97
Other income (Note 18) .......................................................	6,100	1	3,164	—	91
Total Non-operating Income and Gain..................................	10,993	1	39,149	2	1,127
NON-OPERATING EXPENSES AND LOSS
Interest ...............................................................................	7,019	—	359	—	11
Loss on decline in value of inventory .................................	7,600	1	—	—	—
Foreign exchange losses - net ..............................................	4,079	—	—	—	—
Other expenses (Note 15) ....................................................	1,419	—	287	—	8
Total Non-operating Expenses and Loss...............................	20,117	1	646	—	19
INCOME BEFORE INCOME TAX ......................................	86,366	7	275,745	17	7,936
INCOME TAX EXPENSE (Notes 2 and 14).........................	8,558	1	63,390	4	1,824
NET INCOME ....................................................................	$77,808	6	$212,355	13	$6,112

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

(Forward)

F-42

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

STATEMENTS OF INCOME — (Continued) For the Three Months Ended March 31, 2002 and 2003 (In Thousands of New Taiwan Dollars and U.S. Dollars, Except Number of Shares and Earnings Per Share)

2002 NT$ Income Before Income Tax Expense Net Income $0.68 $0.61	2003	2003	2003
	NT$ Income Before Income Tax Expense Net Income $2.01 $1.55	US$ (Note 3)
Income Before Income Tax Expense $0.68	Income Before Income Tax Expense $2.01	Income Before Income Tax Expense $0.06	Net Income
			$0.04

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

F-43

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2002 and 2003 (In Thousands of New Taiwan Dollars and U.S. Dollars)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $77,808 12,654 — 7,600 1,117 (4,893) 12,073 (1,504) 1,047 (652) (118,921) 151,179 37,415 17,463 2,836 (23,346) (277,519) — 40,751 15,592 10,942 (38,358) — (4,618) (53,078) (3,808) 171 (6,028) — (67,361)	2003 $212,355 12,551 (3,383) — 17 (27,357) 12,336 4,696 755 (1,637) (65,907) (108,151) 76,470 (4,050) (1,107) 55,953 (159,427) 58,548 11,150 (3,435) (22,427) 47,950 541 (6) — (4,138) — — (334) (3,937)	2003
		$6,112 361 (97) — — (787) 355 135 22 (47) (1,897) (3,113) 2,201 (117) (32) 1,610 (4,588) 1,685 321 (99) (645)
		1,380
		16 — — (119) — — (10)
		(113)

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

(Forward)

F-44

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

STATEMENTS OF CASH FLOWS — (Continued) For the Three Months Ended March 31, 2002 and 2003 (In Thousands of New Taiwan Dollars and U.S. Dollars)

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 (8,657) (5,768) 133,743 (1,094) 118,224 $12,505 682,344	2003 (149,489) — — — (149,489) $(105,476) 816,287	2003
		(4,303) — — —
		(4,303)
		$(3,036) 23,494
$694,849 $7,001 $214 $23,257	$710,811 $359 $146 $—	$20,458
		$10
		$4
		$—

The accompanying notes are an integral part of the financial statements. (With T N Soong & Co review report dated April 24, 2003)

F-45

English Translation of Financial Statements Originally Issued in Chinese

SHUTTLE INC.

NOTES TO FINANCIAL STATEMENTS For the Three Months Ended March 31, 2002 and 2003 (In Thousands of New Taiwan Dollars and U.S. Dollars, Except as Otherwise Stated)

1. GENERAL

The Corporation was incorporated in June 1983 in the Republic of China (ROC). On March 17, 2000, the Corporation’s shares were listed on the Taiwan Stock Exchange.

The Corporation manufactures and markets motherboard, barebone, memory cards and other equipment for computers.

As of March 31, 2002 and 2003, the Corporation had 264 and 358 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying financial statements are prepared in conformity with the Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally accepted in the ROC. The Corporation’s significant accounting policies are summarized as follows:

Current and noncurrent assets and liabilities

Current assets are those expected to be cashed or consumed within one year. Current liabilities are those expected to be paid off within one year. All other assets and liabilities are classified as noncurrent assets and liabilities, respectively.

Cash equivalents

Repurchase agreements for securities that mature within three months from the date of purchase are classified as cash equivalents.

Short-term investments

Allowances for doubtful receivable

Allowances for doubtful notes and accounts receivable are provided based on a review of the collectibility of individual notes and accounts receivable.

Inventories

Inventories are stated at the lower of weighted average cost or market (net realizable value or replacement cost).

Long-term investments

The investments in shares of stock of the following are accounted for using the equity method: (a) those where the equity interests of the Corporation represent more than 20% but less than 50% of their outstanding common shares, (b) those where the Corporation’s equity interest is less than 20% of their outstanding capital stock but where the Corporation exercises significant influence in their financial and operating policy decisions. Under the equity method, the Corporation’s investment is initially stated at cost and subsequently adjusted for the proportionate share of the Corporation in the net income or net loss of the investee companies. Any cash dividends received from such investee companies are accounted for as a reduction in the carrying value of the related investments.

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The Corporation’s share of an investee company’s losses equals to or exceeds the carrying amount of an investment accounted for under the equity method, plus advances made by the Corporation, then the recognized investment losses shall be limited to the extent that makes the book value of a long-term investment and advances equal to zero.

The increase in the Corporation’s proportionate share in the net assets of its investee company resulting from its subscription to additional shares of such investee company’s capital stock, issued by such investee company, at a rate not proportionate to its existing equity ownership in such investee company, is credited to a capital surplus account. Any decrease in the Corporation’s proportionate share in the net assets of the investee company resulting from similar transactions is first debited against the existing balance of the capital surplus account arising from similar transactions with any excess debited against unappropriated retained earnings.

The differences between the acquisition cost of the investments and the Corporation’s proportionate equity in the fair value of the net assets of the investee companies, at the time the investments are acquired or when the equity method is initially adopted, are amortized over five years.

Other long-term investments in shares of stock with quoted market prices are accounted for using the cost method. An allowance for decline in market value of shares is recognized with the corresponding amount debited to stockholders’ equity. Any recovery is credited to stockholders’ equity to the extent that the amount of the decline exceeds the amounts previously debited to such account. An other than temporary decline in market value of shares is recognized in the current period. The carrying values of long-term investments in shares of stock with no quoted market prices are reduced to recognize an other than temporary decline in their values with the related provision for losses recognized in income. Cash dividends are recorded as income.

Costs of investments sold are determined using the weighted-average method.

Property, plant and equipment, properties and leased to others

These assets are carried at cost or cost less accumulated depreciation. Major betterments or renewals are capitalized, while maintenance and repairs are charged to the current period.

The initial estimate of the service lives in years of property, plant and equipment is as follows: buildings, 5 to 60; machinery and equipment, 2 to 6; transportation equipment, 5; office equipment, 3 to 5; and other equipment 2 to 10. The foregoing service lives plus one year to represent the estimated salvage value are used to depreciate the cost of the assets using the straight-line method. The salvage value of the property, plant and equipment still in service at the end of their initially estimated service lives is further depreciated using the best estimate of their remaining service lives.

Upon retirement or disposal of the assets, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income.

Deferred income

The entire gains arising from sales of products and investments in shares of stock to majority owned subsidiaries by the Corporation are deferred (shown as deferred income) until the income is realized through the subsequent sale of the related products and investments in shares of stock to unrelated parties. Also, the equity of the Corporation on the gains on the sales of products by the majority owned subsidiaries to the Corporation is not recognized by the Corporation until such gains are realized also through the subsequent sale of the related products to unrelated parties.

Pension plan

Pension costs are recognized based on actuarial calculations. Unrecognized net transition obligations are amortized over 15 years.

Treasury stock

Reacquisition of issued stock is accounted for by the cost method. Under this method, treasury stock is shown at the cost for acquiring the shares. This cost is shown as a deduction to arrive at stockholders’ equity. If treasury stock is canceled, any difference between the issue price and the reacquisition price is debited to paid-in capital from treasury stock transactions. If the balance of paid-in capital from treasury stock transactions is not enough for debiting purposes, the remainder is recorded as a reduction of retained earnings.

Revenue recognition

Sales are recognized when titles of products and risks of ownerships are transferred to customers, primarily upon shipment.

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Sales returns and allowances

Income tax

The Corporation adopts the inter-period tax allocation method. Deferred tax assets are recognized for the tax effects of deductible temporary differences and unused operating loss carryforwards and deferred tax liabilities are recognized for the tax effects of taxable temporary differences. A valuation allowance is provided for deferred income tax assets that it will not be realized. Deferred tax assets or liabilities are classified as current or noncurrent on the basis of the classification of related assets or liabilities for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to net loss carryforwards, are classified based on the expected reversal date of the temporary difference.

Adjustments to prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Income taxes of 10% on undistributed earnings generated starting January 1, 1998 are recorded as expenses in the year the stockholders have resolved that the earnings shall be retained.

Foreign-currency transactions

The Corporation maintains its accounts and prepares its financial statements in New Taiwan dollars. The transactions of the Corporation (except derivative financial instruments) that are denominated in currencies other than the New Taiwan dollars (the “foreign currency”) are recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. The increase or decrease in the expected New Taiwan dollar cash flows of the foreign currency assets and/or liabilities arising from the change in the exchange rates between the New Taiwan dollar and the foreign currency are recognized as gains and losses in the period in which the exchange rate changes. In addition, the gains or losses (measured from transaction date or the most recent intervening balance sheet date, whichever is later) realized upon the settlement of a foreign currency transaction are included in the period in which the transaction is settled.

The period-end balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates, and the resulting differences are recorded as follows:

a. Investments in shares of stock accounted for using the equity method - as foreign exchange translation adjustment under stockholders’ equity.
b. Other assets and liabilities - credited or charged to income.

To match up the preparation of the financial statements, the financial statements of the subsidiaries overseas have already been converted and stated in New Taiwan dollars. Accounts in the balance sheet are converted in the exchange rate of the balances sheet date and those in the income statement are converted in the average exchange rate of the year. Differences from the conversion of exchanges are recorded as cumulative translation adjustments.

Foreign currency options

Premiums paid or received for the call or put options for hedging purposes are recorded as assets or liabilities. Any resulting gain or loss upon settlements is credited or charged to income in the period of settlement.

3. TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS

The Corporation maintains its accounts and expresses its financial statements in New Taiwan dollars. The translations of the New Taiwan dollars into U.S. dollars are included solely for the convenience of the reader, using the exchange rate on March 31, 2003 as published by Bank of Taiwan, which was NT$34.745 to US$1.00. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other exchange rate.

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4. CASH AND CASH EQUIVALENTS

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $150 223,902 470,797 694,849 —	2003 $150 456,919 218,957 676,026 34,785	2003
		$4 13,151 6,302
		19,457 1,001
$694,849	$710,811	$20,458

5. SHORT-TERM INVESTMENTS - NET

This account consists of:

Marketable equity securities Overseas bonds ..................................................................................................... Mutual fund beneficiary certificates ..................................................................... Indebenture convertible bonds ............................................................................. Structured Note ................................................................................................... Less - allowance for decline in market value .......................................................	New Taiwan Dollars	U.S. Dollars (Note 3)
	2003 $11,100 34,674 69,450 10,000 34,785 160,009 1,609	2003
		$319 998 1,999 288 1,001
		4,605 46
	$158,400	$4,559

6. INVENTORIES - NET

			U.S. Dollars
	New Taiwan	Dollars	(Note 3)
	2002	2003	2003
Merchandise .............................................................................	$48,431	$19,737	$568
Finished goods .........................................................................	56,005	66,375	1,910
Work in process .......................................................................	29,183	117,145	3,371
Raw materials............................................................................	25,668	65,514	1,886
	159,287	268,771	7,735
Less - allowance for losses ......................................................	18,616	4,616	133
	$140,671	$264,155	$7,602

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7. LONG-TERM INVESTMENTS - NET

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars
2002 Carrying Value % of Owner- Ship $142,811 100.00 14,149 100.00 50,856 99.00 22,699 19.00 230,515 77,203 0.19 38,500 0.39 59,614 5.57 175,317 — 175,317	2003 Carrying Value % of Owner- Ship $70,490 100.00 65,423 100.00 64,101 99.00 17,455 19.00 217,469 77,059 0.19 38,500 0.39 30,214 2.78 145,773 35,612 110,161	2003
Carrying Value $142,811 14,149 50,856 22,699 230,515 77,203 38,500 59,614 175,317 — 175,317	Carrying Value $70,490 65,423 64,101 17,455 217,469 77,059 38,500 30,214 145,773 35,612 110,161	Carrying Value
		$2,029 1,883 1,845 502
		6,259
		2,218 1,108 870
		4,196 1,025
		3,171
$405,832	$327,630	$9,430

The carrying values and the equity in the net income or net loss of the equity-accounted investees were based on unreviewed financial statements of the investees in the same period. The Corporation’s carrying values of the investees as of March 31, 2002 and 2003 were NT$230,515 and NT$217,469 (US$6,259), respectively and its equity in the investees’ net income for the three months ended March 31, 2002 and 2003 were NT$4,893 and NT$27,357 (US$788), respectively.

Broptics Communication Corporation issued shares of common stock in March 2002 and the Corporation did not acquire its proportionate share of the equity offering, resulting in the Corporation’s ownership percentage being reduced from 25% to 19%. However, the Corporation still can exercise significant influence over Broptics, and as such will continue to account for the investment by the equity method. Gold Fountain Limited had book value deficit NT$142,941 as of December 31, 2001 and had issued additional stocks totaled NT$154,036 in February 2002.

8. PROPERTY, PLANT AND EQUIPMENT

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $18,432 105,698 3,055 5,002 7,926	2003 $26,605 140,247 4,025 6,921 9,430	2003
		$766 4,037 116 199 271
$140,113	$187,228	$5,389

Depreciation on properties and properties leased to others amounted to NT$11,697 in 2002 and NT$12,101 (US$348) in

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9. PROPERTIES HELD FOR RENT AND LEASED TO OTHERS NET

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $116,363 56,997 173,360 5,250	2003 $116,363 53,099 169,462 5,374	2003
		$3,349 1,528
		4,877 155
$168,110	$164,088	$4,722

10. BANK LOANS

Short-term bank loans as of March 31, 2002 were bank loans of letter of credit and bore interest at a rate of 1.7191%.

11. LONG-TERM LIABILITIES

The bank secured loans which were expected to pay off periodical from May 1999 till September 2020 were reimbursed early in February 2003. The loans bore interest at rates ranging from 6.050% to 6.155% as of March 31, 2003.

The assets having been pledged or mortgaged as collaterals for long-term bank loans are disclosed in Note 19.

12. STOCKHOLDERS’ EQUITY

a. At least 8% as employees’ bonus.
b. The remaining earnings may then be distributed as either stock dividends or cash dividends. Cash dividend shall be between 0% to 50% of total dividends paid or distributed.

The ROC Company Law requires that legal reserve be set aside until the accumulated legal reserve equals the aggregate par value of the Corporation’s outstanding capital stock. The Corporation is also permitted to make earnings distributions by capitalizing reserve. However, the portion capitalized out of legal reserve is limited to 50% of the total accumulated legal reserve and the capitalization can only be effected when the accumulated legal reserve exceeds 50% of the aggregate par value of the Corporation’s outstanding capital stock. The legal reserve can also be offset against deficit.

On May 31, 2002, the stockholders’ meeting approved to offset the deficit by legal reserve and capital surplus of gain on disposal of property, plant and equipment amounting NT$58,663 and NT$133, respectively.

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On March 24, 2003, the Board of Directors approved the following appropriations of the earnings that were generated up to December 31, 2002:

Legal reserve ........................................................................................................ Special reserve...................................................................................................... Remuneration to directors and supervisors ............................................................ Bonus to employees - in stock .............................................................................. Common stock dividends - in stock ......................................................................	Appropriation of Earnings	Dividend Per Share
	$15,071 13,743 1,250 18,000 102,637	$— — — — 0.75
	$150,701

The Board of Directors also approved to capitalize capital surplus by issuing 136,850 thousand shares of common stock.

The above appropriations of the earnings and capitalization of capital surplus had not been resolved by the shareholder’s meeting nor approved by the related authorities yet.

13. TREASURY STOCK (COMMON STOCK)

Reason of Repurchase Three months ended March 31, 2002	Reason of Repurchase Three months ended March 31, 2002	Number of Thousand Shares	Changes in Current Period	Changes in Current Period	Number of Thousand
	arch 31, 2002	(Beginning of Period)	Increase	Decrease	Shares (End of Period)
Three months ended M
For possible transfer to employees ..............		8,943	—	8,943	—

In compliance with the Securities and Exchange Law, the maximum number of treasury stock purchased should not exceed 10% of the total outstanding shares and the aggregate purchase cost should not be in excess of the total of the balances of the retained earnings, additional paid-in capital in excess of par value, capital surplus arising from gain on disposal of property, plant and equipment and capital surplus arising from donations received. The Company cannot pledge the treasury stock and it cannot exercise the rights of stockholders in respect to those stocks.

The Corporation sold 8,943 thousands shares of treasury stock to employees by NT$15 dollars per share in March, 2002. The acquisition of amount NT$133,743, net of securities transaction tax, is deducted from book value of treasury stock NT$118,293, and the balance is reported as capital surplus.

14. INCOME TAX

Income tax expense consists of the following:

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $20,124 (10,062) (1,504) —	2003 $63,887 (3,562) 4,696 (1,631)	2003
		$1,839 (103 135 (47
$8,558	$63,390	$1,824

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Current and non-current net deferred income tax assets comprised of the following:

Deferred income tax assets - current Deferred income.................................................................... Allowance for doubtful accounts ........................................... Allowance for loss on inventories ......................................... Unrealized foreign exchange loss .......................................... Investment tax credit............................................................. Net, shown as part of other current assets ................................. Deferred income tax assets - noncurrent Cumulative equity in net loss of investee companies ............. Accrued pension costs .......................................................... Others ................................................................................... Net, shown as part of other assets .............................................	New Taiwan Dollars 2002 2003 $13,997 $17,831 10,446 11,517 4,654 1,154 (222) (684) 11,628 — $40,503 $29,818 $10,008 $16,216 5,227 6,142 57 56 $15,292 $22,414	U.S. Dollars (Note 3)
	2002 $13,997 10,446 4,654 (222) 11,628 $40,503 $10,008 5,227 57 $15,292	2003
		$513 331 33 (19) —
		$858
		$466 177 2
		$645

As of March 31, 2003, the loss carryforwards and investment tax credit have been used to be deducted from the Corporation’s expected income tax payable of 2003.

Income tax returns through 2000 have been examined and cleared by the tax authorities in the ROC.

The balances of the ICA were NT$3,299 and NT$4,463 (US$128) as of March 31, 2002 and 2003, respectively.

There was no creditable tax ratio for 2001 because of a deficit. The ratio of the ICA and earnings generated starting January 1, 1998 (tax credit ratio) as of March 31, 2002 was expected to be 2.96%. The income tax credit available for allocation to the shareholders is calculated on the basis of the balance of the ICA on the date of distribution of dividends.

The unappropriated retained earnings (deficit) as of March 31, 2002 and 2003 did not include any earnings generated before January 1, 1998.

The statutory tax rates used for deferred income tax are both 25% as of March 31, 2002 and 2003.

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15. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE

New Taiwan Dollars Labor cost Salary ........................................................ Labor and health insurance ........................ Pension...................................................... Other ......................................................... Depreciation .................................................. Amortization .................................................. New Taiwan Dollars Labor cost Salary ........................................................ Labor and health insurance ........................ Pension...................................................... Other ......................................................... Depreciation .................................................. Amortization ..................................................	Three Months Ended March 31, 2002	Three Months Ended March 31, 2002	Three Months Ended March 31, 2002	Three Months Ended March 31, 2002
....................................... insurance ........................ ....................................... ....................................... ....................................... .......................................	Classified As Part of cost of Sales $15,322 1,140 481 257 17,200 9,978 240	Classified As Part of Operating Expense $18,463 928 1,009 580 20,980 1,719 415	Classified As Part of Non-operating Expense $— — — — — 302 —	Total
				$33,785 2,068 1,490 837
				38,180 11,999 655
	$27,418	$23,114	$302	$50,834
....................................... insurance ........................ ....................................... ....................................... ....................................... .......................................	$20,444 1,139 422 633 22,638 10,300 33	$28,349 1,686 940 841 31,816 1,801 148	$— — — — — 269 —	$48,793 2,825 1,362 1,474
				54,454 12,370 181
	$32,971	$33,765	$269	$67,005

U.S. Dollars Labor cost Salary ........................................................ Labor an health insurance .......................... Pension...................................................... Other ......................................................... Depreciation .................................................. Amortization ..................................................	Three Months Ended March 31, 2003	Three Months Ended March 31, 2003	Three Months Ended March 31, 2003	Three Months Ended March 31, 2003
................................................... health insurance .......................... ................................................... ................................................... .................................................. n ..................................................	Classified As Part of cost of Sales $588 33 12 19 652 296 1	Classified As Part of Operating Expense $816 49 27 24 916 52 4	Classified As Part of Non-operating Expense $— — — — — 8 —	Total
				$1,404 82 39 43
				1,568 356 5
	$949	$972	$8	$1,929

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16. EARNINGS PER SHARE

Earnings (loss) per share are computed as follows:

Numerator Income Before Income Tax Expense Net Income $86,366 $77,808 $275,745 $212,355 $7,936 $6,112	Per Share	(Dollars)
Income Before Income Tax Expense $86,366 $275,745 $7,936	Income Before Income Tax Expense $0.68 $2.01 $0.06	Net Income
		$0.61
		$1.55
		$0.04

17. PENSION PLAN

The Corporation makes monthly contributions, equal to 2% of salaries to pension funds (the “Funds”). The Funds are administered by the employees, pension fund committee and deposited in their name in the Central Trust of China.

The Corporation recognized pension expenses of NT$1,490 and NT$1,362, respectively, for the three months ended March 31, 2002 and 2003, respectively. The balance of the Funds as of March 31, 2003 was NT$17,396.

18. RELATED PARTY TRANSACTIONS

The Corporation has transactions with related parties in the normal course of business. The relationships are summarized as follows:

Related Parties Gold Fountain Limited Broptics Communication Corporation (Broptics) Shuttle Computer International Inc. (S.C.I.) Shuttle Computer Handels GmbH (S.C.H.) Shuttle Computer Group Inc. (S.C.G.) David Yu Simon Yu	Relationships
	The Corporation’s subsidiary The Corporation’s subsidiary Gold Fountain Limited’s subsidiary Gold Fountain Limited’s subsidiary Gold Fountain Limited’s subsidiary The Corporation’s chairman The Corporation’s vice president

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Except for Note 20, the transactions with the foregoing related parties are summarized as follows:

		March 31	March 31	March 31
................................................. ................................................. .................................................		New Taiwan Dollars			% 28 24 —	U.S. Dollars (Note 3)
		2002	% 25 17 —	2003		2003
		Amount $320,314 214,909 21		Amount $449,789 398,975 —		Amount
						$12,945 11,483 —
		$535,244 $1,346	42 52	$848,764 $364	52 79	$24,428
						$10
	able ............................................ ............................................ ............................................ ............................................	$292,642 386,508 6,403 21	43 56 1 —	$520,584 504,661 — —	51 49 — —	$14,983 14,525 — —
		$685,574	100	$1,025,245	100	$29,508

Sales to and purchase from related parties were based on normal prices and collection and payment terms. Except Broptics, the Corporation pays to and collects from the other related parties in 150 days, under the balances which is offset by balances of receivables and payables last month.

The Corporation’s rental agreements about the amount and terms of collections with related parties were equivalent to others with normal client.

David Yu and Simon Yu pledged their personal held stocks of Shuttle Inc. to Elitegroup Computer Systems Inc. for the Corporation’s purchase credit line. The highest amount and ending balance of shares pledged as of and for the three months ended 2002 and 2003 were 4,000 thousand shares and 6,000 thousand shares, respectively.

The Corporation sold 1,000 thousand shares of stocks of Partner Tech Corporation to Hong-Yi Investment Inc. in July, 2002, and the disposal amount and carrying value totaled NT$29,910 (US$861) and NT$29,400 (US$846), respectively. Thus, the unrealized gain NT$510 (US$15) was deferred to be a part of other liabilities.

S.C.I. sold its operating facilities in February 2003, and the disposal amount and carrying value were US$2,550 and US$1,934, respectively. Then, S.C.I. sold it’s transportation equipment to S.C.G on March 4, 2003, the disposal amount and carrying value were US$20 both, and terminated business operations and entered into the process of liquidation under the resolution of the board of directors, and expected the completion of liquidation in April 2003.

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19. ASSETS PLEDGED OR MORTGAGED

The following assets have been pledged or mortgaged as collaterals for short-term bank loans and other credit financing:

New Taiwan Dollars	New Taiwan Dollars	U.S. Dollars (Note 3)
2002 $42,163 849,528 168,110	2003 $41,567 759,588 164,005	2003
		$1,196 21,862 4,720
$1,059,801	$965,160	$27,778

20. COMMITMENTS AND CONTINGENT LIABILITIES AS OF MARCH 31, 2001

a. The Corporation entered into a patent license agreement with IBM. Under the agreement, the Corporation should pay US$368 to IBM for the patent in 2003 and 2004, respectively.
b. Unused letters of credit aggregating about NT$25,441 (US$732).

21. FINANCIAL INSTRUMENTS

The Corporation entered into derivative financial instrument transactions for the three months ended 2002 and 2003 to manage exposures related to foreign-currency denominated receivables or payables. The strategy is to manage its market price risks. Certain information on these contracts as of March 31, 2002 and 2003 are as follows:

a. Contract value, credit risk and fair value

The outstanding contracts as of March 31, 2002 and 2003 are summarized as following:

Type of transaction	Type of transaction	March 31, 2002	March 31, 2002
		Notional Amount	Credit Risk	Fair Value
Foreign currency options Sell call options .......................................................... Sell put options ...........................................................		US$8,250 EUR5,000 EUR5,000	$— — —	US$(13 — US$(213

Credit risk represents the positive settlement amount of those contracts with positive fair value on the balance sheet date. The positive settlement amount represents the loss incurred by the Corporation if the counter-parties breached the contracts. The Corporation entered into the transactions of selling call (put) options, thus no credit risks occurred.

The Corporation incurred losses of NT$2,167 in 2002 and gains of NT$22,858 (US$658) in 2003 on foreign currency option contracts.

b. Market price risk

The Corporation is exposed to market price risks arising from fluctuations in exchange rates. The Corporation uses foreign currency options hedge the effect of foreign currency fluctuations on net assets and net liabilities. The Corporation manages market risk exposures by using as hedge instruments those instruments whose changes in their fair values or cash flows offsets the changes in the fair values or cash flows of the hedge items. Thus, market price risks are believed to be minimal.

c. Liquidity risk, cash flow risk and uncertainty of amount and term of future cash demand

The Corporation contracted or entered into foreign currency option contracts for hedging exchange rate fluctuation on net assets and net liabilities.

The expected cash inflow (outflow) upon settlement of derivative transactions will be offset against the inflow (outflow) of hedged receivable and payables. The Corporation has sufficient operating capital to meet the above cash demand. The exchange rates of foreign currency option contracts have been fixed. Therefore, there is no material fund raising risk and cash flow risk.

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d. The purpose of derivative financial instruments held or issued and the strategies to meet the purpose

The Corporation uses derivative financial instruments completely for purposes other than trading. The Corporation entered into foreign currency option contracts to hedge the effect of foreign currency fluctuations on net assets and net liabilities. The Corporation has designated as hedging instruments those instruments whose changes in their fair values offset the changes in fair values of the hedged items. The Corporation also periodically evaluates the effectiveness of the hedge relationships.

e. Fair value of financial instruments

March 31

	March 31	March 31	March 31	March 31	March 31	March 31

Nonde	rivative financial instruments nd cash equivalents .................. term investments - net .............. receivable................................. nts receivable - net ................... able from related parties .......... financial assets ......................... erm investments - net............... d time deposits......................... dable deposits ........................... ties	New Taiwan Dollars 2002 2003 Carrying Value Fair Value Carrying Value Fair Value $694,849 $694,849 $710,811 $710,811 — — 158,400 158,400 1,241 1,241 7,403 7,403 293,641 293,641 356,818 356,818 685,574 685,574 1,025,245 1,025,245 229 229 4,154 4,154 405,832 373,373 327,630 277,927 42,163 42,163 41,567 41,567 6,359 6,359 317 317				U.S. Dollars (Note 3)
		2002 Carrying Value Fair Value $694,849 $694,849 — — 1,241 1,241 293,641 293,641 685,574 685,574 229 229 405,832 373,373 42,163 42,163 6,359 6,359				2003
		Carrying Value $694,849 — 1,241 293,641 685,574 229 405,832 42,163 6,359		Carrying Value $710,811 158,400 7,403 356,818 1,025,245 4,154 327,630 41,567 317		Amount
Assets						$20,458 4,559 213 10,270 29,508 120 7,999 1,196 9
Cash a Short- Notes Accou Receiv Other Long-t Pledge Refun Liabili
Short-term bank loans ........................ Notes payable..................................... Accounts payable ............................... Other financial liabilities.................... Current portion of long-term liabilities........................................ Long-term liabilities........................... Guarantee deposits .............................		$— 39,643 620,579 25,580 23,257 386,368 3,356	$— 39,643 620,579 25,580 23,257 386,368 3,356	$511 273,037 886,617 480 — — 1,760	$511 273,037 886,617 480 — — 1,760	$15 7,858 25,518 14 — — 51

The methods and assumptions used in estimating fair values are as follows:

1) The carrying values approximate the fair values of the following instruments: Cash and cash equivalents, notes receivable and payable, accounts receivable and payable, receivables from related parties, other financial assets and liabilities, refundable and guarantee deposits, short-term bank loans, and current portion of long-term liabilities.
2) Fair values of short-term investments and long-term investments are based on quoted market prices, or on the Group’s proportionate share of the investees’ net assets or carrying value.
3) The fair values of the long-term liabilities are estimated using discounted cash flow analysis, based on the Group’s current incremental borrowing rates for similar types (similar maturity date) of borrowings.

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22. ADDITIONAL DISCLOSURES

a. Following are the additional disclosures required by the SFC from the Corporation and investee companies:
1) Financing provided: None
2) Endorsement/guarantee provided: None
3) Short-term and long-term stock investments held: Table 1.
4) Securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the capital stock: None.
5) Lands and buildings acquired at costs of at least NT$100 million or 20% of the capital stock: None.
6) Lands and buildings disposed at prices of at least NT$100 million or 20% of the capital stock: None.
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the capital stock: Table 2.
8) Receivables from related parties amounting to at least NT$100 million or 20% of the capital stock: Table 3.
9) Names, locations, and related information of investees on which the Company exercises significant influence: Table 4.
10) Derivative financial transactions: Note 21.
b. Investments in Mainland China: None.

F-59

							Note
				Market	Value or	Net Asset	Value		$70,490	65,423	64,101		15,342		14,310		41,447	6,814	8,343		71,178		34,634		34,745		9,500
			March 31, 2003	Percentage	of	Carrying Ownership	Value (%)		$70,490 100.00	65,423 100.00	64,101 99.00		17,455 19.00		30,214 2.78		77,059 0.19	38,500 0.39	11,100 —		69,450 —		34,674 —		34,785 —		10,000 —
MARKETABLE SECURITIES HELD	March 31, 2003	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)				Relationship with Financial Statement Shares/	Securities Type and Name the Company Account Units	Stocks	Holco (BVI) Inc. A subsidiary Long-term investment 50,000	Gold Fountain Limited A subsidiary Long-term investment 7,021,838	Hong-Yi Investment Inc. An equity-method accounted Long-term investment 8,910,000	investee	Broptics Communication Corporation An equity-method accounted Long-term investment 2,850,000	investee	Partner Tech Corporation A member of the board of Long-term investment 1,110,240	directors of the company	Elitegroup Computer Systems Co., Ltd. — Long-term investment 803,571	TwinMOS Technologies Inc. — Long-term investment 805,000	World Peace Industrial Co., Ltd. — Short-term investment 300,000	Fund	Global Strategic Fund 1 — Short-term investment 198,700	ECB	Bearer-Unit CF Bond — Short-term investment —	Structured note	Bond Linked Structure Note — Short-term investment —	Indebenture Bond	SSC1 — Short-term investment 100,000
							Held Company Name	Shuttle Inc.

F-60

							Note
				Market	Value or	Net Asset	Value		28,225		10,543	254		$26,609	35,246	—			19,561		10,546	8,239			3,822	2,490			15,812	25,607		3,055
			March 31, 2003	Percentage	of	Carrying Ownership	Value (%)		28,228 99.99		34,745 3.71	8,686 —		$26,609 100.00	35,246 100.00	1,762 100.00			41,923 3.80		6,552 1.64	21,170 —			10,251 —	4,960 —			15,113 —	25,000 —		24,322 1.03
MARKETABLE SECURITIES HELD — (Continued)	March 31, 2003	(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)				Relationship with Financial Statement Shares/	Securities Type and Name the Company Account Units	Limited company	Shuttle Computer (H.K.) Co., Ltd. A subsidiary Long-term investment —	Stocks	Tera Fiberopotics Inc. (preferred stock) — Long-term investment 750,000	Titan Corporation (formerly Global Net Inc.) — Short-term investment 963	Stocks	Shuttle Computer International Inc. A subsidiary Long-term investment 1,200,000	Shuttle Computer Group Inc. A subsidiary Long-term investment 230,000	Shuttle Computer Handels GmbH A subsidiary Long-term investment 2,000,000	Stocks		Partner Tech Corporation A member of the board of Long-term investment 1,518,048	directors of the company	Gvision Incorporated — Long-term investment 900,000	Ares International Corporation The Corporation’s chairman is Short-term investment 692,546	an immediate family member	of Hong-Yi’s chairman	United Microelectronics Corp. — Short-term investment 188,600	Elitegroup Computer Systems Co., Ltd. — Short-term investment 48,000	Fund		HSBC Fu-Thai Bond Fund — Short-term investment 1,119,967.9	Barits Bau-Yuan Fund — Short-term investment 2,219,933.2	Stocks	Kinzan Inc. (preferred stock) — Long-term investment 175,000
							Held Company Name	Holco (BVI) Inc.					Gold Fountain Limited				Hong-Yi Investment	Inc.									Broptics	Communication	Corporation		Shuttle Computer	(H.K.) Co., Ltd.

F-61

Company Name Related Party Nature of Relationship Transaction Details Abnormal Transaction Note/Accounts Payable or Receivable Note Purchase/ Sale Amount % to Total Payment Terms Unit Price Payment Terms Ending Balance % to Total For the Year Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Related Party Nature of Relationship Note Purchase/ Sale Amount % to Total Payment Terms Unit Price Payment Terms Ending Balance % to Total	Shuttle Inc. Shuttle Computer Handels GmbH Subsidiary of Gold Fountain Limited Sale $449,789 28 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly $504,661 36 Shuttle Computer Group Inc. Subsidiary of Gold Fountain Limited Sale 398,975 24 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly 520,584 37 Shuttle Computer Handels GmbH Shuttle Inc. Parent company of Gold Fountain Limited Purchase 449,789 97 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly 504,661 98 Shuttle Computer Group Inc. Shuttle Inc. Parent company of Gold Fountain Limited Purchase 398,975 100 Average 150 days Equivalent to unrelated parties Equivalent to unrelated parties except payment after 150 days from the day of offsetting account monthly 520,584 100

F-62

Company Name Related Party Nature of Relationship Ending Balance Turnover Rate Overdue Amounts Received in Subsequent Period Allowance for Bad Debts Amount Action Taken March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Related Party Nature of Relationship Ending Balance Turnover Rate in Subsequent Period for Bad Debts Amount Action Taken	Shuttle Inc. Shuttle Computer Group Inc. Subsidiary of Gold Fountain Limited $520,584 3.59 $— — $71,214 $— Shuttle Computer Handels GmbH Subsidiary of Gold Fountain Limited 504,661 3.42 — — 146,505 —

F-63

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of March 31, 2003 Net Income (Loss) of the Investee Investment Gain (Loss) (Note 1) Notes Dec. 31, 2002 Mar. 31, 2003 Shares Percentage of Ownership Carrying Value SHUTTLE INC. AND INVESTEES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Investee Company Location Main Businesses and Products of the Investee Gain (Loss) (Note 1) Notes Dec. 31, 2002 Mar. 31, 2003 Shares Percentage of Ownership Carrying Value	Shuttle Inc. Holco (BVI) Inc. B.V.I. Holding company $1,382 $1,382 50,000 100.00 $70,490 $(112) $(112) Gold Fountain Limited Cayman Islands Holding company 240,335 240,335 7,021,838 100.00 65,423 29,805 29,805 Hong-Yi Investment Inc. 3F., No. 2, Lane 107, Minsheng E. Rd., Sec. 3, Songshan District, Taipei City 105, Taiwan (R.O.C.) Investment 89,100 89,100 8,910,000 99.00 64,101 (1,203) (1,191) Broptics Communication Corporation 3F., No. 58, Fusing N. Rd., Songshan District, Taipei City 105, Taiwan (R.O.C.) Electronic material manufacturing and selling 29,375 29,375 2,850,000 19.00 17,455 (5,080) (Note 2) (1,145) Holco (BVI) Inc. Shuttle Computer (H.K.) Co., Ltd Unit A 19/F, Dragon Center, 79 Wing Hong St., Cheung Sha Wan, Kowloon H.K. Electronic components marketing 36 36 — 99.99 28,228 (1) (1)

F-64

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of March 31, 2003 Net Income (Loss) of the Investee Investment Gain (Loss) (Note 1) Notes Dec. 31, 2002 Mar. 31, 2003 Shares Percentage of Ownership Carrying Value NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH — (Continued) THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)	Investee Company Location Main Businesses and Products of the Investee Gain (Loss) (Note 1) Notes Dec. 31, 2002 Mar. 31, 2003 Shares Percentage of Ownership Carrying Value	Gold Fountain Limited Shuttle Computer International Inc. 939 Radecki Court City Of Industry, CA 91748 U.S.A. Electronic components marketing $86,063 $86,063 1,200,000 100.00 $26,609 $— $— Shuttle Computer Group Inc. 939 Radecki Court City Of Industry, CA 91748 U.S.A. Electronic components marketing 116,554 116,554 230,000 100.00 35,246 16,069 16,069 Shuttle Computer Handels GmbH Fritz-Strassmann Str. 5 D-25337 Elmshorn, Germany Electronic components marketing 37,586 37,586 2,000,000 100.00 1,762 13,736 13,736 Note 1: The investment gain (loss) of the equity-accounted investments is based on unreviewed financial statement. Note 2: The differences are between the acquisition cost of the investment and the company equity in the fair value of the net assets of the investee companies.

F-65

REGISTERED OFFICE OF THE COMPANY

Shuttle Inc.

No. 30, Lane 76, Rei Kuang Rd. Nei-Hu Dist., Taipei City ROC

TRUSTEE

J.P. Morgan Corporate Trustee Services Limited Trinity Tower, 9 Thomas More Street London E1W 1YT England

REGISTRAR

JPMorgan Chase Bank Trinity Tower, 9 Thomas More Street London E1W 1YT England

PRINCIPAL PAYING, TRANSFER AND CONVERSION AGENT

JPMorgan Chase Bank Trinity Tower, 9 Thomas More Street London E1W 1YT England

AUDITORS TO THE COMPANY

Deloitte & Touche TN Soong & Co. and Deloitte & Touche (Taiwan) Established Deloitte & Touche Effective June 1, 2003 12th Floor, 156, Min Sheng E. Road Sec.3, Taipei, Taiwan, ROC

ROC LEGAL ADVISORS LEGAL ADVISORS LEGAL ADVISORS TO THE COMPANY TO THE TRUSTEE TO THE MANAGERS Transpac International Baker & McKenzie Baker & McKenzie Law Offices 14/F, Hutchison House 14/F, Hutchison House 10th Floor, No.9, Sec.2, 10 Harcourt Road 10 Harcourt Road Roosevelt Road Hong Kong Hong Kong Taipei, Taiwan, ROC

LUXEMBOURG PAYING, TRANSFER AND CONVERSION AGENT

J.P. Morgan Bank Luxembourg S.A.

5 rue Plaetis L-2338 Luxembourg Grund

==> picture [113 x 68] intentionally omitted <==

Printed by IFN Financial Press Limited 23430

AI assistant

Shuttle — Capital/Financing Update 2013

52059_rns_2013-09-10_1c8469d0-8376-4d29-b14c-48a826616e46.pdf

Shuttle Inc.

U.S.$12,000,000

Zero Coupon Convertible Bonds due 2008

Issue Price: 100%

For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see “Risk Factors” on page 1 herein.

Barits Securities (Hong Kong) Limited

NOTICE TO INVESTORS

THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF 40 DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2008 OF SHUTTLE INC.” ; and

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

TAX CONSULTANCY REQUIRED

TABLE OF CONTENTS

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

RISK FACTORS

Risks Relating to the Company’s Business

The Company’s performance depends on its ability to maintain cost leadership in motherboards and computer add-on cards production

The Company does not usually enter into long-term supply contracts with its OEM/ODM customers and therefore some of its customers may cancel their orders, change production quantities or delay production

The Company’s future revenues will depend on continuing demand for personal computers and related products

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

The motherboards, add-on cards and computer barebone systems manufacturing industries are highly competitive

The Company’s operating results may vary significantly

The Company may experience shortages of raw materials and components

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

The Company may be unable to manage its growth effectively

The Company may not be able to protect its intellectual property

The Company may be involved in intellectual property disputes

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

The Company is exposed to the risks of currency exchange rate fluctuations

The Company’s operation may be adversely affected by natural disaster in the ROC

Risks Relating to the Offering

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

Transfers of the Bonds and Shares are restricted

An active trading market for the Bonds may not develop

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

Holders of the Bonds will be required to appoint several local agents in Taiwan if they convert the Bonds into Shares, which may make ownership burdensome

Risks Relating to the ROC

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

The adverse economic conditions in Taiwan and Asia may affect the Company and the Bonds

Foreign exchange approvals may be required

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

TERMS AND CONDITIONS OF THE BONDS

1. Status

2. Form, Denomination and Title

(A) Form and Denomination

3. Negative Pledge

4. No Interest

5. Transfers of Bonds; Issue of Definitive Certificates

(A) Transfers

(B) Delivery of New Definitive Certificates

(C) Formalities Free of Charge

(D) Restricted Transfer Periods

(E) Regulations

6. Conversion

(A) Conversion Right

(B) Conversion Procedure

(C) Adjustments to Conversion Price

(D) Conversion Price Reset

(E) Alternative Conversion Price Reset

(F) Mergers; Disposals

(G) Conversion Undertakings

7. Payments

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

(B) Registered Accounts

(C) Fiscal Laws

(D) Payment Initiation

(E) Payment Delay

(F) Business Days

(G) Partial Payments

8. Redemption, Purchase and Cancellation

(A) Redemption at Maturity

(B) Redemption at the Option of the Company

(C) Redemption at the Option of Bondholders

(D) Redemption for Taxation Reasons

(E) Repurchase

(F) Selection of Bonds

(G) Cancellation

(H) Redemption Notices

Shuttle Capital/Financing Update 2013