CONFIDENTIAL

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U.S.$100,000,000

Winbond Electronics Corporation

(incorporated in Taiwan, Republic of China)

Zero Coupon Convertible Notes Due 2011

The U.S.$100,000,000 Zero Coupon Convertible Notes due 2011 (the “Notes”) are being offered by Winbond Electronics Corporation (“Winbond” or the “Company”) outside the United States in reliance on Regulation S under the United States Securities Act of 1933. The Notes are not being offered in the Republic of China.

The Notes will be direct and unconditional obligations of the Company and will rank at least pari passu in right of payment with all other unsecured and unsubordinated debt of the Company, except as otherwise provided herein. The Notes will not bear interest except in the limited circumstances set forth herein. Holders of the Notes may convert the Notes into Common Shares of the Company at any time (subject to certain restrictions) 30 days after May 24, 2006 and up to 15 days prior to maturity. The conversion rate is 2,300.2191 Common Shares per U.S.$1,000 principal amount of Notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of NT$13.69 per Common Share determined at the fixed exchange rate of NT$31.49 = U.S.$1.00. The Common Shares are listed on the Taiwan Stock Exchange and application will be made to list the Common Shares deliverable on conversion of the Notes on the Taiwan Stock Exchange. The closing sale price per Common Share on the Taiwan Stock Exchange on May 10, 2006 was NT$10.95.

Unless the Notes have been previously converted, redeemed or purchased and cancelled, holders of Notes will have the right to require the Company to purchase for cash the Notes, in whole or in part, at a price equal to 100% of their outstanding principal amount in U.S. dollars on May 24, 2008. Holders of Notes will also have the right to require Winbond to redeem the Notes, in whole or in part, at a price equal to 100% of their principal amount in U.S. dollars upon the Common Shares ceasing to be listed on the Taiwan Stock Exchange or the occurrence of a Change of Control with respect to the Company.

Unless the Notes have been previously converted, redeemed or purchased and cancelled, the Company will redeem the Notes at maturity at a price equal to 100% of their principal amount in U.S. dollars. Prior to May 24, 2011, (i) the Notes may be redeemed at the option of the Company at any time on or after May 24, 2008, at 100% of their principal amount in U.S. dollars on such redemption date if the closing price of the Common Shares (translated into U.S. dollars at the prevailing exchange rate) for any 20 trading days out of 30 consecutive trading days is at least 125% of the conversion price (translated into U.S. dollars at the fixed exchange rate of NT$31.49 = U.S.$1.00), or (ii) the Notes may be redeemed at the option of the Company, in whole but not in part, at any time if at least 90% in principal amount of the Notes have been converted, redeemed or purchased and cancelled. The Notes may also be redeemed, in whole but not in part, at any time at the option of the Company at 100% of their principal amount in U.S. dollars in the event of certain changes relating to Republic of China taxation.

Approval in-principle has been received for the listing of the Notes on the Singapore Exchange Securities Trading Limited (“SGX-ST”). The SGX-ST takes no responsibility for the correctness of any of the statements made or opinions or reports contained in this Offering Circular. Admission of the Notes to the Official List of the SGX-ST is not to be taken as an indication of the merits of any of the Notes or of Winbond Electronics Corporation.

See “ Risk Factors ” on page 18 for a discussion of certain factors to be considered in connection with an investment in the Notes.

Offering Price: 100%

Goldman Sachs International is entitled at any time, in whole or in part on one or more occasions, up to and including the day 30 days after the Closing Date, to purchase up to a further U.S.$20,000,000 aggregate principal amount of the Notes (“Optional Notes”). Such entitlement was exercised in full on May 10, 2006. Winbond Electronics Corporation shall inform the SGX-ST that the Optional Notes have been issued.

The Notes and the Common Shares issuable upon conversion of the Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “ Securities Act ” ) or any state securities laws. The Notes are only being sold outside the United States to non-U.S. persons in accordance with Regulation S under the Securities Act. Because the Notes and the Common Shares issuable upon conversion of the Notes are not, and will not be registered under the Securities Act, they are subject to certain “ ” restrictions on resale described under Underwriting .

The Notes will be represented by beneficial interests in a global certificate (the “Global Certificate”) in registered form, which will be registered in the name of The Bank of New York Depository (Nominees) Limited, a nominee of and deposited on or about May 24, 2006 (the “Closing Date”) with, The Bank of New York, London branch (“Common Depositary”) for Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, International”). Beneficial interests in the Global Certificate have been accepted for clearance through Euroclear and Clearstream. Except as described in this Offering Circular, certificates for the Notes will not be issued in exchange for interests in the Global Certificate.

The Managers expect to deliver the Notes against payment therefore on or about the Closing Date.

Global Coordinator and Sole Bookrunner

Goldman Sachs International

Offering Circular dated May 18, 2006

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

The distribution of this Offering Circular and the offering and sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular 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 Notes and distribution of this Offering Circular, see “ Underwriting ” . This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Company or the Manager to subscribe for or purchase, any of the Notes 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 Notes to give any information or to make any representation not contained in this Offering Circular and any information or representation not contained herein must not be relied upon as having been authorized by the Company or the Manager. Neither the delivery of this Offering Circular nor any sale or allotment made in connection with the issue of the Notes 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.

In connection with this issue, Goldman Sachs International may, subject to applicable laws and regulations, over-allot or effect transactions with a view to supporting the market price of the Notes (and subject to applicable ROC laws, the Common Shares) at a level higher than that which might otherwise prevail for a limited period after the Closing Date. However, there may be no obligation on Goldman Sachs International to do this. Such stabilizing, if commenced, may be discontinued at any time, and must be brought to an end after a limited period.

This Offering Circular does not constitute an offer of, or an invitation by or on behalf of The Bank of New York, London branch (as “ Trustee ” ), The Bank of New York, London branch (as “ Principal Agent ” , “ Paying Agent ” , “ Conversion Agent ” and “ Transfer Agent ” , each an “ Agent ” and together the “ Agents ” ) or The Bank of New York (as “ Registrar ” ) to subscribe for or purchase, any of the Notes, and may not be used for the purpose of an offer to, or a solicitation by, any person in any jurisdiction in which such offer or invitation would be unlawful.

None of the Manager, Trustee, the Registrar or the Agents has separately verified the information contained in this Offering Circular. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Manager, the Trustee, the Registrar or the Agents as to the accuracy or completeness of the information contained in this Offering Circular or any other information supplied in connection with the Notes or the Shares. Each person receiving this Offering Circular acknowledges that such person has not relied on the Manager, the Trustee, the Registrar or the Agents or any person affiliated with any of them in connection with its investigation of the accuracy of such information or its investment decision and

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each such person must rely on its own examination of the Company and the merits and risks involved in investing in the Notes. This Offering Circular is not intended to provide the basis of any credit or other evaluation nor should it be considered as a recommendation by the Company, the Manager, the Trustee, the Registrar or the Agents or any person affiliated with any of them, that any recipient of this Offering Circular should purchase the Notes.

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

The Company has prepared audited consolidated financial statements as of and for the three years ended December 31, 2003, 2004 and 2005 and has prepared unaudited non-consolidated financial statements as of and for the three-months period ended March 31, 2005 and 2006. See “Index to financial statements”. These financial statements were prepared in conformity with generally accepted accounting principles in the ROC (“ROC GAAP”) which differ in certain material respects from generally accepted accounting principles in the United States (“U.S. GAAP”). See “Summary of Certain Material Differences between ROC GAAP and U.S. GAAP”.

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ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

The Company is a company limited by shares and incorporated under the Company Law of the ROC (the “Company Law”). Substantially all of the Company’s directors and executive officers, its supervisors and certain other parties named herein are residents of the ROC and a substantial portion of the assets of the Company and such persons are located in the ROC. As a result, it may not be possible for investors to effect service of process upon the Company or such persons outside of the ROC, or to enforce against any of them judgments obtained in courts outside of the ROC. The Company has been advised by Lee and Li, its legal advisers in the ROC, that any final judgment obtained against the Company or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Notes will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that: (i) the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC; (ii) the judgment and the court procedures resulting in the judgment are not contrary to the public order or good morals of the ROC; (iii) if the judgment was rendered by default, the Company or such persons were duly served in the jurisdiction of such court within a reasonable period of time in accordance with the laws and regulations of such jurisdiction, or process was served on the Company or such persons with the judicial assistance of the ROC; and (iv) judgments of the courts of the ROC are recognized in the court rendering the judgment on a reciprocal basis. Remittance out of the ROC of any amount recovered from enforcing a foreign judgment in the ROC is also subject to the Foreign Exchange Control Statute and regulations as described in “Foreign investment and exchange controls in the ROC” herein.

FORWARD-LOOKING STATEMENTS

Certain statements under “Summary”, “Risk Factors”, “Recent Development and Outlook”, “The Company”, “Business” and elsewhere in this Offering Circular constitute “forward-looking statements”. All statements other than statements of historical facts included in this Offering Circular, including, without limitation, those regarding the financial position, business strategy, capital expenditure and investment plans of the Company and the plans and objectives of the Company’s management for its future operations (including development plans and objectives relating to the Company’s products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results or performance of the Company, or industry results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Among the important factors that could cause the Company’s actual results or performance to differ materially from those in the forward-looking statements include, among others, the status of the global and Taiwanese electronics industries (and in particular, trends in demand and supply relating to semiconductor and personal computer industry products), the ability of the Company to develop and introduce new products to meet the competitive requirements of the market place, and the Company’s ability to earn repeat orders from its key customers. Additional factors that could cause actual results or performance to differ materially include, but are not limited to, those discussed in “Risks Factors”. These forward-looking statements speak only as of the date of this Offering Circular. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change of events, conditions or circumstances, on which any such statement was based.

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CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY

The Company publishes its financial statements in New Taiwan dollars. All translations from New Taiwan dollars to U.S. dollars were made (unless otherwise indicated) on the basis of the noon buying rate announced by the Federal Reserve Bank of New York on March 31, 2006 of NT$32.42 = U.S.$1.00. All amounts translated into U.S. dollars as described above are provided solely for convenience 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 or at all. See “Exchange Rates”. Any discrepancies in the tables included herein between the amounts listed and the totals thereof are due to rounding.

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

Agency Agreement ............................	The paying and conversion agency agreement to be dated
	May 24, 2006 by and between the Company, the Agents and
	the Trustee
Agents ...............................................	The Registrar and the Principal, Paying, Conversion and
	Transfer Agents under the Agency Agreement
Certificate ..........................................	A note certificate
Common Shares or Shares ...............	The common shares, par value NT$10 per share, of the
	Company
Company or Winbond.........................	Winbond Electronics Corporation, a company limited by
	shares in Taiwan, Republic of China, and, where
	appropriate, its subsidiaries
Company Law ...................................	The Company Law of the ROC
Conversion Agent ..............................	The Bank of New York, London branch
Conversion Price ...............................	The conversion price of the Note, which will initially be
	NT$13.69 and with a fixed rate of exchange applicable on
	conversion of the Notes of U.S.$1.00 equals NT$31.49
ECB ....................................................	Euro-convertible bond, a convertible bond denominated in
	U.S. dollars and issued in a country other than the United
	States
Global Certificate ...............................	A global certificate evidencing beneficial interests in the
	Notes
Infineon ..............................................	Infineon Technologies AG
LCB.....................................................	Local-convertible bond, a convertible bond issued in the
	ROC and denominated in NT dollars
MOF ...................................................	Ministry of Finance, ROC
New Taiwan dollars,
NT dollars or NT$...............................	The lawful currency of the ROC
Notes ..................................................	The US$100,000,000 Zero Coupon Convertible Notes due
	2011 being issued by the Company
PRC ...................................................	People’s Republic of China (but excluding the Special
	Administrative Region of Hong Kong and the ROC)
Principal Agent ..................................	The Bank of New York, London branch
Paying Agent .....................................	The Bank of New York, London branch

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R&D ...................................................	Research and development
Registrar ............................................	The Bank of New York
ROC ...................................................	The island of Taiwan and other areas under the effective
	control of the Republic of China
ROC FSC ..........................................	The ROC Financial Supervisory Commission
ROC GAAP .......................................	Generally accepted accounting principles in the ROC
ROC MOEA .......................................	The ROC Ministry of Economic Affairs
ROC SFB ...........................................	The ROC Securities and Futures Bureau
SGX-ST .............................................	Singapore Exchange Securities Trading Limited
Terms and Conditions .......................	The terms and conditions of the Notes
Trading Day .......................................	A day on which the TSE is open for business
Transfer Agent ...................................	The Bank of New York, London branch
Trustee ..............................................	The Bank of New York, London branch
Trust Deed .........................................	The trust deed to be dated May 24, 2006 between the
	Company and the Trustee which constitutes the Notes
TSE ....................................................	The Taiwan Stock Exchange
U.S. GAAP ........................................	U.S. generally accepted accounting principles
U.S. Dollar or U.S.$ ...........................	United States dollars
Walsin Lihwa ......................................	Walsin Lihwa Corp.

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GLOSSARY OF TECHNICAL TERMS

This glossary contains certain definitions of technical terms used in this Offering Circular as they relate to the Company. Certain of these definitions may not correspond to standard industry definitions.

ASIC ..................................................	Application Specific Integrated Circuit, a proprietary
	integrated circuit designed and manufactured to meet a
	customer’s specific functional requirements.
Bluetooth ...........................................	A short-range networking protocol for communications
	between different types of Internet devices and between
	such devices and the Internet.
Cell ....................................................	A primary unit that normally repeats many times in an
	integrated circuit. Cells represent individual functional
	design units or circuits that may be reused as blocks in
	designs. For example, a memory cell represents a storage
	unit in a memory array.
Die .....................................................	One individual chip cut from a wafer before being packaged.
DRAM ................................................	Dynamic Random Access Memory, a device that temporarily
	stores digital information but requires regular refreshing to
	ensure data is not lost.
Fab ....................................................	Fabrication facility, a silicon wafer manufacturing plant.
Flash memory ....................................	A type of non-volatile memory where data is erased in
	blocks. The name “flash” is derived from the rapid block
	erase operation. Flash memory requires only one transistor
	per memory cell versus two transistors per memory cell for
	EEPROMs, making flash memory less expensive to
	produce. Flash memory is the most popular form of
	non-volatile semiconductor memory currently available.
IC .......................................................	Integrated Circuit.
IDM ....................................................	Integrated Device Manufacturer.
IEEE ..................................................	Institute of Electrical and Electronics Engineers, a
	world-wide professional association that sets standards for
	the telecommunications and electronics industry.
Integrated circuit ................................	An electronic circuit where all the elements of the circuit are
	integrated together on a single semiconductor substrate.
Interconnect .......................................	Conductive materials such as aluminum, doped polysilicon
	or copper that form the wiring circuitry to carry electrical
	signals to different parts of the chip.
I/O ......................................................	Input/Output.
ISDN ..................................................	Integrated Services Digital Network, an international
	communications standard for sending voice, video, and data
	over digital telephone lines or normal telephone wires.
LAN ....................................................	Local Area Network, a computer network that spans a
	relatively small area.
Linux ..................................................	A freely-distributable open source operating system that
	runs on a number of hardware platforms.

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Logic device ......................................	A device that contains digital integrated circuits that perform
	a function rather than store information.
Mask ..................................................	A glass plate with a pattern of transparent and opaque areas
	used to create patterns on wafers. “Mask” is commonly used
	to refer to a plate that has a pattern large enough to pattern a
	whole wafer at one time, as compared to a reticle, where a
	glass plate can contain the pattern for one or more dies but is
	not large enough to transfer a wafer-sized pattern all at once.
Memory ..............................................	A device that can store information for later retrieval.
Micron ................................................	A term for micrometre, which is a unit of linear measure that
	equals one one-millionth (1/1,000,000) of a meter. There are
	25.4 microns in one one-thousandth of an inch.
NOR Flash .........................................	A type of flash memory commonly used to store and run
	code, usually in small capacities.
Non-volatile memory .........................	Memory products that maintain their content when the power
	supply is switched off.
ODM ..................................................	Original Design Manufacturer.
OEM ..................................................	Original Equipment Manufacturer.
PC ......................................................	Personal Computer.
RAM ...................................................	Random Access Memory. Memory devices where any
	memory cell in a large memory array may be accessed in
	any order at random.
ROM ..................................................	Read-Only Memory. See “Mask ROM” above.
Semiconductor ..................................	An element with an electrical resistivity within the range of an
	insulator and a conductor. A semiconductor can conduct or
	block the flow of electric current depending on the direction
	and magnitude of applied electrical biases.
SDRAM ..............................................	Synchronous Dynamic Random Access Memory, a type of
	DRAM that can run much higher clock speeds than
	conventional memory.
SRAM ................................................	Static Random Access Memory, a type of volatile memory
	product that is used in electronic systems to store data and
	program instructions. Unlike the more common DRAM, it
	does not need to be refreshed.
TFT-LCD ............................................	Thin Film Transistor Liquid Crystal Display, a type of LCD
	flat-panel display screen, in which each pixel is controlled by
	from one to four transistors.
Transistor ...........................................	An individual circuit that can amplify or switch electric
	current. This is the building block of all integrated circuits.
USB ...................................................	Universal Serial Bus.
Volatile memory .................................	Memory products that lose their content when the power
	supply is switched off.
Wafer .................................................	A thin, round, flat piece of silicon that is the base of most
	integrated circuits.

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WiFi ................................................... A term used to describe wireless local area network products that are based on the Institute of Electrical and Electronics Engineers’ 802.11 standards for wireless networking.

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SUMMARY

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

The Company

Winbond is one of the largest branded integrated circuit device manufacturers in the Greater China region and a leading supplier of semiconductor solutions worldwide. The Company was incorporated in the ROC on September 29, 1987 and engages in the design, development, manufacture and marketing of ICs and related products. The Company’s core products, memory ICs and logic ICs, are used in a variety of microelectronic applications, including personal computer systems, telecommunication systems and consumer electronics products. The Company’s customers are original equipment manufacturers located around the world. In 2005, the Company derived 61% of its non-consolidated revenue from the sale of memory ICs and 39% of its non-consolidated revenue from logic ICs. In the three months ended March 31, 2006, sale of memory ICs and logic ICs amounted to 57% and 43%, respectively, of the Company’s non-consolidated revenue.

The Company’s products are offered in a wide variety of package and configuration options, architectures, and performance characteristics tailored to meet application and customer needs. Individual devices take advantage of the Company’s advanced silicon processing technology and manufacturing expertise. The Company continually introduces new generations of products that offer lower costs per unit and improved performance characteristics.

The Company listed its Shares on the TSE in October 1995 and listed global depositary receipts representing 10 Shares on the Luxembourg Stock Exchange in February 1999.

The Company currently owns and operates four fabrication facilities in the Science-Based Industrial Park in Hsinchu and Taichung, Taiwan. The oldest of these facilities is a 6-inch fab capable of producing up to 50,000 wafers using 0.6 micron – 0.35 micron process technology. The Company’s 6-inch fab is primarily used to produce logic ICs for consumer products, computer peripheral products and communication devices. Two of the Company’s other fabs are both 8-inch facilities that are primarily used for manufacturing memory products. The Company officially commenced commercial operations at its new 12-inch fab on April 20, 2006, which utilizes 0.11 micron and 0.09 micron process technology licensed to the Company by Infineon. The major products manufactured at this new 12-inch fab are DDR II and Specialty DRAM. The Company expects to commence the production of Mobile RAM at its new 12-inch fab later this year.

Corporate and Other Information

The Company’s executive office is located at No.4 Creation Road 3, Science-Based Industrial Park, Hsinchu 300, Taiwan, Republic of China. Information about the Company is available on the Internet at www.winbond.com.tw. Copies of the Company’s Annual Report for 1998 to 2004 are currently available through the Company’s website. Copies of the Company’s Annual Report for 2005 will be available in Chinese on its website on or around May 26, 2006. The English version of the Company’s 2005 Annual Report will be available on its website on or around June 30, 2006.

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The Offering

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||||||
|---|---|---|---|---|
|Company|................................................... Winbond Electronics Corporation|
|The Offering|.............................................. The|U.S.$100,000,000|Zero|Coupon|
|Convertible Notes due 2011 are being offered|
|outside the United States in reliance on|
|Regulation S under the Securities Act. The|
|Notes are not being offered in the Republic of|
|China.|
|Issue Price|............................................. 100%|
|Closing Date|.......................................... May 24, 2006|
|Status|.................................................... The Notes will be direct, unconditional,|
|unsecured and unsubordinated obligations of|
|the Company and will rank|pari passu|
|without any preference or priority among|
|themselves and shall at all times rank at least|
|equally with all other present and future direct,|
|unconditional,|unsecured|and|
|unsubordinated obligations of the Company,|
|except as may be preferred by mandatory|
|provisions of law.|
|Optional Notes|...................................... The Company has granted to Goldman Sachs|
|International an option to purchase up to an|
|additional|U.S.$20,000,000|aggregate|
|principal amount of Notes which was|
|exercised in full on May 10, 2006. See|
|“Underwriting”. The Company shall promptly|
|inform the SGX-ST that the option has been|
|exercised.|
|Interest|.................................................. The Notes will not bear interest except in the|
|limited circumstances set forth under “Terms|
|and Conditions of the Notes — Payments —|
|Default interest and payment delay”.|
|Conversion Rights|................................|Subject to certain conditions, each holder of|
|the Notes (a “Noteholder”) will have the right|
|during the Conversion Period (as defined|
|herein) to convert its Notes (or any portion|
|thereof being U.S.$1,000 in principal amount|
|or an integral multiple thereof) into Common|
|Shares,|provided,|however,|that|the|
|Conversion Right (as defined herein) during|
|any Closed Period (as defined herein) shall|
|be suspended and the Conversion Period|
|shall not include any such Closed Period.|
|The Company shall as soon as practicable|
|and in any event within five Trading Days (as|
|defined herein) following the Conversion Date|
|(as defined herein) deliver Common Shares to|
|the converting Noteholders. See “Terms and|
|Conditions of the Notes — Conversion —|
|Conversion Procedure”.|

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Redemption at the Option of
Noteholders ........................................... Unless the Notes have been previously
converted, redeemed, purchased and
cancelled, each Noteholder shall have the
right, at such Noteholder’s option, to require
the Company to redeem all or some of the
Notes held by such Noteholder on May 24,
2008 at 100% of their principal amount in U.S.
dollars. See “Terms and Conditions of the
Notes — Redemption, purchase and
cancellation — Redemption at the option of
holders of the Note”.
Redemption at the Option of the
Company ............................................... The Company may redeem the Notes (i) in
whole or in part at any time on or after May
24, 2008 and prior to May 24, 2011, at
100% of their principal amount in U.S.
dollars, if the Closing Price of the Common
Shares on the TSE translated into U.S.
dollars at the Prevailing Rate for any 20
Trading Days (as defined herein) out of a
period of 30 consecutive Trading Days (as
defined herein), the last of which occurs not
more than ten days prior to the date on
which notice of such redemption is given, is
at least 125% of the Conversion Price then
in effect translated into U.S. dollars at the
rate of NT$31.49 = U.S.$1.00; or (ii) in
whole but not in part at any time prior to May
24, 2011, if at least 90% in principal amount
of the Notes has already been redeemed,
converted or purchased and cancelled. See
“Terms and Conditions of the Notes —
Redemption, purchase and cancellation —
Redemption at the option of the Company”.
Redemption for Delisting or
Change of Control ................................. A Noteholder shall have the right, at such
Noteholder’s option, to require the Company
to redeem all or some only of such
Noteholder’s Notes at 100% of their principal
amount in U.S. dollars, upon (i) the Shares
ceasing to be listed or admitted to trading on
the TSE; or (ii) the occurrence of a Change of
Control (as defined herein) with respect to the
Company. See “Terms and Conditions of the
Notes – Redemption for delisting or change of
control”.
Tax Redemption ..................................... The Company may redeem all, but not in part,
of the Notes at any time at 100% of their
principal amount in U.S. dollars, in the event
of certain changes in taxation in the ROC
which would require the Company to gross up
for payments of principal, premium or interest.
See “Terms and Conditions of the Notes —
Redemption, purchase and cancellation —
Redemption for taxation reasons”.
Redemption at Maturity ......................... Unless previously redeemed, converted or
purchased and cancelled, the Notes will be
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redeemed at a price equal to 100% of their
principal amount in U.S. dollars on May 24,
2011. See “Terms and Conditions of the
Notes — Redemption, purchase and
cancellation — Redemption at maturity”.
Negative Pledge .................................... Subject to certain exceptions, the Company
will not create or permit to remain outstanding,
and will not permit its Subsidiaries (as defined
in the “Terms and Conditions of the Notes”) to
create or permit to remain outstanding,
security for the benefit of holders of any
International Investment Securities for
payment due under such securities or for any
guarantee or indemnity in respect thereof
without granting equivalent security for the
Notes. See “Terms and Conditions of the
Notes — Negative pledge”.
Form and Denomination of the Notes .... The Notes will be issued in registered form in
the denomination of U.S.$1,000 each. The
Notes 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 Notes will be represented by
beneficial interests in the Global Certificate
which will be deposited with, and registered in
the name of, The Bank of New York
(Nominees) Limited, a common depositary
and nominee of Euroclear and Clearstream,
International. Except as described herein,
certificates for Notes will not be issued in
exchange for beneficial interests in the Global
Certificate.
The securities codes for the Notes are as
follows:
ISIN Common Code
XS0254293466 025429346
Governing Law ................................... English law
Trustee ................................................. The Bank of New York, London branch
Listing .................................................. Approval in-principle has been received for
the listing of the Notes on the SGX-ST. The
Common Shares are listed on the TSE
and application will be made for the
Common Shares issuable upon
conversion of the Notes to be listed on
the TSE. For so long as the Notes are
listed on the SGX-ST, they will be traded
in a minimum board lot size of
U.S.$200,000.
Trading Market for the Common
Shares .................................................. The only trading market for the Common
Shares is the TSE. The Common Shares
have been listed on the TSE since
October 1995.
----- End of picture text -----

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Use of Proceeds ................................. The net proceeds from the offering of the Notes, after the exercise by the Manager to subscribe for the full U.S.$20,000,000 aggregate principal amount of Optional Notes, are estimated to amount to approximately U.S.$116.73 million. The Company will use the net proceeds available to it to purchase raw materials for its business and to repay prior debt.

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Selected Financial Information

The following financial data have been derived from the audited consolidated financial statements of the Company as of and for the years ended December 31, 2003, 2004 and 2005, each of which are included elsewhere in this Offering Circular. The selected financial information is qualified in its entirety by, and should be read in conjunction with, such financial statements including the related notes thereto. The Company’s financial statements are prepared in accordance with ROC GAAP which differs in certain material respects from U.S. GAAP. See “Summary of Certain Material Differences between ROC GAAP and U.S. GAAP”. The audited consolidated financial statements of the Company as of and for the years ended December 31, 2003, 2004 and 2005 have been audited by Deloite & Touche in accordance with auditing standards generally accepted in the ROC and the “ Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants ”. The unaudited non-consolidated financial statements of the Company as of and for the three-month periods ended March 31, 2005 and 2006 have been reviewed by Deloitte & Touche in accordance with ROC Statements of Auditing Standards No. 36 “Review of Financial Statements”.

Statement of Operation Data: ROC GAAP Net sales Costs of sales Add (less) realized (unrealized) intercompany profit Gross profit Operating expenses Gain (loss) from operations Non-operating income Non-operating expenses Income (loss) before income tax Provision for income tax Total consolidated (loss) income Attributed to majority interest Attributed to minority interest Earnings (loss) per share—Basic Earnings (loss) per share—Diluted Balance Sheet Data: ROC GAAP Current assets Long-term investments—equity method Long-term investments—cost method Prepayment for equity investment Other long-term investments Other financial assets—noncurrent Property, plant and equipment, net Other assets Total assets Current liabilities Long-term liabilities Other liabilities Total liabilities Common stock Total stockholders equity Other Financial Data: ROC GAAP Gross margin Opearting margin Net margin Capital expenditures Depreciation and amortization Cash dividend paid Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities		Year ended and as of December 31,
	2003 2004 2005 NT$ NT$ NT$ US$ (consolidated) (in millions, except for percentages and poer common share data) 30,084.0 31,634.1 28,605.5 882.3 25,071.5 21,592.7 23,237.0 716.7 7.7 (13.8) (1.0) (0.0) 5,020.2 10,027.6 5,367.5 165.6 7,426.7 6,932.3 8,382.3 258.6 (2,406.5) 3,095.3 (3,014.8) (93.0) 1,600.4 977.4 1,864.6 57.5 369.8 725.0 331.8 10.2 (1,175.9) 3,347.7 (1,482.0) (45.7) (9.3) (31.5) (39.1) (1.2) (1,185.2) 3,316.2 (1,521.1) (46.9) (1,112.9) 3,405.6 (1,435.1) (44.2) (72.3) (89.4) (86.0) (2.7) (NT$0.27) NT$0.79 (NT$0.37) - (NT$0.27) NT$0.79 (NT$0.37) - 24,354.8 25,399.4 20,210.5 623.4 267.0 303.9 368.1 11.4 10,179.8 9,761.0 7,125.9 219.8 - 9.0 - - 63.9 152.7 92.0 2.8 402.2 387.3 368.7 11.4 28,836.8 23,735.0 45,599.7 1,406.5 7,085.9 6,621.7 8,040.8 248.0 71,190.4 66,370.0 81,805.7 2,523.3 10,828.6 5,530.9 14,034.9 432.9 609.6 8.9 11,907.7 367.3 307.4 529.2 632.3 19.5 11,745.6 6,069.0 26,574.9 819.7 44,308.7 43,252.5 41,556.0 1,281.8 59,444.8 60,301.0 55,230.8 1,703.6 16.7% 31.7% 18.8% 18.8% -8.0% 9.8% -10.5% -10.5% -3.7% 10.8% -5.0% -5.0% 4,505.8 4,549.2 23,932.0 738.2 11,582.0 10,528.7 8,786.3 271.0 - - - - 9,699.6 13,615.4 9,051.4 279.2 (1,009.2) (4,992.1) (25,178.9) (776.6) (4,302.9) (6,894.8) 11,929.4 368.0

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Recent Developments

Summary Interim Unaudited Unconsolidated Financial Information

The summary interim unaudited unconsolidated financial statements as of and for the three months ended March 31, 2005 and March 31, 2006 are prepared in accordance with ROC GAAP. By their nature, unconsolidated financial statements are not comparable in certain material respects with consolidated financial statements and should not be compared to the consolidated financial statements for prior periods.

The unaudited unconsolidated financial statements, including the information summarized below, do not consolidate the financial position and operations of any of our subsidiaries. Instead, the unconsolidated financial statements account for our investments in our subsidiaries by using equity method accounting, which differs materially from consolidation. Other differences resulting from non-consolidation include:

intercompany revenue between Winbond Electronics Corporation and its subsidiaries are not eliminated, although profits and losses on such sales are eliminated until realized; and
individual assets, liabilities, revenue and expenses of unconsolidated subsidiaries are not included in the unconsolidated financial statements.

This information includes all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Our operating results for any quarter are not necessarily indicative of our future results.

Repurchase of Common Shares

From time to time, the Company repurchases its outstanding Common Shares. The Company repurchased 20,000,000 outstanding Common Shares in January 2006 (added to treasury stock for granting to employees) and 50,000,000 outstanding Common Shares in April 2006 (added to treasury stock and cancelled). The Company intends to announce, subject to the approval of its Board of Directors, the repurchase up to 100,000,000 of its outstanding Common Shares in May 2006, which is expected to be completed within two months of commencement of such repurchases. Upon completion, the Company intends that any such Common Shares repurchased would be added to treasury stock and cancelled. See “Description of the Common Shares – Acquisition by the Company of Its Own Common Stock”, “Changes in Issued Share Capital”, Note 16 to the Audited Financial Statements of the Company for the Years Ended December 31, 2003, 2004 and 2005 and Note 15 to the Unaudited Financial Statements of the Company for the Three Months Ended March 31, 2005 and 2006, in each case included elsewhere in this Offering Circular.

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Statement of Operation Data: ROC GAAP Net sales Costs of sales Add realized intercompany profit Gross profit Operating expenses (Loss) Income from operations Non-operating income Non-operating expenses Income (loss) before income tax Credit for income tax Income (loss) before cumulative effect of changes in accounting principle Cumulative effect of changes in accounting principle Net income (loss) Basic earnings (loss) per share_before income tax_ Diluted earnings (loss) per share_before income tax_ Balance Sheet Data: ROC GAAP ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss, current Notes and accounts receivables, net Other financial assets, current Inventories Deferred income tax assets Other current assets Total current assets Long-term equity invesments at equity method Other long-term investments Available-for-sale financial assets, noncurrent Financial assets carried at cost, noncurrent Property, plant and equipment, net Other assets Total assets LIABILITIES Financial liabilities at fair value through profit or loss, current Notes and accounts payable Payable on equipment Accrued expenses and other payables Current portion of long-term liabilities Other current liabilities Total current liabilities Long-term liabilities Other liabilities Total liabilities STOCKHOLDER' EQUITY Common stock Capital collected in advance Additional paid-in capital Accumulated deficit Equity adjustments Treasury Stock Total stockholders' equity Total liabilities and stockholders' equity	Three Months Ended March 31
	2005 2006 NT$ NT$ US$ (in millions, except for percentages and per common share data) (unaudited and unconsolidated) 5,508.6 6,205.7 191.4 4,990.5 4,680.5 144.3 7.1 1.5 0.0 525.2 1,526.7 47.1 2,118.8 1,430.3 44.1 (1,593.6) 96.4 3.0 648.9 363.2 11.2 708.1 339.4 10.5 (1,652.8) 120.2 3.7 - - - (1,652.8) 120.2 3.7 - 4.1 0.1 (1,652.8) 124.3 3.8 (0.4) - (0.0) (0.4) - (0.0) 14,999.3 5,104.9 157.5 350.0 370.6 11.4 2,679.4 4,014.5 123.8 424.5 326.2 10.1 4,729.7 4,676.6 144.3 509.0 333.0 10.3 306.5 186.0 5.6 23,998.4 15,011.8 463.0 3,777.4 4,207.7 129.8 57.2 - - 5,822.2 3,419.6 105.5 1,123.9 1,059.8 32.7 25,014.4 50,235.7 1,549.5 5,417.3 7,770.2 239.7 65,210.8 81,704.8 2,520.2 41.1 - - 2,327.3 2,730.3 84.2 1,538.2 5,330.7 164.4 1,458.7 2,259.9 69.7 600.0 - - 77.0 96.4 3.0 6,042.3 10,417.3 321.3 8.7 15,880.3 489.8 578.9 704.7 21.8 6,629.9 27,002.3 832.9 43,260.0 41,557.2 1,281.8 0.1 - - 20,750.1 20,230.0 624.0 (2,444.8) (2,102.7) (64.9) 348.7 (2,137.3) (65.9) (3,333.2) (2,844.7) (87.7) 58,580.9 54,702.5 1,687.3 65,210.8 81,704.8 2,520.2

Statement of Operation Data:
ROC GAAP
Net sales
Costs of sales
Add realized intercompany profit
Gross profit
Operating expenses
(Loss) Income from operations
Non-operating income
Non-operating expenses
Income (loss) before income tax
Credit for income tax
Income (loss) before cumulative effect of changes in accounting principle
Cumulative effect of changes in accounting principle
Net income (loss)
Basic earnings (loss) per share_before income tax_
Diluted earnings (loss) per share_before income tax_
Balance Sheet Data:
ROC GAAP
ASSETS
Cash and cash equivalents
Financial assets at fair value through profit or loss, current
Notes and accounts receivables, net
Other financial assets, current
Inventories
Deferred income tax assets
Other current assets
Total current assets
Long-term equity invesments at equity method
Other long-term investments
Available-for-sale financial assets, noncurrent
Financial assets carried at cost, noncurrent
Property, plant and equipment, net
Other assets
Total assets
LIABILITIES
Financial liabilities at fair value through profit or loss, current
Notes and accounts payable
Payable on equipment
Accrued expenses and other payables
Current portion of long-term liabilities
Other current liabilities
Total current liabilities
Long-term liabilities
Other liabilities
Total liabilities
STOCKHOLDER' EQUITY
Common stock
Capital collected in advance
Additional paid-in capital
Accumulated deficit
Equity adjustments
Treasury Stock
Total stockholders' equity
Total liabilities and stockholders' equity

Three Months Ended March 31

2005
2006
NT$
NT$
US$
(in millions, except for percentages and per common
share data)
(unaudited and unconsolidated)
5,508.6
6,205.7
191.4
4,990.5
4,680.5
144.3
7.1
1.5
0.0
525.2
1,526.7
47.1
2,118.8
1,430.3
44.1
(1,593.6)
96.4
3.0
648.9
363.2
11.2
708.1
339.4
10.5
(1,652.8)
120.2
3.7
-
-
-
(1,652.8)
120.2
3.7
-
4.1
0.1
(1,652.8)
124.3
3.8
(0.4)
-
(0.0)
(0.4)
-
(0.0)
14,999.3
5,104.9
157.5
350.0
370.6
11.4
2,679.4
4,014.5
123.8
424.5
326.2
10.1
4,729.7
4,676.6
144.3
509.0
333.0
10.3
306.5
186.0
5.6
23,998.4
15,011.8
463.0
3,777.4
4,207.7
129.8
57.2
-
-
5,822.2
3,419.6
105.5
1,123.9
1,059.8
32.7
25,014.4
50,235.7
1,549.5
5,417.3
7,770.2
239.7
65,210.8
81,704.8
2,520.2
41.1
-
-
2,327.3
2,730.3
84.2
1,538.2
5,330.7
164.4
1,458.7
2,259.9
69.7
600.0
-
-
77.0
96.4
3.0
6,042.3
10,417.3
321.3
8.7
15,880.3
489.8
578.9
704.7
21.8
6,629.9
27,002.3
832.9
43,260.0
41,557.2
1,281.8
0.1
-
-
20,750.1
20,230.0
624.0
(2,444.8)
(2,102.7)
(64.9)
348.7
(2,137.3)
(65.9)
(3,333.2)
(2,844.7)
(87.7)
58,580.9
54,702.5
1,687.3
65,210.8
81,704.8
2,520.2

04/974282_1

RISK FACTORS

Prior to making any investment decision, prospective investors should carefully consider all of the information contained in this Offering Circular, including the following information:

Risks Related to the Company and Its Business

Dependence on Global Information Technology and Telecommunications Industries

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

Impact of Worldwide DRAM Production and Demand for DRAM on Average Selling Prices

The transition to smaller line-width process technologies and 12 inch wafers in the industry could, depending upon the rate of transition, lead to a significant increase in the worldwide supply of DRAM. Increases in worldwide supply of DRAM also result from DRAM fab capacity expansions, either by way of new facilities, increased capacity utilization or reallocation of other semiconductor production to DRAM production. Several of the Company’s competitors have announced plans to increase production through construction of new facilities or expansion of existing facilities. Increases in worldwide supply of DRAM, if not accompanied with increases in demand, could lead to further declines in average selling prices for Winbond’s products and could materially adversely affect the Company’s business, results of operations or financial condition.

We may have difficulty in ramping up production, which could cause delays in product deliveries and loss of customers and adversely affect our business and operating results.

As is common in the semiconductor industry, we may experience difficulty in ramping up production at new or existing facilities, such as our new 12-inch fab, which went into commercial operation in April, 2006. This could be due to a variety of factors, including hiring and training of new personnel, implementing new fabrication processes, recalibrating and requalifying existing processes and the inability to achieve required yield levels.

In the future, we may face construction delays or interruptions, infrastructure failure, or delays in upgrading or expanding existing facilities or changing our process technologies, which may adversely affect our ability to ramp up production in accordance with our plans. Our failure to ramp up our production on a timely basis could cause delays in product deliveries, which may result in the loss of customers and sales. It could also prevent us from recouping our investments in a timely manner or at all, and adversely affect our business, results of operations and financial condition.

Product Cycle, New Products and Technological Changes

Many of the Company’s products, including power supply products, networking products and video display products, have relatively short product cycles due to rapidly changing technology and evolving industry standards. The Company’s success is highly dependent upon its ability to develop and deliver high quality and cost effective products on a timely basis in line with the latest technology. To date, the Company believes that it has been successful in its efforts to introduce new products to meet the competitive requirements of the market place; however, there can be no assurance that the Company will be able to continue to introduce new products as a result of its research and development activities or that it will be able to keep pace with the latest technological development in the market. Delays in introducing new products with anticipated technological advances may have an adverse effect on the Company’s business. There can be no assurance

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that any new products introduced by the Company will be made on a timely basis and gain market acceptance or will not be adversely affected by technology changes or new product developments by competitors.

Competition

The markets for the Company’s products are highly competitive and the Company has experienced downward pressure on its product prices and profit margins. For each of the Company and its subsidiaries’ products, the Company competes with major international electronic companies, some of which have greater financial, technical, marketing and other resources than the Company. The Company competes in different product lines in various degrees on the basis of price, product quality and technical performance, product features, product system compatibility, customized design and sales and technical support. The Company’s ability to compete successfully also depends on other elements both within and outside of its control, including successful and timely introduction of new products, efficient manufacturing of products which meet required quality standards, pricing, as well as larger industry supply and demand trends and general economic trends. In the event the Company fails to compete successfully as required in the various markets in which it participates, there is likely to be a material adverse effect on the Company’s results of operations.

Reliance on Technology Sharing Arrangements

The Company has entered into a number of technology transfer, joint development and other agreements and alliances that will continue to be of strategic importance to the conduct and development of its business. Although the Company believes that such technology sharing arrangements allow it to collaborate on technological advances with first-tier IC manufacturers and diversify its product lines, there can be no assurance that the Company will secure any further such arrangements in the future or that any such arrangements are or will be available on terms favorable to the Company.

Relationship with Infineon

The Company has entered into certain know-how transfer and license agreements with Infineon for the production of DRAMs. Under these agreements, the Company will use technology licensed from Infineon to design and manufacture DRAM chips and to develop new products and manufacturing processes. For example, Infineon provides DRAM technology for use in the Company’s fabs using 0.11 micron DRAM process and 0.09 micron DRAM process. Pursuant to the terms of the Company’s 2004 know-how transfer and license agreement with Infineon, the Company has agreed to pay Infineon a substantial technology licensing fee. Infineon in turn is obliged to take a substantial portion of the DRAM production from the Company on an original equipment manufacturing basis in the next few years. While the Company believes that its on-going relationship with Infineon has been and remains strong, there can be no assurance that such good relations will continue in the future and any deterioration in, or termination of, the relationship or any failure of Infineon to meet its obligations to the Company, including with respect to purchases of DRAM for any reason, would have a material adverse impact on the Company’s results of operations and financial condition.

Any significant decrease in sales to one or more of our major customers may decrease our revenue and profits

Our top three customers for each of the three years ended December 31, 2003, 2004 and 2005, in aggregate, accounted for 13%, 24%, and 27% of our revenue, respectively. Our largest customer in 2005 accounted for 6%, 3%, and 12% of our revenue for each of the three years ended December 31, 2003, 2004 and 2005, respectively. The loss of one or more of our key customers, or any significant reduction in their purchases from us for any reason, could cause us to under-utilize our production capacity which in turn would materially reduce our revenue and affect our profits. In addition, any such loss may also give a negative impression that we are unable to retain our current customers which may in turn adversely affect our ability to attract new customers.

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Exchange Rate Risks

Approximately 71% of the Company’s consolidated net sales for the year ended December 31, 2005 (65% for 2004) and approximately 88% of the Company’s non-consolidated net sales for the three months ended March 31, 2006 (54% in 2005) was denominated in U.S. dollars and a substantial additional portion in each year was denominated in NT dollars but at prices limited to the prevailing U.S. dollar/NT dollar exchange rate. Approximately 26.81% and 20.74% by value of the raw materials purchased were denominated in NT dollars for the year ended December 31, 2005 and for the three months ended March 31, 2006, respectively (approximately 39.44% and 38.16% for the year ended December 31, 2004 and for the three months ended March 31, 2005, respectively). In addition, the Company purchases a portion of its equipment from Japanese suppliers, which purchases are denominated in Japanese Yen.

Accordingly, a portion of the Company’s results of operations is exposed to exchange rate fluctuations between the U.S. dollar, the Japanese Yen and the NT dollar. The impact of future exchange rate fluctuations between these currencies cannot be predicted. Although the impact of exchange rate fluctuations has in the past been partially mitigated by the Company’s natural hedging between its foreign currency receivables and payables and financial hedging through forward exchange rate contracts or other instruments, there can be no assurance that the Company will be able to offset the overall impact of any exchange rate fluctuations in the future.

Control by Principal Shareholders

As of May 8, 2006, the latest date on which such determination can be made by the Company, it was 15.84% owned by Walsin Lihwa. Walsin Lihwa is primarily engaged in the wire and cable manufacturing business and is engaged, through its subsidiaries and affiliates, in a number of other businesses in the ROC and other countries in Asia. Walsin Lihwa was founded in 1966 by various individuals, including members of the Chiao family. Arthur Yu-Cheng Chiao, Chairman and CEO of the Company is Vice Chairman of Walsin Lihwa. Ting-Piao Chiao, an Executive Director of the Company and Walsin Lihwa. Yung Chin, wife of Arthur Yu-Cheng Chiao and a director of the Company, is a Supervisor of Walsin Lihwa. Members of the Chiao family who are directors of the Company owned approximately 1.43% of the Company as of March 31, 2006. Walsin Lihwa and members of the Chiao family may from time to time, directly or indirectly, purchase or sell Shares in the open market and may purchase Shares in offerings by the Company. See “Principal Shareholders” and “Board of Directors and Management”.

Walsin Lihwa and the Chiao family are in a position to influence the operations and management of the Company and are expected to continue to have the power to control the management and policies of the Company by directly or indirectly voting at the general meetings of shareholders or at the Board of Director’s meeting. The interests of Walsin Lihwa and the Chiao family may not always coincide with the interests of the Company’s other shareholders or the Noteholders’ best interests and unless otherwise provided by the ROC law, they are free to exercise their votes according to their interests.

Production Risks

The Company’s manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties encountered in the manufacturing process can lower yields. No assurance can be given that the Company will be able to increase manufacturing efficiency in the future to the same extent as in the past, or that the Company will not experience production difficulties in the future.

In addition, during periods of high revenue growth for the Company, the Company’s manufacturing facilities operate at high capacity. There can be no assurance that the Company will not experience manufacturing problems or will achieve acceptable yields. The Company may experience production delays as a result of problems relating to, among other things, capacity constraints, construction of new facilities, upgrade or expansion of existing facilities, change in its process technology and product design, delays in delivery of specialized equipment or the occurrence of natural disasters such as earthquakes. The Company’s results

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of operations could also be materially adversely affected by the increases in fixed costs and operating expenses related to increases in production capacity if revenues do not increase commensurately.

Disruptions in the Supply of Raw Materials

The Company’s operations require raw materials that meet exacting standards. The Company generally has multiple sources of supply for raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet the Company’s standards. Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, lead frames and molding compound. Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay the Company’s receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If the Company’s supply of raw materials is disrupted or the lead times extended, its business, results of operations or financial condition could be materially adversely affected.

Dependence on Qualified Personnel

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

Intellectual Property Protection

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

Litigation

The electronic component and devices industry is characterized by frequent litigation involving claims for infringement of patents and other intellectual property rights. The Company could become subject to intellectual property claims in the future. Third parties may also assert intellectual property rights that cover certain of the technologies the Company uses in its manufacturing process. In this regard, the Company has no practical means of ascertaining what patent applications have been filed until they are granted. Furthermore, the Company may not be aware of the intellectual property rights of others or be familiar with the laws governing such rights in some of the countries in which its products are or may be sold by its customers. As the number of patents, copyrights and other intellectual property rights in its industry increases, it believes that companies in its industry could face more frequent infringements claims. In the event that any claim is made against the Company, it could be required, among other things, to stop using some of its manufacturing processes; cease manufacturing, using, importing or selling infringing products or technologies; pay substantial damages; develop non-infringing technologies; or attempt to acquire licenses to use such technology. If any claims made against the Company are successful in the future, the Company’s business and operating results may be adversely affected. Further, if the Company are required to seek licenses from or enter into agreements with their parties covering the intellectual property that it may be infringing, there can be no assurance that it could obtain any such licenses on acceptable terms, if at all, which in turn would materially and negatively impact its business and operating results.

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Allegation of Anticompetitive Conduct

In 2002, the Company’s subsidiary received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the United States Department of Justice (the “DOJ”) into possible antitrust violations in the DRAM industry. Subsequent to the commencement of the DOJ investigation, a number of putative class action lawsuits were filed against the Company and other DRAM suppliers in various federal district courts and state courts, asserting claims on behalf of a putative class of direct purchasers or indirect purchasers (individuals and entitles) of DRAM during the period from April 1, 1999 through at least June 30, 2002. The complaints allege price-fixing in violation of federal antitrust laws and/or various state antitrust, consumer protection and/or unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’ fees for the allegedly unlawful conduct. A number of these cases have been transferred to the U.S. District Court for the Northern District of California for consolidated proceedings. The Company has challenged the putative class and the class representatives; the Court will decide soon whether or not to certify the case as a class action. Several computer equipment manufacturers, rather than participate in the class action cases, have initiated separate, pre-suit investigations or filed separate suits in the same court in the Northern District of California. In addition, the attorneys general of twenty-eight states have indicated that they are investigating potential state and federal civil claims against the Company and other DRAM suppliers on behalf of state and governmental entities that were direct or indirect purchasers of DRAM and potentially on behalf of other indirect purchasers of DRAM. Based upon the Company’s analysis of the claims made and the nature of the DRAM industry, the Company believes that class treatment of these cases is not appropriate. The Company is unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have an adverse effect on the Company’s business, results of operations or financial condition.

Environmental Regulation

The Company is subject to a variety of regulations relating to the use, storage, discharge and disposal of chemicals and gases used in its manufacturing process. Although the Company has not suffered material environmental claims in the past and believes that its activities conform to presently applicable environmental regulations in all materials respects, environmental claims or the failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against the Company, suspension of production or a cessation of operations. New regulations could require the Company to acquire costly equipment or to incur other significant expenses. Any failure by the Company to control the use of, or adequately restrict the discharge of, hazardous substances could subject it to future liabilities.

The Company Engages in Transactions with Related Parties

The Company from time to time has engaged in a variety of transactions with its affiliates. The directors are of the opinion that the transactions with affiliates were conducted on normal commercial terms in the ordinary course of business. The Company believes that all transactions entered into with its affiliates have benefited the Company, reduced its operating costs and improved its financial performance. The transactions with related parties may continue in the future, but there is no assurance that such transactions will continue to be beneficial for the Company. See “Related Party Transactions.”

The Use of Joint Ventures may have an Adverse Effect on the Company ’ s Business

The Company has entered into and expects to continue entering into joint ventures as part of its long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance the Company’s business strategy, that the Company does not realize a satisfactory return on the investment it makes, or that the Company may experience difficulty in the integration of new employees, business systems and technology, or diversion of management’s attention from the Company’s other businesses. These factors could adversely affect the Company’s operating results or financial condition. Also, the Company’s joint venture partners might have economic or business objectives that

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are inconsistent with the Company’s objectives. Accordingly, the use of joint ventures could prevent the Company from achieving the Company’s objectives.

Risks Relating to the ROC

Political Risks Associated with Doing Business in Taiwan

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

Natural or Man-made Disasters

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

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

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

Outbreaks of Contagious Diseases

Any future outbreak of contagious diseases, such as severe acute respiratory syndrome or avian influenza, may disrupt the Company’s ability to adequately staff its business and may generally disrupt its operations. If any of the Company’s employees is suspected of having contracted any contagious disease, the Company may under certain circumstances be required to quarantine such employees and the affected areas of the premises. As a result, the Company may have to temporarily suspend part of or all of its operations. Furthermore, any future outbreak may restrict the level of economic activities in affected regions, including Taiwan, which may also adversely affect the Company’s business and prospects. As a result, the Company cannot assure that any future outbreak of contagious diseases would not have a material adverse effect on its financial condition and results of operations.

ROC Securities Market

The ROC securities market is smaller and more volatile than the securities markets in the United States, Europe and certain other countries. The TSE has experienced substantial fluctuations in the prices of listed securities and has shown particular volatility following certain

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political events, market events and scandals. There are currently limits on the range of daily price movements on the TSE. The TSE Index peaked at 12,682.41 points in February 1990, then subsequently fell to a low of 2,485.25 points in October 1990. For the period from January 1, 2005 to December 31, 2005, the TSE Index peaked at 6,600.17 points on December 30, 2005 and reached a low of 5,565.41 points on April 22, 2005. The daily closing prices of the Common Shares ranged from NT$7.35 per Share to NT$13.35 per Share over the same period. On March 31, 2006, the TSE Index closed at 6,613.97. See “Appendix B — The Securities Market of the ROC”. The TSE has experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems and restrictions on price movements could adversely affect the market price and liquidity of the securities of ROC companies, including the Notes and the Common Shares, in both domestic and international markets.

Financial Reporting and Accounting Standards in the ROC

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

Foreign Exchange Control

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 in connection with the proceeds from the sale of subscription rights for newly issued shares. In addition, foreign persons may, subject to the proper presentation of 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. See “Appendix A — Foreign Investment and Exchange Control in the ROC — Overseas Corporate Bonds”.

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

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

Risks Related to the Notes and the Common Shares

Considerations Related to Conversion

Noteholders will not be permitted to convert their Notes during any Closed Period. See “Terms and Conditions of the Notes — Conversion”. Under current ROC laws and regulations, PRC persons are not permitted to hold or convert the Notes or to register as shareholders of the Company.

Under current ROC law, for a non-ROC Noteholder to exercise its conversion right to convert their Notes into Common Shares, such non-ROC Noteholder will be required to register with the TSE for making investments in the ROC securities market. Non-ROC Noteholders are also required to appoint an eligible local agent for the purposes of opening a securities trading account with a local brokerage firm, opening bank accounts, paying ROC taxes, remitting funds, exercising any shareholder’s rights and performing such other matters as may be designated by such converting Noteholder. In addition, any non-ROC converting Noteholder will be required to appoint a custodian bank in the ROC to hold the securities and cash proceeds for safekeeping, to make

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confirmations, to settle trades and to report all relevant information required by applicable governmental authorities. Such a converting Noteholder is also required to appoint a tax guarantor for the purposes of filing tax returns and making tax payments. Any tax guarantor appointed by a non-ROC converting Noteholder for such purposes 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 Common Shares received upon conversion, or cash dividends or interest derived from any such Common 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 can be no assurance that the approval for the appointment of a tax guarantor will be obtained in a timely manner.

Without satisfying these requirements, non-ROC converting Noteholders would be unable to hold, sell or otherwise transfer the Company’s Common Shares on the TSE. See “Appendix B — Foreign Investment and Exchange Control in the ROC”.

Potential Liquidity of Notes and Common Shares

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

The Notes are a new issuance of securities for which there is currently no trading market. The Company cannot predict whether an active trading market for the Notes will develop or be sustained. If an active trading market were to develop, the Notes could trade at prices that may be lower than the initial offering price. Whether or not the Notes 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 condition, historical financial performance and future prospects.

If an active market for the Notes fails to develop or be sustained, the trading price of such Notes could be materially adversely affected. Approval in-principle has been received to have the Notes listed on the SGX-ST. However, there can be no assurance that the Company will be able to obtain or be able to maintain such a listing or that, if listed, a trading market will develop on the SGX-ST. The Notes may not be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where registration may be required.

Disclosure Obligations

A Noteholder or its designee requesting the conversion of its Notes into Common Shares may be required to provide certain information to the Company or the conversion agent, including the name and nationality of the person to be registered as the shareholder and the number of Common Shares such person is acquiring and has acquired in the past through conversion of Notes held by it, and supporting documents, before such conversion will be effected. Under applicable ROC laws, the Company is required to report to the ROC SFB if the person to be registered as a shareholder: (i) is a “related party” of the Company as defined in Statement of Financial Accounting Standards No. 6 of the ROC or (ii) will hold, immediately following such conversion, more than 10% of the total number of Common Shares deliverable upon the conversion of the aggregate principal amount of all Notes at the time of issue. The conversion of the Notes may be delayed if such information is not provided.

Fluctuations in Share Price

The market price of the Notes at any time will be affected by fluctuations in the price of the Company’s Common Shares. It is impossible to predict whether the price of the Company’s Common Shares will rise or fall. Trading prices of the Company’s Common Shares will be influenced by, among other things, the Company’s results of operations and political, economic,

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financial and other factors that can affect the capital markets on which the Company’s Common Shares are traded and the financial services market in Taiwan. Any decline in the price of the Company’s Common Shares would adversely affect the secondary market price of the Notes.

Fluctuations in Exchange Rate

Although the principal amount of the Notes is denominated in U.S. dollars, the Company’s Common Shares are listed on the TSE, which quotes and trades the Company’s Common Shares in NT dollars. As a result, fluctuations in the exchange rate between the NT dollar and the U.S. dollar may affect, among other things, the secondary market price of the Notes and the U.S. dollar equivalent of the Company’s Common Shares received upon conversion of the Notes.

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USE OF PROCEEDS

The net proceeds of the issue of the Notes, after the exercise by the Manager to subscribe for the full U.S.$20,000,000 aggregate principal amount of Optional Notes, are estimated to be approximately U.S.$116.73 million. The Company will use the net proceeds available to it to purchase raw materials for its business and to repay certain outstanding mid-term loans.

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MARKET PRICE INFORMATION

The Common Shares are listed on the TSE, which is located in Taipei, ROC, and is the only stock exchange in the ROC. The Common Shares were listed on the TSE on October 18, 1995. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the TSE for the Common Shares and the highest and lowest of the daily closing values of the Taiwan Weighted Stock Index.

2001 .................................. 2002 .................................. 2003 .................................. 2004 .................................. 2005 ................................... First Quarter..................... Second Quarter................ Third Quarter.................... Fourth Quarter.................. 2006 First Quarter..................... Second Quarter (through May8) ..............................	Closing Price Per Share (1) High Low NT$ NT$ 37.53 9.25 30.80 12.70 21.90 11.65 22.60 11.40 13.35 7.35 12.95 10.90 12.10 7.35 13.35 9.06 10.70 7.35 11.50 8.85 11.25 9.40	Taiwan Weighted Stock Index Average Daily Trading Volume High Low (in thousands of shares) 75,133 6,198.22 3,411.68 83,829 6,484.93 3,845.76 43,650 6,182.20 4,044.73 45,213 7,135.00 5,255.60 22,077 6,600.17 5,565.41 12,318 6,267.52 5,734.89 25,414 6,401.81 5,565.41 25,574 6,481.62 5,894.99 15,979 6,600.17 5,618.90 13,546 6,797.20 6,344.73 14,008 6,615.98 7,474.05

(1) Stock prices have been retroactively adjusted for stock dividends paid by the Company.

On May 8, 2006, the reported closing price of the Common Shares was NT$10.80 per Share and the Taiwan Weighted Stock Index closed at 7,474.05.

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DIVIDENDS

The Company has from time to time distributed cash and stock dividends on its Common Shares. The following table sets forth cash paid and stock dividends distributed during each of the years indicated. Figures represent dividends in respect of the prior fiscal year paid in the current fiscal year.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005	Cash dividend per Share - - - - NT$0.10 - - - - -	Stock dividend per Share (1)(2) 3.00 2.50 - 1.10 1.95 - - - - -

(1) Holders of Common Shares receive as a stock dividend the number of Common Shares equal to the NT dollar value per Share of the declared dividend, multiplied by the number of Common Shares owned, divided by the par value of NT$10 per Share. Fractions of Common Shares are not issued. Any differences are paid in cash.
(2) Represents stock dividend per share for prior years paid in current year.

The Company’s dividend distribution policy is made in accordance with ROC Company Law and the Company’s Articles of Incorporation, taking into consideration various factors including capital and financial structure, operating status, retained earnings, industry characteristics and economic cycle. The Company’s current policy is that dividends shall be distributed in a steady manner taking into consideration the appropriate level of earnings which should be retained or distributed in the form of cash, stock or both, so as to maintain continuous growth.

The Company is in a capital, technology and labor intensive industry, and the Company’s dividend policy is highly dependent upon the Company’s future needs with respect to capital expenditures and working capital. As a result, the Company generally prefers cash dividends to stock dividends; however, the Company may also distribute stock dividends. Based on the current policy, the distribution of stock dividends is subject to the condition that stock dividends shall not be more than 50% of total dividends.

The Company’s dividend policy may be adjusted from time to time in accordance with economic and industry conditions, in particular, the Company’s need for future development and profitability.

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EXCHANGE RATES

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

In this Offering Circular, we have translated New Taiwan dollar amounts into U.S. dollars for the convenience of readers. The rate we used for the translations was NT$32.42 = US$1.00, which was the noon buying rate announced by the Federal Reserve Bank of New York on Friday, March 31, 2006. The translation does not mean that New Taiwan dollars could actually be converted to U.S. dollars at that rate. On May 8, 2006, the noon buying rate for New Taiwan dollars was NT$31.32 = US$1.00. The following table shows the noon buying rate for New Taiwan dollars expressed in New Taiwan dollar per US$1.00.

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

2000 .................................................. 2001 .................................................. 2002................................................... 2003 .................................................. 2004 .................................................. 2005................................................... January.......................................... February ........................................ March............................................. April ............................................... May................................................ June............................................... July ................................................ August............................................ September ..................................... October.......................................... November ...................................... December ...................................... 2006 January.......................................... February ....................................... March......................................... April .............................................. May (throughMay 8, 2006).........	Average (1) High Low 31.37 33.25 30.35 33.91 35.13 32.23 34.53 35.16 32.85 34.40 34.98 33.72 33.27 34.16 31.74 32.15 33.77 30.65 31.85 32.22 31.65 31.50 31.79 31.06 31.11 31.73 30.65 31.48 31.70 31.23 31.27 31.47 30.98 31.35 31.64 31.15 31.89 32.07 31.61 32.08 32.72 31.77 32.92 33.27 32.52 33.47 33.77 33.19 33.58 33.71 33.39 33.29 33.56 32.80 32.04 32.59 31.83 32.32 32.65 31.97 32.46 32.62 32.28 32.29 32.54 31.91 31.62 31.90 31.32	At Period-End
		33.17 35.00 34.70 33.99 31.74 32.84 31.71 31.06 31.46 31.23 31.13 31.64 31.92 32.71 33.18 33.55 33.51 32.80 31.97 32.40 32.42 31.90 31.32

Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.

(1) Determined by averaging the rates on the last business day of each month during the relevant period for annual periods and the rates on each business day for monthly periods.

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CAPITALIZATION

The following table sets forth the non-consolidated debt and capitalization of the Company as of March 31, 2006 under ROC GAAP and the capitalization as at such date adjusted to give effect to the issuance of the Notes:

Long-term indebtedness: Long-term debt ...................................... The Notes (now being issued) ............... Stockholders’ equity: Common stock ...................................... Additional paid-in capital ........................ Retained earnings ................................. Equity adjustments................................. Treasury stock........................................ Total stockholders’ equity ...................... Total capitalization ...............................	NT$ 15,880.3 —	As of March 31, 2006 (1) Actual As adjusted (2) US$(3) NT$ US$(3) 489.8 15,880.3 489.8 — 3,890.4 120.0 489.8 19,770.7 609.8 1,281.8 41,557.2 1,281.8 624.0 20,230.0 624.0 (64.9) (2,102.7) (64.9) (65.9) (2,137.3) (65.9) (87.7) (2,844.7) (87.7) 1,687.3 54,702.5 1,687.3 2,177.1 74,473.2 2,297.1	As of March 31, 2006 (1) Actual As adjusted (2) US$(3) NT$ US$(3) 489.8 15,880.3 489.8 — 3,890.4 120.0 489.8 19,770.7 609.8 1,281.8 41,557.2 1,281.8 624.0 20,230.0 624.0 (64.9) (2,102.7) (64.9) (65.9) (2,137.3) (65.9) (87.7) (2,844.7) (87.7) 1,687.3 54,702.5 1,687.3 2,177.1 74,473.2 2,297.1

	15,880.3		609.8
	41,557.2 20,230.0 (2,102.7) (2,137.3) (2,844.7)		1,281.8 624.0 (64.9) (65.9) (87.7)
	54,702.5		1,687.3
	70,582.8		2,297.1

____

(1) There has been no material change in the capitalization of the Company since March 31, 2006.

(2) As adjusted to give effect to the issue of the Notes in this offering assuming the Manager exercises its option to subscribe for the full U.S.$20,000,000 aggregate principal amount of Optional Notes as described in “The Offering”.

(3) NT$ amounts have been translated into U.S.$ amounts, or vice versa, at the exchange rate of NT$32.42 = U.S.$1.00

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THE COMPANY

Overview of the Company

Winbond is one of the largest branded integrated device manufacturer in Taiwan and a leading supplier of semiconductor solutions worldwide. The Company engages in the design, development, manufacture and marketing of ICs and related products. The Company’s core products, memory ICs and logic ICs, are used in a variety of microelectronic applications, including personal computer systems, telecommunication systems and consumer electronics products. In 2005, the Company derived 61% of its non-consolidated revenue from the sale of memory ICs and 39% of its non-consolidated revenue from the sale of logic ICs. In the first quarter of 2006, the Company derived 57% of its non-consolidated revenue from the sale of memory ICs and 43% of its non-consolidated revenue from the sale of logic ICs.

The Company, incorporated in the ROC on September 29, 1987, listed its Common Shares on the TSE in October 1995 and listed global depositary receipts representing 10 Common Shares in the Company on the Luxembourg Stock Exchange in February 1999.

The Company’s administrative and manufacturing facilities are located in the Hsinchu Science Park, a 250 hectare high-technology, research and development center for strategic industries established by the ROC government in 1980. Companies such as Winbond that are established in the Hsinchu Science Park enjoy certain tax, infrastructure and other ROC government-sponsored benefits.

The Company’s executive offices are located at No.4 Creation Road 3, Science-Based Industrial Park, Hsinchu 300, Taiwan, Republic of China. Information about the Company is available on the internet at www.winbond.com.tw. Copies of the Company’s Annual Report for 1998 to 2004 are currently available through the Company’s website. Copies of the Company’s Annual Report for 2005 will be available in Chinese on its website on or around May 26, 2006. The English version of the Company’s 2005 Annual Report will be available on its website on or around June 30, 2006.

Organization of the Company

The chart below outlines, in simplified form, the organizational structure of the Company and certain of its principal subsidiaries as of April 30, 2006.

==> picture [517 x 243] intentionally omitted <==

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

Winbond
Electronics
Corporation
100% 100% 100% 100% 100% 100% 100% 100% 100%
Marketplace Winbond Int’l Newfound Asian Pigeon Creek Win Investment Winbond Mobile Magic Landmark Group WEC Investment
Management Corp. Corporation Holding Co., Ltd. Corporation Electronics Design Holdings Ltd. Holding Ltd.
Limited (H.K.) Ltd. Corporation
100% 100% 100% 100% 70.77% 100% 100%
Winbond Winbond
Goldbond LLC Electronics Corp. Peaceful River Baystar Holdings CFP Technology Electronics Winbond Israel
America Corp. Ltd. Corporation Corporation Ltd.
Japan
100% 100% 100% 100% 100% 100% 78%
Winbond Formosa Jaztek Jaztek CFP Service
Winbond Electronics NexFlash Nanomems Technology Co., Technology Co., Limited
Electronics (Shanghai) Ltd. Technologies, Technology Inc. Ltd (HK) Ltd (BVI)
(Nanjing) Ltd. Inc.
100%
Jaztek
Technology Co.,
(SZ) Co., Ltd
----- End of picture text -----

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The following tables sets forth certain information as of March 31, 2006 (on both an unconsolidated as well as a consolidated basis) regarding certain companies in which the Company holds above 8% of equity interests, and the principal business of each such entity.

Company
Main
Business
Location of
Registered Office
Winbond
International
Corporation
Investment
Citco Building,
Wickhams Cay, P.O.
Box 662, Road Town,
Tortola,
British Virgin Islands
Marketplace
Management Ltd.
Investment
P.O.Box 957, Offshore
Incorporations Centre,
Road Town, Tortola,
British Virgin Islands
Win Investment
Corporation
Investment
5F, No. 192, Jing-ye 1st
Road, Taipei 104,
Taiwan, R.O.C.
Pigeon Creek
Holding Co., Ltd
Investment
Citco Building,
Wickhams Cay, P.O.
Box 662, Road Town,
Tortola,
British Virgin Islands
Newfound Asian
Corporation
Investment
Citco Building,
Wickhams Cay, P.O.
Box 662, Road Town,
Tortola,
British Virgin Islands
Winbond
Electronics (HK)
Limited
Sales of IC
devices
Unit 9-15, 22F, JOS
Tower Millennium City
2, No 378 Kwun Tong
Road,
Kowloon, Hong Kong
Mobile Magic
Design
Corporation
R&D, design,
manufacturin
g and sales
of SRAM and
low power
DRAM
2F, No.40,Industry E.
Rd. Science-Based
Industrial Park
Hsinchu 300, Taiwan,
R.O.C
Landmark Group
Holdings Ltd.
Investment
Palm Grove House,
P.O. Box 438, Road
Town, Tortola, British
Virgin Islands.
WEC Investment
Holding Ltd.
Investment
3rdFloor, Omar Hodge
Building, Wickhams
Cay, P.O. Box 362,
Road Town, Tortola,
British Virgin Islands
Winbond
Electronics
Corporation
America
R&D, design,
and sales
services of
IC devices
32 Loockerman Square,
suite L-100, Dover, Kent
19904, Delaware
NexFlash
Technologies, Inc.
IC design
2727 North First Street,
San Jose, CA 95134

Book Value
(in thousands)
Shareholding
Percentage
by the
Company
Shareholding
Percentage by
Company and
subsidiaries
NT$1,409,154
100%
100%
NT$121,625
100%
100%
NT$1,345,598
100%
100%
NT$1
100%
100%
NT$520,729
100%
100%
NT$112,077
100%
100%
NT$6,473
100%
100%
NT$108,201
100%
100%
NT$237,693
100%
100%
US$34,455
–
100%
US$262
–
100%

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Peaceful River	Investment	Citco Building,	US$16,045	–	100%
Corp.		Wickhams Cay, P.O.
		Box 662, Road Town,
		Tortola,
		British Virgin Islands
Baystar Holdings	Investment	Citco Building,	US$4,353	–	100%
Ltd.		Wickhams Cay, P.O.
		Box 662, Road Town,
		Tortola,
		British Virgin Islands
Goldbond LLC	Investment	1912 Capitol Ave,	US$3,652	–	100%
		Cheyenne, WY82001,
		USA
Winbond	R&D, design,	7F Daini-Ueno Bldg.,	US$2,539	–	100%
Electronics	and sales	3-7-18 Shinyokohama
Corporation	services of	Kohoku-Ku Yokohama,
Japan	semiconduct	222-0033, Japan
	or
	components
Winbond	IC system	27F, 2299 Yan An	US$1,837	–	100%
Electronics	software	Road(West) Shanghai,
(Shanghai) Ltd.	modification,	200336 P.R.C.
	testing, and
	other
	technical
	services
Winbond	Computer	6F, 189 Guangzhou Rd,	US$240	–	100%
Electronics	software	Nanjing, China
(Nanjing) Ltd.	services
Winbond Israel	R&D, design,	8 Hasadnaot Street,	US$2,128	–	100%
Ltd.	and sales	Herzila B 46728, Israel
	services of
	IC devices
CFP Technology	IC design	9F, No. 19-5,	NT$62,970	–	71%
corporation	and sales	San-Chong Rd, Nan
		Kang, Taipei, R.O.C.
Formosa	Memory	9F, No. 19-5,	NT$7,428	–	71%
Nanomems	devices	San-Chong Rd, Nan
Technology Inc.	design,	Kang, Taipei, R.O.C.
	manufacture
	and sales
Jaztek	Investment	P.O. Box 3152, Road	US$273	–	71%
Technology Co.		Town, Tortola, British
Ltd. (BVI)		Virgin Islands
Jaztek	IC sales	Flat E, 9F, World Tech.	–	–	71%
Technology Co.		Centre,
Ltd. (HK)		95 How Ming St.,
		Kwun Tong, Hong Kong
Jeztek	Software	Room 9E, Block B	US$6	–	71%
Technology	developing	Hua Qiang Garden,
(Shenzhen) Ltd.	and IC	Fuhong Rd,
	application	Futian District,
	consulting	Shenzhen, Guangdong,
	service	China
CFP Service Ltd.	IC sales	9F, No. 19-5,	NT$261	–	55%
		San-Chong Rd., Nan

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		Kang, Taipei, R.O.C.
Cheertek	Multimedia	No. 2 Du-Sing First	NT$346,161	28%	29%
Incorporation	IC	Road, Science-Based	(NT$14,384)
	development	Industrial Park, Hsinchu
		300, Taiwan, R.O.C.
Strategic Value	Investment	101 California, Suite	US$6,593	–	24%
Fund II		2830, San Francisco,
		CA 94111, USA
VenGlobal Fund II	Investment	2053 Grant Road	US$2,443	–	17%
		PMB#378, Los Altos,
		CA 94024, USA
Walton Advanced	Memory	No. 18, North 1stRoad,	NT$747,935	14%	14%
Engineering Inc.	assembly	K. E. P. Z., Kaohsiung,
	and testing	Taiwan, R.O.C.
	service
Hannstar Color	Trading	10F, No.480,	NT$133,223	–	10%
Co., Ltd		Rueiguang Rd, Neihu
		Chiu 114, Taipei,
		Taiwan, R.O.C.
Venglobal Fund I	Investment	2052 Grant Road	US$349	–	10%
		PMB#378, Los Altos,
		CA 94024, USA
United Industrial	Production	No.12, Creation Rd. 1,	NT$154,867	8%	8%
Gases Co., Ltd	and sales for	Science-Based
	PN and LN	Industrial Park,
		Hsinchu, Taiwan,
		R.O.C.
Hannstar Display	Manufacture	No. 580, Kao Shi Rd.,	NT$2,353,164	7%	8%
Corporation	and sale of	Yangmei, Taoyuan 326,	(NT$483,060)
	TFT-LCDs	Taiwan, R.O.C.
Vita Genomics	IP rights	7F, No. 6, Sec.1,	NT$78,768	3%	8%
Inc.	trade, R&D	Jungshing Rd, Wugu	(NT$119,000)
	on human	Shiang, Taipei, 248
	disease	Taiwan, R.O.C.
	genetic
	maps,
	bio-tech
Pacific United	Investment	5F, 420 Fu Hsin North	US$1,361	–	8%
Technology L.P.		Road, Taipei, Taiwan,
		R.O.C.

04/974282_1

RECENT DEVELOPMENTS AND OUTLOOK

This Offering Circular contains forward-looking statements that are based on management ’ s current expectations, assumptions, estimates and projections about the Company and its industry. All statements other than statements of historical fact in this Offering Circular are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “ may ” , “ will ” , “ expect ” , “ anticipate ” , “ estimate ” , “ plan ” , “ believe ” , “ is/are likely to ” or other similar expressions. The forward-looking statements included in this Offering Circular relate to, among others, the results of operations of the Company for 2005.

The Company has filed its audited consolidated financial statements as of and for the three years ended December 31, 2003, 2004 and 2005 with the ROC FSC.

The audited consolidated financial statements of the Company as of and for the years December 31, 2003, 2004 and 2005 have been audited by Deloitte & Touche, the independent accountants of the Company, in accordance with auditing standards generally accepted in the ROC and the “ Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants ” . The unaudited non-consolidated financial statements of the Company for the three months ended March 31, 2005 and 2006 have been reviewed by Deloitte & Touche, the independent accountants of the Company, in accordance with ROC Statements of Auditing Standards No. 36 “ Review of Financial Statements ” . By their nature, non-consolidated financial statements are not comparable in certain material respects with consolidated financial statements and should not be compared to the consolidated financial statements for prior periods.

The financial statements were prepared in accordance with ROC GAAP. ROC GAAP differs in certain material respects from U.S. GAAP. See “ Summary of Certain Material Differences between ROC GAAP and U.S. GAAP. ”

Critical Accounting Policies

Preparation of the Company’s financial statements requires the Company to make estimates and judgments in applying its critical accounting policies which have a significant impact on the results it reports in its financial statements. The Company continually evaluates these estimates, including those related to revenue recognition, allowances for doubtful accounts, inventories, allowances for deferred income tax assets, useful lives of properties, and realizability of long-term assets. The Company bases its estimates on historical experience and other assumptions which it believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. The Company has identified below the accounting policies that are the most critical to its financial statements.

Revenue Recognition

Sales are recognized when titles of products and risks of ownerships are transferred to customers.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is determined by the Company’s management based on the evaluation of the probability of collection of notes and accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining the aging analysis of outstanding accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies.

Inventories

Inventories are stated at the lower of weighted-average cost or market value. Standards cost system is adopted and production variances are allocated to inventory and cost of goods sold based on pre-determined formula. Inventories are evaluated for their net realizable value and obsolescence based on age of inventories and historical sales data.

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Allowances for deferred income tax assets

Tax benefits arising from deductible temporary differences and unused tax credits are recognized as deferred tax assets. The Company records a valuation allowance to reduce its deferred income tax assets to an amount that it believes will more likely than not be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need and amount for the valuation allowance. In the event the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, an adjustment to its deferred income tax assets would increase income in the period such determination was made. Alternatively, should the Company determine that it would not be able to realize all or part of its net deferred income tax assets in the future, an adjustment to its deferred income tax assets would decrease income in the period such determination was made.

Impairment of long-lived assets

Effective from December 31, 2004, the Company is required to evaluate its equipment and other long-lived assets for impairment whenever there is an indication of impairment. If certain criteria are met, the Company is required to record an impairment charge. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed by comparing discounted net cash flows of the assets against the net book value of the assets. If the recoverability test indicates that an impairment has occurred, the impairment loss is the amount of the asset’s net book value in excess of the related fair value.

Investments

Stock investments in which the Company exercises significant influence on investees’ operating and financial decisions are accounted for by the equity method. The difference between the investment cost and the Company’s equity in the investee’s net assets on the acquisition date is amortized on the straight-line method over five years. This amortization and the Company’s equity in the investees’ net income or net losses are recognized as investment income or loss. Stock dividends received are recorded as an increase in the number of shares held on the ex-dividend date and do not affect investment income or the carrying amount of the investment. Cash dividends received are accounted for as a reduction of carrying value of long-term investments accounts. When an indication of significant impairment is identified in an investee company, any excess of the carrying amount of an investment over its recoverable amount is recognized as impairment loss.

If an investee issues additional shares and the Company subscribes to these shares at a percentage different from its existing equity, the resulting difference in the Company’s equity in the investee’s net assets is recorded as an adjustment to capital surplus as well as to the long-term investments accounts. Any decrease in the Company’s equity in the investee’s net assets is debited to capital surplus. If capital surplus from long-term investments is not enough for debiting purposes, the debit is made against unappropriated retained earning.

Investments in companies wherein the Company does not exercise significant influence are accounted for by the cost method. Stock dividends received are recognized only as increase in the number of shares held on the ex-dividend date. Cash dividends are recognized as income in the year received but are accounted for as a reduction of the carrying value of the long-term investment if the dividends are received in the year the related investments are acquired. The costs of investments sold are determined by the moving-average method. When an indication of significant impairment is identified in an investee company, the carrying amount of this investment is reduced to reflect an other-than-temporary decline, with the related impairment loss charged to current income.

Gains or losses on sales generated from the Company to the equity-accounted for investee companies are deferred in proportion to the Company’s stock ownership percentage in the investee companies at the year end until realized through transactions with third parties.

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The entire amount of the gains or losses on sales to subsidiaries is eliminated until such gains or losses are realized through the subsequent sales of the related products to third parties.

Results of Non-Consolidated Operations for The Three Months Ended March 31, 2005 and 2006

Non-consolidated net sales of the Company increased by 12.65% to NT$6,205.7 million (US$191.4 million) in the three months ended March 31, 2006 from NT5,508.6 million in the corresponding period in 2005. The increase in net sales was primarily attributable to increased revenue from PSRAM and computer logic ICs, which offset a decline in revenue from commodity DRAM and specialty DRAM. Non-consolidated gross profit was NT$1,526.7 million (US$47.1 million) (or 24.6% of non-consolidated net sales) in the three months ended March 31, 2006, a NT1,001.5 million (or US$30.5 million) increase from the NT$525.2 million non-consolidated gross profit (or 9.53% of non-consolidated net sales) in the corresponding period in 2005. The increase in gross profit was primarily attributable to increased shipment of PSRAM and computer logic ICs. The increase in computer logic revenue is primarily attributable to revenue from the Advanced PC division which the Company acquired in 2005. Non-consolidated revenue from the Company’s logic business increased by 37%, while non-consolidated revenue from its memory business decreased by 1% in the three months ended March 31, 2006 from the corresponding period last year.

The Company had a non-consolidated gain from operations of NT$96.4 million (US$3.0 million) in the three months ended March 31, 2006 as compared with a NT$1,593.6 million (US$49.2 million) non-consolidated loss from operations in the corresponding period in 2005. Non-consolidated operating expenses decreased by 32.50% to NT$1,430.3 million (US$44.1 million) in 2006 as opposed to NT$2,118.8 million (US$65.4 million) in the corresponding period in 2005. The Company’s operating margin was approximately 1.55% for the three months period ended March 31, 2006.

Non-consolidated non-operating income decreased by 44.02% from NT$648.9 million (US$20.0 million) in the three months period ended March 31, 2005 to NT$363.2 million (US$11.2 million) in the corresponding period in 2006. This was primarily due to decreased gains from the disposal of investments, which offset an increase in other non-operating income. Non-consolidated non-operating expenses decreased by 52.07% from NT$708.1 million in the three months ended March 31, 2005 to NT$339.4 million (US$10.5 million) in the corresponding period in 2006. This was primarily due to a decrease in losses from inventory write-offs, which offset recognized losses relating to the Company’s equity investments in its Advanced PC Israeli operations.

Primarily as a result of these factors, the total non-consolidated gain of the Company for the three months ended March 31, 2006 was NT$124.3 million (US$3.8 million), as opposed to a total non-consolidated loss of NT$1,652.8 million for the three months ended March 31, 2005.

Results of Consolidated Operations for Years Ended December 31, 2004 and 2005

Consolidated net sales of the Company decreased by 9.57% to NT$28,605.5 million (US$882.3 million) in 2005 from NT$31,634.1 million in 2004. The decrease in net sales was primarily attributable to a decrease in revenues from memory products as a result of a decrease in the average sales price of DRAM, while revenues from logic products increased as a result of increased sales of LCD driver IC’s demand and the acquisition of National Semiconductor’s Advanced PC business. Consolidated gross profit was NT$5,367.5 million (US$165.6 million) (or 18.76% of consolidated net sales) in 2005, a NT$4,661.0 million (or US$143.8 million) decrease from the NT$10,027.6 million consolidated gross profit (or 31.70% of consolidated net sales) in 2004. The decrease in gross profit was primarily attributable to a decline in the sales price of memory products at the beginning of the year, as well as an increase of commodity DRAM in the product mix.

The Company had a consolidated loss from operations of NT$3,014.8 million (US$93.0 million) in 2005 a 197.40% decrease from the NT$3,095.3 million consolidated gain from operations in 2004. Consolidated operating expenses increased by 20.92% to NT$8,382.3 million (US$258.6 million) in 2005 as opposed to NT$6,932.3 million in 2004.

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Consolidated non-operating income increased by 90.77% from NT$977.4 million in 2004 to NT$1,864.6 million (US$57.5 million) in 2005. This was primarily due to gains from disposals of investments. Consolidated non-operating expenses decreased by 54.23% from NT$725.0 million in 2004 to NT$331.8 million (US$10.2 million) in 2005. This was primarily due to a lower loss on allowance for inventory valuation.

Primarily as a result of these factors, the total consolidated loss of the Company for the year ended December 31, 2005 was NT$1,521.1 million (US$46.9 million), as opposed to a total consolidated income of NT$3,316.2 million for year ended December 31, 2004.

Results of Consolidated Operations for Years Ended December 31, 2004 and 2003

Consolidated net sales of the Company increased by 5.15% to NT$31,634.1 million (US$975.8 million) in 2004 from NT$30,084.0 million in 2003. The increase in net sales was primarily attributable to an increase in sales of DRAM and logic ICs, driven in part by increased sales of Pseudo SRAM and ICs for electronic toy products and mother boards. Consolidated gross profit was NT$10,027.6 million (US$309.3 million) (or 31.70% of consolidated net sales) in 2004, a NT$5,007.4 million (or US$154.5 million) increase over the NT$5,020.2 million consolidated gross profit (or 16.69% of consolidated net sales) in 2003. The increase in gross profit was primarily attributable to new product offerings and improved market conditions in the semiconductor industry.

The Company had a consolidated gain from operations of NT$3,095.3 million (US$95.5 million) in 2004 as compared with a consolidated loss from operations of NT$2,406.5 million in 2003. This difference of NT$5,501.8 million was primarily due to a 13.88% decrease in consolidated cost of sales in 2003 from NT$25,071.5 million to NT$21,592.7 million in 2004. Consolidated operating expenses decreased by 6.66% to NT$6,932.3 million (US$213.8 million) in 2004 as compared with NT$7,426.7 million in 2003.

Consolidated non-operating income decreased by 38.93% from NT$1,600.4 million in 2003 to NT$977.4 million (US$30.2 million) in 2004, while consolidated non-operating expenses increased by 96.05% from NT$369.8 million in 2003 to NT$725.0 million (US$22.4 million) in 2004. The decrease in non-operating income and increase in non-operating expenses was primarily a result of (a) a lower amount on disposal of investments, which declined to NT$581.2 million in 2004 from NT$970.2 million in 2003; a loss on allowance for inventory valuation and obsolescence loss of NT$253.7 million in 2004 as opposed to a gain on price recovery of inventory of NT$302.1 million in 2003; and (c) a net investment loss of NT$257.0 million in 2004 as opposed to net investment income of NT$16.3 million in 2003.

Primarily as a result of these factors, consolidated net income of the Company increased to NT$3,316.2 million (US$102.3 million) in 2004 from a net loss of NT$1,185.2 million in 2003.

Liquidity and Capital Resources

The Company’s principal uses of funds are for the procurement of equipment and expansion of manufacturing facilities. The Company has historically financed its operations through internally generated cash and external borrowings.

The following table shows our consolidated cash flows with respect to operating activities, investing activities and financing activities for the three years ended December 31, 2003, 2004, and 2005 and our non-consolidated cash flows with respect to operating activities, investing activities and financing activities for the three month periods ended March 31, 2005 and 2006:

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2003 2004 2005 Net cash provided by operating activities ………………………… 9,699.6 13,615.4 9,051.4 Net cash used in investing activities ………………………… (1,009.2) (4,992.1) (25,178.9) Net cash (used in) provided by in financing activities …………… (4,302.9) (6,894.8) 11,929.4 Net (decrease)/increase in cash and cash equivalents ………… 4,402.8 1,709.8 (4,202.7) Year ended December 31, (NT$, in millions) (Audited, consolidated)	Three months ended March 31,
	2005 2006 (Unaudited, non-consolidated)
	2,229.0 752.4 (1,673.0) (7,289.4) 7.8 1,967.8 563.7 (4,569.2)

2003
2004
2005
Net cash provided by operating
activities …………………………
9,699.6
13,615.4
9,051.4
Net cash used in investing
activities …………………………
(1,009.2)
(4,992.1)
(25,178.9)
Net cash (used in) provided by in
financing activities ……………
(4,302.9)
(6,894.8)
11,929.4
Net (decrease)/increase in cash
and cash equivalents …………
4,402.8
1,709.8
(4,202.7)
Year ended December 31,
(NT$, in millions)
(Audited, consolidated)

Three months ended March 31,

2005
2006
(Unaudited, non-consolidated)

2,229.0
752.4
(1,673.0)
(7,289.4)
7.8
1,967.8
563.7
(4,569.2)

The Company’s consolidated capital expenditure and long-tem investments for the three years ended December 31, 2003, 2004 and 2005 and the Company’s non-consolidated capital expenditure and long-tem investments for the three month periods ended March 31, 2005 and 2006 are shown in the table below. Actual future capital expenditures may differ from the amounts indicated below:

	Year ended December	Year ended December	31,	Three months ended March 31,	Three months ended March 31,
	2003	2004	2005	2005	2006
	(Audited, consolidated)			(Unaudited, non-consolidated)
			(NT$, in millions)
Capital expenditure on payment for
acquisitions of property, plant and equipment	(4,505.8)	(4,549.2)	(23,932.0)	(2,492.0)	(6,665.1)
Investment in long-term investments…………	(731.3)	(803.9)	(468.4)	(92.6)	(630.9)

See “Independent Auditors’ Report and Audited Consolidated Financial Statements of Winbond Electronics Corporations for the years ended December 31, 2003, 2004 and 2005”.

Subsequent Events

The following event occurred subsequent to March 31, 2006.

On April 20, 2006, the Company officially commenced commercial operations at its new 12-inch fab at Central Taiwan Science Park. The 12-inch fabrication facility has a current capacity of 8,000 wafers per month.

Recent Accounting Pronouncements

Financial Instrument Transactions

Beginning in 2006, ROC SFAS No.34 requires that all entities recognize derivative instruments as assets and liabilities in the statement of financial position and subsequently measure them at fair value. If certain conditions are met, entities may elect to designate a derivative instrument as one of the following:

Fair value hedge — a hedge of the exposures to changes (that are attributable to a particular risk) in the fair value of (1) a recognized asset or liability or (2) an unrecognized firm commitment;
Cash-flow hedge — a hedge of the exposure to variability that is attributable to a particular risk) in the cash flows of a forecasted transaction; and
Foreign-currency net investment hedge — a hedge of the foreign-currency exposure of a net investment in a foreign operation.

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In addition, investments in marketable equity securities are classified in one of four categories: FVTPL, loans and receivables, held-to-maturity or available-for-sale. Marketable securities that are held principally for selling them in the near term or for speculative purposes should be classified as FVTPL, while debt securities wherein the holder has the intent and ability to hold the securities to maturity can be classified as held-to-maturity. Loans and receivables and held-to-maturity securities are carried at amortized cost. FVTPL securities are carried at fair value with changes in fair value reported in current earning. Available-for sale securities are carried at fair value with changes in fair value reported as a separate component of equity until the securities mature or are sold. Common share dividends and interest received on marketable securities are recorded as investment income.

Financial Instruments: disclosure and presentation

ROC SFAS No. 36, which became effective in 2006, contains requirements for the presentation of financial instruments and identifies the information that should be disclosed about them. ROC SFAS No. 36 requires an issuer of a financial instrument to classify the financial instrument, or its component parts, as a financial liability or as equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. The overriding principles are that where the issuer does not have an unconditional right to avoid the obligation to deliver cash, and where the contract does not, in substance, evidence a residual interest in the net assets of the issuer after deducting all of its liabilities, the instrument is not an equity instrument.

Some financial instruments — sometimes called compound instruments — have both a liability and an equity component from the issuer’s perspective. In that case, this standard requires that the component parts be accounted for and presented separately according to their substance based on the definitions of liability and equity. The split is made at issuance and not revised for subsequent changes in market interest rates, share prices, or other event that changes the likelihood that the conversion option will be exercise. Thus, the Company’s convertible debt instrument issued after the effective date of this standard should be split into its liability and equity components and measure the liability at fair value with the equity component representing the residual; convertible debt instruments issued before the effective date were still classified entirely as a liability.

ROC SFAS No. 36 also requires disclosure of information about factors that affect the amount, timing and certainty of an entity’s future cash flows relating to financial instruments and the accounting policies applied to those instruments, as well as information about the nature and extent of an entity’s use of financial instruments, the business purposes they serve, the risks associated with them, and management’s policies for controlling those risks.

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BUSINESS

Overview

Winbond is one of the largest branded semiconductor integrated circuit device manufacturers (“IDM”) in Taiwan. The Company is primarily engaged in the design, production and sale of memory and logic IC devices, and its products are key components used in a broad array of electronic applications including personal computers, workstations, notebook computers, mobile phones, computer monitors, digital still cameras and other consumer electronics products. The Company’s customers are original equipment manufacturers and original design manufacturers of consumer electronics, personal computer and communications equipment located around the world.

Winbond manufactures its products at its semiconductor fabrication facilities (“fabs”) in Taiwan, and also outsources production of certain logic devices to semiconductor foundries that manufacture ICs on a contract basis.

The Company’s products are offered in a wide variety of package and configuration options, architectures, and performance characteristics tailored to meet application and customer needs. Its memory products include DRAM memory for use in personal computers, as well as application specific memory designed for use in cellular phones and other electronic products. Its logic devices include input output controllers for PCs, flat screen display device drivers, speech and sound logic chips and logic devices that provide wireless networking capability. In 2003, 2004 and 2005, memory devices comprised approximately 71%, 71% and 61%, respectively, of the Company’s non-consolidated net sales, while logic devices comprised 29%, 29% and 39%, respectively. In the first quarter of 2006, memory devices comprised approximately 57% of the Company’s non-consolidated net sales, while logic devices comprised 43%. The Company continually introduces new generations of products that offer lower cost per unit and improved performance characteristics.

Strategy

Leverage capabilities in different types of memory and logic ICs to provide multi-chip IC device solutions that provide wireless and mobile capabilities to products in high-growth consumer electronics sectors

After fifty years of development, the semiconductor industry has gradually come to maturity. Over the last two decades, year-on-year revenue growth has declined throughout the semiconductor industry as ICs have become embedded in a significant array of applications. In this increasingly competitive environment, the Company’s strategy is to focus on providing IC solutions to companies operating in the fields that the Company believes hold the highest growth opportunities, the wireless and portable consumer electronics industries. For instance, the Company offers a line of specialty memory and logic solutions to cell phone manufacturers that allow them to offer advanced multimedia functions on their handsets. The Company works closely with its customers in the consumer electronics, computer and communications industries to provide mobile electronics solutions that are uniquely tailored to its customers’ needs.

Cooperate with other leaders in the semiconductor industry to enhance the Company ’ s technological expertise

The Company believes that cooperating with other leaders in the semiconductor industry is of great importance as it enables the Company to secure rapid access to design and manufacturing technology and allows it to remain competitive in a market characterized by continuing process migration and technological change. In August 2004, the Company built on its preexisting technology sharing arrangements with Infineon by entering into a know-how transfer and license agreement to manufacture commodity DRAMs using 0.11 micron DRAM process and 0.09 micron DRAM process licensed from Infineon. The Company believes that this cooperation arrangement with Infineon, pursuant to which it uses Infineon’s technology to design and manufacture DRAM chips and to develop new products and manufacturing processes, will provide it with key technology necessary for the Company’s long-term growth. Technology sharing arrangements among semiconductor manufacturing companies such as

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the one between the Company and Infineon are common in the IC industry and allow research and development, as well as manufacturing resources, to be shared to mutual advantage. Pursuant to the terms of the 2004 know-how transfer and license agreement with Infineon, the Company has agreed to pay Infineon a substantial technology licensing fee. Infineon in turn is obliged to take up a substantial portion of the Company’s anticipated initial DRAM production. The Company believes the proprietary technology and expertise gained from producing commodity DRAM for Infineon will enable it to enhance and expand its own portfolio of specific memory and advanced logic devices designed for use in mobile electronics products and other applications.

Combine the stable returns of an application-specific memory and logic circuit producer with the cutting-edge capabilities of a commodity memory manufacturer

It is often the case that cutting edge semiconductor manufacturing processes are pioneered by producers of commodity ICs such as DRAM, rather than by producers of application specific devices. While the Company believes in staying at the leading edge of IC fabrication processes, it also does not want to expose itself to the volatility associated with being a pure commodity memory manufacturer. In order to develop capability in the latest semiconductor manufacturing processes without exposing itself to all of the risks associated with being a pure commodity DRAM player, the Company focuses on designing and providing specialty IC applications while acting as a foundry partner for leading commodity IC designers such as Infineon. Such partnerships with commodity IC designers allow the Company to share in the know-how of these IC developers via licensing agreements, gives it the scale necessary to build fabs to more advanced technological specifications and provides the Company with the technology needed to maintain its position as a leader in engineering specialty IC solutions for use in mobile electronics products.

Uses new fabs to manufacture commodity memory products that require cutting edge manufacturing technologies while using older fabs to manufacture less demanding logic products

Given the high rate of obsolescence of semiconductor fabrication technologies, the Company must extend the useful life of its fabs in order to maintain profitability. To extend the useful life of its manufactoring facilities, the Company uses its newest, most advanced fabs to manufacture commodity memory products to the latest industry standard and to fabricate high density application specific memory products. Furthermore, because the Company, in addition to producing commodity DRAM, also produces specialty DRAM and pseudo SRAM products, it has greater flexibility in terms of capacity allocation and resource planning, moving from the production of one type of memory to another depending on market conditions. To extend the useful lives of its older fabs, the Company uses them to manufacture logic devices that require analog design capability or high voltage process technologies, which generally have less demanding manufacturing process requirements. To supplement this, the Company also uses a “fab-light” strategy for its logic ICs, whereby it outsources the manufacturing of some of its logic devices to third party foundries when economics dictates.

The Company’s manufacturing and sales personnel work together closely with the goal of ensuring that, through the use of customer feedback and the Company’s internal information processing system, the Company’s production capacity is allocated in a way that maximizes profitability, while also satisfying the needs of the Company’s customers. The Company has been able to achieve high capacity utilization rates at each of its fabs, with the result that its different product groups often compete with each other for available production capacity. The Company believes that by maintaining its current mix of product offerings and strategically allocating its fabrication resources, it will be able to extend the useful life of its capital intensive semiconductor manufacturing facilities, thereby allowing it to increase its profitability.

Take advantage of its geographic proximity to its customer base

The proximity of the Company’s production facilities and management offices to many of its important customers in the Asia-Pacific region, arguably the world’s center for the manufacturing of electronics products, enhances the Company’s ability to communicate with its customers and hence improve its services and manufacturing capabilities with the help of customer feedback. Taiwan is a manufacturing center for personal computers and related

04/974282_1

products; Hong Kong and the PRC are important for the manufacturing of consumer products; and many of the electronics design houses the Company services are located in Japan. Company’s physical location has benefited its customers in the region by providing product-responsive engineering support which includes product application support to fit its customers’ marketing and manufacturing needs.

Maintain a leadership position in key IC component markets

The Company is a leader in a wide range of IC component markets. Its input/output microcontrollers are the brand of choice used by virtually all of the leading independent PC motherboard manufacturers and notebook computer ODMs. The Company is a leading producer of speech recognition logic devices and commands a dominant share of market for pseudo SRAM memory products.

Products and Services

The Company’s main products are memory IC devices and logic IC devices.

Memory IC Business Group

Memory semiconductor devices are used in electronic systems to store data and program instructions. The Company’s memory products include standard DRAM for personal computers, specialty DRAM for cell phones and other applications, and flash memory.

Dynamic Random Access Memory ( “ DRAM ” ). DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage and retrieval. The Company offers DRAM products with a variety of performance, pricing and other characteristics. The most common DRAM product on the market today is the DRAM memory chip used in Intel-compatible personal computers. Because of their prevalence, such DRAM chips are often referred to within the semiconductor industry as “commodity DRAM.” Commodity DRAM products comprised approximately 32%, 13% and 20% of the Company’s non-consolidated net sales in 2003, 2004 and 2005, respectively. In the first quarter of 2006, commodity DRAM products comprised approximately 9% of the Company’s non-consolidated net sales. Pursuant to a technology licensing and profit sharing agreement with Infineon, the Company currently makes commodity DRAM using Infineon’s 0.11 micron process technology. Under this arrangement, Infineon has also transferred 0.09 micron DRAM technology and 12 inch fab construction technology to the Company. The transferred technology has resulted in the opening of a new 12 inch fab on April 20, 2006, serving as a foundry for Infineon. Under the terms of this agreement, Infineon is obliged to take up a substantial portion of the Company’s anticipated DRAM production through August 2007, and the Company is allowed to sell throughout the world DRAM products under Infineon’s technology. The Company believes that this cooperative arrangement with one of the world’s leading DRAM manufacturers will be mutually beneficial to both parties.

Specialty DRAM. In recent years, the Company has provided “mobile electronics solutions” to OEM and ODM manufacturers through developing specialty memory products - such as pseudo-static RAM (“PSRAM”) and Mobile RAM - that are generally targeted to applications such as mobile phones and consumer electronics applications with specific performance characteristics such as low power, low latency, and high mobility. As a result of its efforts, in 2004, non-consolidated net sales from specialty DRAM overtook non-consolidated net sales from commodity DRAM. Specialty DRAM contributed approximately 31%, 52% and 35% of the Company’s non-consolidated net sales during 2003, 2004 and 2005, respectively. In the first quarter of 2006, specialty DRAM contributed approximately 42% of the Company’s non-consolidated net sales. The Company’s specialty DRAM offerings include 1T PSRAM, low power SDRAM and SDRAM devices that are sold primarily to mobile phone and other consumer electronics manufacturers.

NOR Flash Memory. Flash memory products are electrically re-writeable, non-volatile semiconductor devices that retain memory content when power is turned off. The name “flash” is derived from the fact that blocks of data are erased in a rapid manner. Flash memory is often used for storing data and computer programs.

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The Company’s flash memory operations are concentrated on the NOR form of flash memory. The advantage of NOR flash over the other common variant of flash memory, NAND flash, is that it allows computers programs instructions to be stored on a read-only basis in an area of an electronic system other than the main system memory. The Company produces NOR flash memory for use in cell phones, portable electronic games and personal computers, among other applications. NOR flash products have grown rapidly and the Company expects continued growth in 2006 due to demand from the cell phone and consumer electronics industries.

The Company offers a line of low-density parallel NOR flash memory products that are based on the Company’s proprietary WinStack technology. The Company, through its NexFlash subsidiary, offers a variety of serial flash memory devices with capacities of 2MB to 32MB that are used in PC, communications and optical storage products. These flash memory devices are manufactured on the Company’s 8-inch fabs using 0.18 micron process technology.

Revenue from NOR flash memory accounted for 8%, 6% and 6% of the Company’s non-consolidated net sales in 2003, 2004 and 2005, respectively. In the first quarter of 2006, Revenue from NOR flash memory accounted for 6% of the Company’s non-consolidated net sales.

Logic Devices Logic integrated circuit devices process digital data to control the operations of electronic systems. The Company designs, produces and sells a wide assortment of logic devices for use in consumer electronics, personal computers and networking equipment. In 2003, 2004 and 2005, logic devices comprised approximately 29%, 29% and 39%, respectively, of the Company’s non-consolidated net sales. In the first quarter of 2006, logic devices comprised approximately 43% of the Company’s non-consolidated net sales.

Consumer electronics logic devices. The Company’s consumer electronic logic products include logic devices for use in digital cameras, handheld electronic games, text to speech applications, LCD monitors, caller ID boxes, interactive toys for children and a variety of other applications. The Company’s logic devices allow manufacturers of consumer electronics to build a variety of features into their products. The Company is a leader in the production of voice and sound synthesizer logic devices used to give cellphones the ability to have polyphonic ringtones and provide household appliances, interactive toys and cars with the ability to “talk”. Consumer electronics logic devices comprised approximately 15%, 15% and 15% of the Company’s non-consolidated net sales for each year of 2003, 2004 and 2005. In the first quarter of 2006, consumer electronics logic devices comprised approximately 15% of the Company’s non-consolidated net sales.

Personal computer logic devices. The Company’s computer and peripheral logic products include PC, notebook computer and network server motherboard components and a host of other computer components. The Company supplies input/output microcontrollers to most of the major personal computer and motherboard original equipment manufacturers on the market today. The Company also made driver ICs for TFT-LCD flat panel displays during the three years ended December 31, 2005. In 2003, 2004 and 2005, logic devices for PC applications and flat panel displays comprised 12%, 12% and 20%, respectively, of the Company’s non-consolidated net sales. In the first quarter of 2006, logic devices for PC applications and flat panel displays comprised 24% of the Company’s non-consolidated net sales. On January 25, 2006, the Company sold its TFT-LCD driver IC business to affiliated company, Cheertek Technology, Inc., for approximately NT$420 million, in order to focus on its core logic and memory product lines.

In March 2005, Winbond acquired the Advanced PC division of National Semiconductor. The Advanced PC division has been a leader in designing I/O logic devices for notebook computers, network servers as well as personal computers. The Advanced PC division was a pioneer in incorporating the Trusted Platform Module (“TPM”) encryption feature into its logic devices. The Company believes this acquisition will enable it to complement its leadership role in the PC logic device business with an expansion into the notebook and server I/O device markets. The Advanced PC division, whose 150 employees are based in Israel, also makes other products such as keyboard controllers.

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Communications and networking logic ICs. Winbond produces a variety of networking and telecommunications devices that enable computers and portable electronic devices to transmit and receive data. Among the Company’s networking logic device offerings are Bluetooth radio chips that provide everything from cordless telephones to keyboards and joysticks their wireless capabilities.

The Company’s wireless local area network (“WLAN”) logic devices, compliant with the IEEE’s 802.11 a/b/g wireless standards, are used in LAN Cards, USB LAN adaptors and embedded systems to provide wireless networking capability to PCs, notebooks and other applications. The Company’s WLAN products have recently been certified by the WiFi Alliance, a key industry trade group in the WLAN business. The Company’s LAN products are supported with software drivers for the Windows, Windows CE and Linux operating systems.

The company also makes communications logic devices that are compliant with the digital enhanced cordless telecommunications (DECT) standard. These devices are used in digital cordless phones, cordless VoIP phones, baby monitors and wireless video game controllers. Winbond’s other communications offerings include radio frequency devices that are often used in remote controlled toys as well as ISDN logic ICs.

Manufacturing

The Company’s semiconductor manufacturing facilities are located in Taiwan. Semiconductor manufacturing is extremely capital intensive, requiring large investments in sophisticated facilities and equipment.

The Company’s process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer fabrication, assembly, burn-in and final test. Efficient production of semiconductor products requires utilization of advanced semiconductor manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary determinants of manufacturing cost are die size, number of mask layers, number of fabrication steps and number of good die produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type and cleanliness of the manufacturing environment. The Company is continuously enhancing production processes, reducing die sizes and transitioning to higher density products. In 2005, the Company manufactured its products using up to 0.11 micron line-width process technology. The Company began transferring some of its manufacturing operations to its new fab, which uses 0.09 micron line-width process technology, in April, 2006.

Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting contaminants. Despite stringent manufacturing controls, dust particles, equipment errors, minute impurities in materials, defects in photomasks and circuit design marginalities or defects can lead to wafers being scrapped and individual circuits being nonfunctional. The success of the Company’s manufacturing operations depends largely on minimizing defects, thereby maximizing its yield of high-quality circuits. In this regard, the Company employs rigorous quality controls throughout its manufacturing, screening and testing processes.

After fabrication, silicon wafers are separated into individual die. Functional die are sorted, connected to external leads and encapsulated in plastic packages. The Company assembles products in a variety of packages. Each completed package is then inspected and tested. The Company also sells semiconductor products in an unpackaged or die form. The Company tests its products at various stages in the manufacturing process, performs high temperature burn-in on finished products and conducts numerous quality control inspections throughout the entire production flow.

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are 8-inch facilities that are primarily used for manufacturing DRAM and other memory products. The two 8-inch facilities have an aggregate design capacity of 40,000 wafers per month and utilize 0.175 micron – 0.11 micron process technology.

The Company opened a new 12-inch fab on April 20, 2006. This new facility will utilize 0.11 micron and 0.09 micron process technology licensed to the Company by Infineon and has a current capacity of 8,000 wafers per month.

All of the Company’s fabs are located on land owned by the ROC Government and leased to the Company for 20 years. The land lease for its 6-inch fab, and two 8-inch fabs and 12-inch fab will be subject to renewal in August 2009, May 2015 and December 2023, respectively. Buildings and improvements are wholly-owned by the Company.

Raw Materials

The Company’s principal raw materials include silicon wafers, chemicals, photo-resistors and gases. The Company purchases these materials from Taiwanese suppliers and foreign suppliers predominantly located in the U.S., Japan, Germany, Korea and Malaysia. The Company maintains relationships with multiple suppliers for each of these raw materials in order to minimize material costs and mitigate supply shortage risk. For other outsourcing needs such as backend testing and packaging, the Company cooperates with at least five qualified suppliers to maintain the highest possible engineering capability, service quality and to remain flexible in adjusting and allocating its product lines.

Since IC fabs have high fixed costs and are highly capital intensive, wafers and chemicals are the most significant variable raw material costs in IC production. The Company is required to source wafers for the production of DRAM products sold to Infineon from its designated wafer suppliers. The Company believes that its relationships with its suppliers are stable and does not foresee any material shortages in its supply of wafers.

The Company also uses a limited amount of specialized chemicals and gases in its manufacturing process. The Company has not experienced and does not anticipate material difficulties in obtaining supplies of such chemicals and gases.

The Company’s manufacturing process requires substantial quantities of purified water. The Company recycles approximately 70% of the water used in its manufacturing operations, and also has limited water storage facilities to meet changes in needs. The Company has never experienced any material interruption to its water supply.

Other than its agreement with Infineon pursuant to a strategic alliance, the Company has not entered into any major long-term supply contracts. Payment terms for supplies are generally 60 days from the date of invoicing.

Global Sales, Marketing and Distribution

The Company’s products are sold to OEM and ODM computing, networking and telecommunications, and consumer electronics industries.

The Company’s sales and marketing activities are centralized within the Company. The sales team works on pricing, volume quotation, channel management, order collection and customer services, while the marketing team carries out product planning, promotion, pricing and product management. The Company’s sales force is organized by territories, with further division by application markets within each territory. The Company’s marketing force works closely with its product research and development department to serve its customers’ needs.

The Company markets its semiconductor products primarily through its own direct sales force. The Company’s products are also offered through independent sales representatives and distributors. The Company’s products are offered under its own brand name as well as under other private labels. The Company maintains sales offices in the United States, Japan, Singapore, Taipei and Hong Kong and has over 60 sales distributorships, technical support centers and representatives in all of the primary markets around the world.

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Sales representatives obtain orders subject to final acceptance and qualification by the Company. Shipments against these orders are generally made directly to the customer by the Company. Distributors typically stock the Company’s products in inventory and usually sell a variety of other semiconductor products, including those marketed by the Company’s competitors.

Many of the Company’s customers require a comprehensive review and pre-qualification of certain new semiconductor products, a process which may take several months. There can be no assurance that new products of the Company will be qualified for purchase by existing or potential customers.

Customers are generally billed on delivery of goods with varying credit terms of between 45 and 60 days. A substantial portion of the Company’s sales are invoiced in U.S. dollars.

Product and Process Design, Research and Development

To compete in the semiconductor industry, the Company must continue to develop technologically advanced products and processes. The Company believes that expansion of its semiconductor product offerings is necessary to meet expected market demand for specific memory solutions. The Company has several product design centers around the world, including Taiwan, Japan, Israel and Silicon Valley.

R&D expenses vary primarily with the number of development wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. R&D expenses can also vary significantly depending on the timing of product qualification. Product development costs are recorded as R&D expense. The Company’s consolidated R&D expenses were NT$4,844.8 million (US$149.4 million), NT$4,758.1 million (US$146.8 million) and NT$5,844.0 million (US$180.3 million) in 2003, 2004 and 2005, respectively. In the first quarter of 2006, the Company’s non-consolidated R&D expense was NT$1,044.1 million.

The Company’s R&D efforts are focused primarily on the development of application specific memory and logic devices for use in various electronics applications.

The Company does not have a centralized research and development unit. Instead, all product and technology developments are carried out by various product and technology divisions. The principal development activities of the Company include new product development, product enhancement, fab process technology development and design automation technology. The research and development activities on the product design of the Company are targeted at providing products needed to best achieve the Company’s growth and to cope with market dynamics and competitions. The advancement of process technology is also of primary importance to reduce production costs and thus increase the competitiveness and profitability of each product. The Company also conducts research for the development of design automation technology in order to enhance its design capability.

As of March 31, 2006, approximately 1,150 employees were research and development personnel in the Company and its subsidiaries, including approximately 110 research engineers in California, approximately 800 research and development engineers at the Company’s headquarters in the Hsinchu Science Park, approximately 120 research engineers in Asia and approximately 120 research and development staff in Israel.

Competition

The semiconductor industry, including the market for ICs, is intensely competitive. The Company competes with a number of major domestic and international semiconductor companies, certain of which have greater financial and other resources than the Company with which to pursue their participation in the semiconductor market. Competitors include manufacturers of standard semiconductors, ASICs and fully customized ICs, including both chip and board-level products, as well as customers who develop their own IC products.

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The Company competes in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customised design, availability, quality and sales and technical support.

Being located in the Hsinchu Science Park provides proximity to the East Asian electronics supply chain and the Company believes that such proximity assists in the early understanding of customer needs and the provision of individualized customer service, thereby increasing its competitiveness. The Company believes its research and development facilities in Hsinchu, in California’s Silicon Valley and in Israel will enable the Company to maintain a better understanding of market and design trends.

Employees

As of March 31, 2006, the Company currently has over 4540 employees in Taiwan and 485 employees in its overseas subsidiaries. Exclusive of direct production operators, approximately 33.3% of the Company’s staff have graduate degrees. The average age of the Company’s employees is 32.9. The Company provides significant continuing education programs in both technology and business management. Winbond’s proximity to two science and technology universities, National Tsinghua University and National Chiao Tung University, provides the Company with sources of high-quality employees. Many of the Company’s employees are highly-skilled and the Company’s’ success will depend partly on its ability to retain its employees. However, the Company may experience difficulties in locating and hiring qualified employees at a race sufficient to meet the Company’s expansion needs.

In accordance with the ROC Labor Standard Law, the Company provides labor insurance, medical coverage and a retirement plan for all of its ROC employees. Winbond has established a Pension Fund Supervision Committee, which oversees the implementation of retirement funds for the Company. Benefits under this plan are based on length of service and on the average monthly pay for the six months before retirement. Winbond currently contributes 2% of salaries and wages monthly to a retirement fund. As of March 31, 2006, the retirement plan had plan assets of approximately NT$1,007.0 million (US$31.1 million) and a projected benefit obligation in excess of plan assets of approximately NT$1,047 million (US$31.9 million).

In accordance with the newly enacted ROC Labor Pension Act, effective July 1, 2005 all ROC companies, including Winbond, will be required to contribute to the pension fund accounts of each of its employees who decides to participate in the “portable” pension schemes available under the Labor Pension Act an amount equal to at least 6% of the monthly salary of each such employee. Under the ROC Labor Standards Law, which governed pension schemes prior to the Labor Pension Act, ROC companies were required to contribute at least 2% of such monthly income to the pension fund accounts. As result of entering into force of the ROC Labor Pension Act, the Company anticipates that its pension costs will increase in 2006.

The Company has a profit sharing program which has become an important part of employee compensation. Where there is an allocable surplus for a given year, a certain percentage thereof is distributable as a bonus to employees.

Labor management meetings are held regularly to promote direct exchanges of views between management and labor and to resolve any issues that may arise. Since the establishment of Winbond, no material disputes have arisen between management and employees. None of the Company’s employees are represented by a labor organization and the Company has never had a work stoppage as a result of labor issues. The Company considers relations with its employees to be satisfactory.

Environmental Matters

The Company’s manufacturing operations use many chemicals and gases, and the Company is subject to a variety of governmental regulations relating to the use, storage, discharge and disposal of such chemicals and gases and other emissions and wastes. Winbond is subject to regulation by the various environmental protection administration agencies of the jurisdictions where its operations are located. The regional environmental protection agencies randomly inspect operations at Winbond’s plants unannounced to check compliance by Winbond with relevant laws and regulations. Winbond’s internal standards of environmental control are often stricter than those mandated by ROC law. Consistent with the

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Company’s principle of “Quality Comes First”, Winbond has established environmental policies with respect to the handling of such chemicals and gases and emissions and waste disposal from its manufacturing operations. Although the Company has not suffered material environmental claims in the past and believes that its activities conform to presently applicable environmental regulation in all material respects, environmental claims or the failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against the Company, suspension of production or cessation of operations.

The Company’s 6-inch fabs and 8-inch fabs received ISO 14001 certifications for their environmental management systems in December 1998 and October 2000, respectively.

Legal Proceedings

Subsequent to the commencement of the DOJ investigation, a number of putative class action lawsuits were filed against the Company and other DRAM suppliers in various federal district courts and state courts, asserting claims on behalf of a putative class of direct purchasers or indirect purchasers (individuals and entitles) of DRAM during the period from April 1, 1999 through at least June 30, 2002. The complaints allege price-fixing in violation of federal antitrust laws and/or various state antitrust, consumer protection and/or unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’ fees for the allegedly unlawful conduct. A number of these cases have been transferred to the U.S. District Court for the Northern District of California for consolidated proceedings. The Company has challenged the putative class and the class representatives; the Court will decide soon whether or not to certify the case as a class action. Several computer equipment manufacturers, rather than participate in the class action cases, have initiated separate, pre-suit investigations or filed separate suits in the same court in the Northern District of California.

In addition, the attorneys general of twenty-eight states have indicated that they are investigating potential state and federal civil claims against the Company and other DRAM suppliers on behalf of state and governmental entities that were direct or indirect purchasers of DRAM and potentially on behalf of other indirect purchasers of DRAM.

The Company is unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have an adverse effect on the Company’s business, results of operations or financial condition. The Company is not a party to any other legal or governmental proceedings that it believes may have a material adverse effect on its business, financial condition and results of operation, and, to the best knowledge of its management, no such proceedings are contemplated.

As is the case with many companies in the semiconductor industry, the Company has occasionally received communications alleging infringement of intellectual property rights of others. See “Risk Factors —- Risks Related to the Company and Its Business — Intellectual Property Protection”.

Intellectual Property

Winbond owns more than 2,500 original invention patents and has 450 pending patent applications, most with registration in Taiwan, the United States and the European Union. The Company intends to continue to seek patent protection on its significant patentable technology. The Company also has approximately 500 maskwork rights, all registered or applied for in the United States and in Taiwan, and approximately 170 registered trademarks and servicemarks worldwide.

As is common in the semiconductor industry, Winbond has entered into patent or technology licensing authorization agreements and other technology-transfer arrangements with various manufacturers in the area of process technology and design technology such as

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Infineon, Toshiba and Sharp. Winbond views these relationships as a means of building a wider array of products and acquiring technology.

It is not uncommon for companies in the semiconductor industry to occasionally receive notices alleging infringement of patents or other intellectual property rights of others. The Company has on occasion been notified of claims that it may be infringing patents owned by third parties. If it appears necessary or desirable, Winbond may seek licences under patent’s that it is alleged to be infringing. See “Risk Factors —- Risks Related to the Company and Its Business — Intellectual Property Protection”.

Insurance

The Company has insurance policies covering risks of fire and damages to machinery, Iand and sea delivery and construction and installation damage which it considers adequate. Fire insurance includes coverage of risks from explosions, earthquakes and flooding.

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BOARD OF DIRECTORS AND MANAGEMENT

The following table sets forth the name, position, date of initial appointment, age and mutual family relationship of each of the Company’s Directors, Supervisors, and Executive Officers as of May 8, 2006.

Name Arthur Yu-Cheng Chiao(1) Ching-Chu Chang Ting-Piao Chiao(1) Matthew Feng-Chiang Miau Yu-Lang Mao Keh-Shew Lu Lu-Pao Hsu Robert Hsu Yung Chin(1) J.M. Meng Kuang-Yi Chiu Wang-Tsai Lin Benny T. Hu Hui-Ming Cheng James Wen	Position Chairman and CEO Vice Chairman and Deputy CEO Executive Director Director Director Director Director Director, President Director and Vice President Director Director Supervisor Supervisor Supervisor CFO	Year of Initial Appointment 1987 1993 1993 2003(2) 1994(3) 2002 2000 2002 1996 2005 2002 2005 2002 2005 2004

(1) Arthur Yu-Cheng Chiao and Yung Chin are husband and wife. In addition, Authur Yu-Cheng Chiao is the son of Ting-Piao Chiao.
(2) Mr. Miau also served as a Director from March 1993 to February 1994 and from March 1994 to January 2003.
(3) Mr. Mao also served as a Director from March 1993 to February 1994.

Mr Arthur Yu-Cheng Chiao has been the Chairman of the Company since 1987. He also serves as the Chief Executive Officer of the Company. Mr Chiao received a Master degree in Electrical Engineering from the University of Washington. Mr. Chiao was also a researcher at Management College of University of Washington.

Mr Ching-Chu Chang is the Vice Chairman of the Company. He also serves as the Deputy Chief Executive Officer. Mr Chang holds a Master degree of Science in Management from Stanford University and a PhD in Electrical Engineering from Princeton University. Mr Ting-Piao Chiao has been an Executive Director of the Company. He was elected to this position in 1993.

Mr Matthew Feng-Chiang Miau has been a Director of the Company since 2003. He received his Master degree in Business Administration from California University at Santa Clara.

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Mr Yu-Lang Mao is a Director of the Company. Mr Mao received his Master degree in Material Science from Cornell University.

Mr Keh-Shew Lu has been a Director of the Company since 2002. He holds a PhD from Texas Tech University.

Mr Lu-Pao Hsu has been a Director of the Company since 2000. He received a Master degree in Physics from National Cheng Kung University and spent time as a researcher and associate professor at Harvard Business School and National Chiao Tung University, respectively.

Mr Robert In-Shek Hsu is the President and a Director of the Company. Mr Hsu has a PhD in Electrical Engineering from the University of Southern California.

Ms Yung Chin is a Director and a Vice President of the Company. She holds a Master degree in Applied Mathematics from University of Washington.

Mr J.M. Meng has been a Director of the Company since 2005. He serves as a Director as a representative of China Development Industrial Bank. He received a Master of Science in Business Administration from National Taiwan University. Mr. J.M. Meng is currently Senior Vice President of Banking Department of China Development Industrial Bank. Mr Kuang-Yi Chiu is a Director and former Executive Vice President of the Company. Mr Chiu received his PhD in Materials Science from the University of Southern California.

Mr Wang-Tsai Lin has been a Supervisor of the Company since 2005. He serves as a Supervisor as a representative of Walsin Lihwa Corporation. He is currently Special Assistant to the Chairman, Senior General Manager of Administration Division and Spokesperson of Walsin Lihwa Corporation.

Mr Benny T. Hu has been a Supervisor of the Company since 2002. He received a Master of Business Administration from the Wharton School of Business at the University Of Pennsylvania. Mr Benny T. Hu is the Chairman of CDIB BioScience Venture Management, Inc.

Mr Hui-Ming Cheng has been a Supervisor of the Company since 2005. He received a Master of Business Administration from the Kelley School of Business at Indiana University, Bloomington, a Master of Science in Chemical Engineering from University of California, Los Angeles. Mr. Cheng has been the Senior Vice President and Chief Financial Officer of Taiwan Mobile from November 2003 to January 2006. Mr. Cheng has been CFO and spokesperson since February 2006 at Fubon Financial Holdings Co., Limited. Prior to joining Taiwan Mobile, Mr. Cheng was the Vice President of Finance and Chief Financial Officer of the Company.

Mr James Wen is the Chief Financial Officer of the Company. Mr Wen holds a Bachelor degree and an MBA degree from Tunghai University and the Wharton School of Business at the University of Pennsylvania, respectively.

Directors and Supervisors

All of the directors of Winbond were re-elected in June 2005 for three-year terms ending June 2008. The Executive Directors were elected by the Board of Directors, and the Chairman was elected by the Executive Directors.

In accordance with the ROC Company Law, Supervisors are elected by the shareholders of the Company and cannot concurrently serve as Directors, managerial officers or other staff members of the Company. The Company currently has three Supervisors. The Supervisors’ duties and powers include, among others, investigating the condition of the corporation, inspecting corporate records and verifying financial statements submitted by the Board of Directors at shareholders meetings.

Among the Board members, three Directors are Chiao family members. Ting-Piao Chiao is the father of Arthur Yu-Cheng Chiao and the father-in-law of Yung Chin.

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The Directors and Supervisors own an aggregate of 963,570,961 Shares, representing 23.19% of the issued share capital of the Company, as of March 31, 2006. Certain senior managers of the Company had been granted options in the Company's shares. No options, loans or guarantees have been granted to or for the benefit of any other Directors or Supervisors who are not managers of the Company as of March 31, 2006. There have been no significant non-arm’s length transactions involving Directors or Supervisors.

The aggregate remuneration paid and benefits in kind granted to Directors and Supervisors in 2005 were approximately NT$2 million.

In addition, the Directors and Supervisors received no bonus for the financial years ended December 31, 2003, 2004 and 2005.

The business address of all Directors and Supervisors of the Company is No 4 Creation Rd. III, Science-Based Industrial Park, Hsinchu 30077, Taiwan, ROC.

In order to strengthen corporate governance of companies in Taiwan, effective from January 1, 2007, the newly amended ROC Securities and Exchange Law authorizes the ROC Financial Supervisory Commission, after considering the scale, shareholding structure and business nature of a public company, to require a public company to have at least two independent directors but in no case less than one fifth of the total number of its directors. Based on the power granted by the amended ROC Securities and Exchange Law, the ROC Financial Supervisory Commission has announced guidelines to require listed companies with a paid-in capital of NT$50 billion or more and certain other financial institutions (such as financial holding companies) to have independent directors on its board. In addition, according to the guidelines, for companies which have executive directors, at least one and not less than one fifth of the managing directors should be independent directors.

Pursuant to the ROC Company Law, a person may serve as the Company’s director or supervisor in his/her personal capacity or as the representative of another legal entity. A director or supervisor who serves as the representative of a legal entity, and the replacement director or supervisor may serve the remainder of the term of office of the replaced director or supervisor. However, to strengthen the independence of directors, under the newly amended ROC Securities and Exchange Law, the representatives appointed by the same legal entity can no longer be permitted to concurrently be elected or act as the director and supervisor of a public company, unless otherwise permitted by the ROC FSC. The ROC FSC later promulgated a ruling. According to that ruling, those representatives appointed by the same legal entity concurrently be elected or act as the director and supervisor of a public company may finish their terms. Of the Company’s 11 directors, one (Mr. Keh-Shew Lu) is a representative of Walsin Lihwa Corporation and of the Company’s three supervisors, one (Mr. Wang-Tsai Lin) is a representative of Walsin Lihwa Corporation. The above prohibition of the ROC Securities and Exchange Law will not apply until the expiration of the current term of the directors and supervisors which are appointed by the same legal entity. Walsin Lihwa Corporation’s representatives can finish their terms as directors and supervisor, which will be expired on June 2008.

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PRINCIPAL SHAREHOLDERS

As of May 8, 2006, the latest date on which such determination can be made by the Company, the Company was 15.84% owned by Walsin Lihwa. Walsin Lihwa is primarily engaged in the wire and cable manufacturing business and is engaged, through its subsidiaries and affiliates, in a number of other businesses in the ROC and other countries in Asia. Walsin Lihwa was founded in 1966 by individuals including members of the Chiao family. Arthur Yu-Cheng Chiao is the Chairman and Chief Executive Officer of the Company and is the Vice Chairman of Walsin Lihwa. Ting-Piao Chiao is an Executive Director of the Company and is an Executive Director of Walsin Lihwa since March 2006. Yung Chin, a Director of the Company, is a Supervisor of Walsin Lihwa. Shares of Walsin Lihwa have been listed on the TSE since 1972. The Company’s other principal shareholders as of March 31, 2006 were members of the Arthur Chiao family (1.49%) and China Development Industrial Bank 0.73%. As of March 31, 2006, members of the Chiao family who are Directors of the Company own approximately 1.43% of the Company. No options have been granted to the principal shareholders or to other shareholders. With the exception of the foregoing, to the best knowledge of the Company, there are no other persons who, directly or indirectly, jointly or severally, exercise or can exercise control over the Company. Walsin Lihwa may from time to time, directly or indirectly, purchase or sell Shares in the open market and may purchase Shares in offerings by the Company.

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RELATED PARTY TRANSACTIONS

Set forth below is a summary of the material transactions between the Company and its subsidiaries and affiliated companies.

Based on the audited consolidated financial statements of the Company as of and for the year ended December 31, 2005, processing costs paid to related parties amounted to NT$842.7 million and accounted for approximately 3.63% of the total consolidated cost of sales for the same period, while sales to related parties amounted to approximately NT$753.6 million and accounted for approximately 2.63% of the consolidated net sales for that period. The Company believes that its transactions with related parities during such periods were carried out on normal commercial terms.

Based on the unaudited non-consolidated financial statements of the Company as of and for the three months ended March 31, 2006, manufacturing costs paid to related parties amounted to NT$108.7 million and accounted for approximately 2.32% of the total non-consolidated cost of sales for the same period, while sales to related parties amounted to approximately NT$1,453.9 million and accounted for approximately 23.43% of the non-consolidated net sales for that period. The Company believes that its transactions with related parities during such periods were carried out on normal commercial terms.

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

For additional and more detailed information on related party transactions, see note 21 of the audited consolidated financial statements of the Company as of and for the years ended December 31, 2003, 2004 and 2005 and note 19 of the unaudited non-consolidated financial statements of the Company as of and for the three months ended March 31, 2006, all included elsewhere in this Offering Circular.

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DESCRIPTION OF THE COMMON SHARES

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

General

The Company’s authorized share capital is 6,700,000,000 Common Shares with a par value of NT$10 per Share of which 500,000,000 Common Shares have been reserved for exercise of warrants, preferred shares with warrants and bonds with warrants. The Company has capital of NT$41,557,151,930, representing common shares of 4,155,715,193 in registered form issued and outstanding as of March 31, 2006. Save as disclosed in this Offering Circular, no person has been granted any preferential right to subscribe for common shares in the Company.

The Company issued NT$6 billion unsecured local zero coupon convertible bonds on April 15, 1998, which are due on April 15, 2008. As of March 31, 2006, the outstanding amount of such bonds was NT$6,900,000. Furthermore, the Company created a global depositary receipt (“GDR”) facility on February 5, 1999. Each GDR represents 10 Common Shares of the Company. As of March 31, 2006, there are 563,297 units of GDRs outstanding. In addition, the Company has three employee stock option plans approved by the SFB respectively on August 17, 2001, February 27, 2002 and May 13, 2002 and the Company has issued employee stock options totaling 327,764,000, which, if exercised, would constitute 7.89% of the Company’s issued shares.

The Company Law and the Securities and Exchange Law provide that any change in the authorized share capital of a public company, such as the Company, requires approval of the Board of Directors, an amendment to its articles of incorporation, stockholders’ approval and, in general, a filing with the Hsinchu Science Park Administration which is an authorized agency by MOEA. Authorized but unissued shares may be issued subject to the Company Law and the Securities and Exchange Law, upon terms that the Board of Directors may determine.

Dividends

Under the Company Law, except under certain limited circumstances, a ROC company is not permitted to distribute dividends or make any other distributions to stockholders in any year in which the Company does not have any net income or retained earnings (excluding reserve). Before distributing a dividend or making any other distribution to stockholders from annual net income, a company must first apply such net income to its losses suffered in previous years, if any, pay all outstanding taxes and set aside the legal reserve referred to below.

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

The Company Law provides that a company is required to set aside a legal reserve in an amount equal to 10% of its net income (less losses, if any, suffered in previous years and all outstanding taxes) until such time as its legal reserve equals its capital. The Articles further provide that, after paying all outstanding legal taxes in accordance with ROC law, recovering any past losses, deducting the legal reserve and special reserve, if necessary, the remaining portion of net income, unless reserved for business needs, together with the undistributed

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retained earnings of the previous fiscal years may be allocated (subject to proposal by the Board of Directors and approval by stockholders) as follows:

(i) 2% for remuneration to directors and supervisors;
(ii) 11% for employee bonuses; and
(iii) the balance thereof will be allocated for dividends and bonuses to stockholders (however, such balance may first be allocated in whole or in part to either the Company’s general reserve or its special reserve before any distributions to stockholders.).

A portion of the entire amount may be set aside as special reserve.

Distribution of Additional Shares

In addition to dividends paid out of the net income and retained earnings of a company, the Company Law also permits a company, if it did not have net losses, to make distributions to stockholders in the form of additional shares from reserves (including its legal reserve referred to above, any special reserve and capital reserve). However, in the case of distributions out of its legal reserve, only if the accumulated legal reserve exceeds 50% of the paid-in capital of the company and the amount payable is limited to the excess portion. The capital surplus that can be so capitalized is limited to the premium from the offered shares and any donated surplus. (For information as to ROC taxes on cash and stock dividends, see “Taxation – ROC Taxation of Non-Residents”.)

Pre-emptive Rights and Issue of Additional Common Stock

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

Meetings of Stockholders

The ordinary meeting of stockholders of the Company is usually held in Hsinchu, Taiwan, ROC, as determined by the Board of Directors, within the six months of the end of previous fiscal years. Extraordinary meetings of stockholders may be convened by resolution of the Board of Directors whenever they consider it necessary or by stockholders under certain circumstances. Extraordinary meetings of stockholders may also be convened by Supervisor of the Company. Notice in writing of ordinary and extraordinary stockholders’ meetings stating the place, time and purpose thereof must be dispatched to each stockholder who holds 1,000 or more Shares at least 30 days and 15 days, respectively, prior to the date set for the meeting.

Voting Rights

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

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

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

A stockholder may be represented at an ordinary or extraordinary meeting by proxy. A valid proxy form must be delivered to the Company at least five days prior to the date fixed for the ordinary or extraordinary meeting. Except for trust enterprises or share registrars approved by the ROC SFB, where one person is appointed as proxy by two or more shareholders who together hold more than 3% of the total issued common shares, the votes of those shareholders in excess of 3% of the issued common shares shall not be counted.

Registration of Stockholders and Record Dates

The Company maintains the register of stockholders of the Company at its office in Taipei, Taiwan, ROC, and enters transfers of Common Shares in the register of stockholders upon presentation of the certificates in respect of the Common Shares transferred accompanied by other required documents.

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

Annual Financial Statements

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

Transfer of Common Stock

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

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Transfer Restrictions

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

Acquisition by the Company of Its Own Common Stock

With minor exceptions, the Company cannot acquire its own common stock. Under the ROC Securities and Exchange Law, the Company may, by a resolution adopted by a majority of the Company’s Board of Directors at a meeting where more than two-thirds of the directors are present, repurchase the Company’s shares on the Taiwan Stock Exchange or by a tender offer in accordance with the procedures stipulated by the ROC FSC for the following purposes:

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

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

Liquidation Rights

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

Other Stockholders Rights

The ROC Company Law has been newly amended to allow shareholder(s) holding 1% or more of the total issued shares of a company to, during the period of time prescribed by the company, submit one proposal in writing containing no more than 300 words (Chinese characters) for discussion at the ordinary meeting of stockholders. The amendment also provides that a company may adopt a nomination procedure for election of directors or supervisors. If a company wishes to adopt the nomination procedure, it must be stipulated in its articles of incorporation. With such provision in the articles of incorporation of a company, shareholders representing 1% or more of the total issued shares of such company may submit a candidate list in writing to the company along with the relevant information and supporting documents. The Company’s articles of incorporation currently do not provide a nomination procedure for election of directors or supervisors.

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CHANGES IN ISSUED SHARE CAPITAL

The following table sets out the changes in the Company’s issued share capital, which includes the Company’s treasury shares, since December of 1999.

Date of Issue 1999 December December 2000 February June June September December 2001 March June 2002 February 2003 November December 2004 March May September December 2005 March May August November December	Type of Issue Global depository receipts issue Conversion of ECB and LCB Conversion of ECB and LCB Stock dividend and conversion of LCB Conversion of ECB Conversion of ECB and LCB Conversion of ECB and LCB Conversion of LCB Stock dividend and conversion of LCB Conversion of LCB Rights issue Cancellation of treasury shares Rights issue Rights issue Cancellation of treasury shares and rights issue Cancellation of treasury shares and rights issue Rights issue Cancellation of treasury shares and rights issue Rights issue Cancellation of treasury shares and rights issue Cancellation of treasury shares	Number of Shares issued /(cancelled) 100,000,000 73,780,500 38,014,155 418,232,112 23,782,972 21,514,086 16,878,555 233,670 805,448,207 48,174 3,163,000 (2,100,000) 4,533,000 3,489,000 (63,541,000) (49,026,000) 3,434,000 (41,232,000) 329,000 (28,748,000) (100,000,000)	Total Number of issued Shares after the issue/(cancellation)
			3,027,364,762 3,101,145,262 3,139,159,417 3,557,391,529 3,581,174,501 3,602,688,587 3,619,567,142 3,619,800,812 4,425,249,019 4,425,297,193 4,428,460,193 4,426,360,193 4,430,893,193 4,434,382,193 4,370,841,193 4,321,815,193 4,325,249,193 4,284,017,193 4,284,346,193 4,255,598,193 4,155,598,193

The net income for earnings per share is set out elsewhere in this Offering Circular in respect of both the audited consolidated financial statements for the three years ended December 31, 2003, 2004 and 2005.

From time to time, the Company repurchases its outstanding Common Shares. The Company repurchased 20,000,000 outstanding Common Shares in January 2006 (added to treasury stock for granting to employees) and 50,000,000 outstanding Common Shares in April 2006 (added to treasury stock and cancelled). The Company intends to announce, subject to the approval of its Board of Directors, the repurchase up to 100,000,000 of its outstanding Common Shares in May 2006, which is expected to be completed within two months of commencement of such repurchases. Upon completion, the Company intends that any such Common Shares repurchased would be added to treasury stock and cancelled. See “Description of the Common Shares – Acquisition by the Company of Its Own Common Stock”, Note 16 to the Audited Financial Statements of the Company for the Years Ended December 31, 2003, 2004 and 2005 and Note 15 to the Unaudited Financial Statements of the Company for the Three Months Ended March 31, 2005 and 2006, in each case included elsewhere in this Offering Circular.

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TERMS AND CONDITIONS OF THE NOTES

The following terms and conditions (except for the sentences in italics) will be endorsed on the Certificates if any issued in respect of the Notes:

The issue of US$100,000,000 Zero Coupon Convertible Notes Due 2011 (the “ Notes ”, which shall include any additional Notes issued pursuant to the option to increase the principal amount of the Notes described in the Trust Deed (as defined below)) of Winbond Electronics Corporation (the “ Company ”) was authorised by a resolution of the Board of Directors of the Company adopted on December 8, 2005. The Notes are constituted by a trust deed (the “ Trust Deed ”) dated May 24, 2006, and made between the Company and The Bank of New York, London branch (the “ Trustee ”, which term includes any successor trustee under the Trust Deed) for the holders of the Notes. The Company has entered into a paying and conversion agency agreement (the “ Agency Agreement ”) dated May 24, 2006 with The Bank of New York, as registrar, The Bank of New York London branch as principal, paying, conversion and transfer agent and the other paying, conversion and transfer agents appointed thereunder (together the “ Agents ”) and the Trustee in relation to the Notes. The registrar, principal, paying, conversion and transfer agent for the time being are referred to below as the “ Registrar ”, the “ Principal Agent ”, the “ Paying Agent ”, the “ Conversion Agent ” and the “ Transfer Agent ”. The statements in these Terms and Conditions (the “ Conditions ”) include summaries of, and are subject to, the detailed provisions of the Trust Deed. Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours at the registered office of the Trustee being at the date hereof at One Canada Square, 48[th] Floor, London, E14 5AL, United Kingdom and at the specified offices of each of the Agents. The holders of the Notes are entitled to the benefit of the Trust Deed and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

1 Status

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

2 Form, denomination and title

(A) Form and denomination

The Notes are issued in registered form in the denominations of US$1,000 each. Subject to the following paragraph, a note certificate (each a “ Certificate ”) will be issued to each holder of the Notes in respect of its registered holding of the Notes. Each Note and each Certificate will be serially numbered with an identifying number which will be recorded on the relevant Certificate and in the register of holders of the Notes which the Company will procure to be kept by the Registrar.

The Notes will be represented by a Global Certificate which will be deposited with and registered in the name of The Bank of New York Depository (Nominees) Limited, being a nominee for Euroclear and Clearstream.

Except in the limited circumstances described in the Global Certificate, owners of interests in the Notes represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of the Notes. The Notes are not issuable in bearer form.

(B) Title

Title to the Notes passes only by transfer and registration in the register of holders of the Notes. The holder of any Note will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and

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regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Terms and Conditions, “ holder of the Notes ”, “ Noteholder ” and (in relation to a Note) “ holder ”, all mean the person in whose name a Note is registered in the register of Noteholders.

3 Negative pledge

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

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

“ Subsidiary ” means any corporation or other business entity (i) 50 per cent. or more of the common shares or other equity of which is owned, directly or indirectly, by the Company and (ii) either (a) the net sales of which, as shown by the accounts (consolidated in the case of an entity which itself has subsidiaries) of such entity upon which the latest audited consolidated accounts of the Company have been based, are at least 10 per cent. of the net sales of the Company and its subsidiaries, if any, as shown by such audited consolidated accounts or (b) the gross assets of which, as shown by the aforementioned accounts, are at least 10 per cent. of the gross assets of the Company and its subsidiaries, if any, as shown by such latest audited consolidated accounts.

4 Transfers of Notes; Issue of certificates

(A) Transfers

Subject to the terms of the Agency Agreement and Condition 4(D) below, a Note may be transferred by depositing the Certificate issued in respect of that Note, with the form of transfer on the back duly completed and signed, at the specified office of the Registrar or any of the other Transfer Agents. No transfer of title will be valid unless entered in the register of Noteholders.

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

(B) Delivery of new certificates

Each new Certificate to be issued upon transfer of the Notes will, within four business days of receipt by the relevant Transfer Agent of the form of transfer, be

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mailed by uninsured mail at the risk of the holder entitled to the Notes to the address specified in the form of transfer.

Owners of interests in the Notes represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of the Notes except in the limited circumstances described in the Global Certificate.

Where some but not all the Notes in respect of which a Certificate is issued are to be transferred, converted, purchased or redeemed, a new Certificate in respect of the Notes not so transferred, converted or redeemed will, within four business days of deposit or surrender of the original Certificate with or to the relevant Agent, be mailed by uninsured mail at the risk of the holder of the Notes not so transferred, converted or redeemed to the address of such holder appearing on the register of holders of the Notes.

(C) Formalities free of charge

Registration of transfer of the Notes and issuance of new Certificates, if any, will be effected without charge to the Noteholders by or on behalf of the Company or any of the Agents, subject to payment by the Noteholders (or the giving of such indemnity as the Company or any of the Agents may require) in respect of any tax or other governmental charges which may be imposed in relation to it.

(D) No transfer periods

No holder of the Notes may require the transfer of a Note to be registered (i) during the period of 15 days ending on (and including) the due date for any payment of principal on the Note, (ii) after such Note has been selected for redemption pursuant to Condition 7(B) or 7(C), (iii) after the Certificate in respect of such Note has been deposited for conversion pursuant to Condition 5, or (iv) on exercise of the put option of the holder of the Notes pursuant to Condition 7(D) or 7(E).

(E) Regulations

All transfers of the Notes and entries on the register of holders of the Notes will be made subject to the detailed regulations concerning transfer of the Notes 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 current regulations will be mailed (at the Company’s expense) by the Registrar to any holder of the Notes who asks for one.

5 Conversion

The Company shall, within five Trading Days (as defined in Condition 7(B)) after the Conversion Date, issue and deliver the Shares converted from the Notes to the converting Noteholder or its designee, subject to the terms and conditions of the Trust Deed and these Conditions.

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

(A) Conversion Right

(i) Conversion Period : The right of a Noteholder to convert any Note into Shares (as defined in the Trust Deed) is called the “ Conversion Right ”. Subject to and upon compliance with the provisions of this Condition, the Conversion Right attaching

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to any Note may be exercised, at the option of the holder thereof, so that the Conversion Date (as defined in Condition 5(B)(ii)) in respect of such exercise occurs at any time on or after June 23, 2006 and prior to the close of business (at the place where such Note is deposited for conversion) on May 9, 2011 or if such date shall not be a business day at such place, on the immediately preceding business day at such place (but in no event thereafter), or, if such Note shall have been called for redemption prior to May 9, 2011, then up to the close of business (at the place aforesaid) on the date five business days (as defined in Condition 5(B)(i)) prior to the date fixed for redemption thereof or if such date fixed for redemption 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 (i) any period during which under the laws of the ROC (as defined in the Trust Deed) the Company shall suspend conversion of any convertible bonds or notes or close its shareholders’ register, which period includes 60 days prior to the date of the annual general meeting of shareholders, 30 days prior to a special shareholders’ meeting, three Trading Days (as defined in Condition 7(B)) prior to the Company’s notification to the Taiwan Stock Exchange (“ TSE ”) in respect of a record date (and the relevant closure of the shareholders’ register) for determining the identity of shareholders entitled to receive annual dividend distribution or other rights or benefits in any one year or in any rights offering to the date of such record date for that year; and (ii) such other closed period as may be required by ROC law. The Company shall procure that holders of the Notes are given timely (and if practicable timely prior) notice in accordance with Condition 14 and the Trust Deed, of any Closed Period.

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

Under current ROC law, a non-ROC converting holder of the Notes when exercising his conversion right to convert the Notes into Shares is required to register with the TSE for the purposes of opening a securities trading account in ROC and appoint a local agent also referred to as a Tax Guarantor, in the ROC to file tax returns and make tax payments on its behalf. A non-ROC converting holder is also required to appoint a local agent in the ROC with such qualifications as are set by the ROC FSC, to open a securities trading account with a local brokerage firm and a New Taiwan dollar bank account, pay ROC withholding taxes, remit funds, exercise shareholders ’ rights and perform such other matters as may be designated by such converting holder of the Notes on behalf of and as agent for such person. In addition, such non-ROC converting holder of the Notes must also appoint a custodian bank to hold the securities and cash proceeds for safekeeping, to make confirmation and settlement, and report all relevant information. Under existing ROC laws and regulations, without such registration with the TSE, making such appointments and opening such accounts, such converting holder of the Notes would not be able to receive, hold or to sell or otherwise transfer the Shares into which the Notes may have been converted, on the TSE or otherwise.

(ii) Number of Shares issuable on conversion : The number of Shares to be issued upon conversion of any Note will be determined by dividing the principal amount of the Note (translated into New Taiwan dollars at the fixed rate of NT$31.49 = US$1.00) by the Conversion Price (as hereinafter defined) in effect on the Conversion Date. If more than one Note shall be deposited for conversion at any one time by the same holder of the Notes, the number of Shares to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Notes so deposited. Fractions of Shares will not be issued on conversion, and cash adjustments will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of

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a consolidation or reclassification of Shares by operation of law or otherwise occurring after May 24, 2006, the Company will upon conversion of the Notes pay in cash in US dollars a sum equal to such portion of the principal amount of the Notes deposited for conversion as corresponds to any fraction of a Share not issued as aforesaid if such sum exceeds US$10. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 5(A)(ii).

(iii) Initial Conversion Price : The price at which Shares will be issued upon conversion (the “ Conversion Price ”) will initially be NT$13.69 per Share, but will be subject to adjustment in the manner provided in Conditions 5(C) and 5(D).

(iv) Revival on default : Notwithstanding the provisions of Condition 5(A)(i), if the Company shall default in making payment in full in respect of any Note which shall have been called for redemption prior to May 9, 2011 or the date fixed for redemption thereof, the Conversion Right attaching to such Note will continue to be exercisable up to and including the close of business (at the place where the Note is deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Note has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the holders of the Note.

(B) Conversion Procedure

(i) Exercise Procedure : To exercise the Conversion Right attaching to any Note, the holder thereof must complete, execute and deposit at his own expense between 9:00 am and 3:00 pm on any business day during the Conversion Period at the specified office of a Conversion Agent outside the ROC at which the Note is presented for conversion a notice of conversion (a “ Conversion Notice ”) in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the Certificate relating to the relevant Notes and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent shall be located. A Conversion Notice deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with that Conversion Agent during normal business hours on the next business day following such day. The Conversion Notice shall contain, inter alia , an appointment of a local agent. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company. The price at which such Note will be converted will be the Conversion Price in effect on the Conversion Date.

Noteholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Notes until the Trading Day (as defined in Condition 7(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 Notes. Such Noteholders will not be registered as holders of Shares until the Conversion Date.

(a) If the person to be registered as a shareholder is a “ related party ” of the Company pursuant to the Statements of Financial Accounting Standard No. 6 of the ROC and such person beneficially owns the Shares issued upon the conversion of Notes; or

(b) If the percentage of the Shares to be owned by a person to be registered as a shareholder of the Shares upon conversion of the Notes exceeds 10 per cent. of the total number of Shares expected to be issued upon conversion of all the Notes at the initial Conversion Price,

the Conversion Agents may, in accordance with the Company’s disclosure obligations and reporting obligations under ROC law and regulations and at the written request of the Company, require the converting holders of the Notes to disclose to FSC the name and nationality of such person to be registered as the shareholder, the total number of Shares which such person is holding or will hold by converting such Notes into Shares in accordance with these Conditions, to provide proof of identity and genuineness of any signature of such person and other documents as such Conversion

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Agent considers necessary as a condition precedent to the conversion of the Notes. As a result of such disclosure obligations and reporting obligations under ROC law and regulations, the conversion of the Notes will not be completed until after the applicable Conversion Agent has received such requested information and evidence satisfactory to the Conversion Agent from the holders of the Notes which are in compliance with ROC law and regulations.

(ii) Taxes and Expenses; Deposit Date and Conversion Date : Together with the Conversion Notice and as a condition precedent to conversion, the holder of the Note must pay all stamp, issue, registration and similar taxes and duties (if any) arising on conversion in the country in which the Note is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares or any other property or cash upon conversion to or to the order of a person other than the converting holder of the Note. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares on conversion of the Note and all charges of the Conversion Agents in connection therewith as provided in the Agency Agreement and the Trust Deed. The date on which any Note and the Conversion Notice (in duplicate) relating thereto are deposited with a Conversion Agent and the payments, if any, required to be paid by the holder of the Note are made is hereinafter referred to as the “ Deposit Date ”. The “ Conversion Date ” applicable to a Note shall mean the next day following the Deposit Date, which day both is a Trading Day (as defined in Condition 7(B)) and occurs during the Conversion Period.

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

(iv) Availability of Shares : The Company shall, for the benefit of holders of the Notes, ensure that (a) as soon as possible after the applicable Conversion Date and (b) in any event within five Trading Days (or such number of Trading Days as stipulated by the relevant laws and regulations applicable from time to time) after the applicable Conversion Date, sufficient Shares which are listed on the TSE are available.

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

(a) the relevant Shares, through book-entry transfer to an account registered in the name of the converting holder or its designee (specified for that purpose in the applicable Conversion Notice) at Taiwan Depositary & Clearing Corporation; and
(b) any other property or cash (including, without limitation, cash payable pursuant to Condition 5(A)(ii)) required to be delivered upon conversion; and
(c) such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

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(vi) Retroactive adjustment of Conversion Price : If the Conversion Date in relation to any Note shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in Condition 5(C) and the Trust Deed and the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the Conversion Price, Clause 5(B)(v) shall be applied mutatis mutandis to such number of Shares as is equal to the excess of the number of Shares that would have been required to be issued on conversion of such Note 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 5(B)(iii) and (v) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively). Fractions of Shares 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 of the ROC, Shares received by the converting Noteholders will be entitled to the annual dividend distributions or other benefits accruing to such Shares and approved by the immediately preceding annual general meeting of shareholders if the Conversion Date in respect of the conversion of such Notes is on a day which falls prior to three Trading Days prior to the Company’s notification to the TSE in respect of a record date (and the relevant closure of the shareholders’ register) for determining the identity of shareholders who are entitled to such distributions in that year, such Conversion Date is on or before the Trading Day immediately preceding the commencement of the relevant Closed Period. The Company shall give the Noteholders not less than 14 days’ prior notice of its intention to make such notification to the TSE, which notice shall indicate the proposed date of such notification to the TSE.

(viii) Conversion Agents : The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to appoint further or other Conversion Agents, provided that the Company will at all times maintain Conversion Agents having specified offices in London and, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, in Singapore also. 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 holders of the Notes in accordance with Condition 14.

(C) Adjustments to Conversion Price

The Conversion Price shall be subject to adjustment as follows:

(i) Free distribution, bonus issue, division, consolidation and reclassification of Shares : Subject to the provisions of this Condition 5(C)(i), if the Company shall (a) make a free distribution of Shares, (b) make a bonus issue of its Shares, (c) divide its outstanding Shares, (d) consolidate its outstanding Shares into a smaller number of Shares otherwise than by means of capital reduction, or (e) re-classify any of its Shares into other securities of the Company, then the Conversion Price shall be appropriately adjusted so that the holder of any Note, the Conversion Date in respect of which occurs after the coming into effect of the adjustment described in this Condition 5(C)(i), shall be entitled to receive on exercise of the Conversion Right the number of Shares and/or other securities of the Company which he would have held or have been entitled to receive after the happening of any of the events described above had such Note been converted immediately prior to the happening of such event (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive any such free distribution or bonus issue of Shares or other securities issued upon any such division, consolidation or reclassification, immediately prior to such record date), but without prejudice to the effect of any other adjustment to the Conversion Price made with effect from the date of the happening of such event (or such record date) or any time thereafter.

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For the avoidance of doubt, no adjustment to the Conversion Price under this Condition 5(C)(i) will be required if the Company cancels any Shares or repurchases any Shares for the purposes of holding such Shares in treasury.

Effective date of adjustment: An adjustment made pursuant to this Condition 5(C)(i) shall become effective immediately on the relevant event referred to in this Condition 5(C)(i) becoming effective or, if a record date is fixed therefor, immediately after such record date; provided that in the case of a free distribution or bonus issue of Shares which must, under applicable laws of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the Board of Directors of the Company before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such distribution or issue, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(ii) Declaration of dividend in Shares : If the Company shall declare a dividend in Shares then the Conversion Price in effect on the date when such dividend is declared (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive such dividend, on such record date), shall be adjusted in accordance with the following formula:

N NCP = OCP x (N + n)

where:

NCP = the Conversion Price after such adjustment. OCP = the Conversion Price before such adjustment.
N = the number of Common Shares outstanding, at the time of issuance of such dividend and/or distribution (or at the close of business in Taipei on such record date as the case may be).
n = the number of Common Shares to be distributed to the shareholders as a dividend and/or distribution.

Effective date of adjustment : An adjustment made pursuant to this Condition 5(C)(ii) shall become effective immediately on the relevant event referred to in this Condition 5(C)(ii) becoming effective or, if a record date is fixed therefor, immediately after such record date; provided that in the case of a dividend in Shares which must, under applicable laws of the ROC, be submitted for approval to a general meeting of shareholders of the Company before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such dividend, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(iii) Concurrent adjustment events : If the Company shall declare a dividend in, or make a free distribution or bonus issue of, Shares, which dividend, issue or distribution is to be paid or made to shareholders as of a record date which is also:

(a) the record date for the issue of any rights or warrants which requires an adjustment of the Conversion Price pursuant to Condition 5(C)(iv) or 5(C)(v);
(b) the day immediately before the date of issue of any securities convertible into or exchangeable for Shares which requires an adjustment of the Conversion Price pursuant to Condition 5(C)(vii);

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(c) the day immediately before the date of issue of any Shares which requires an adjustment of the Conversion Price pursuant to Condition 5(C)(viii) or (if applicable) the record date for the determination of stock dividend entitlement as referred to in Condition 5(C)(viii);
(d) the day immediately before the date of issue of any rights, options or warrants which requires an adjustment of the Conversion Price pursuant to Condition 5(C)(ix); or
(e) determined by the Company and notified by the Company to the Trustee in writing to be the relevant date for an event or circumstance which requires an adjustment to the Conversion Price pursuant to Condition 5(C)(x),

then (except where such dividend, bonus issue or free distribution gives rise to a retroactive adjustment of the Conversion Price under Condition 5(C)(i), or 5(C)(ii) or 5(C)(xii)) no adjustment of the Conversion Price in respect of such dividend, bonus issue or free distribution shall be made under this Condition 5(C)(iii), but in lieu thereof an adjustment shall be made under Condition 5(C)(iv), 5(C)(v), 5(C)(vii), 5(C)(viii) or 5(C)(ix) (as the case may require) by including in the denominator of the fraction described therein the aggregate number of Shares to be issued pursuant to such dividend, bonus issue or free distribution.

(iv) Rights issues to shareholders : If the Company shall grant, issue or offer to the holders of Shares rights entitling them to subscribe for or purchase Shares:

(a) at a consideration per Share receivable by the Company (determined as provided in Condition 5(C)(xiv)) which is fixed on or prior to the record date mentioned below and is less than the Current Market Price (as defined in Condition 5(C)(xiii)) per Share at such record date; or
(b) at a consideration per Share receivable by the Company which is fixed after the record date mentioned below and is less than the Current Market Price per Share on the date the Company fixes the said consideration,

then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of shareholders entitled to receive such rights or (in a case within (b) above) on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

==> picture [148 x 29] intentionally omitted <==

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii).

N = the number of Shares outstanding (having regard to Condition 5(C)(xv)) at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration.
n = the number of Shares initially to be issued upon exercise of such rights at the said consideration being (aa) the number of Shares which underwriters have agreed to underwrite as referred to below or, as the case may be, (bb) the number of Shares for which applications are received from shareholders as referred to below save to the extent already adjusted for under (aa).
v = the number of Shares which the aggregate consideration receivable by the Company (determined as provided in Condition 5(C)(xiv)) would purchase at

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such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Effective date of adjustment : Subject as provided below, such adjustment shall become effective immediately after the date on which such Shares are issued.

(v) Warrants issued to shareholders : If the Company shall grant, issue or offer to the holders of Shares warrants entitling them to subscribe for or purchase Shares:

(a) at a consideration per Share receivable by the Company (determined as provided in Condition 5(C)(xiv)) which is fixed on or prior to the record date for the determination of shareholders entitled to receive such warrants and is less than the Current Market Price per Share at such record date; or
(b) at a consideration per Share receivable by the Company which is fixed after the record date mentioned above and is less than the Current Market Price per Share on the date the Company fixes the said consideration,

then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of shareholders entitled to receive such warrants or (in a case within (b) above) on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

==> picture [148 x 30] intentionally omitted <==

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii) above.

N = the number of Shares outstanding (having regard to Condition 5(C)(xv)) at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration.
n = the number of Shares to be issued upon exercise of such warrants at the said consideration which, where no applications by shareholders entitled to such warrants are required, shall be based on the number of warrants issued. Where applications by shareholders entitled to such warrants are required, the number of such Shares shall be calculated based upon (aa) the number of warrants which underwriters have agreed to underwrite as referred to below or, as the case may be, (bb) the number of warrants for which applications are received from shareholders as referred to below save to the extent already adjusted for under (aa).
v = the number of Shares which the aggregate consideration receivable by the Company (determined as provided in Condition 5(C)(xiv)) would purchase at such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Effective date of adjustment: Subject as provided below, such adjustment shall become effective (i) where no applications for such warrants are required from shareholders entitled to the same, upon their issue and (ii) where applications by shareholders entitled to the same are required as aforesaid, immediately after the latest date for the submission of such applications or (if later) immediately after the Company fixes the said consideration but in all cases retroactively to immediately after the record date mentioned above.

Warrants not subscribed for by shareholders: If, in connection with a grant, issue or offer to the holders of Shares of warrants entitling them to subscribe for or

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purchase Shares in the circumstances described in (a) and (b) of this Condition 5(C)(v), any warrants which are not subscribed for or purchased by the shareholders entitled thereto are underwritten by others prior to the latest date for the submission of applications for such warrants, an adjustment shall be made to the Conversion Price in accordance with the above provisions which shall become effective immediately after the date the underwriters agree to underwrite the same or (if later) immediately after the Company fixes the said consideration but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Shares of warrants entitling them to subscribe for or purchase Shares, any warrants which are not subscribed for or purchased by the underwriters who have agreed to underwrite as referred to above or by the shareholders entitled thereto (or persons to whom shareholders have transferred the right to purchase such warrants) who have submitted applications for such warrants as referred to above are offered to and/or subscribed by others, no further adjustment shall be made to the Conversion Price by reason of such offer and/or subscription.

(vi) Capital Distribution : If the Company shall pay or make any Capital Distribution (as defined below) to its shareholders, then the Conversion Price shall be adjusted in accordance with the following formula:

CMP - fmv

==> picture [148 x 19] intentionally omitted <==

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii).

CMP = the Current Market Price per Share on the last Trading Day preceding the date on which the Capital Distribution is publicly announced.

fmv = the aggregate fair market value on the date of such announcement, as determined in good faith by two leading independent investment banks of international repute selected by the Company and approved by the Trustee and acting as experts, of the portion of the Capital Distribution attributable to one Share.

Effective date of adjustment: Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such Capital Distribution. Provided that (a) in the case of such a Capital Distribution which must, under applicable law of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the Board of Directors of the Company before such Capital Distribution may legally be made and is so approved after the record date fixed for the determination of shareholders entitled to receive such Capital Distribution, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date and (b) if the fair market value of such Capital Distribution cannot be determined until the record date fixed for the determination of shareholders entitled to receive such Capital Distribution, such adjustment shall, immediately upon such fair market value being determined, become effective retroactively to immediately after such record date.

If the Company shall pay or make any Capital Distribution in cash only then, in such case, the Conversion Price shall be adjusted (with such adjustment to be effective on the record date for the determination of shareholders entitled to receive such Capital Distribution in cash) in accordance with the following formula:

==> picture [132 x 19] intentionally omitted <==

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where:

NCP and OCP shall have the meanings ascribed thereto in Condition 5(C)(ii).

M = the Current Market Price per Share on such record date.
C = the amount of cash so distributed applicable to one Share.

For the purposes of this Condition 5(C)(vi):

“ Capital Distribution ” means any dividend or distribution, whether of cash, assets or other property, and whenever paid or made and however described (and for these purposes a distribution of assets includes, without limitation, an issue of shares or other Securities (as defined below) credited as fully or partly paid up) provided that:

(a) where a cash Capital Distribution is announced which is to be, or may at the election of a holder or holders of Shares be, satisfied by the issue or delivery of Shares or other property or assets, then for the purposes of the above formula the Capital Distribution in question shall be treated as a Capital Distribution of (1) the cash Capital Distribution so announced or (2) the fair market value on the date of announcement of such Capital Distribution, of such Shares or other property or assets to be issued or delivered in satisfaction of such Capital Distribution (or which would be issued if all holders of Shares elected therefor, regardless of whether any such election is made) if the fair market value of such Shares or other property or assets is greater than the cash Capital Distribution so announced; and
(b) any issue of Shares falling within Condition 5(C)(ii) shall be disregarded.

“ Securities ” includes, without limitation, shares in the capital of the Company or options, warrants or other rights to subscribe for or purchase shares in the capital of the Company or evidences of its indebtedness.

(vii) Issue of convertible or exchangeable securities other than to shareholders or on exercise of warrants : If the Company shall issue any securities convertible into or exchangeable for Shares (other than the Notes, or in any of the circumstances described in Condition 5(C)(ix)) and the consideration per Share receivable by the Company (determined as provided in Condition 5(C)(xiv)) shall be less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such securities is subject to approval by a general meeting of shareholders, on the date on which the Board of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in effect immediately prior to the date of issue of such convertible or exchangeable securities shall be adjusted in accordance with the following formula:

==> picture [148 x 30] intentionally omitted <==

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii).

N = the number of Shares outstanding (having regard to Condition 5(C)(xv)) at the close of business in the ROC on the day immediately prior to the date of such issue.
n = the number of Shares to be issued upon conversion or exchange of such convertible or exchangeable securities at the initial conversion or exchange price or rate.

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v = the number of Shares which the aggregate consideration receivable by the Company (determined as provided in Condition 5(C)(xiv)) would purchase at such Current Market Price per Share.

Effective date of adjustment: Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such convertible or exchangeable securities are issued.

(viii) Other issues of shares : If the Company shall issue any Shares (other than Shares issued (a) upon conversion or exchange of any convertible or exchangeable securities (including the Notes) issued by the Company or (b) upon exercise of any rights or warrants granted, offered or issued by the Company or (c) in any of the circumstances described in Conditions 5(C)(i) and 5(C)(ii) but including (d) Shares issued pursuant to any employee dividend or profit-sharing arrangements) for a consideration per Share receivable by the Company (determined as provided in Condition 5(C)(xiv)) less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such Shares is subject to approval by a general meeting of shareholders, on the date on which the Board-of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in effect immediately prior to the issue of such additional Shares shall be adjusted in accordance with the following formula:

==> picture [148 x 30] intentionally omitted <==

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii) above.

N = the number of Shares outstanding (having regard to Condition 5(C)(xv)) at the close of business in the ROC on the day immediately prior to the date of issue of such additional Shares.
n = the number of additional Shares issued as aforesaid.
v = the number of Shares which the aggregate consideration receivable by the Company (determined as provided in Condition 5(C)(xiv)) would purchase at such Current Market Price per Share.

Effective date of adjustment: Such adjustment shall become effective as of the calendar day in the ROC of the issue of such additional Shares or, in the case of an issue to employees under any employee dividend or profit sharing arrangements, where such an issue is announced at the same time as a stock dividend, such adjustment shall become effective as of the record date for determination of the identity of the shareholders entitled to receive any such dividend.

(ix) Issue of equity related securities : If the Company shall grant, issue or offer options, warrants or rights (excluding those rights and warrants referred to in Conditions 5(C)(iv), 5(C)(v), and 5(C)(vi)) to subscribe for or purchase Shares or securities convertible into or exchangeable for Shares and the consideration per Share receivable by the Company (determined as provided in Condition 5(C)(xiv)) shall be less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the offer, grant or issue of such rights, options or warrants is subject to approval by a general meeting of shareholders, on the date on which the Board of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in effect immediately prior to the date of the offer, grant or issue of such rights, options or warrants shall be adjusted in accordance with the following formula:

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N + v NCP = OCP x N + n

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii) above.

N = the number of Shares outstanding (having regard to Condition 5(C)(xv)) at the close of business in the ROC on the day immediately prior to the date of such issue.
n = the number of Shares to be issued on exercise of such rights or warrants and (if applicable) conversion or exchange of such convertible or exchangeable securities at the said consideration.
v = the number of Shares which the aggregate consideration receivable by the Company (determined as provided in Condition 5(C)(xiv)) would purchase at such Current Market Price per Share.

Effective date of adjustment: Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such rights or warrants are issued.

(x) Modifications : If the rights of conversion or exchange, purchase or subscription attaching to any options, rights or warrants to subscribe for or purchase Shares or any securities convertible into or exchangeable for, or which carry rights to subscribe for or purchase Shares are modified (other than pursuant to and as provided in the terms and conditions of such options, rights, warrants or securities) the Company shall notify the Trustee thereof and the Company shall consult with two leading independent investment banks of international repute selected by the Company and approved by the Trustee as to what adjustment, if any, should be made to the Conversion Price (and the timing of any such adjustment) to preserve the value of the Conversion Right and will make any such adjustment.

(xi) Simultaneous issues of different classes of shares : In the event of simultaneous issues of two or more classes of share capital comprising Shares or rights or warrants in respect of, or securities convertible into or exchangeable for, two or more classes of share capital comprising Shares, then, for the purposes of this Clause, the formula:

==> picture [148 x 30] intentionally omitted <==

shall be restated as:

==> picture [175 x 31] intentionally omitted <==

where v1and n1 shall have the same meanings as “ v ” and “ n ” but by reference to one class of Shares, v2 and n2 shall have the same meanings as “ v ” and “ n ” but by reference to a second class of Shares, v3 and n3 shall have the same meanings as “ v ” and “ n ” but by reference to a third class of Shares and so on.

(xii) Reduction of share capital : If the Company reduces its share capital otherwise than by means of cancelling any Shares or repurchases any Shares and for the purposes of holding such Shares in treasury, then the Conversion Price in effect on the record date for such capital reduction shall be adjusted in accordance with the following formula:

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NCP = OCP x

==> picture [9 x 7] intentionally omitted <==

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

n
----- End of picture text -----

where:

NCP and OCP have the meanings ascribed thereto in Condition 5(C)(ii) above.

N = the number of Common Shares outstanding immediately prior to such capital reduction
n = the number of Common Shares outstanding immediately after such capital reduction

For the avoidance of doubt, no adjustment to the Conversion Price under this Condition 5(C)(xii) will be required if the Company cancels any Shares or repurchases any Shares for the purposes of holding such Shares in treasury. Effective date of adjustment : Such adjustment shall become effective immediately on the record date of such capital reduction.

(xiii) Current market price per share : For the purposes of this Condition 5(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 30 consecutive Trading Days (as defined below) commencing 45 Trading Days before the date of any relevant adjustment. 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.

If during the said 45 Trading Days or any period thereafter up to but excluding the date as of which the adjustment of the Conversion Price in question shall be effected, any event (other than the event which requires the adjustment in question) shall occur which gives rise to a separate adjustment to the Conversion Price under this Condition 5(C), then the Current Market Price as determined above shall be adjusted in such manner and to such extent as two leading independent investment banks of international repute, selected by the Company and approved by the Trustee, shall in their absolute discretion deem appropriate and fair to compensate for the effect thereof.

For the purposes of this Condition 5(C)(xiii):

the “ closing price ” of the Shares for each Trading Day (as defined below) 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 on the Trading Day immediately preceding such day, or if the Shares are not listed or admitted to trading on the TSE, the average of the closing bid and offered prices of Shares on the TSE in effect on the Trading Day immediately preceding such day as furnished by a leading independent securities firm licensed to trade on the TSE selected from time to time by the Company for the purpose; and

“ Trading Day ” means a day when the TSE is open for business, but does not include a day when (a) no such last transaction price or closing bid and offered prices is/are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no such closing bid and offered prices are furnished as aforesaid.

(xiv) Consideration receivable by the Company : For the purposes of any calculation of the consideration receivable by the Company pursuant to Conditions 5(C)(iv), 5(C)(v), 5(C)(vii), 5(C)(viii) and 5(C)(ix), the following provisions shall be applicable:

(a) in the case of the issue of Shares for cash, the consideration shall be the amount of such cash, provided that in no such case shall any

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deduction be made for any commissions or any expenses paid or incurred by the Company for any underwriting of the issue or otherwise in connection therewith. Subject to Condition 5(C)(xvii), the Company shall settle in US dollars any difference between the Conversion Price and the par value of each Share if the Conversion Price is reduced to below par value;

(b) in the case of the issue of Shares for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Company (and in making such determination the Company shall consult two leading independent investment banks of international repute, selected by the Company and approved by the Trustee and shall take fully into account the advice received from such banks) or, if pursuant to applicable law of the ROC such determination is to be made by application to a court of competent jurisdiction, as determined by such court or an appraiser appointed by such court, irrespective of the accounting treatment thereof;
(c) in the case of the issue (whether initially or upon the exercise of rights or warrants) of securities convertible into or exchangeable for Shares, the aggregate consideration receivable by the Company shall be deemed to be the consideration received by the Company for such securities and (if applicable) rights or warrants plus the additional consideration (if any) to be received by the Company upon (and assuming) the conversion or exchange of such securities at the initial conversion or exchange price or rate and (if applicable) the exercise of such rights or warrants at the initial subscription or purchase price (the consideration in each case to be determined in the same manner as provided in (a) and (b) above) and the consideration per Share receivable by the Company shall be such aggregate consideration divided by the number of Shares to be issued upon (and assuming) such conversion or exchange at the initial conversion or exchange price or rate and (if applicable) the exercise of such rights or warrants at the initial subscription or purchase price;
(d) in the case of the issue of rights or warrants to subscribe for or purchase Shares, the aggregate consideration receivable by the Company shall be deemed to be the consideration received by the Company for any such rights or warrants plus the additional consideration to be received by the Company upon (and assuming) the exercise of such rights or warrants at the initial subscription or purchase price (the consideration in each case to be determined in the same manner as provided in (a) and (b) above) and the consideration per Share receivable by the Company shall be such aggregate consideration divided by the number of Shares to be issued upon (and assuming) the exercise of such rights or warrants at the initial subscription or purchase price;
(e) if any of the consideration referred to in any of the preceding paragraphs of this Condition 5(C)(xiv) is receivable in a currency other than NT dollars, such consideration shall (in any case where there is a fixed rate of exchange between the NT dollar and the relevant currency for the purposes of the issue of the Shares, the conversion or exchange of such securities or the exercise of such rights or warrants) be translated into NT dollars for the purposes of this Condition 5(C)(xiv) at such fixed rate of exchange and shall (in all other cases) be translated into NT dollars at the mean of the exchange rate quotations (being quotations for the cross rate through US dollars if no direct rate is quoted) by a leading bank in the ROC for buying and selling spot units of the relevant currency by telegraphic transfer against NT dollars on the date as of which the said consideration is required to be calculated as aforesaid; and

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(f) in the case of the issue of Shares (including, without limitation, to employees under any employee dividend or profit sharing arrangements) credited as fully paid out of retained earnings or capitalisation of reserves at their par value, the aggregate consideration receivable by the Company shall be deemed to be zero (and accordingly the number of Shares which such aggregate consideration receivable by the Company could purchase at the relevant Current Market Price per Share shall also be deemed to be zero).

(xv) Cumulative adjustments : If, at the time of computing an adjustment (the “ later adjustmen t”) of the Conversion Price pursuant to any of Conditions 5(C)(ii), 5(C)(iv), 5(C)(v), 5(C)(vii), 5(C)(viii) and 5(C)(ix), the Conversion Price already incorporates an adjustment made (or taken or to be taken into account pursuant to the proviso to Condition 5(C)(xvi)) to reflect an issue of Shares or of securities convertible into or exchangeable for Shares or of rights or warrants to subscribe for or purchase Shares or securities, to the extent that the number of such Shares or securities taken into account for the purposes of calculating such adjustment exceeds the number of such Shares in issue at the time relevant for ascertaining the number of outstanding Shares for the purposes of computing the later adjustment, such excess Shares shall be deemed to be outstanding for the purposes of making such computation.

(xvi) Minor adjustments : No adjustment of the Conversion Price shall be required if the adjustment would be less than 1 per cent. of the Conversion Price prior to the adjustment; provided that any adjustment which by reason of this Condition 5(C)(xvi) is not required to be made shall be carried forward and taken into account (as if such adjustment had been made at the time when it would have been made but for the provisions of this Condition 5(C)(xvi)) in any subsequent adjustment. All calculations under this Condition 5(C) shall be made to the nearest NT$0.01 with NT$0.005 being rounded up to the next NT$0.01.

(xvii) General restrictions on adjustments : Notwithstanding the provisions of this Condition 5(C), the Conversion Price shall only be reduced in accordance with applicable law then in effect pursuant to which Notes may be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares.

(xviii) Reference to “ fixed ”: Any references in this Condition 5(C) to the date on which a consideration is “ fixed ” shall, where the consideration is originally expressed by reference to a formula which cannot be expressed as an actual cash amount until a later date, be construed as a reference to the first day on which such actual cash amount can be ascertained.

(xvix) Trustee not obliged to monitor : The Trustee shall not be under any duty to monitor whether any event or circumstance has happened or exists within Condition 5(C)(x) and will not be responsible to Noteholders for any loss arising from any failure by it to do so.

(xx) Calculations : All calculations relating to adjustment of the Conversion Price shall be performed by the Company, the Auditors or any person so nominated or authorised by the Company for this purpose. Neither the Trustee nor the Agents shall be liable in any respect for the accuracy or inaccuracy in any mathematical calculation or formulae under these Conditions, the Trust Deed, whether by the Company, the Auditors or any other person so nominated or authorised by the Company for the purposes of this Condition 5 or any other provision hereof save for manifest error.

(xxi) Trustee and Agents not responsible for Company ’ s failure : Neither the Trustee nor the Agents shall be responsible or liable to the holders of the Notes or any person for (a) any failure of the Company to make such cash payment or to issue, transfer or deliver any Shares or other securities or property upon the surrender of any Note for the purposes of Conversion; or (b) any failure of the Company to comply with any of its covenants in relation to Conversion as set out in this Condition 5.

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(D) Mergers and disposals

The Company will not merge, amalgamate or consolidate with or into any other corporation or entity (other than a consolidation, amalgamation or merger in which the Company is 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 holders of the Notes of such event in accordance with Condition 14 and the Company and such corporation, entity or person shall have executed a trust deed supplemental to the Trust Deed in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Notes, the Trust Deed and the Agency Agreement and providing that each Note 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 Notes would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Notes were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Trust Deed. Such supplemental trust deed will provide for adjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this Condition. The Trustee shall be entitled to request from the Company a certificate signed by two Authorised Officers of the Company and a legal opinion from a firm acceptable to the Trustee certifying that or opining on whether (as the case may be), the provisions of this Condition 5(D) have been complied with at the expense of the Company and the Trustee shall have no responsibility for the terms of any such consolidation, amalgamation, merger, sale or transfer or effect thereof upon the Noteholders or Conversion Rights, other than gross negligence or wilful misconduct. The above provisions of this Condition 5(D) will apply in the same way to any subsequent consolidations, amalgamations, mergers, sales or transfers.

(E) Conversion undertakings

(i) Depositary receipts : Subject to the ROC FSC’s (as defined in the Trust Deed) separate approval, if required, the Company may, at its option, but is not required to, make arrangements satisfactory to the Trustee for the Notes 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 may, at its option, but is not required to, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for the Shares issued on conversion of the Notes to be accepted for deposit (at the option of the converting holder of the Notes) into its depositary receipt facility, subject always to the terms of such depositary receipt facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of the Shares issued on conversion of the Notes. In such an event, the Company will give notice of any such arrangements to holders of the Notes in accordance with Condition 14. There can be no assurance any arrangements for the deposit of the Shares into such deposit facility would be available to all holders of the Notes.

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

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6 Payments

(A) Principal and other sums

Payment of principal and premium (if any) will be made by transfer to the registered account of the holder of the Notes or by US dollar cheque drawn on a bank in New York City mailed to the registered address of the holder of the Notes if it does not have a registered account. Payments of principal and premium (if any) will only be made after surrender of the relevant Certificate at the specified office of any Agent.

(B) Registered accounts

The registered account (as referred to in Condition 6(A)) of a holder of the Notes means the US dollar account maintained by or on behalf of it with a bank in New York City details of which appear on the register of holders of the Notes at the close of business on the second business day (as defined below) before the due date for payment and the registered address of a holder of the Notes means its address appearing on the register of holders of the Notes 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 8. No commissions or expenses shall be charged to the holders of the Notes 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 first following day which is a business day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed on the business day preceding the due date for payment or, in the case of a payment of principal, if later, on the business day on which the relevant Certificate is surrendered at the specified office of an Agent.

(E) Default interest and payment delay

If the Company fails to pay any sum in respect of the Notes when the same becomes due and payable under these Conditions, interest shall accrue on the overdue sum at the Default Interest Rate from the due date (the “ Due Date ”).

Holders of the Notes 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 holder of the Notes is late in surrendering its Certificate (if required to do so) or if a cheque mailed in accordance with this Condition arrives or is cleared after the Due Date for payment.

The “ Default Interest Rate ” shall be 6 per cent per annum.

(F) Business days

In these Conditions, “ business day ” means a day (other than a Saturday or a Sunday) on which commercial banks are open for business in Taipei, New York City, London and the city in which the specified office of the relevant Agent is located, and in the case of surrender of a Certificate, the place where such Certificate is surrendered.

(G) Partial payments

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

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7 Redemption, purchase and cancellation

(A) Redemption at maturity

Unless previously redeemed or converted or purchased and cancelled as herein provided, the Company will redeem the Notes at 100 per cent. of their principal amount in US dollars on May 24, 2011 (the “ Maturity Date ”). The Notes may be redeemed prior to that date only as provided in paragraphs (B), (C) and (D) below (but without prejudice to Condition 9).

(B) Redemption at the option of the Company

(i) The Notes may be redeemed in whole or in part at 100 per cent of their principal amount, in US dollars, at the option of the Company, upon not less than 30 nor more than 60 days’ notice to the holders of the Notes (which notice shall be irrevocable and published in accordance with Condition 14), at any time after May 24, 2008 and prior to May 24, 2011, provided that the Closing Price of the Shares on the TSE (translated into US dollars at the Prevailing Rate), for any 20 Trading Days out of 30 consecutive Trading Days, the last of which occurs not more than ten days prior to the date upon which notice of such redemption is published, is at least 125 per cent. of the Conversion Price of the Notes then in effect (translated into US dollars at a fixed exchange rate of NT$31.49 = US$1.00 (the “ Fixed Exchange Rate ”)) on each such Trading Day.

In the case of a partial redemption of the Notes under this Condition 7(B)(i), the Notes to be redeemed will be selected (a) individually by lot, or in such manner as the Trustee shall deem to be appropriate and fair when the Notes are in definitive form; and (b) in accordance with the rules of the applicable clearing system when the Notes are represented by the Global Certificate, not more than 60 and not less than 30 days prior to the date fixed for redemption. The Company will publish the redemption date, the identifying numbers of the Notes drawn for redemption and the Conversion Price in accordance with Condition 14 not less than 30 days prior to such date fixed for redemption.

(ii) The Company may also redeem the Notes in whole but not in part, upon the Company giving not less than 30 nor more than 60 days’ notice, at any time prior to May 24, 2011, if at least 90 per cent. in principal amount of the Notes has already been converted, redeemed or purchased and cancelled.

If there shall occur an event giving rise to a change in the Conversion Price during any such 20 Trading Days out of such 30 consecutive Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the Closing Price for such days. If the Closing Price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 20 Trading Days out of such 30 consecutive Trading Day period. The “ Prevailing Rate ” for the translation of the Closing Prices shall be the Federal Reserve Bank of New York noon buying rate for the purchase of US dollars with NT dollars on each business day in New York prior to each day of the relevant 20 consecutive Trading Day period.

In this Condition 7(B), for the purpose of computing the Prevailing Rate, a “ business day in New York ” shall mean a day on which Federal Reserve Bank of New York noon buying rate for such day is available.

Provided that the date fixed for redemption under this Condition may not fall within a Closed Period or the period of 15 business days (as defined in Condition 5(B)) following a Closed Period.

The term “ Trading Day ” means a day on which the TSE is open for business. For the purposes of this Condition 7(B), the term “ Closing Price ” for any Trading Day means the last reported transaction price or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TSE on the Trading Day immediately preceding such day, or if the Shares are not listed or admitted to

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trading on the TSE, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the TSE selected from time to time by the Company for the purpose.

Upon the expiry of any such notice of redemption referred to in this Condition 7(B), the Company will be bound to redeem the Notes to which such notice relates at the date fixed for redemption.

(C) Redemption for taxation reasons

At any time (but not if notice of redemption under Condition 7(B) has already been given to holders of the Notes), the Company may, having given not less than 30 nor more than 60 days’ notice to the holders of the Notes (which notice shall be irrevocable and given to holders of the Notes in accordance with Condition 14) redeem all but not some only of the Notes at 100 per cent of their principal amount in US dollars if (i) the Company has given evidence satisfactory to the Trustee immediately prior to the giving of such notice that it has or will become obliged to pay Additional Amounts (as defined in Condition 8(A)) 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 May 24, 2006 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 Notes then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate signed by two Authorised Officers of the Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above in which event it shall be conclusive and binding on the holders of the Notes. The Notes in respect of which a notice of redemption has been given under Condition 7(B) or 7(D) shall not be affected by any notice given subsequently under this Condition 7(C).

(D) Redemption at the option of holders of the Notes

The Company will, at the option of the holder of any Note, redeem all or some of that holder’s Notes on May 24, 2008 (the “ Put Date ”), at 100 per cent of their principal amount in US dollars. To exercise such option the holder must deposit the Certificate issued in respect of such Notes with any Agent together with a duly completed redemption notice in the form obtainable from any of the Agents, not more than 60 nor less than 10 days prior to such date. No Notes so deposited may be withdrawn (except as provided in the Agency Agreement) without the prior consent of the Company. Not less than 10 nor more than 60 days’ notice of the commencement of the period for the deposit of Certificates for redemption pursuant to this Condition 7(D) shall be given to the holders of the Notes by the Company in accordance with Condition 14.

(E) Redemption for delisting or change of control

Following the occurrence of a Relevant Event (as defined below), the holder of each Note will have the right at such holder’s option, to require the Company to redeem all or some only of that holder’s Notes on the Relevant Event Redemption Date (as defined below) at 100 per cent of their principal amount in US dollars. To exercise such right, the holder of the relevant Note must complete, sign and deposit at the specified office of any Paying Agent a duly completed and signed notice of redemption, in the form for the time being current, obtainable from the specified office of any Paying Agent (the “ Relevant Event Redemption Notice ”) together with the Certificate evidencing the Notes to be redeemed by not later than 60 days following a Relevant Event, or, if later, 60 days following the date upon which notice thereof is given to Noteholders by the Company in accordance with Condition 14. The “ Relevant Event Redemption

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Date ” shall be the 14[th] day after the expiry of such period of 60 days as referred to above.

A Relevant Event Redemption Notice, once delivered, shall be irrevocable and the Company shall redeem the Notes the subject of Relevant Event Redemption Notices delivered as aforesaid on the Relevant Event Redemption Notice delivered as aforesaid on the Relevant Event Redemption Date.

The Trustee and Agents shall not be under any duty to monitor or be required to take any steps to ascertain whether a Relevant Event or any event which could lead to the occurrence of a Relevant Event has occurred and shall not be liable to any person for any failure by them to so monitor in the absence of wilful misconduct or gross negligence.

The Company shall give notice to Noteholders (with a copy to the Trustee and the Agents) in accordance with Condition 14 by not later than 14 days following the first day on which it becomes aware of the occurrence of a Relevant Event, which notice shall specify the procedure for exercise by holders of their rights to require redemption of the Notes pursuant to this Condition 7(E) and shall give brief details of the Relevant Event.

A “ Relevant Event ” occurs:

(i) when the Shares cease to be listed or admitted to trading on the TSE; or (ii) when there is a Change of Control (as defined below) with respect to the Company;

A “ Change of Control ” occurs when:

(i) any person or persons acting together acquires Control of the Company if such person or persons does not or do not have, and would not be deemed to have, Control of the Company on the Closing Date;
(ii) the Company consolidates with or merges into or sells or transfers all or substantially all of the Company’s assets to any other person, unless the consolidation, merger, sale or transfer will not result in the other person or persons acquiring Control over the Company or the successor entity; or
(iii) once or more other persons acquires the legal or beneficial ownership of all or substantially all of the Company’s capital stock.

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

A “ person ” includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organisation, trust, state or agency of a state (in each case whether or not being a separate legal entity) but does not include the Company’s directors or any other governing board and does not include the Company’s majority-owned direct or indirect Subsidiaries.

(F) Purchase

The Company may at any time and from time to time purchase the Notes in the open market or otherwise. The Notes so purchased shall be surrendered to the Principal Agent for cancellation and may not be held and reissued or resold.

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(G) Cancellation

All Notes which have been redeemed or converted, or purchased by the Company, shall forthwith be cancelled. Certificates in respect of all Notes cancelled will be forwarded to or to the order of the Principal Agent and such Notes may not be reissued or resold.

(H) Redemption notices; Precedence of notices

All notices to holders of the Notes given by or on behalf of the Company pursuant to this Condition will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Notes 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 Notes called for redemption (when applicable).

No notice of redemption pursuant to Condition 7(C) shall be effective if it specifies a due date for redemption falling during the period commencing 60 days and ending 30 days (both inclusive) prior to any Put Date (and if given shall not be effective). Any notice of redemption given under Condition 7(C) before any Put Date and specifying a due date for redemption after the 30th day prior to any Put Date shall be without prejudice to the rights of holders of the Notes under Condition 7(D) and shall not apply in respect of any Notes in respect of which the option under Condition 7(D) shall be or has been exercised.

8 Taxation

(A) Additional Amount

All payments to holders of the Notes in respect of the Notes by the Company shall be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments, or governmental charges of whatever nature imposed, levied, collected, withheld , or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law; provided, however, in respect of any deduction or withholding from any such payment, the Company shall pay such additional amount (“ Additional Amount ”) as will result in the receipt by the holders of the Notes of the amounts that would have been receivable in the absence of any such deduction or withholding, except that no Additional Amount shall be payable in respect of any Note:

(i) to a holder (or a third party on behalf of a holder) who is subject to such taxes, duties, assessments or governmental charges in respect of such Note by reason of his (or the beneficial owner of the Note) having some present or former connection with the ROC otherwise than merely by holding such Note or by receipt of payments in respect of such Note; or

(ii) if the definitive Certificate in respect of such Note 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 period of 30 days.

For purposes of this Condition 8 “ relevant date ” means whichever is the later of (a) the date on which payment of the principal of, and premium (if any, including any redemption) on the Note first becomes due and (b) if the full amount payable has not been received in New York City by the Trustee or the Principal Agent on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the holders of the Notes. References in this Condition 8 to payments in respect of the Notes shall be deemed also to refer to any Additional Amounts which may be payable under this Condition 8 or any undertaking or covenant given in addition thereto or in substitution thereof pursuant to this Trust Deed.

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It is clarified that taxes arising in jurisdictions other than the ROC shall be the responsibility and liability of the holder of the Notes.

(B) Construction

References in these Terms and Conditions to principal and premium shall be deemed also to refer to any increased or additional amounts which may be payable in respect thereof under this Condition.

9 Events of default

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

(i) the Company fails to pay any sums due on any of the Notes within seven days after the same shall become due and payable in accordance with the Conditions; or
(ii) the Company defaults in performance or observance of or compliance with any one or more of its other obligations set out in the Notes or the Trust Deed 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 (or such longer time as the Trustee may consider appropriate in relation to the jurisdiction concerned) after written notice of such default shall have been given to the Company by the Trustee; or
(iii) any other present or future indebtedness of the Company or any of its Subsidiaries (as defined in Condition 3) 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 any 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 Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred equals or exceeds US$10,000,000 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 Subsidiaries are liable for the payment of the same relevant indebtedness or guarantee (whether liable jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be counted once; or
(iv) a distress, execution or seizure before judgment is levied or enforced or sued out, or other enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of any undertaking, property, assets or revenues of the Company or any of its Subsidiaries and in any such case is not discharged or stayed within 60 days of having been so levied, sued out, commenced or issued (or such longer period as the Trustee may consider appropriate) and the value of such undertaking, property, assets or revenues of the Company or such Subsidiary to which such distress, execution or seizure relates exceeds US$5,000,000; or
(v) an encumbrancer takes possession or a receiver, manager or other similar officer is appointed against or in respect of any undertaking, property, assets or revenues of the Company or any of its Subsidiaries and the same is not stayed,

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discharged, released or satisfied (as the case may be) within 60 days (or such longer period as the Trustee may consider appropriate) of such appointment or the issue of such order (as the case may be) and the value of such undertaking, property, assets or revenues of the Company or such Subsidiary exceeds US$5,000,000; or

(vi) the Company or any of its Subsidiaries becomes bankrupt or insolvent or is unable to pay its debts as they mature or applies for or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganisation, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by an Extraordinary Resolution of the Noteholders) or receiver (or other similar official) of the Company or any of its Subsidiaries or in respect of the whole or any substantial part of the undertakings, property, assts or revenues of the Company or any of its Subsidiaries or the Company or any of its Subsidiaries takes any proceedings under any applicable law for a readjustment or an arrangement or composition with or for the benefit of its creditors or (except as provided below) stops or threatens to cease to carry on its business or a substantial part of its business; or
(vii) an order is made or an effective resolution passed for the winding-up or dissolution of the Company or any of its Subsidiaries or the Company or any of its Subsidiaries becomes capable of being dissolved under ROC or other applicable laws (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 an Extraordinary Resolution of the Noteholders); or
(viii) the Company shall merge, amalgamate or consolidate with any other corporation or entity (with the Company not being the continuing entity), shall sell, transfer, lease out, lend or otherwise dispose of (whether outright, by a sale-and-purchase or sale-and-lease back arrangement, or otherwise) substantially all its business or assets whether as a single transaction or a number of transactions, related or not, to any person without (where so required by the Trustee) obtaining the prior approval by Extraordinary Resolution of the Noteholders and without such person assuming the obligations of the Company under and in respect of the Notes and the Trust Deed; provided that such agreement by such other person shall not be required if such assumption shall be effective by operation of law; or
(ix) a moratorium is agreed or declared in respect of any indebtedness of the Company or any of its Subsidiaries or any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company or any of its Subsidiaries; or
(x) proceedings shall have been initiated against the Company or any of its Subsidiaries under any applicable bankruptcy, insolvency or reorganisation law and such proceedings shall not have been discharged or stayed within a period of 60 days; or
(xi) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, 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 Notes and the Trust Deed, (ii) ensure that those obligations are legally binding and enforceable and (iii) make the Notes and the Trust Deed admissible in evidence in the courts of the ROC, is not taken, fulfilled or done if incapable of remedy or, if capable of remedy, is not remedied within 30 days (or such longer time as the Trustee may consider appropriate in relation to the jurisdiction concerned); or

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(xii) any event occurs which, under applicable laws, has an analogous effect to any of the events referred to in the foregoing paragraphs, subject to the timing and other requirements of the relevant paragraph above.

Upon any such notice being given to the Company, the Notes will immediately become due and payable at their principal amount.

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

10 Prescription

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

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

For the purposes of this Condition 10, “ default interest ” means interest that will accrue on any unpaid amount of the Notes which are due and payable, in accordance with the Condition 6(E).

11 Enforcement

At any time after the Notes 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 Notes together with premium (if any) and to enforce the provisions of the Trust Deed, but it will not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the holders of at least 25 per cent. in principal amount of the Notes then outstanding or so directed by an Extraordinary Resolution and (b) it shall have been indemnified and/or secured to its satisfaction. No holder of the Notes 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 Notes.

12 Meetings of Noteholders, modification and waiver

(A) Meetings

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

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cancel the amount of principal, premium (if any) and/or default interest (if any) payable in respect of the Notes, (iii) to change the currency of payment of the Notes, (iv) to modify or cancel the Conversion Right (except in accordance with Conditions 5(B) and 12(B)), (v) to modify the provisions concerning the quorum required at any meeting of the holders of the Notes or the majority required to pass an Extraordinary Resolution or (vi) to change the governing law of the Notes, in which case the necessary quorum for passing an Extraordinary Resolution will be two or more persons holding or representing in aggregate over two thirds, or at any adjourned such meeting in aggregate over one third, in principal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of holders of the Notes will be binding on all holders of the Notes, whether or not they are present at the meeting.

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

If any meetings are convened in accordance with this Condition 12(A), the Company shall inform the SGX-ST as soon as possible, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.

(B) Modification of Conversion Right

Notwithstanding Condition 12(A)(iv) and (v) above, the Trustee may agree, without the consent of the holders of the Notes, any modification to or variation of the Conversion Rights (including modification of and additions to the declarations and statements to be made by holders of the Notes 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 the Trustee’s opinion, materially prejudicial to the interests of the holders of the Notes. The Trustee’s agreement may be subject to any condition which the Trustee requires (including (a) obtaining an opinion of counsel acceptable to the Trustee at the expense of the Company and (b) a certificate signed by two directors or Authorised Officers). Any such modification or variation shall be binding on the holders of the Notes unless an Extraordinary Resolution to the contrary is passed in accordance with Condition 12(A).

If there is any modification in accordance with this Condition 12(B), the Company shall inform the SGX-ST as soon as possible, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.

(C) Other modifications and waivers

The Trustee may agree, without the consent of the holders of the Notes, to (i) any modification (except as mentioned above but including reducing the Conversion Price, increasing the amount payable under a coupon for the Notes or increasing the redemption price under Condition 7) of, or the waiver or authorisation of any breach or proposed breach of, the Notes or the Trust Deed which is not, in the opinion of the Trustee, materially prejudicial to the interests of the holders of the Notes or (ii) any modification of the Notes or the Trust Deed 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 forming any decision under this Condition 12(C), the Trustee may request for the opinion of a leading investment bank of international repute or of any legal counsel or other expert acceptable to the Trustee or a certificate signed by two Authorised Officers. Any such modification, waiver or authorization will be binding on the holders of the Notes and, unless the Trustee agrees otherwise, any such modification will be notified by the Company to the holders of the Notes as soon as practicable thereafter.

If there is any modification or waiver in accordance with this Condition 12(C), the Company shall notify the SGX-ST as soon as possible, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.

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(D) Exercise of Trustee ’ s functions

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

13 Replacement of certificates

If any Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Registrar or at the office of the Replacement Agent upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company may reasonably require (which terms will require, inter alia, that if such Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company on demand NT$31.49 for each US$1.00 of the principal amount of such Notes). Mutilated or defaced Certificates must be surrendered before replacements will be issued.

14 Notices

All notices to holders of the Notes shall be validly given if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times (London Edition)) and mailed to them at their respective addresses in the register of holders of the Notes maintained by the Registrar and, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, published in a leading newspaper having general circulation in Singapore (which is expected to be The Straits Times ), or if in the opinion of the Trustee such publication is not practicable in an English language newspaper having general circulation in Asia.

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.

15 Indemnification

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings unless indemnified and/or provided with security to its satisfaction. The Trustee is entitled to enter into business transactions with the Company and any of its Subsidiaries/affiliate company without accounting for any profits.

16 Agents

The names of the initial Agents and Registrar and their specified offices are set out at the end of these Conditions. 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 and, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, a Paying, Transfer and Conversion Agent in Singapore. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of any Conversion Agent, Paying Agent or Transfer Agent will be given promptly by the Company to the holders of the Notes and the Trustee and, so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, will be published in a leading newspaper having general circulation in Singapore (which is expected to be The Straits

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Times ). Subject to the terms of the Agency Agreement, including hereunder and in connection with the Notes, the Agents shall act solely as agent of the Company and will not thereby assume any obligations towards, or relationship of agency or trust, for any of the holders of the Notes.

17 Further Issues

The Company may from time to time, without the consent of the Noteholders create and issue further securities having the same terms and conditions as the Notes in all respects so that such further issue shall be consolidated and form a single series with the outstanding Notes.

18 Governing Law and jurisdiction; third party rights

(A) Governing law

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

(B) Jurisdiction

The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed or the Notes and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed or the Notes (“ Proceedings ”) may be brought in such courts. The Company irrevocably submits to the jurisdiction of such courts and waives any objections to Proceedings in such courts on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is for the benefit of the Trustee and each of the holders of the Notes and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).

(C) Service of Process

The Company irrevocably appoints Law Debenture Corporate Services Limited currently at Fifth Floor, 100 Wood Street, London EC2V 7EX as its authorised agent for service of process in England. Subject to applicable law, such service shall be deemed to be completed on delivery to such process agent (whether or not it is forwarded to and/or received by the Company). The Company will procure that, so long as any of the Notes is outstanding, there shall be in force an appointment of such a person with an office in England with authority to accept service as aforesaid on behalf of the Company and, failing such appointment within 15 days after demand by or on behalf of the Trustee, the Trustee shall be entitled by notice to the Company to appoint such person. Nothing herein shall affect the right to serve process in any other manner permitted by law.

(D) Proceedings in the United States

Without prejudice to the other provisions of Clause 18, the Company further irrevocably agrees that any Proceedings may be brought in any New York State or United States Federal court sitting in New York City and submits to the non-exclusive jurisdiction of each such court. The Company irrevocably appoints Law Debenture Corporate Services Inc., currently at 767 Third Avenue – 31[st] Floor, New York, NY10017 as its authorised agent for service of process in New York. The Company irrevocably submits to the jurisdiction of each such court and waives any objections to Proceedings in such courts on the ground of venue or that the Proceedings have been brought in an inconvenient forum. This submission is for the benefit of the Trustee and the holders of the Notes only and shall not limit the right of either of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of

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Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). The Company further irrevocably waives all right to trial by jury in any Proceedings before the courts specified in this Condition 18(D).

(E) Third party rights

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

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THE GLOBAL CERTIFICATE

WINBOND ELECTRONICS CORPORATION (incorporated as a company limited by shares with limited liability under the laws of the Republic of China)

US$120,000,000 (including US$20,000,000 issued pursuant to the Additional Notes Option) Zero Coupon Convertible Notes Due 2011 GLOBAL CERTIFICATE

THE NOTES EVIDENCED HEREBY (THE “NOTES”) OR THE SHARES OF WINBOND ELECTRONICS CORPORATION (THE “COMPANY”) ISSUABLE UPON CONVERSION OF THE NOTES (THE “SHARES”) HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND PRIOR TO THE EXPIRATION OF 40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF THE NOTES AND THE LATEST CLOSING DATE (THE “DISTRIBUTION COMPLIANCE PERIOD”), THE NOTES AND THE SHARES ISSUABLE UPON CONVERSION OF THE NOTES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY US PERSON OUTSIDE THE UNITED STATES OR ANY PERSON IN THE UNITED STATES. EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE NOTES EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWING RESTRICTIONS. THIS LEGEND WILL NO LONGER BE EFFECTIVE AFTER THE END OF THE DISTRIBUTION COMPLIANCE PERIOD, AFTER WHICH THE NOTES EVIDENCED HEREBY AND THE SHARES ISSUABLE UPON CONVERSION OF THE NOTES WILL NO LONGER BE SUBJECT TO THE RESTRICTIONS SET FORTH IN THIS LEGEND, PROVIDED THAT AT SUCH TIME AND THEREAFTER THE OFFER OR SALE OF THE NOTES EVIDENCED HEREBY OR THE SHARES ISSUABLE UPON CONVERSION OF THE NOTES WOULD NOT BE RESTRICTED UNDER ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES OR OF THE STATES OR TERRITORIES OR JURISDICTIONS OF THE UNITED STATES.

ISIN NUMBER: XS0254293466 Common Code: 025429346

The zero coupon convertible notes in respect of which this Global Certificate is issued are in registered form and form part of the series designated as specified in the title (the “ Notes ”) of Winbond Electronics Corporation.

The Company hereby certifies that The Bank of New York Depository (Nominees) Limited is, at the date hereof, entered in the register of holders of the Notes as the holder of the Notes in the principal amount of US$120,000,000 (One Hundred Twenty Million United States dollars) including the US$20,000,000 issued pursuant to the Additional Notes Option or such other amount as is shown on the register of holders of the Notes as being represented by this Global Certificate and is duly endorsed (for information purposes only) in the third column of Schedule A to this Global Certificate. For value received, the Company promises to pay the person who appears at the

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relevant time on the register of holders of the Notes as the holder of the Notes in respect of which this Global Certificate is issued such amount or amounts as shall become due in respect of such Notes and otherwise to comply with the Conditions referred to below.

The Notes are constituted by a Trust Deed dated May, 24 2006 between the Company and The Bank of New York, London branch as trustee (the “ Trustee ”) and are subject to, and have the benefit of, the Trust Deed and herein and the terms and conditions (the “ Conditions ”) set out in Schedule 1 to the Trust Deed, as modified by the provisions of this Global Certificate. Terms defined in the Trust Deed have the same meaning when used herein.

The Notes in respect of which this Global Certificate is issued are convertible into Shares subject to and in accordance with the Conditions and the Trust Deed.

Owners of interests in the Notes in respect of which this Global Certificate is issued will be entitled to have title to the Notes registered in their names and to receive individual definitive Certificates if either Euroclear or Clearstream (or any other clearing system (an “ alternative clearing system ”) as shall have been designated by the Company and approved by the Trustee on behalf of which the Notes evidenced by this 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.

In such circumstances, the Company will cause sufficient individual definitive Certificates to be executed and delivered to the Registrar for completion, authentication and despatch to the relevant holders of the Notes. A person with an interest in the Notes in respect of which this Global Certificate is issued must provide the Registrar with a written order containing instructions and such other information as the Company and the Registrar may require to complete, execute and deliver such individual definitive Certificates.

This Global Certificate is evidence of entitlement only. Title to the Notes passes only on due registration in the register of holders of the Notes and only the duly registered holder is entitled to payments on the Notes in respect of which this Global Certificate is issued.

The Conditions are modified as follows in so far as they apply to the Notes in respect of which this Global Certificate is issued.

Meetings

The registered holder hereof shall be treated as two persons for the purposes of any quorum requirements of a meeting of holders of the Notes and, at any such meeting, as having one vote in respect of each Note in respect of which this Global Certificate is issued. The Trustee may allow to attend and speak (but not to vote) at any meeting of holders of the Notes any accountholder (or the representative of any such person) of a clearing system entitled to Notes in respect of which this Global Certificate is issued on confirmation of entitlement and proof of his identity.

Cancellation

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

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Conversion

Subject to the requirements of Euroclear and Clearstream (or any alternative clearing system), the Conversion Right attaching to the Notes in respect of which this Global Certificate is issued may be exercised by the presentation of one or more Conversion Notices (which may be by facsimile while the Notes are represented by the Global Certificate) duly completed by or on behalf of a holder of a book-entry interest in such Notes. Deposit of this Global Certificate with the Conversion Agent together with the relevant Conversion Notice shall not be required. The provisions of Condition 5 of the Notes will otherwise apply. The exercise of the Conversion Right shall be notified by the Conversion Agent to the Registrar and the holder of this Global Certificate.

Put Option

The put option of the holders of the Notes set out in Conditions 7(D) and 7(E) may be exercised by the holder of this Global Certificate giving notice to the Principal Agent of the principal amount of the Notes in respect of which the option is exercised and presenting this Global Certificate for endorsement or exercise within the time limits specified in Conditions 7(D) and/or 7(E).

Trustee's Powers

In considering the interests of the holders of the Notes while this Global Certificate is registered in the name of a nominee to a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, (a) have regard to such information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Notes and (b) consider such interests on the basis that such accountholders were the holders of the Notes in respect of which this Global Certificate is issued.

Enforcement

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

For all purposes the Notes in respect of which this Global Certificate is issued, each person who is for the time being shown in the records of Euroclear or of Clearstream as the holder of a particular principal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream as to the principal amount of Notes represented by a Global Certificate standing to the account of any person shall be conclusive and binding for all purposes) shall be recognised as the holder of such principal amount of Notes.

Transfers

Transfers of interests in the Notes in respect of which this Global Certificate is issued will be effected through the records of Euroclear and Clearstream and their respective participants in accordance with the rules and procedures of Euroclear and Clearstream and their respective direct and indirect participants.

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Payment

Payments of principal and premium (if any) in respect of Notes represented by this Global Certificate will be made against presentation and, if no further payment falls to be made in respect of the Notes, surrender of this Global Certificate to or to the order of the Principal Agent or such other Paying Agent as shall have been notified to the holders of the Notes for such purpose.

Notices

So long as the Notes are represented by this Global Certificate and this Global Certificate is held on behalf of Euroclear or Clearstream or the alternative clearing system (as defined in this Global Certificate), notices to holders of the Notes may be given by delivery of the relevant notice to Euroclear or Clearstream or the alternative clearing system, for communication by it to entitled accountholders in substitution for notification as required by the Conditions except that for so long as the Notes are listed on the Singapore Exchange Securities Trading Limited and the rules of that exchange so require, notice shall also be published in a leading newspaper having general circulation in Singapore (which is expected to be The Straits Times ).

This Certificate is governed by, and shall be construed in accordance with, English law.

IN WITNESS whereof the Company has caused this Certificate to be signed on its behalf.

Dated May 24, 2006

WINBOND ELECTRONICS CORPORATION

By: ……………………………………….

Director/Authorised Signatory

Certificate of Authentication

Certified that the above-named holder is at the date hereof entered in the register of holders of the Notes as the holder of the above-mentioned principal amount of the Notes.

The Bank of New York as Registrar

By: ………………………………………

Authorised Signatory

Dated:

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Schedule A

SCHEDULE OF INCREASE OR REDUCTION IN PRINCIPAL AMOUNT OF THE NOTES IN RESPECT OF WHICH THIS GLOBAL CERTIFICATE IS ISSUED

The following increase or reductions in the principal amount of the Notes in respect of which this Global Certificate is issued have been made as a result of (i) exercise of the Conversion Right attaching to the Notes or (ii) redemption of the Notes or (iii) purchase and cancellation of the Notes or (iv) issue of definitive Certificates in respect of the Notes:

Date of Conversion/issue of definitive Certificates Redemption/purchase and cancellation (stating which)

Amount of Principal amount Notation made by increase or of the Notes or on behalf of the decrease in following such Registrar principal amount of increase or the Notes decrease

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FORM OF TRANSFER

FOR VALUE RECEIVED the undersigned hereby transfers the following principal amounts of the Notes in respect of which the Certificate is issued, and all rights in respect thereof, to the transferee(s) listed below:

Principal Amount transferred Name, address and account for payments of transferee

Dated: ……………………………….. Certifying Signature: ………………………………

Name : ……………………………….

Notes:

(a) A representative of the holder of the Notes should state the capacity in which he signs, e.g. executor.
(b) The signature of the transferee shall conform to any list of duly authorised specimen signatures supplied by the registered holder or be certified by a recognised bank, notary public or in such other manner as the Principal Agent or the Registrar may require.
(c) This form and certificate of transfer should be dated as of the date it is deposited with the relevant Transfer Agent.
(d) The transferor will be deemed to have represented, acknowledged and agreed that any Note or beneficial interest therein, or any Shares issued upon conversion of the Notes may be sold, pledged or otherwise transferred only:
(i) in an offshore transaction meeting the requirements of Rule 903 or 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.]

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TAXATION

The following discussion is a summary of the material ROC tax considerations relevant to an investment decision by certain non-ROC holders. Prospective purchasers of the Notes should consult their own tax advisers concerning the tax consequences of owning the Notes and Common Shares in the ROC or any other taxing jurisdiction to which they are subject.

ROC Taxation

The following summary addresses the principal ROC tax consequences of the ownership and disposition of the Notes or the Common Shares under current ROC law for a non-resident individual or non-resident entity that holds such Notes or Common Shares (a “Non-ROC Holder”). “Non-resident individual” (a “Non-ROC Individual Holder”) is a foreign national individual who is not physically present in the ROC for 183 days or more during any calendar year in which he or she owns the Notes or the Common Shares and a “nonresident entity” (a “Non-ROC Entity Holder”) is a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the ROC for profit-making purposes and does not have a fixed place of business or business agent in the ROC.

Notes

Interest. Payments of stated interest or premium (if any) on a Note to a Non-ROC Holder are subject to ROC withholding tax at the rate of 20% at the time of payment.

Sale. Securities transaction tax will be imposed on the transfer of the Notes issued by the Company at the rate of 0.1%, which is payable by the seller. However, Article 20-1 of the Statute for Upgrading Industries, which is valid until 31 December 2009, provides that the purchase and sale of the Notes is exempt from securities transaction tax .

However, securities transaction tax, gift tax and/or income tax may be imposed in relation to the converting holder’s designation of other persons to be the holder of Common Shares upon conversion of the Notes.

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

Conversion into Common Shares. For Non-ROC Entity Holders, the conversion of the Notes into Common Shares will be deemed as assets exchange and thus will not generate or incur any gain or loss. For Non-ROC Individual Holders, any gain or loss generated or incurred from the conversion of the Notes into Common Shares will be deemed as capital gain or loss from securities transactions, and thus is exempt from the application of the current ROC Income Tax Law..

Stamp Duty. There is no ROC stamp, issue or registration tax imposed on the delivery of Common Shares upon conversion of the Notes.

Common Shares

Dividends. Dividends (whether in cash or shares) declared by the Company out of retained earnings and distributed to a Non-ROC Holder in respect of Common Shares are subject to ROC withholdings tax, currently at the rate of 20%, on the amount of the distribution (in the case of cash dividends) or on the par value of the Common Shares (in the case of stock dividends). Under the ROC Income Tax Law, a 10% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 which are not distributed in the following year. However, such 10% ROC retained earnings tax paid by the Company on the Company’s undistributed after-tax earnings, if any, would provide a credit of up to 10% of the gross amount of any dividends declared out of such earnings that would reduce the 20% ROC tax imposed on these distributions. Distributions of Common Shares declared by the Company out of capital reserves are not subject to ROC withholding tax.

Sale. Securities transaction tax will be payable by the Seller at the rate of 0.3% of the transaction price upon a sale of Common Shares.

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

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

Estate Tax and Gift Tax. ROC estate tax is payable on any property located within ROC of a deceased Non-ROC individual, and ROC gift tax is payable on any property located within ROC donated by such person. Estate tax is payable at rates ranging from 2% of the first NT$670,000 to 50% of amounts over NT$111,320,000. Gift tax is payable at rates ranging from 4% of the first NT$670,000 to 50% of amounts over NT$50,090,000. Under ROC estate and gift tax law, the Notes and Common Shares issued by ROC companies are deemed to be located within the ROC regardless of the location of the owner.

Tax Treaties. The United States does not have an income tax treaty with the ROC. At present, the ROC has income tax treaties with Australia, Gambia, Indonesia, Malaysia, Macedonia, the United Kingdom, the Netherlands, New Zealand, Singapore, South Africa, Swaziland, Vietnam, Senagal, Belgium, Sweden and Denmark, which limit the rate of withholding tax on dividends or interest paid with respect to shares or notes in ROC companies. Holders of Notes or Common Shares who are otherwise entitled to the benefits of a relevant income tax treaty should consult their own tax advisors concerning their eligibility for benefits under the treaty with respect to the Notes or Common Shares.

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UNDERWRITING

The Company has entered into a subscription agreement with Goldman Sachs International (the “Manager”), dated May 10, 2006 (the “Subscription Agreement”), pursuant to which and subject to certain conditions contained in the Subscription Agreement, the Company agreed to sell to the Manager and the Manager agreed to procure subscribers for or failing which itself to subscribe for the Notes for an aggregate principal amount of US$100,000,000.

Under the terms and conditions of the subscription agreement, if the Manager takes any of the Notes, then the Manager is obligated to take and pay for all of the Notes.

The Company has granted the Manager an option which can be exercised, in whole or in part, on one or more occasions, to subscribe for up to a further U.S.$20,000,000 aggregate principal amount of the Notes at any time up to and including the thirtieth day following the Closing Date. This option was exercised in full on May 10, 2006.

The Company has agreed in the Subscription Agreement that for a period of 90 days from May 10, 2006, it will not, and it will procure that none of Arthur Yu-Cheng Chiao, Yu-Chi Chiao, Yu-Heng Chiao, Yu-Lon Chiao, Ting-Piao Chiao, Ching-Chu Chang, Robert Hsu, James Wen and Walsin Lihwa Corporation will, directly or indirectly, issue, offer for sale, sell or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any Common Shares or securities of the same class as the Notes or Common Shares (other than pursuant to employee benefits plans or distributions of dividends or employee dividends in the form of Common Shares and other than Common Shares issued upon conversion of the Notes and the Company’s convertible bonds issued prior to the date of this Agreement) or in any securities convertible into, exchangeable for or which carry rights to subscribe or purchase the Notes, Common Shares or securities of the same class as the Notes, Common Shares or other instruments representing interests in the Notes, Common Shares or other securities of the same class as them, or announce or otherwise make public an intention to do any of the foregoing, in any such case without the prior written consent of Goldman Sachs International.

The Subscription Agreement provides that the Company will indemnify the Manager against certain liabilities, including liabilities under the Securities Act. The Subscription Agreement provides that the obligations of the Manager is subject to certain conditions precedent, and entitles the Manager to terminate it in certain circumstances prior to payment being made to the Company. The Company has agreed to indemnify the Manager against certain liabilities in connection with the offer and sale of the Notes.

The Manager may create a short position in the Notes in connection with this offering. If the Manager creates a short position in the Notes in connection with this Offering (i.e., if they sell a greater principal amount of Notes than the principal amount of Notes set forth on the cover page of the offering circular), the Manager may reduce that short position by purchasing Notes in the open market. The Manager also may elect to reduce any short position by exercising all or part of their option to increase the size of the Offering described herein.

In connection with the offering, the Manager is permitted to engage in certain transactions that stabilize, maintain or otherwise affect the price of the Notes. Such transactions may consist of offers, sales, bids or purchases for the purpose of pegging, fixing or maintaining the price of the Notes and may be effected in the over-the-counter market or elsewhere. If these activities are commenced, they may be discontinued by the Manager at any time.

The Manager or any of its affiliates may purchase the Notes for their own account and enter into transactions, including (i) credit derivatives including convertible asset swaps, repackaging transactions and credit default swaps relating to the Notes and/or the Company’s securities, and (ii) equity derivatives and stock loan transactions relating to the Common Shares. Such transactions may occur either at the same time as the offer and sale of the Notes, or in secondary market transactions. Such transactions would be carried out as bilateral transactions with selected counter-parties and separately from any existing sale or resale of the Notes to which this Offering Circular relates (notwithstanding that such selected counter-parties may also be purchasers of the Notes).

The Manager (or one or more of its affiliates) has entered into share lending agreements with shareholder(s) of the Company pursuant to which such shareholder(s) have agreed to loan to the Manager

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(or one or more of its affiliates) a number of ordinary shares of the Company, in aggregate, equal to a substantial portion of the number of ordinary shares underlying the Notes. The duration of such agreements may continue for a period of time after the issuance of the Notes. Shareholders lending ordinary shares are expected to receive a fee from the Manager (or one or more of its affiliates) in respect of such share loans. In addition, the Company has agreed to reimburse the Manager (or one or more of its affiliates) for costs incurred by the Manager (or one or more of its affiliates) in connection with such share loans.

The Manager and its affiliates may use, subject to applicable laws and regulations, short sales of the Company’s ordinary shares to facilitate the establishment by holders of the Notes (including the Manager and its affiliates) of hedged positions in the Notes. The Manager may facilitate holders’ establishment of hedge positions either by entering into derivative transactions with such holder or through a series of transactions that includes a loan of ordinary shares to such holders. The Manager or its affiliates will use ordinary shares borrowed from the Company’s current or future ordinary shareholders to cover any such short sales.

In general, purchases of a security for the purpose of stabilization or to reduce a Manager short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. If these activities are commenced, they may be discontinued by the Manager at any time. These transactions may be effected in the over-the-counter market or otherwise.

The Manager or its affiliates may enter into transactions, including (i) credit derivatives including asset swaps, repackaging and credit default swaps relating to the Notes and/or the Company’s other securities or (ii) equity derivatives transactions relating to the Company’s ordinary shares. Such transactions would be carried out as bilateral trades with selected counter-parties and separately from any existing sale or resale of the Notes to which this Offering Circular relates (notwithstanding that such selected counter-parties may also be purchasers of the Notes.)

Neither the Company nor the Manager makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes or the Common Shares. In addition, none of the parties nor the Manager makes any representation that the Manager will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.

The Notes are a new issue of securities with no established trading market. Approval in-principle has been received to list the Notes on the SGX-ST. However, no assurance can be given as to the liquidity of any trading market for the Notes. Moreover, the Company does not intend to list the Notes on any U.S. national securities exchange. The Manager has advised the Company that it intends to make a market for the Notes, but they have no obligation to do so and may discontinue market-making at any time without providing any notice. The Common Shares are traded on the TSE under the number of “2344”.

The Notes and the Common Shares issuable upon exchange of the Notes have not been and will not be registered under the Securities Act or any state securities laws and the Notes are subject to U.S. tax law requirements. Unless so registered, the Notes and the Common Shares issuable upon exchange of the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons unless such securities are registered under the Securities Act and such state securities laws or an exemption from the registration requirements of the Securities Act and such state securities laws is available.

The Manager may only resell the Notes outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and in accordance with applicable law. Terms used above have the meanings assigned to them in Regulation S under the Securities Act.

In addition, until 40 days after the later of the commencement of the Offering and the completion of the distribution of the Notes, any offer or sale of Notes within the United States by any dealer not participating in the offering may violate the Securities Act.

The Notes may not be offered to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (the “ FSMA ”) except to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (the “ FSA ”).

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An invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) may be communicated, or caused to be communicated, to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to the Company.

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “ Relevant Member State ”), the Notes may not, from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “ Relevant Implementation Date ”), be offered to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the Notes to the public in that Relevant Member State at any time:

to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of notes to the public” in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “ Prospectus Directive ” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

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The Notes acquired by the Managers as part of the distribution of the Notes may not be offered, sold or delivered, directly or indirectly, in the ROC.

The Notes may not be offered or sold in Hong Kong, by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong. In addition, no person may issue or have in its possession for the purposes of issue any advertisement, invitation or document relating to the Notes, 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 Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made thereunder.

This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Offering Circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (however described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:

to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
where no consideration is or will be given for the transfer; or
where the transfer is by operation of law.

The Notes have not been and will not be registered under the Securities and Futures Law of Japan (the “Securities and Exchange Law”) and may not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and other applicable laws and regulations of Japan. As used in this paragraph “resident of Japan” means any person residing in Japan, including any corporation or other entity organized under the laws of Japan.

This Offering Circular is not a prospectus or other disclosure document that has been lodged with, or registered by, the Australian Securities and Investments Commission in Australia. This Offering Circular does not constitute a prospectus or other disclosure document under the Corporations Act 2001

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(Cth) (the "Australian Corporations Act") and does not purport to include the information required of a prospectus or other disclosure document under the Australian Corporations Act.

Any offer in Australia of the Notes under this Offering Circular may only be made to persons ("Exempt Investors") who are "sophisticated investors" (within the meaning of section 708(8) of the Australian Corporations Act), to "professional investors" (within the meaning of section 708(11) of the Australian Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Notes without disclosure to investors under Chapter 6D of the Australian Corporations Act.

The Notes applied for by Exempt Investors in Australia must not be offered for sale in Australia for 12 months from the date of issue by the Company under the offer or sale (as applicable), except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Australian Corporations Act or otherwise where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act or is made where the body issued the relevant securities with disclosure under Chapter 6D of the Corporations Act. Any person acquiring the Notes must and, by subscribing for such Notes agrees to observe, such Australian on-sale restrictions.

The Notes may not be offered, sold, transferred or delivered, directly or indirectly, in or from the Netherlands, as part of their initial distribution or as part of any re-offering, and neither this Offering Circular nor any other document in respect of the Offering may be distributed in the Netherlands, other than to individuals or legal entities which include, but are not limited to banks, brokers, dealers, institutional investors and undertakings with a treasury department, who or which trade or invest in securities in the conduct of a business or profession.

This offering of Notes has not been registered with the Commissione Nazionale per la Societa ’ e la Borsa (“CONSOB”) (the Italian securities exchange commission) pursuant to the Italian securities legislation and, accordingly the notes cannot be offered, sold or distributed nor may any copies of this Offering Circular or any other document relating to the Notes be distributed in the Republic of Italy (“Italy”) in a solicitation to the public at large ( sollecitazione all ’ investimento ) within the meaning of Article 1, paragraph 1, letter (t) of Legislative Decree no. 58 of February 24, 1998, unless an exemption applies. Accordingly, the Notes:

may only be offered or sold in Italy to professional investors ( operatori qualificati ), as defined in Article 31, second paragraph of CONSOB Regulation No 11522 of July 1, 1998 (the “Regulation No 11522”), as amended, and effected in compliance with the terms and procedures provided therein; or
may only be offered or sold in Italy in circumstances that are exempted from the rules of solicitation of investments pursuant to Article 100 of Legislative Decree No 58 of 24 February 1998 (the “Financial Services Act”) and Article 33, first paragraph, of CONSOB Regulation No 11971 of May 14, 1999; or
but, in any case, cannot be offered, sold and/or delivered, either in the primary or in the secondary market, to individuals in Italy, and in any event, the offer or sale of the note in Italy must be effected in accordance with all relevant Italian securities, tax and exchange control and other applicable laws and regulations.

Moreover and subject to the foregoing, the Notes may not be offered, sold or delivered and neither this Offering Circular nor any other material relating to the notes may be distributed or made available in Italy unless such offer, sale or delivery of notes or distribution or availability of copies of the Offering Circular or any other material relating to the Notes in the Italy is:

made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with the Financial Services Act, Legislative Decree No 385 of September 1, 1993 (the “Italian Banking Act”), the Regulation No 11522 and any other applicable laws and regulations; and

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in compliance with Article 129 of the Italian Banking Act and the implementing instructions of the Bank of Italy, pursuant to which the issue, trading or placement of securities ( e.g. , the Notes) in Italy is subject to prior and subsequent notification to the Bank of Italy, unless an exemption, depending among other things on the amount of the issue and the characteristics of the securities, applies; and
in compliance with any other applicable requirement or limitation which may be imposed from time to time by CONSOB or the Bank of Italy.

Insofar as the requirements relating to the sale of the Notes in Italy described above are based on laws that are superseded at any time pursuant to the implementation of the European Union Prospectus Directive, such requirements will be replaced by the applicable requirements under that directive.

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LEGAL MATTERS

The Company is being represented by Lee and Li regarding matters of ROC law. The Manager is being represented by Herbert Smith regarding matters of United Sates federal law and English law and by Tsar & Tsai regarding matters of ROC law.

INDEPENDENT AUDITORS

The financial statements of Winbond Electronics Corporation as of and for the years ended December 31, 2003, 2004 and 2005, all of which are included elsewhere in this Offering Circular, have been audited by Deloitte & Touche, Taipei, Taiwan, independent certified public accountants, as indicated in their independent auditors’ reports included herein. With respect to the unaudited non-consolidated financial statements of Winbond Electronics Corporation as of and for the three months ended March 31, 2005 and 2006 included in this Offering Circular, the independent accountants have reported that they applied limited procedures in accordance with professional standards for a review of such information in accordance with ROC Statement of Auditing Standards No. 36, “Review of Financial Statements”. However, their separate review report included in this Offering Circular, states that they did not audit and they do not express an opinion on that interim financial information.

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GENERAL INFORMATION

The Notes have been accepted for clearing through Euroclear and Clearstream, International under Common Code number 025429346. The International Securities Identification Number for the Notes is XS0254293466.

Approval in-principle has been received to list the Notes on the SGX-ST. So long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Company shall appoint and maintain a Paying Agent in Singapore, where the Notes may be presented or surrendered for payment or redemption, in the event that the Global Certificate is exchanged for definitive Certificates. In addition, in the event that the Global Certificate is exchanged for definitive Certificates, an announcement of such exchange shall be made through the SGX-ST and such announcement will include all material information with respect to the delivery of the definitive Certificates, including details regarding the Paying Agent in Singapore.

The Company has obtained all necessary consents, approvals and authorizations in connection with the issuance the Notes. The issuance of the Notes was authorized by resolutions of the Board of Directors of the Company passed on December 8, 2005.

Except as disclosed in this Offering Circular, there has been no significant change in the financial or trading position of the Company and its subsidiaries since December 31, 2005 and no material adverse change in the financial position or prospects of the Company and its subsidiaries since December 31, 2005.

Neither the Company nor any of its subsidiaries is involved in any litigation or arbitration proceedings which may have, or have had during the 12 months preceding the date of this Offering Circular, a material adverse effect on the financial position of the Company and its subsidiaries, nor, so far as any of them is aware, is any such proceeding pending or threatened.

The consolidated accounts of the Company and its consolidated subsidiaries for the years ended December 31, 2003, 2004 and 2005 have been audited by Deloitte & Touche in accordance with ROC auditing standards. The Company is not required by ROC law and regulation to produce, and does not publish, any interim consolidated financial statements. The non-consolidated financial statements of the Company for the three-month periods ended March 31, 2005 and 2006 have been reviewed by Deloitte & Touche. The review of such interim financial statements is substantially less in scope than an audit and was conducted in accordance with the review standards generally accepted in the ROC.

Copies (and certified English translations where the documents are not in English) of the following documents may be inspected and, in the case of the copies of the Company’s financial statements, obtained at the specified office of the Paying, Conversion and Transfer Agent in Singapore for as long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require:

Articles of Incorporation of Winbond Electronics Corporation;
a copy of the report of the independent accountants and the audited consolidated financial statements of the Company for the three years ended December 31, 2003, 2004 and 2005;
the Subscription Agreement relating to the Notes; and
the Trust Deed to constitute the Notes (which includes the form of the Global Certificate and the definitive Certificates) and of the Agency Agreement.

In addition, copies of all future consolidated annual financial statements of the Company and any future quarterly non-consolidated interim financial statements of the Company, will be available at the specified office of the Paying, Conversion and Transfer Agent in Singapore for as long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.

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SUMMARY OF CERTAIN MATERIAL DIFFERENCES BETWEEN ROC GAAP AND U.S. GAAP

Certain of the differences between ROC GAAP and U.S. GAAP, including but not limited to, the accounting for derivatives and impairment of long-term assets and bonuses to employees, directors and supervisors, could have a material impact on reported net income and stockholders’ equity. Given the number and nature of differences between ROC GAAP and U.S. GAAP, users of ROC GAAP financial statements should not assume that such financial statements are comparable to financial statements prepared in accordance with U.S. GAAP.

Our financial statements are prepared and presented in accordance with ROC GAAP, which differs in certain material respects from U.S. GAAP. Certain material differences between ROC GAAP applicable to us and U.S. GAAP are summarized below. The summary should not be taken as inclusive of all ROC GAAP/U.S. GAAP differences. Additionally, no attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which events and transactions are presented in the financial statements or notes thereto. Further, no attempt has been made to identify future differences between ROC GAAP and U.S. GAAP as a result of prescribed changes in accounting standards. Regulatory bodies that promulgate ROC GAAP and U.S. GAAP have significant projects ongoing that could affect future comparisons such as this one.

If we were to prepare a complete reconciliation between ROC GAAP and U.S. GAAP additional accounting and disclosure differences might have come to our attention.

Subject ROC GAAP US GAAP 1. Presentation of Under ROC GAAP requirements, Under U.S. GAAP, parentNon-Consolidated non-consolidated financial company-only non-consolidated Financial Statements statements of a company are financial statements are not presented as the primary financial allowed to be presented as the statements and consolidated primary financial statements for financial statements as any period. supplemental financial statements. 2. Consolidation Before January 1, 2005, a company Under U.S. GAAP, the parent was required to include in its annual company’s consolidated consolidated financial statements financial statements generally only those subsidiaries, which were include the financial statements directly or indirectly over 50% of majority-owned subsidiaries, owned. For directly-owned unless (i) control is considered subsidiaries (i) with total assets or temporary or (ii) control does not operating revenues which were rest with the majority owner. less than 10% of our Further, U.S. GAAP requires non-consolidated total assets or that the accounting principles operating revenues, or (ii) which and practices used by an were in a negative equity position, enterprise in the preparation of we had the option of whether or not its interim statements should be to consolidate such subsidiaries. based on those used in its latest For purposes of applying the above annual financial statements test, the amounts were determined unless a change of accounting based on the respective practice or policy has been subsidiary’s non-consolidated adopted in the current year. financial statements. Irrespective Thus, if the enterprise’s latest of the above test, if the combined annual financial statements revenues or total assets of all such were prepared on a non-consolidated subsidiaries consolidated basis, accordingly exceeded 30% of our respective the interim financial statements non-consolidated amounts, then shall also be prepared on a each individual subsidiary with total consolidated basis, except as assets or operating revenues discussed above.

Under U.S. GAAP, the parent company’s consolidated financial statements generally include the financial statements of majority-owned subsidiaries, unless (i) control is considered temporary or (ii) control does not rest with the majority owner. Further, U.S. GAAP requires that the accounting principles and practices used by an enterprise in the preparation of its interim statements should be based on those used in its latest annual financial statements unless a change of accounting practice or policy has been adopted in the current year. Thus, if the enterprise’s latest annual financial statements were prepared on a consolidated basis, accordingly the interim financial statements shall also be prepared on a consolidated basis, except as discussed above.

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US GAAP

Subject ROC GAAP greater than 3% of our respective non-consolidated amounts should be consolidated. A company was not required to prepare interim financial statements on a consolidated basis. Instead, the company was only required to recognize investment income/loss in majority-owned subsidiaries under the equity method. Effective from January 1, 2005, all investees in which we have more than 50% of their voting stock or over which we can exercise control should be consolidated. In addition, we are required to prepare semi-annual consolidated financial statements.

Acquisition of Under ROC GAAP, both pooling of Business interests method (pooling method) and purchase method are permissible. Use of pooling method is required whenever 12 criteria were met; otherwise, the purchase method was to be used. The pooling method accounts for a business combination as the uniting of the ownership interests of two or more companies by exchange of equity securities. The recorded assets and liabilities of the constituents are carried forward to the combined corporation at their recorded amounts. No goodwill will be recognized. Under purchase method, the difference between purchase consideration and historical net assets acquired is allocated based on the fair values of the net assets and other identifiable intangible assets acquired, with any residual accounted for as goodwill amortized over a maximum period of 20 years. However, goodwill is not amortized but tested for impairment at least annually starting from January 1, 2006.
Equity Securities of ROC SFAS 34, which requires Less than 20% Voting accounting treatments for equity Rights or Debt and debt investments similar to Instruments/ those required under U.S. SFAS Short-term Investment 115, will take effect on January 1, 2006. Before January 1, 2006:

Under U.S. GAAP, business combinations subsequent to July 1, 2001, should be accounted for based on the “purchase” method. Under purchase method, purchased research and development costs would be expensed upon consummation of the acquisition and it also requires that all intangible and tangible assets be recorded at their fair values and gives specific guidance on the types of intangible assets that might exist. Also, goodwill is not amortized but rather be tested for impairment under US GAAP (see Goodwill and Other Intangible Assets).

If the purchase consideration is measured by the fair value of the equity securities, the fair value of stock is the average share price from two days before the announcement to two days after the announcement.

Equity investments of less than 20% voting rights that have readily determinable fair value and debt investments are classified in three categories and accounted for as follows:

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Subject

ROC GAAP

US GAAP

a) Long-term investments of less than 20% voting rights are generally accounted for at the lower of cost or market value for listed investee companies and at cost for unlisted investee companies. Valuation allowance under this lower of cost or market value method is shown under stockholders’ equity. When it becomes evidently clear that there has been a permanent impairment in the investments in unlisted investee companies and the chance of recovery is minimal, a loss is recognized in the current year.
b) Investments in foreign investee companies, denominated in foreign currencies, accounted for under the cost method are converted to New Taiwan dollars using the exchange rate prevailing at the balance sheet date and the resulting exchange gain or loss is recorded in stockholders’ equity under the cumulative translation adjustment account.
c) Short-term investments are stated at the lower of cost or market value.
Equity Investments of Under ROC GAAP, equity at Least 20% investments where a company has voting rights of at least 20% or significant influence, or where the company controls, are generally required to be accounted for under the equity method.
a) Debt and equity securities classified as trading securities are marked to market at the end of the accounting period with unrealized gains or losses taken to current earnings.
b) Debt securities classified as held to maturity are reported at amortized cost, with any premium or discount amortized over the period of the investment.
c) Debt and equity securities classified as available for sale are marked to market at the end of the accounting period with unrealized gains or losses taken to a separate component of stockholders’ equity, unless there is a permanent decline in the value of such investment in which case it is recorded against income.
Under U.S. GAAP, the equity method of accounting is generally required for investments with an ownership percentage of greater than 20% but less than 50%, unless (i) the investment is considered temporary, or (ii) the investor does not possess the ability to exercise significant influence over the investee. There are no provisions which allow the

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Subject

ROC GAAP

US GAAP

investor company to delay recognition of its equity in the investee company’s income (loss).

Bonuses to Employees, Directors and Supervisors/ Earnings Per Share

Under ROC GAAP, when an investee issues additional shares and the investor’s ownership interest changes as a result, any resulting difference between the investor’s investment balance and its proportionate share of the investee’s net equity is adjusted to investment account with an offsetting entry in investor’s capital reserve or retained earnings. Upon subsequent disposition of the investment, amounts previously recorded to capital reserve or retained earnings relating to the respective will be reversed and recorded as part of the gain or loss recorded on disposal.

With respect to intercompany transactions between an investor company and an unconsolidated investee affiliate, ROC GAAP provides that any resulting profit on such transactions be eliminated in the investor company’s financial statements. In general, net intercompany profit on such transactions is deferred and offset against the long-term investment account, with the deferred net intercompany profit amortized to income over future periods based on the nature of the transaction which give rise to the deferred intercompany profit.

According to ROC regulations and our articles of incorporation, a portion of distributable earnings should be appropriated as bonuses to employees, directors and supervisors. Bonuses to directors and supervisors are always paid in cash, while bonuses to employees may be granted in cash or shares or both. All of these appropriations, including stock bonuses, which are

Under U.S. GAAP, when an investee issues additional shares at amount over/under the carrying value of the shares held by the investor, and the investor’s ownership interest decreases as a result of not fully subscribing to the issue, the resulting difference between the investor’s investment balance and its proportionate share of the investee’s net equity is adjusted to its investment account with an offsetting entry either to (i) gain or loss to record the deemed disposition of shares or (ii) paid-in capital. If an adjustment has been made to paid-in-capital transactions, U.S. GAAP would not permit the adjustment of such amounts on the subsequent disposition of all or a part of the adjustment.

Under U.S. GAAP, the gross impact as well as the net intercompany transactions between an investor company and an unconsolidated investee affiliate are generally eliminated in the investor company’s financial statement. This elimination is either complete or partial to the extent of the investee affiliate.

Under US GAAP, such bonuses and remuneration are charged against income. Shares issued as part of those bonuses are recorded at fair market value. However, since the amount and form of such bonuses are not finally determinable until the shareholders’ meeting in the subsequent year, the total amount of such bonuses is

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Subject ROC GAAP US GAAP valued at par value of NT$10, are initially accrued based on charged against retained earnings management’s estimate of the under ROC GAAP, after such number of shares to be issued, appropriations are formally valued at par value. Any approved by the shareholders in difference between the initially the following year. accrued amount and the fair The stock bonus to employees is market value of the bonuses given retroactive effect in the upon the issuance of shares is computation of earnings per share. recognized in the year of shareholder approval. Under U.S. GAAP, stock bonus to employees is given only prospective effect in the computation of earnings per share.
1. Stock Dividends Stock dividends are recorded as a Under U.S. GAAP, when the reduction to retained earnings for ratio of distribution is less than the par value of the stock issued, 25% of shares of the same class and a like amount is recorded to the outstanding, stock dividends are capital stock account. generally recorded based on the fair value method, with the par value recorded in the capital stock account and the excess of fair value over the par value recorded as additional paid-in capital. Distribution in excess of 25% is generally considered as stock split.
1. Capital Surplus Under ROC GAAP, the following Under U.S. GAAP, items (a) and items are treated as capital surplus: (c) are the same as in ROC (a) premium on issuance of GAAP; item (b) is recorded as common stock; (b) prior to 2001, part of net income, which is then gain, net of applicable income tax, included as a component of on disposal of properties; (c) retained earnings and items (d) donations in relation to capital and (e) are not permitted. transactions; (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 shares of such company in connection with the acquisition.
Accounting for ROC Statement of Financial Under U.S. GAAP, the annual Pensions Accounting Standards (SFAS) No. pension provision is recognized 18 “Accounting for Pensions”, is in accordance with SFAS No.87. similar to U.S. SFAS No.87 and U.S. SFAS No.87 is provides accounting regulations substantially similar to ROC regarding an employer’s SFAS No. 18. However, the accounting for employee retirement unrecognized transitional plans, including pension of asset/liabilities balance, companies covered by the Labor representing the initial

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Subject ROC GAAP US GAAP Standards Law which require difference between the contribution of a percentage of projected benefit obligation and wages and salaries costs to an the fair value of the plan upon independent fund. ROC SFAS No. adoption of ROC SFAS No. 18, 18 is effective for financial would be different under U.S. statements in the year ended SFAS No. 87, as U.S. SFAS No. December 31, 1995. In the year of 87 would have been adoption, certain additional implemented prior to December disclosures are required related to 31, 1995. 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, pension expense under ROC GAAP was generally calculated as a fixed percentage of total annual salaries and wages.

Impairment of LongROC SFAS 35, which requires a U.S. SFAS 144 requires that Lived Assets and provision for impairment loss equal long-lived assets held for use by Long- Lived Assets to to the excess of a long-lived asset’s an entity be reviewed for Be Disposed of book value over the higher of (1) impairment whenever events or value in use or (2) fair value less changes in circumstance costs to sell, will take effect on indicate that the carrying January 1, 2005. Before January 1, amount of an asset may not be 2005: recoverable. If the sum of the expected future cash flows is a) Long-lived assets in use are less than the carrying amount of carried at cost less the asset, an impairment loss is accumulated depreciation/ recognized for the difference amortization. between the carrying value and the fair value of the asset.
b) Long-lived assets awaiting disposal are classified as other assets and are carried at the lower of cost or net realizable value.
Provision for Inventory A provision for inventory Under U.S. GAAP, provisions Obsolescence and obsolescence when and for inventory obsolescence and Devaluation devaluation is recorded when devaluation become a management determines that the permanent to the carving market values of inventories are amount of the specific inventory less than their cost basis. Under whose market values are less ROC GAAP, such provisions can than their cost basis, as deemed be reversed in whole or in part if by management. Obsolescence management further determines and devaluation provision that the market values of adjustments are included as inventories are greater than their part of cost of goods sold under cost basis. U.S. GAAP, and cannot be reversed once they are recorded.
Goodwill and Other Under ROC GAAP, acquired Under U.S. GAAP, SFAS No.

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Subject ROC GAAP US GAAP Intangible Assets goodwill and other intangible 142 “Goodwill and Other assets, such as patents, Intangible Assets,” effective on technology transfer fees, licenses December 15, 2001, requires fees and the like, should be that goodwill and intangible amortized by systematic charges to assets that have indefinite income over the estimated benefit useful lives not be amortized but period. The period of amortization rather be tested for impairment for goodwill should not, however, at least annually by comparing exceed twenty years. Goodwill is the fair value of those assets not amortized but tested for with their recorded amounts (a impairment at least annually two-step process). Intangible starting from January 1, 2006. assets that have finite useful lives will continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling. Also, this statement requires disclosure of information about goodwill and other intangible assets in the years subsequent to their acquisition, which was not previously required.

Zero Coupon Bonds Under ROC GAAP, there are no Issued specific rules requiring the imputation of interest costs on non-interest bearing debt.

Under U.S. GAAP, when debt is noninterest bearing or carries an unreasonable rate of interest, or when the cash value of the consideration received is different from the face amount of the debt, interest should be imputed at an appropriate rate and the debt recorded at its fair value.

Derivative Financial ROC SFAS 34, which requires Under U.S. GAAP, accounting Instrument accounting treatments or derivative for derivative instruments is Transactions instruments similar to those covered under U.S. SFAS 133, required under U.S. SFAS 133 and as amended by U.S. SFAS 138, 138, will take effect on January 1, which requires that all entities 2006. Before January 1, 2006, a recognize derivative company may choose its own instruments as assets and accounting policies for derivative liabilities in the statement of instruments, except (1) foreignfinancial position and currency forward contracts that subsequently measure them at should be accounted for in a fair value. If certain conditions manner similar to that required are met, entities may elect to under U.S. SFAS 52, which in designate a derivative respect of measurement of instrument as one of the foreign-currency forward contracts following: has been superseded by U.S. SFAS 133, and (2) foreign-currency Fair value hedge—a hedge of options bought or written for trading the exposures to changes (that purposes, which, pursuant to an are attributable to a particular interpretation issued by the risk) in the fair value of (1) a Accounting Research and recognized asset or liability or Development Foundation, should (2) an unrecognized firm be stated at fair value. commitment;

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Subject 15. Deferred Expenses 16. Income Tax	ROC GAAP Under ROC GAAP, deferred expenses include issuance costs of bonds, testing costs of reinstallation of machinery and equipment. Deferred expenses shall be amortized by systematic charges to income over the periods estimated to be benefited. Under ROC GAAP, a valuation allowance determined is less stringent as compared to U.S. GAAP. Under U.S. GAAP, if a company has experienced cumulative losses in recent years, it is not generally able to consider projections of future operating profits for the purpose of determining the valuation allowance for deferred income tax assets.	US GAAP
		Cash-flow hedge — a hedge of the exposure to variability that is attributable to a particular risk) in the cash flows of a forecasted transaction; and Foreign-currency hedge — a hedge of the foreign-currency exposure of (1) an unrecognized firm commitment, (2) an available-for- sale security, (3) a forecasted transaction, or (4) a net investment in a foreign operation. Under U.S. GAAP, start-up costs are expensed as incurred. Under U.S. GAAP, current tax liabilities are recognized for estimated taxes payable for the current period. U.S. SFAS 109 requires that all material temporary differences between the carrying values of assets and liabilities and their respective tax bases be recognized as deferred tax liabilities or assets. A valuation allowance is provided on deferred tax assets to the extent that it is not “more likely than not” that such deferred tax assets will be realized. A change in tax rate or law requires an adjustment to such deferred tax assets and liabilities in the period of enactment, and is reported as a part of results of operations.

Retained Earnings Tax

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

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Subject

ROC GAAP

US GAAP

		shareholders.	shareholders.	shareholders.
18.	Comprehensive	There is no requirement to present							Comprehensive income and its
	Income	comprehensive			income.				components (revenues,
									expenses, gains and losses)
									must be presented in a full set of
									financial statements under U.S.
									GAAP. Comprehensive income
									includes all changes in
									stockholders’ equity during a
									period, except changes
									resulting from investments by or
									distributions to owners,
									including certain items not
									included in the current results of
									operations.
19.	Stock Options	Pursuant to an interpretation issued							Under U.S. GAAP, as
		by the Accounting Research						and	prescribed in U.S. SFAS 123,
		Development			Foundation,			for	compensation cost is
		employee		stock options granted					recognized over the service
		after	January		1,	2004,		the	period for employee stock
		provisions prescribed in U.S. SFAS							options using the fair value
		123	(before		amendment			in	based method of accounting or
		December		2004) apply.			There	are	the intrinsic value based method
		no standards			on accounting			for	of accounting. If the intrinsic
		employee		stock options granted					value based method is used, pro
		before	January		1, 2004.				forma disclosures of net income
									and earnings per share are
									required, as if the fair value
									based method had been
									applied.
									However, under U.S. SFAS 123
									as amended in December 2004,
									employee stock options granted
									after the required effective date
									can only be accounted for using
									the fair value based method of
									accounting, the required
									effective date refers to the
									beginning of the first interim or
									annual reporting period that
									begins after January 1, 2006 for
									public entities that do not file as
									small business issuers.
20.	Compensated	ROC	GAAP		has	no	specific		Compensated absences must
	Absences	accounting		practice			regarding		be accrued based on the liability
		compensated absences.							for employees’ rights to receive
									compensation for future
									absences when the benefits can
									be accumulated or vested over
									the service period.
21.	Classification	Under	ROC GAAP, there are					no	Under U.S. GAAP, the
		specific rules			with	respect		to	presentation of scrap income,
		account		presentation			on	the	inventory allowance,

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Subject 22. Revaluation of Assets 23. Proposed Dividends 24. Treasury Stock Issued to Employees 25. Depreciation Lives of Fixed Assets	ROC GAAP statement of income as cost of goods sold, operating expenses and non-operating expenses such as scrap income, inventory allowance, restructuring expenses, impairment loss of fixed assets and earthquake losses. Also, under ROC GAAP, the unrealized gross profit generated from downstream inter-company transactions is eliminated and presented as a reconciling item of gross profit in the statement of income. A corresponding liability is recorded for the amount of the unrealized gross profit in the balance sheet. ROC GAAP permits property, plant and equipment to be recorded at cost plus appreciation in respect of assets revalued in accordance with ROC government regulations. For land revaluation, an estimated land value increment tax equal to between 40% and 60% of the appreciation amount must be recorded as long-term land value incremental tax payable. The remainder of the appreciation amount is either credited to capital surplus (only to offset a deficit) or transferred to capital. For revaluation of properties other than land, a new basis of such assets for depreciation purposes is established. Dividends are charged against retained earnings when they are formally approved by stockholders. Treasury stock purchased and reissued to employees is recorded at the price sold to employees. If the price paid by the employee is less than the purchase price, the difference is recorded to capital surplus generated from previous treasury stock transactions if sufficient. If capital is not sufficient for the entire difference, the remaining is recorded to retained earning. In practice, depreciation is generally provided using the	US GAAP
		restructuring expenses, impairment loss of fixed assets and earthquake losses are generally recorded under income from continuing operations, not as nonoperating expenses. Also, under U.S. GAAP, the unrealized gross profit generated from downstream transactions is generally charged against cost of sales and credited the investment account. Revaluation of assets is not permitted. Dividends are charged against retained earnings when they are formally approved by the board of directors. Under U.S. GAAP, shares of treasury stock may be sold to employees at a discount up to 15% from the market price on date of issue with no compensation expense required to be recorded. If the discount is greater than 15% of the market price, the company is required to record the entire discount amount as compensation expense and amortize over the holding period, if any. Depreciation is provided over the asset’s estimated useful life

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Subject ROC GAAP US GAAP guideline service lived as which is based on economic and prescribed by ROC Internal operational consideration, Revenue Code plus one additional rather than tax or legal year as salvage value. ROC consideration. No additional Securities and Futures Bureau depreciation is provided on fully regulations applicable to public depreciated assets which companies require that when fixed continue to be used in the assets have been fully depreciated business. In general, 55 years over the prescribed service life and would be considered too long a the underlying asset continues to period over which to depreciate be used, the remaining fixed assets. unamortized value (i.e., the salvage value portion) is depreciated over the asset’s remaining economic life. The estimated life of buildings under ROC GAAP can be depreciated over a period of 55 years. 26. Segment Reporting ROC GAAP requires disclosure of Under U.S. SFAS 131, a public segment information in the business enterprise is required footnotes information to the to present segment information financial statements according to based on operating segments. industry and geographic Several operating segments information, which need not may, provided aggregation necessarily be the same as the criteria are met, be aggregated management’s internal report to to reportable segments for company decision-makers. which the required information is disclosed. Disclosure is based on the management’s approach for reporting segments information to the company’s chief operating decisionmakers. 27. Disclosure of New Under ROC GAAP, disclosure of U.S. GAAP required disclosure Accounting recently issued accounting of the impact that recently Pronouncements standards not yet effective as of the issued accounting standards will balance date is required. have on the financial statements when adopted in the future.

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

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INDEX TO FINANCIAL STATEMENTS

Independent Auditor ’ s Report and Audited Consolidated Financial Statements of Winbond Electronics Corporation for the years ended December 31, 2003, 2004 and 2005

Independent Auditors’ Report ...........................................................................................	F - 2
Balance Sheets ..................................................................................................................	F - 3
Statements of Operations ..................................................................................................	F - 5
Statements of Changes in Stockholders’ Equity .................................................................	F - 7
Statements of Cash Flows .................................................................................................	F - 8
Notes to Financial Statements ...........................................................................................	F - 11

Independent Accountant ’ s Review Report and Unaudited Non-consolidated Financial Statements of Winbond Electronics Corporation for the three months ended March 31, 2005 and 2006

Independent Accountants’ Review Report .........................................................................	F - 37
Balance Sheets ..................................................................................................................	F - 38
Statements of Income ........................................................................................................	F - 40
Statements of Changes in Stockholders’ Equity .................................................................	F - 42
Statements of Cash Flows .................................................................................................	F - 43
Notes to Financial Statements ...........................................................................................	F - 45

F - 1

980742_1.DOC

INDEPENDENT AUDITORS ’ REPORT

The Board of Directors and Stockholders Winbond Electronics Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Winbond Electronics Corporation and subsidiaries (the “Company”) as of December 31, 2003, 2004 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2003, 2004 and 2005, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

January 12, 2006

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial position, 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 financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors ’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors ’ report and financial statements shall prevail. Also, as stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

F - 2

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Short-term investments (Notes 2 and 5) Notes receivable, net (Notes 2 and 6) Accounts receivable, net (Notes 2 and 6) Accounts receivable from related parties, net (Notes 6 and 21) Other financial assets, current (Notes 4 and 21) Inventories (Notes 2 and 7) Deferred income tax assets, current (Notes 2 and 19) Other current assets (Note 21) Total current assets LONG-TERM INVESTMENTS (Notes 2 and 8) Long-term equity investments at equity method Long-term equity investments at cost method Prepayment for equity investment Other long-term investments Total long-term investments OTHER FINANCIAL ASSETS, NONCURRENT (Note 4) PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 9) Cost Land Buildings Machinery and equipment Other equipment Accumulated depreciation Accumulated impairment Construction in progress and prepayments on purchase of equipment Property, plant and equipment, net OTHER ASSETS Deferred income tax assets, noncurrent (Notes 2 and 19) Others (Notes 2 and 10) Total other assets TOTAL	2003 $ 13,159,082 2,222,261 77,344 3,154,090 392,682 252,591 4,297,758 327,532 471,477 24,354,817 266,975 10,179,760 10,446,735 - 63,939 10,510,674 402,165 1,069,547 23,763,364 61,037,937 693,132 86,563,980 (57,860,104 ) - 132,919 28,836,795 4,155,820 2,930,080 7,085,900 $71,190,351	2004 $ 14,868,881 373,600 26,274 2,758,635 142,718 1,103,329 5,428,732 359,741 337,472 25,399,382 303,916 9,761,038 10,064,954 9,000 152,727 10,226,681 387,252 1,063,997 23,478,433 63,268,951 768,440 88,579,821 (66,563,627 ) - 1,718,805 23,734,999 4,069,529 2,552,131 6,621,660 $66,369,974	2005 $ 10,666,206 410,722 20,033 3,811,755 329,803 397,234 3,946,137 366,864 261,726 20,210,480 368,067 7,125,921 7,493,988 - 91,980 7,585,968 368,737 954,965 23,324,763 64,372,278 906,717
			89,558,723 (72,738,793 ) (24,620 ) 28,804,411 45,599,721 4,055,124 3,985,672 8,040,796 $81,805,702

F - 3

LIABILITIES AND STOCKHOLDERS’EQUITY CURRENT LIABILITIES Short-term bank borrowings (Note 11) Commercial paper payable (Note 12) Notes payable (Note 21) Accounts payable (Note 21) Payable on equipment Accrued expenses and other payables (Note 21) Current portion of long-term liabilities (Note 13) Other current liabilities Total current liabilities LONG-TERM LIABILITIES Bonds payable (Notes 2 and 13) Long-term debt (Notes 9 and 14) Total long-term liabilities OTHER LIABILITIES Accrued pension liabilities (Notes 2 and 15) Guarantee deposit received (Note 21) Other liabilities - other Total other liabilities Total liabilities STOCKHOLDERS’ EQUITY Common stock (Note 16) Capital received in advance (Note 16) Additional paid-in capital Paid-in capital in excess of par - common stock Additional paid-in capital - treasury stock transaction Additional paid-in capital from investee under equity method Retained earnings Accumulated deficit Equity adjustments Provision for decline in market value of long-term investments (Notes 2 and 8) Cumulative translation adjustments (Note 2) Treasury stock (Notes 2 and 16) Minority interest Total stockholders’ equity TOTAL	2003 $ 431,419 - 913,805 1,934,567 637,833 2,218,351 4,600,000 92,621 10,828,596 609,603 - 609,603 270,864 36,520 - 307,384 11,745,583 44,308,722 212 23,273,406 - 159,253 (6,132,304 ) - 557,530 (2,825,543 ) 103,492 59,444,768 $71,190,351	2004 $ 443,940 - 808,315 1,502,811 439,855 1,711,033 600,000 24,949 5,530,903 8,890 - 8,890 427,440 39,219 62,568 529,227 6,069,020 43,252,472 20 20,586,617 - 153,131 (791,952 ) (36,955 ) 447,999 (3,333,191 ) 22,813 60,300,954 $66,369,974	2005 $ 2,090,740 417,739 653,064 2,332,424 5,453,690 2,978,473 - 108,745 14,034,875 8,231 11,899,500 11,907,731 523,239 46,935 62,136 632,310 26,574,916 41,555,982 - 19,768,766 283,647 175,110 (2,227,023 ) (2,210,409 ) 485,024 (2,629,026 ) 28,715 55,230,786 $81,805,702

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

F - 4

CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)

2003 NET SALES (Notes 2 and 21) $ 30,083,963 COST OF SALES (Note 21) 25,071,514 ADD (LESS) REALIZED (UNREALIZED) INTERCOMPANY PROFIT 7,673 GROSS PROFIT 5,020,122 OPERATING EXPENSES Selling, general and administrative expenses (Note 21) 2,581,827 Research and development expenses 4,844,829 Total operating expenses 7,426,656 (LOSS) GAIN FROM OPERATIONS (2,406,534) NON-OPERATING INCOME Interest income 117,758 Investment income recognized under equity method (Note 8) - Investment income, net 16,332 Gain on sale of property, plant and equipment (Note 2) 1,591 Gain on disposal of investments, net (Note 8) 970,184 Foreign exchange gain, net (Note 2) 14,038 Gain from price recovery of inventory 302,101 Other 178,355 Total non-operating income 1,600,359 NON-OPERATING EXPENSES Interest expense 232,249 Investment loss recognized under equity method (Note 8) 26,485 Investment loss, net - Loss on disposal of property, plant and equipment (Note 2) 10,035 Foreign exchange loss, net (Note 2) - Loss on decline in market value and obsolescence of inventories - Impairment loss (Note 9) - Other 101,000 Total non-operating expenses 369,769	2004 $ 31,634,145 21,592,678 (13,855) 10,027,612 2,174,208 4,758,086 6,932,294 3,095,318 120,804 51,313 - 17,527 581,227 39,932 - 166,580 977,383 134,758 - 257,023 1,958 - 253,737 - 77,507 724,983	2005 $ 28,605,475 23,237,001 (949) 5,367,525 2,538,284 5,843,989 8,382,273 (3,014,748) 130,491 105,380 168,235 44,459 1,221,226 - - 194,806 1,864,597 103,120 - - 21,620 130,686 998 24,620 50,789 331,833

(Continued)

F - 5

CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)

					2003		2004		2005
(LOSS) INCOME BEFORE INCOME TAX				$ (1,175,944)		$	3,347,718 $		(1,481,984)
PROVISION FOR INCOME TAX (Notes 2 and 19)					(9,260)		(31,566)		(39,097)
TOTAL CONSOLIDATED (LOSS) INCOME				$ (1,185,204)		$	3,316,152 $		(1,521,081)
ATTRIBUTED TO MAJORITY INTEREST				$ (1,112,932)		$	3,405,583 $		(1,435,071)
ATTRIBUTED TO MINORITY INTEREST					(72,272)		(89,431)		(86,010)
				$ (1,185,204)		$	3,316,152 $		(1,521,081)
		2003			2004				2005
		Before			Before			Before
	Income		Attributed		Income	Attributed		Income Attributed
	Tax and			to	Tax and		to	Tax and to
	Minority		Majority		Minority	Majority		Minority Majority
	Interest		Interest		Interest	Interest		Interest Interest
(LOSS) EARNINGS PER SHARE (Notes 2
and 20)
Basic (loss) earnings per share	$	(0.27)	$	(0.26) $ 0.79		$	0.81	$ (0.37)$ (0.35)
Diluted (loss) earnings per share	$	(0.27)	$	(0.26) $ 0.79		$	0.81	$ (0.37) $ (0.35)

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

F - 6

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F - 7

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization Gain on disposal of long-term investments (Recovery) loss from bad debt (Recovery) loss on decline in market value and obsolescence of inventories Investment loss (gain) recognized under equity method Loss on decline in value of long-term investments Net loss (gain) on disposal of property, plant and equipment (Recovery) loss on decline in value of property, plant and equipment Net changes in operating assets and liabilities Short-term investments Notes receivable Accounts receivable from related parties Accounts receivable Inventories Other current assets Deferred income tax assets Other financial assets Other assets Notes payable Accounts payable Accrued expenses and other payables Other current liabilities Other liabilities Reserve for redemption of bonds Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment Payments for long-term investments in equity securities Proceeds from disposal of long-term investments Proceeds from return of equity investments Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Increase in deferred technical fee Net cash used in investing activities	2003 $ (1,185,204) 11,581,996 (959,304) (15,457) (302,101) 26,485 51,435 8,441 (2,576) (1,312,001) (2,287) (106,218) 460,465 842,929 (29,470) (459,147) (39,084) 1,055,851 47,236 (177,439) 112,035 48,793 27,801 26,452 9,699,631 (4,505,821) (731,317) 3,481,889 159,653 9,732 725,363 (148,719) (1,009,220)	2004 $ 3,316,152 10,528,691 (417,687) (33,447) 253,737 (51,313) 340,123 (15,569) 6,468 1,890,161 55,070 249,964 424,902 (1,384,711) 134,005 54,082 (835,825) (8,295) (105,490) (431,756) (507,318) (5,103) 159,274 (713) 13,615,402 (4,549,157) (803,934) 810,759 251,507 19,135 - (720,379) (4,992,069)	2005 $ (1,521,081) 8,786,258 (1,220,337) 66,144 998 (105,380) - (19,554) (6,152) (37,122) 7,241 (187,085) (1,120,264) 1,481,597 75,746 7,282 724,610 (9,484) (155,251) 829,613 1,267,440 83,796 103,083 (659) 9,051,439 (23,932,036) (468,381) 2,273,965 31,993 191,180 - (3,275,586) (25,178,865)

(Continued)

F - 8

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term bank borrowings Increase in commercial paper payable Repayments on bonds (Decrease) increase in long-term debt Increase and transfer in treasury stock Execution of employee stock warrants (Decrease) increase in minority interest Net cash (used in) provided by financing activities EFFECT OF EXCHANGE RATE CHANGES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS, END OF THE YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year Interest Income tax SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities Cumulative translation adjustments Reversal of (provision for) decline in market value of long-term investments Additional paid-in capital from investee under equity method Adjustment to capital surplus due to disposal of long-term investment Cancellation of treasury stock	2003 $ (38,956) - (2,168,909) (1,028,186) (1,144,582) 77,730 (5) (4,302,908) 15,296 4,402,799 8,756,283 $ 13,159,082 $ 679,653 $ 8,144 $ 4,600,000 $ (51,851) $ 535,559 $ (3,646) $ - $ 37,316	2004 $ 12,521 - (4,600,000) - (2,410,605) 94,495 8,752 (6,894,837) (18,697) 1,709,799 13,159,082 $ 14,868,881 $ 225,779 $ 8,670 $ 600,000 $ (109,531) $ (36,955) $ (6,122) $ - $ 1,838,043	2005 $ 1,646,800 417,739 (600,000) 11,899,500 (1,549,820) 23,271 91,912 11,929,402 (4,651) (4,202,675) 14,868,881 $ 10,666,206 $ 163,051 $ 15,564 $ - $ 37,205 $ (2,173,454) $ 18,146 $ 3,833 $ 2,253,985

(Continued)

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CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars)

2003 CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Net increase in purchase of property, plant and equipment$ 4,304,562 Add payable for property, plant and equipment, beginning of the year 839,092 Less payable for property, plant and equipment, end of the year (637,833) Cash payment for acquisitions of property, plant and equipment $ 4,505,821	2004 $ 4,351,179 637,833 (439,855) $ 4,549,157	2005 $ 28,945,871 439,855 (5,453,690) $23,932,036

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL

Winbond Electronics Corporation (“Winbond”) was incorporated in the Republic of China (the “ROC”) on September 29, 1987 and is engaged in the design, development, manufacture and marketing of Very Large Scale Integration (“VLSI”) integrated circuits (“ICs”) used in a variety of microelectronic applications. In addition to its own products, Winbond offers a foundry service for other Taiwanese and foreign IC producers and designers. A public offering of Winbond’s common stocks was made on October 18, 1995, and the stocks are traded on the Taiwan Stock Exchange.

Winbond Int’l Corporation (“WIC”) was incorporated in the British Virgin Islands on August 28, 1995. Its primary activity is to invest in various businesses.

Winbond Electronics (HK) Limited (“WEHK”) was incorporated in Hong Kong in 1989. It mainly engages in selling Winbond’s products to overseas markets.

Marketplace Management Limited (“MML”) was incorporated in the British Virgin Islands on July 28, 2000. Its primary activity is to invest in various businesses.

Newfound Asian Corp. (“NAC”) and Pigeon Creek Holding Co., Ltd. (“PCH”) were incorporated in the British Virgin Islands in March 1997. Their primary activities are to invest in various businesses.

Win Investment Corporation (“Win”) was incorporated in the ROC in July 1997. Its principal activity is to invest in various businesses.

WEC Investment Holding Inc. (“WIH”) was incorporated in the British Virgin Islands in March 2005. Its primary activity is to invest in various businesses.

Landmark Group Holdings Ltd. (“Landmark”) was incorporated in the British Virgin Islands in July 2005. Its primary activity is to invest in various businesses.

Mobile Magic Design Corporation (“MMD”) was incorporated in the ROC in July 2003. MMD’s principal activities are to research, develop, design, manufacture and market Pseudo Static Random Access Memory (“Pseudo SRAM”) and low power synchronous dynamic random access memory (“LP SDRAM”).

There are 4,990 employees in Winbond and subsidiaries as of December 31, 2005.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the ROC. In preparing consolidated financial statements in conformity with these guidelines and principles, the Company is required to make some estimates and assumptions that could affect the amounts of allowance for doubtful accounts, allowance for inventory devaluation, property depreciation, asset impairment and pension liabilities. Actual results could differ from these estimates.

For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. However, the accompanying consolidated financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their

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oversight purposes.

The significant accounting principles are summarized as follows:

Principles of Consolidation

Winbond’s investees in which ownership interest is over 50% or with control ability are included in the consolidated financial statements. The consolidated entities (collectively, the “Company”) are summarized as follows:

Name		Capital	Basis for Consolidation
	(In	Thousands)
Winbond	NTD	41,555,982	Parent company
WIC	USD	84,800	Winbond holds 100% ownership interest
Winbond Electronics Corp. America	USD	58,917	WIC holds 100% ownership interest
(“WECA”)
Nexflash Technologies, Inc.	USD	2,107	WECA holds 100% ownership interest
(“Nexflash”)
NAC	USD	18,500	Winbond holds 100% ownership interest
Peaceful River Corp. (“PRC”)	USD	19,590	NAC holds 100% ownership interest
PCH	USD	24,710	Winbond holds 100% ownership interest
Baystar Holding Ltd. (“BHL”)	USD	23,305	PCH holds 100% ownership interest
MML	USD	33,880	Winbond holds 100% ownership interest
Goldbond LLC. (“GLLC”)	USD	32,100	MML holds 100% ownership interest
Winbond Electronics (Nanjing) Ltd.	RMB	2,835	GLLC holds 100% ownership interest
(“WENJ”)
Winbond Electronics (Shanghai) Ltd.	RMB	16,555	GLLC holds 100% ownership interest
(“WESH”)
WIH	USD	15,000	Winbond holds 100% ownership interest
Winbond Israel Ltd. (“WECI”)	USD	1,500	WIH holds 100% ownership interest
Landmark	USD	8,500	Winbond holds 100% ownership interest
Winbond Electronics Corp. Japan	JPY	148,500	Landmark holds 100% ownership
(“WECJ”)			interest
Win	NTD	1,800,000	Winbond holds 100% ownership interest
CFP Technology Corp. (“CFP”)	NTD	195,000	Win holds 70.77% ownership interest
Formosa Nanomems Technology Inc.	NTD	80,000	CFP holds 100% ownership interest
(“FNT”)
Jaztek Technology Co., Ltd. (BVI)	USD	400	CFP holds 100% ownership interest
(“Jaztek BVI”)
Jaztek Technology Co., Ltd. (HK)	HKD	2 dollars	CFP holds 100% ownership interest
(“Jaztek HK”)
CFP Service Ltd. (“CFP Service”)	NTD	10,000	CFP holds 78% ownership interest
Jaztek Technology Co., Ltd.	RMB	2,895	Jaztek BVI holds 100% ownership
(Shenzhen) (“Jaztek Shenzhen”)			interest
WEHK	USD	7,769	Winbond holds 100% ownership interest
MMD	NTD	50,000	Winbond holds 100% ownership interest

All significant intercompany balances and transactions have been eliminated upon consolidation. The financial statements of consolidated subsidiaries denominated in foreign currencies are restated in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 14.

Current/Noncurrent Assets and Liabilities

Assets expected to be converted into cash, sold, or consumed in a year are recorded as current assets. Liabilities expected to be liquidated in a year are recorded as current liabilities. Assets (liabilities) not being recorded as current assets (liabilities) are recorded as noncurrent assets (liabilities).

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, time certificates of deposit, and commercial papers, which are readily convertible to cash at any time without significant penalties.

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Short-Term Investments

Short-term investments are stated at the lower of cost or market value. The cost of short-term investments sold is determined by the weighted-average method.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is determined by the Company’s management based on the evaluation of the probability of collection of notes and accounts receivable.

Revenue Recognition

Sales are recognized when titles of products and risks of ownerships are transferred to customers.

Inventories

Winbond’s inventories are stated at the lower of weighted-average cost or market value. Standard cost system is adopted and production variances are allocated to inventory and cost of goods sold based on pre-determined formula.

WEHK, Landmark and WIC’s inventories are stated at cost based on the weighted-average cost method.

Long-Term Equity Investments

Investments in corporations in which the Company’s ownership interest is 20% or more, are accounted for by the equity method unless the Company is unable to exercise significant influence over the investee company. The difference between the underlying equity in net assets of the investee and the cost of the investment is amortized on a straight-line basis over its economic-benefit periods.

Investments in unlisted companies in which the Company owns less than 20% interest and the Company is unable to exercise significant influence are accounted for by the cost method. Investments in less than 20% owned listed companies are stated at the lower of cost or market value. Unrealized losses of these investments, if any, are reported as a separate component of stockholders’ equity. If an investee company recognized an unrealized loss on its long-term investments using the lower of cost or market value method. The Company also recognized a corresponding unrealized loss in proportional on its ownership percentage in the investee company and records as a component of stockholders’ equity.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures that would increase the value or extend the useful lives of property, plant and equipment are capitalized.

Interest is capitalized during the construction period of property, plant and equipment until a qualifying asset is substantially completed and ready for its intended use.

Depreciation is provided on the straight-line method over the following estimated useful lives of the related assets, plus one additional year for salvage:

Buildings	5 to 20 years
Machinery and equipment	5 years
Other equipment	3 to 5 years

When an indication of significant impairment is determined, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in the future period, the subsequent reversal of the impairment loss would be recognized as a gain. However, the increased carrying amount of an asset due to reversal of an impairment loss should

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not exceed the carrying amount that would have been determined (net of depreciation), had no impairment loss been recognized for the assets in prior years.

Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any related gain or loss is included in non-operating income or non-operating expenses.

Deferred Technical Fee

Deferred technical fee is stated at acquisition cost less accumulated amortization and included in other assets. Such deferred assets are amortized over three to five years from the commencement of production using the straight-line method. If the assets’ future benefits impair, the Company will write off the assets’ value immediately.

Bonds Payable

The convertible bonds are issued at face value, and the issuing costs are amortized using the straight-line method over the period from the date of issuance to the date of maturity. When the holder exercises the conversion right, the net written-off amount of the unamortized issuing costs, and face value of convertible bonds will be the cost basis of common stock. The difference of the net written-off carrying amount of the convertible bonds over the par value of the common stock should be recognized as additional paid-in capital.

Benefit Pension Plan

In accordance with the Labor Standards Law of the ROC, Winbond and MMD have adopted defined benefit pension plans covering all eligible employees.

Under the Labor Pension Act (the “Act”), which took effect on July 1, 2005, the employees may choose to remain to be subject to the defined benefit pension mechanism under the Labor Standards Law (the “Law”) or the new pension contribution mechanism under the Act. If the employees choose to be subject to the pension mechanism under the Act, their service years before the enforcement of the Act will be retained if they were subject to the Law before July 1, 2005 and still work for the same business after July 1, 2005.

Foreign Currency Transactions

Transactions negotiated in foreign currencies are recorded in functional currency at the exchange rates prevailing on the transaction dates. Gains or losses, caused by different foreign exchange rates applied when foreign currency assets and liabilities are settled are credited or charged against income in the period of actual settlement. Balances of assets and liabilities denominated in foreign currencies are restated at the balance sheet date exchange rates, and any resulting gains or losses are credited to or charged against current income.

Derivative Financial Instruments

For forward exchange contracts designated as hedging the foreign currency exposure of net assets or liabilities, at the balance sheet date, the assets or liabilities arising from the contracts are restated at the prevailing spot rates and the resulting differences are recognized in current income. Any premium or discount is amortized over the life of the contract and the amortized amount is recognized as current income.

For forward exchange contracts designated as hedging the foreign currency exposure of firm commitments, the exchange gains or losses are deferred and recognized in the period in which the underlying transactions are completed unless the losses are deemed unrecoverable. For forward contracts in which the notional amounts differ from the identified committed amount of the underlying firm commitments, the exchange gains or losses derived from the difference are recognized in current period.

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Non-Derivative Financial Instruments

The recognition and valuation of nonderivative financial assets and liabilities are in accordance with the aforesaid accounting policies and accounting principles generally accepted in the ROC.

Cumulative Translation Adjustments

Under the equity method, the foreign investee’s assets and liabilities denominated in foreign currencies are translated at the balance sheet date exchange rates. Stockholders’ equity accounts should be translated at the historical rate except for the beginning balance of the retained earnings, which is carried by the translated amount of the last period. Income statement accounts are translated at the weighted-average exchange rate of the current period. The related translation adjustments are included in stockholders’ equity and upon sale or liquidation of the foreign business, are charged to income.

Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustments are reported as a separate component of stockholders’ equity.

Income Tax

The Company uses inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effect of temporary differences, operating loss carryforwards and investment tax credits. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Income tax credits, such as for purchase of machinery, research and developments expenses and training expenses, are recognized as reduction of current income tax expense.

Under the Income Tax Law of the ROC, unappropriated earnings of Winbond, Win and MMD from 1998 onward are subject to 10% additional income tax which will be shown as income tax expense in the following year when the decision to retain the earnings is made by the stockholders in their meeting.

Earnings (Loss) Per Share

Basic earnings (loss) per share are calculated by dividing net income (loss) applicable to common stock by the weighted average number of shares outstanding. For a diluted basis, net earnings are adjusted for interest expense after tax of bonds payable and shares outstanding are adjusted for dilutive potential common stock.

Treasury Stock

Winbond adopted the provisions of SFAS No. 30, “Accounting for Treasury Stock” to account for reacquisition of its outstanding shares. Under the provisions of SFAS No. 30, the cost of shares purchased or fair value of shares donated by outside parties is charged to the treasury stock account. If numerous acquisitions of blocks of treasury shares are made at different prices, the weighted-average method is used to identify the cost of the treasury shares at the date of reissuance.

Upon reissuance, the discrepancy between the cost of the treasury shares and the price received is reflected in stockholders’ equity accounts.

3. CHANGE IN ACCOUNTING PRINCIPLE

Effective the beginning of 2004, Winbond changed its method of costing inventories from monthly weighted average method to moving average method. This change was made because the

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management believes that the moving average method will enhance Winbond’s inventory costing process and closing of the accounts monthly as well as to fit into Winbond’s new ERP systems. The application of the new method has no material effect on the Company’s financial statements.

The Company adopted SFAS No. 35 “Accounting for Asset Impairment” commencing on December 31, 2004 to evaluate the Company’s long-lived assets. The application of the new standard has no material effect on the Company’s financial statements for the year ended December 31, 2004.

4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of December 31, 2003, 2004 and 2005 consist of the following:

Cash on hand Cash in banks Time certificates of deposit Commercial papers	2003 $ 361 1,885,491 10,846,904 426,326 $13,159,082	2004 $ 361 799,917 13,537,173 531,430 $14,868,881	2005 $ 505 759,272 6,488,929 3,417,500
			$10,666,206

The following time deposits were pledged and classified as follows:

Purpose Other financial assets, current Pledged time certificates of deposit Pledged to secure letters of credit Other financial asset, noncurrent Pledged time certificates of deposit Pledged to secure purchase orders of materials and customs tariff obligations	2003 $ - $294,534	2004 $ 8,856 $294,550	2005 $ -
			$296,405

5. SHORT-TERM INVESTMENTS

The carrying value and market value of short-term investments as of December 31, 2003, 2004 and 2005 are summarized as follows:

2003 Carrying Value Market Value $ 6,642 $ 6,642 2,215,619 2,245,642 2,222,261 $ 2,252,284 - $2,222,261	2004	2004	2005 Carrying Value Market Value $ 5,626 $ 5,626 405,096 410,168 410,722$ 415,794 - $ 410,722
Carrying Value $ 6,642 2,215,619 2,222,261 - $2,222,261	Carrying Value $ 27,670 350,000 377,670 (4,070) $ 373,600	Market Value $ 23,600 350,014	Market Value $ 5,626 410,168
		$ 373,614	$ 415,794

Market values of marketable equity securities are determined by averaging the daily market closing prices in December. Market value of open-end mutual funds is their unit net asset value on December 31.

Short-term investments are stated at the lower of aggregate cost or market. Valuation allowances of $4,070 thousand were provided as of December 31, 2004.

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6. NOTES AND ACCOUNTS RECEIVABLE

A summary of notes and accounts receivable as of December 31, 2003, 2004 and 2005 are summarized as follows:

Notes receivable Less allowance for doubtful notes Accounts receivable Less allowance for doubtful accounts Accounts receivable from related parties	2003 $ 82,344 (5,000) $ 77,344 $ 3,352,509 (198,419) $ 3,154,090 $ 392,682	2004 $ 27,274 (1,000) $ 26,274 $ 2,927,607 (168,972) $ 2,758,635 $ 142,718	2005 $ 20,033 - $ 20,033 $ 4,047,871 (236,116) $ 3,811,755 $ 329,803

7. INVENTORIES

Inventories as of December 31, 2003, 2004 and 2005 are summarized as follows:

Finished goods Work-in-process Raw materials and supplies Inventories in transit Research contracts in progress Less valuation allowance	2003 $ 628,478 4,489,011 322,370 19,792 - 5,459,651 (1,161,893) $4,297,758	2004 $ 1,924,499 4,390,839 422,549 10,752 30,300 6,778,939 (1,350,207) $5,428,732	2005 $ 912,623 3,686,060 496,600 19,264 -
			5,114,547 (1,168,410)
			$3,946,137

Research contracts in progress represent unbilled costs incurred on the unfinished research and development projects performed for other companies as of the balance sheet date.

8. LONG-TERM INVESTMENTS

Long-term investments as of December 31, 2003, 2004 and 2005 are summarized as follows:

Land held for development Long-term equity investments Bonds investment - Walsin Technology Corp. Prepayment for equity investment - Capella Microsystems Inc.	2003 $ 63,939 10,446,735 - - $10,510,674	2004 $ 63,939 10,064,954 88,788 9,000 $10,226,681	2005 $ - 7,493,988 91,980 -
			$ 7,585,968

Land Held for Development

Land held for development is for employee housing. In 2005, the Company sold the land to nonrelated party resulting in a gain of $34,891 thousand and recorded as non-operating income - gain on disposal of investment.

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Long-Term Equity Investments

Long-term equity investments as of December 31, 2003, 2004 and 2005 are summarized as follows:

Equity method Cheertek Incorporation (“Cheertek”) Cost method Hannstar Display Corporation (“Hannstar Display”) Walsin Lihwa Corporation (“Walsin”) Walton Advanced Engineering Inc. (“Walton”) Taiwan Fixed Network Co., Ltd. (“TFNC”) Taiwan Semiconductor Manufacturing Co., Ltd. (“TSMC”) LTIP Trust Fund (“LTIP”) Strategic Value Fund II, L.P. (“Strategic II”) Vita Genomics Inc. (“Vita”) Zeevo, Inc. (“Zeevo”) United Industrial Gases Co., Ltd. (“UIGC”) Hannstar Color Co., Ltd. Walsin Technology Corporation (“WTC”) Hannspree, Inc. MHCC IT Fund Venglobal Capital Fund II L.P. (“Venglobal II”) Hannstar Board Corp. (“HSB”) Dynacard Co., Ltd. (“Dynacard”) Concord Venture Capital Co., Ltd. (“Concord”) Harbinger III Venture Capital Corp. (“HV”) Global Investment Holdings, Co. (“GIHC”) Multivideo (“MVL”) Strategic Value Fund I, L.P. (“Strategic”) Pacific United Technology (“PUT”) Vertex Israel II (C.I.) Fund L.P. (“Vertex”) Single Chip System Corp. (“SCSC”) Tonbu, Inc. (“Tonbu”) Taiwan Asia Pacific Venture Capital Ltd. (“TAP”) Kingmax Semiconductor Inc. (“Kingmax”) Venglobal Capital Fund I, L.P. (“Venglobal I”) NineLing Incorporation (original: Atum Technology Corp.) (“NineLing”) Broadcom Corp. (“Broadcom”) Taiwan High Speed Rail Corporation (“THSRC”) Vxis Technology Corporation (“Vxis”) Myson Century, Inc. (“Myson”) Xin-Zhu Golf Club Chipbond Technology Corp. (“Chipbond”) J. Bond Computer Systems Co., Ltd. Asia Pacific Technology & Intellectual Property Service Inc. (“APTIPS”) Lin-Ko Golf Club Capella Microsystems, Inc. (“Capella”) AVID Electronics Corp. (“AVID”) Nihon Computer Co., Ltd. ABBATEK Precision Technology Inc. Less valuation allowance	2003 Carrying Ownership Value Percentage $ 266,975 49 5,287,836 11 1,169,209 2 747,935 14 789,359 1 500,144 - 312,524 - 126,968 24 200,000 8 169,850 15 154,867 8 120,899 10 - - - - 71,532 6 82,978 17 68,315 3 60,000 10 50,000 5 50,000 5 50,000 3 - 3 2,046 8 15,659 8 18,379 1 - 2 - 2 11,987 4 19,527 1 11,839 10 - 2 23,433 - 14,198 - 5,130 4 - - 9,453 - 11,219 - - - - 2 3,800 - - - 20,038 3 636 1 - - 10,446,735 - $10,446,735	2004 Carrying Ownership Value Percentage $ 303,916 47 5,303,024 9 1,313,592 3 747,935 14 213,329 1 395,025 - 329,784 - 228,431 24 200,086 8 112,306 15 154,867 8 120,899 10 101,006 1 - - 66,165 6 77,458 17 68,315 2 60,000 10 50,000 5 50,000 5 50,000 3 - 3 2,046 8 33,643 8 26,576 2 - 2 - 2 2,280 3 19,231 1 11,051 10 - 2 5,503 - 14,198 - 5,130 4 10,563 1 9,453 - 8,976 - - - - 1 3,800 - - - 2,702 - 619 1 - - 10,101,909 (36,955) $10,064,954		2005
			Original Investment Cost $ 176,528 5,469,997 1,262,814 747,935 - - 446,760 258,049 197,768 - 154,867 121,197 138,767 102,000 72,849 80,242 - 49,301 50,000 50,000 50,000 50,096 - 49,275 45,598 32,817 32,817 16,093 17,069 17,893 15,000 2,906 14,198 - - 9,453 - 6,128 4,860 3,800 9,000 - 559 4 9,756,640 - $9,756,640	Carrying Ownership Value Percentage $ 368,067 29 5,469,925 8 1,262,814 3 747,935 14 - - - - 446,760 - 216,580 24 197,768 8 - - 154,867 8 121,197 10 138,767 1 102,000 1 52,282 6 80,242 17 - - 49,301 10 50,000 5 50,000 5 50,000 3 - 3 - - 44,709 8 35,578 2 - 2 - 2 478 4 16,665 1 11,448 10 - 2 - - 14,198 - - - - - 9,453 - - - - - - 1 3,800 - 9,000 3 - - 559 - 4 - 9,704,397 (2,210,409 ) $7,493,988

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Equity in gains (losses) of affiliates for the years ended December 31, 2003, 2004 and 2005 based on audited financial statements is summarized as follows:

Cheertek ISD	2003 $ 42,456 (68,941) $ (26,485)	2004 $ 51,313 - $ 51,313	2005 $ 105,380 -
			$105,380

ISD was liquidated in 2003 resulting in a loss of $68,941 thousand.

Cheertek was incorporated on December 5, 2001. Cheertek’s principal activities are to research, develop, design, manufacture and market multimedia ICs and other application ICs. Cheertek also provides software and hardware application design, testing, maintaining and consulting services of above products. A public offering of Cheertek’s common stocks was made in January 2005, and the stocks are traded on the Taiwan Stock Exchange. The Company purchased 1,548,948 shares at $28.00 dollars per share through cash subscription and received 2,809,116 shares of stock dividends. Then the Company sold 7,819,340 shares in the open market resulting in a gain of $58,096 thousand and recorded as non-operating income - gain on disposal of investments. As of December 31, 2005, the capital of Cheertek amounted to $724,165 thousand and the Company’s ownership interest was 28.98%.

Hannstar Display was incorporated to develop and manufacture TFT-LCD products. Hannstar Display acquired the right of technical transfer from Toshiba Corporation and used the technology acquired to develop and manufacture advanced TFT-LCD products. As of December 31, 2005, the capital of Hannstar Display amounted to $60,527 million and the Company’s ownership interest was 8%.

The Company’s investment in TSMC was 25,500,681 shares as of December 31, 2004. The Company received stock dividends 250,019 shares in 2005. In 2005, the Company sold all shares in the open market resulting in a gain of $1,008,514 thousand and recorded as non-operating income - gain on disposal of investment.

Long-term investments traded in open market are stated at the lower of aggregate cost or market value. At December 31, 2005, the Company’s provision for decline in market value of long-term investments amounted to $2,210,409 thousand.

9. PROPERTY, PLANT AND EQUIPMENT

Accumulated depreciation of property, plant and equipment as of December 31, 2003, 2004 and 2005 consist of the following:

Buildings Machinery and equipment Other equipment	2003 $ 13,554,978 43,934,145 370,981 $57,860,104	2004 $ 14,955,349 51,197,356 410,922 $66,563,627	2005 $ 16,385,326 55,951,505 401,962
			$72,738,793

Information on the status of the construction of Winbond’s 12-inch Fab manufacturing facilities as of December 31, 2005 is as follows:

Manufacturing Plant 12-inch Fab	Estimated Cost $49,000,000	Accumulated Expenditures Expected Date of Commencing Operation $21,938,434 Second quarter of 2006

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As of December 31, 2005, Winbond’s contracts for the construction of factories amounted to $37,074,827 thousand of which $21,938,434 thousand has been paid.

Capitalized interest for the years ended December 31, 2003, 2004 and 2005 amounted to $42,107 thousand, $24,682 thousand and $72,208 thousand, the interest rates were 2.65%~2.99%, 2.65% and 2.42%~2.62%, respectively.

As of December 31, 2005, the carrying value of $13,677,816 thousand of 12-inch Fab manufacturing facilities, which was reported in construction in progress and prepayments on purchase of equipment, was pledged to secure long-term debt.

In 2005, Jaztek reported impairment loss of $24,620 thousand, which was recorded as non-operating expense - impairment loss.

10. OTHER ASSETS - OTHERS

Deferred technical fee, net Other	2003 $ 2,276,906 653,174 $2,930,080	2004 $ 1,934,352 617,779 $2,552,131	2005 $ 3,378,676 606,996
			$3,985,672

In connection with certain technical transfer agreements, the Company made technical transfer fee payments. Such deferred assets are amortized over three to five years from the commencement of production using the straight-line method.

11. SHORT-TERM BANK BORROWINGS

Short-term bank borrowings as of December 31, 2003, 2004 and 2005 consist of the following:

Bank lines of credit	2003 Amount $ 431,419	2004 Amount $ 443,940	2005
			Interest Rate % 1.42~4.72	Amount $2,090,740

12. COMMERCIAL PAPER PAYABLE

Commercial paper payable as of December 31, 2003, 2004 and 2005 consist of the following:

Commercial paper payable Discount on commercial paper payable	2003 Amount $ - - $ -	2004 Amount $ - - $ -	2005
			Interest Rate % 1.31~1.382	Amount $ 417,800 (61
				$ 417,739

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13. BONDS PAYABLE

Bonds payable as of December 31, 2003, 2004 and 2005 consist of the followings:

Domestic convertible bonds II Reserve for redemption of convertible bonds Domestic guaranteed bonds Less current portion of bonds payable	2003 $ 6,900 2,703 5,200,000 5,209,603 (4,600,000) $ 609,603	2004 $ 6,900 1,990 600,000 608,890 (600,000) $ 8,890	2005 $ 6,900 1,331 -
			8,231 -
			$ 8,231

Domestic Convertible Bonds ( )

(a) Date of issuance: April 15, 1998
(b) Par value: $100 thousand
(c) Location of issuance: Taiwan
(d) Price of issuance: 100%
(e) Total amount: $6,000,000 thousand
(f) Interest rate: 0%
(g) Date of maturity: April 15, 2008
(h) Provisions of request to redeem the bonds:

The Company may either redeem the bonds after 2 years until 5 years from the date of issue at 8% as redemption yield rate, or redeem the bonds after 5 years from the date of issue until 40 days before the date of maturity at a redemption price equal to the par value of the outstanding principal amount.

A bondholder may request the Company to redeem the bonds on April 15, 2003 at 146.93% of par value.

(i) Conversion price:
(i) $52.83 dollars per share at the issue date.
(ii) $29.06 dollars per share on December 31, 2005.
(j) Restriction:
(i) Cash dividend not to exceed 15% of the Company’s capital.
(ii) Effective dividend rate of preferred stock issued after April 15, 1998 not to exceed 200% of the stated interest rate of the latest issued convertible bonds.

Domestic Guaranteed Bonds (IV)

(a) Date of issuance: June 22, 2000
(b) Par value: $1,000 thousand
(c) Location of issuance: Taiwan
(d) Price of issuance: 100%
(e) Guarantor: Industrial Bank of Taiwan and Taipei Bank
(f) Total amount: $2,100,000 thousand with “A1,” “A2,” “A3,” “B1,” “B2,” “C1,” and “C2” bills of $300,000 thousand each
(g) Interest rate: “A1,” “A2,” “A3,” “B1,” “B2,” “C1,” and “C2” at 5.29%, 5.2218%, 5.1882%, 5.39%, 5.3193%, 5.49% and 5.41665% per annum, respectively
(h) Date of maturity: “A,” “B” and “C” bills on June 22, 2003, June 22, 2004 and June 22, 2005, respectively. All bonds had been settled as of December 31, 2005.
(i) Provisions of request to redeem the bonds: none

Domestic Guaranteed Bonds (V)

(a) Date of issuance: August 28, 2001: “A1,” “B1,” “C1,” “D1,” “E1,” “F1” August 29, 2001: “A2,” “B2,” “C2,” “D2,” “E2”

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August 30, 2001: “A3,” “B3” (b) Par value: $1,000 thousand (c) Location of issuance: Taiwan

(d) Price of issuance: 100%

(e) Guarantee:

A: Chinatrust Commercial Bank

B: China Development Industrial Bank

C: Taipei Bank

D: The Hongkong and Shanghai Banking Corporation

E: Bank Sinopac

F: Far Eastern International (f) Total amount: $4,000,000 thousand “A1,” “A2,” “A3,” and “C1” bills of $400,000 thousand each “B1,” “B2,” “D1,” “D2,” “E1” and “F1” bills of $300,000 thousand each “B3,” “C2,” and “E2” bills of $200,000 thousand each (g) Interest rate: 3.59%: “A1,” “A2,” “A3,” “C1,” “C2” 3.58%: “B1,” “B2,” “B3,” “D1,” “D2” 3.61%: “E1,” “E2,” 3.75%”: “F1” (h) Date of maturity: August 28, 2004: “A1,” “B1,” “C1,” “D1,” “E1,” “F1” August 29, 2004: “A2,” “B2,” “C2,” “D2,” “E2” August 30, 2004: “A3,” “B3”

(i) Provisions of request to redeem the bonds: none

14. LONG-TERM DEBT

Long-term debt as of December 31, 2003, 2004 and 2005 consists of the followings:

Loan collateralized by 12-inch Fab equipments in Central Taiwan Science Park Chinatrust Commercial Bank syndication agreement Loan collateralized by 12-inch Fab and equipment in Central Taiwan Science Park	2003 Amount $ - - - $ -	2004 Amount $ - - - $ -	2005
			Period Interest Rate % June 2005 to June 2010 2.41~2.62 July 2005 to June 2009 4.61~5.29 December 2005 to December 2010 2.63	Amount $ 6,600,000 2,299,500 3,000,000
				$11,899,500

Loan Collateralized by 12-inch Fab Equipments in Central Taiwan Science Park

(a) In January 2005, Winbond entered into a syndication agreement, amounting to $8 billion, with a group of financial institutions to procure equipments for 12-inch Fab.
(b) The principal will be paid every six months from December 23, 2007 until maturity.
(c) See Note 9 for collateral on bank borrowings.

Chinatrust Commercial Bank Syndication Agreement

(a) In June 2005, Winbond entered into a US$70 million syndication agreement with 11 Taiwanese banks. The purpose of the agreement was to finance the purchase of assets of the Advanced PC (APC) Division of National Semiconductor Corporation and to finance the general working capital of Winbond.
(b) The long-term debt is unsecured and the principal will be paid every six months from June 30, 2007 until maturity.

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Loan Collateralized by 12-inch Fab and Equipment in Central Taiwan Science Park

(a) On October 24, 2005, Winbond entered into a syndication agreement, amounting to $15 billion, with a group of financial institutions to build plant factory and procure equipments for 12-inch Fab.
(b) The principal will be paid every six months from June 29, 2008 until maturity.
(c) See Note 9 for collateral on bank borrowings.

Winbond is required to maintain the following financial covenants during the tenors of the loans:

(a) Current ratio (current asset/current liability)≧ 100%
(b) Debt ratio [total liability/(total asset - total liability - intangible asset + deferred technical fee)]≦ 100%
(c) Principal and interest coverage ratio [(income before (after) tax + interest expense + depreciation + amortization)/(current portion of long-term loans and interest for the same period)]≧ 100%
(d) Tangible net equity (total asset - total liability - intangible asset + deferred technical fee) not less than $40 billion.

15. PENSION PLAN

The “Labor Pension Act”, effective on July 1, 2005, requires defined contribution plan. Those employees who were subject to the Labor Standards Law prior to the enforcement of the Act and still work for the Company after the enforcement of this Act may choose to remain to be subject to the pension mechanism under the Labor Standards Law. If they choose to be subject to the pension mechanism under this Act, their seniority prior to the enforcement of this Act shall be maintained. Employees entering the Company after July 1, 2005 will be subject to the pension mechanism under this Act.

Winbond, Win and MMD have defined contribution plans. Based on the Act, the rate of contribution by an employer to the Labor Pension Fund is 6% of the employee’s wages per month. The Company recorded pension cost of $67,195 thousand in the second half year of 2005.

Winbond has a defined benefit pension plan covering all eligible employees. Based on the Labor Standards Law of the Republic of China, Winbond’s policy is to fund the plan at 2% of employees’ salaries and wages. The fund is administered by a Pension Fund Administration Committee and is deposited with Central Trust of China.

The components of Winbond’s pension cost for years 2003, 2004 and 2005 were as follows:

Service cost Interest cost Expected return on plan assets Amortization, net	2003 $ 143,646 38,351 (28,920) 3,408 $156,485	2004 $ 179,121 52,307 (31,187) 10,668 $210,909	2005 $ 122,177 56,721 (33,151) 6,223 $151,970

The assumptions used in determining the actuarial present value of the projected benefit obligation for years 2003, 2004 and 2005 were as follows:

	2003	2004	2005
Discount rate	3.5%	3.5%	3.0%
Expected long-term rate of return on plan assets	3.5%	3.5%	3.0%
Rate of increase in compensation	3.5%	3.0%	3.0%~4.0%

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The status of the Plan as of December 31, 2003, 2004 and 2005 were summarized as follows:

Benefit obligation Vested benefit obligation Accumulated benefit obligation Projected benefit obligation Funded status Projected benefit obligation Plan assets at fair value Projected benefit obligation in excess of plan assets Unrecognized net transition obligation Unrecognized net gain Accrued pension liabilities	2003 $ 535 821,953 1,494,488 (1,494,488) 863,152 (631,336) 54,522 309,162 $ (267,652)	2004 $ 3,252 899,305 1,620,589 (1,620,589) 920,854 (699,735) 51,114 221,181 $ (427,440)	2005 $ - 1,510,175 2,034,254 (2,034,254) 986,950 (1,047,304) 47,706 481,278 $ (518,320)

16. STOCKHOLDERS ’ EQUITY

Common Stock

Authorized capital Shares (in thousand shares) Par value (in dollars) Capital Outstanding capital Shares (in thousand shares) Par value (in dollars) Capital	2003 6,700,000 $ 10 $ 67,000,000 4,430,872 $ 10 $44,308,722	2004 6,700,000 $ 10 $ 67,000,000 4,325,247 $ 10 $43,252,472	2005 6,700,000
			$ 10
			$ 67,000,000
			4,155,598
			$ 10
			$41,555,982

At December 31, 2002, Winbond’s capital received was $44,252,972 thousand. In 2003, Winbond reduced its capital by retirement of its treasury stocks of 2,100,000 shares. According to the articles of Winbond’s employee warrants issuance and execution, authorized employees executed the rights at $10.10 dollars per share that totaled 7,696,000 shares in 2003. The processing of 21,000 shares was not completed as of December 31, 2003. All the shares under statutory process were recorded under “capital received in advance”.

In 2004, Winbond reduced its capital again by retirement of its treasury stocks of 115,000,000 shares. According to the aforesaid articles, authorized employees executed the rights at $10.10 dollars per share that totaled 9,356,000 shares in 2004. The processing of 2,000 shares was not completed as of December 31, 2004. All the shares under statutory process were recorded in “capital received in advance”. As of December 31, 2004, the balance of Winbond’s capital account amounted to $43,252,472 thousand, divided into 4,325,247,193 shares at par $10.00 dollars per share.

In May 2005, November 2005 and December 2005, Winbond reduced its capital by retirement of its treasury stocks of 171,955,000 shares. According to the aforesaid articles, authorized employees executed the rights at $10.10 dollars per share that totaled 2,304,000 shares in 2005. As of December 31, 2005, the balance of Winbond’s capital account amounted to $41,555,982 thousand, divided into 4,155,598,193 shares at par $10.00 dollars per share. Walsin Lihwa is a major shareholder of Winbond and held approximately 20.65% ownership interest in Winbond as of December 31, 2005.

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Treasury Stock

Treasury stock transactions for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Purchase Reason Year ended December 31, 2003 Treasury stock for granting to the employees Common shares held by subsidiaries Year ended December 31, 2004 Treasury stock for granting to the employees Common shares acquired for maintaining the Company’s credibility and stockholders’ interests Common shares held by subsidiaries Year ended December 31, 2005 Treasury stock for granting to the employees Common shares acquired for maintaining the Company’s credibility and stockholders’ interests Common shares held by subsidiaries	Beginning Shares 81,946,997 10,618,364 92,565,361 155,645,827 - 10,618,364 166,264,191 217,927,000 - 10,618,364 228,545,364	Increase During the Year 79,000,000 - 79,000,000 80,000,000 115,000,000 - 195,000,000 61,000,000 (Note) 100,000,000 - 161,000,000	Decrease During the Year 5,301,170 - 5,301,170 17,718,827 115,000,000 - 132,718,827 71,955,000 100,000,000 - 171,955,000	Ending Shares 155,645,827 10,618,364
				166,264,191
				217,927,000 - 10,618,364
				228,545,364
				206,972,000 - 10,618,364
				217,590,364

Note: Winbond purchased 31,000,000 shares of treasury stock which was originally for the purpose of maintaining the Winbond’s credibility and stockholders’ equity. In the third quarter of 2005, the Board of Directors of Winbond resolved to change the purpose into for transfer of shares to its employees.

Securities and Exchange Law Article 28.2 stipulates that the number of treasury stock held by Winbond shall not exceed 10% of the outstanding shares and the amount shall be no more than the total of retained earnings and realized capital surplus, such as additional paid-in capital. As of December 31, 2005, the number and cost of treasury stock was 206,972,000 shares and $2,478,773 thousand.

The possession of treasury stock does not give Winbond the right to vote, to receive dividends, to exercise other rights as a stockholder and treasury stock should not be pledged.

As of December 31, 2005, Winbond’s subsidiary - BHL held 10,618,364 shares of Winbond’s common stock which amounted to $150,253 thousand. The shares held by BHL were treated as treasury stocks.

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At July 31, 2001 meeting, the Board of Directors of Winbond resolved to issue employee stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 60,000,000 units. Each individual employee stock warrant is granted the right to purchase Winbond’s new issued one common share. The exercise price is the closing price of Winbond’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. In September 2001 and March 2002, Winbond has issued 53,619,000 and 6,381,000 units of the employee stock warrants to the employee with an exercise price of $10.10 dollars and $26.70 dollars per unit, respectively. The warrants holders executed 19,344,000 warrants till December 31, 2005.

At February 4, 2002 meeting, the Board of Directors of Winbond resolved to issue employee stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 70,000,000 units. Each individual employee stock warrant is granted the right to purchase Winbond’s new issued one common share. The exercise price is the closing price of Winbond’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. At the granted date, the warrants entitled deputy chief technical director, chief technical director, assistant manager, assistant general manager, executive assistant general manager, chief auditor, and general manager to exercise the right within six years. The warrants holders can exercise the right up to one-third of the granted warrants units no earlier than two years from the granted date. After three years from the granted date the holders can exercise the right up to two-third of the granted warrants units. After four years from the granted date, the warrants holders are eligible to exercise all the warrants owned. The warrants holders without the titles mentioned above should exercise the right within five years. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. At April 8, 2002, Winbond has issued 69,900,000 units of the employee stock warrants to the employees with an exercise price of $24.60 dollars per unit.

At April 23, 2002 meeting, the Board of Directors of Winbond resolved to issue additional employees stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 200,000,000 units. Each individual employee stock warrant is granted the right to purchase Winbond’s new issued one common share. The exercise price is the closing price of Winbond’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. The warrants holders should exercise the right within five years. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. At July 2, 2002 and November 13, 2002, Winbond has issued 190,000,000 and 3,830,000 units of the employee stock warrants to the employees with an exercise price of $17.50 dollars and $16.90 dollars per unit, respectively. At February 14, April 8 and May 8, 2003, Winbond has issued 1,056,000 units, 2,603,000 units and 375,000 units with an exercise price of $13.00 dollars, $14.40 dollars, and $12.55 dollars per unit, respectively.

17. EARNINGS DISTRIBUTION AND DIVIDEND POLICY

According to the Company Law of the ROC and Winbond’s Articles of Incorporation, Winbond’s annual net income should first be appropriated in the following order:

(a) offset any accumulated deficit;

(b) appropriate 10% of the remainder thereafter as a legal reserve until such reserve equals to the amount of common stock; and
(c) appropriate necessary special reserve as regulated by laws or domestic authorities.

Unappropriated earnings could be retained for operating needs, if necessary. The priority and the percentage of distribution as stipulated by Winbond’s Articles of Incorporation are as follows:

(a) 2% as remuneration of directors and supervisors;
(b) 11% as bonuses to employees;

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The total amount of stockholders’ dividends and bonuses could be appropriated, in part or in whole, as general special reserve and then, be distributed.

In 2002 and 2003, Winbond did not appropriate bonuses and remuneration due to net loss. In 2004, Winbond did not appropriate bonuses and remuneration but offset accumulated deficit, therefore there was no information for disclosure.

According to the Company Law of the ROC and Win’s Articles of Incorporation, Win’s annual net income should first be appropriated in the following order:

(a) offset any accumulated deficit; (b) appropriate 10% of the remainder thereafter as a legal reserve.

Win’s unappropriated earnings could be retained for operating needs, if necessary. The priority and percentage of distribution in accordance with Win’s Articles of Incorporation are as follows:

(a) bonuses to employees no less than 0.01%;

(b) the remainder thereafter as dividends to stockholders.

In 2002 and 2003, Win appropriated bonuses to employees of $198 thousand and $716 thousand respectively. In 2004, Win did not appropriate bonuses and remuneration due to net loss.

MMD’s annual net income should first be appropriated in the following order:

(a) offset any accumulated deficit;

(b) appropriate 10% of the remainder thereafter as a legal reserve.

MMD’s unappropriated earnings could be retained for operating needs, if necessary. The priority and the percentage of distribution as stipulated by MMD’s Articles of Incorporation are as follows:

(a) 5~15% as bonuses to employees;
(b) 2% as remuneration of directors and supervisors;
(c) the remainder thereafter as dividends and bonuses to stockholders.

The total amount of stockholders’ dividends and bonus could be appropriated, in part or in whole, as general special reserve and then, be distributed.

In 2003, MMD decided not to appropriate its prior year’s earnings. In 2004, MMD did not appropriate bonuses and remuneration due to net loss and therefore has no information for disclosure.

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18. PERSONNEL EXPENSE, DEPRECIATION, AND AMORTIZATION

Personnel expense, depreciation, and amortization for the year ended December 31, 2005 were summarized as follows:

Personnel expense Salary Insurance Pension Other Depreciation Amortization	Operation Cost $ 1,510,036 129,098 103,183 413,963 $2,156,280 $ 6,696,393 $ 1,118	Operation Expense $ 2,144,072 134,640 123,452 503,574 $2,905,738 $ 349,873 $1,719,754	Non- Operation Expense $ - - - - $ - $ 2,583 $ 5,447	Total $ 3,654,108 263,738 226,635 917,537
				$5,062,018
				$7,048,849
				$1,726,319

19. INCOME TAX

Components of income tax credit (expense) for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Current income tax credit (expense) Deferred income tax assets and valuation allowance adjustment Others Income tax credit (expense)	2003 $ 546,151 (553,245) (2,166) $ (9,260)	2004 $ (709,116) 682,913 (5,363) $ (31,566)	2005 $ 632,396 (658,954) (12,539)
			$ (39,097)

Components of deferred income tax assets as of December 31, 2003, 2004 and 2005 were as follows:

Net operating loss carryforwards Investment tax credits Other temporary differences Deferred income tax assets Valuation allowance Deferred income tax assets, noncurrent (recorded as other assets) Deferred income tax assets, current	2003 $ 4,500,545 8,063,332 2,448,939 15,012,816 (10,529,464) 4,483,352 4,155,820 $ 327,532	2004 $ 4,719,339 7,519,455 2,341,432 14,580,226 (10,150,956) 4,429,270 4,069,529 $ 359,741	2005 $ 5,270,797 9,340,816 2,388,388 17,000,001 (12,578,013) 4,421,988 4,055,124 $ 366,864

Reconciliation of income tax expense and income tax payable (current income tax credit) at statutory rate for the years ended December 31, 2003, 2004 and 2005 were as follows:

		2003		2004		2005
Income tax (credit) expense at statutory rate	$	(238,181)	$	819,919	$	(323,274)
Increase (decrease) in tax resulting from
Tax-exempt gain on disposal of domestic investments		(294,700)		(145,209)		(308,560)
Dividend revenue		(17,300)		(15,375)		(9,554)

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Equity in net gain of affiliates Others Tax-exempt income Current income tax (credit) expense Provision for deferred tax assets Income tax payable Less investment tax credit and others Income tax payable (recorded as other payable)	- 4,030 - $ (546,151)	48,962 108,819 (108,000) 709,116 (332,074) 377,042 (361,902) $ 15,140	(3,084) 12,076 -
			$ (632,396)

Winbond’s investment tax credits and operating loss carryforwards as of December 31, 2005 were as follows:

Expiry Year 2006 2007 2008 2009 2010	Investment Tax Credit Operating Loss Carryforwards $ 1,908,000 $ 2,432,000 2,133,000 574,000 1,652,000 1,026,000 3,339,000 - - 723,000 $ 9,032,000 $ 4,755,000

Winbond’s Imputation Credit Account as of December 31, 2005 amounted to $120,489 thousand.

At December 31, 2005, Winbond’s deficits from 1998 onward were $2,227,023 thousand.

Winbond’s income tax returns through 2002 have been examined and approved by the tax authority.

At December 31, 2005, WECA has operating loss carryforwards of US$10,871 thousand, which will expire in 2024.

The income tax rate of Winbond, Win, MMD, Jaztek, FNI and CFP is 25%.

Winbond has been granted an exemption from income taxes on income attributable to the Fabs. Fab II (part IV) and Fab IV (part III) have been granted tax exemption status, which commenced from January 1, 2003 for four consecutive years.

Fab V (part I) has been granted tax exemption status, which commenced from January 1, 2004 for four consecutive years. Fab V (part II) has been granted tax exemption status, which commenced from January 1, 2004 for five consecutive years.

Income tax refunded receivable of $35,950 thousand as of December 31, 2005 of Winbond is the balance of withholdings at source and is recorded under other financial assets.

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20. EARNINGS (LOSS) PER SHARE

Year ended December 31, 2003 Basic loss per share Net loss Year ended December 31, 2004 Basic earnings per share Net income Effect of dilutive common stock Employee stock warrants Convertible bonds payable Diluted earnings per share Net income plus dilutive effect Year ended December 31, 2005 Basic loss per share Net loss	Amount Before Minority Interest and Tax Attributed to Majority Interest $(1,175,944 ) $ (1,112,932) $ 3,347,718 $ 3,405,583 - - (713) (713) $ 3,347,005 $ 3,404,870 $ (1,481,984) $ (1,435,071)	Shares (In Thousands) 4,306,649 4,212,095 6,974 237 4,219,306 4,059,827		Earnings (Loss) Per Share (NT Dollar)
	Before Minority Interest and Tax $(1,175,944 ) $ 3,347,718 - (713) $ 3,347,005 $ (1,481,984)			Before Minority Interest and Tax Attributed to Majority Interest $ (0.27) $ (0.26) $ 0.79 $ 0.81 $ 0.79 $ 0.81 $ (0.37) $ (0.35)

21. RELATED PARTY TRANSACTIONS

The names and relationship of related parties are as follows:

Related Party	Relationship with the Company
Walsin Lihwa Corporation (“Walsin”)	Walsin’s chairman is one of the immediate family
	members of Winbond’s chairman and Walsin
	Lihwa holds a 20.65% ownership of Winbond
	as of December 31, 2005
Hannstar Display Corporation	Hannstar Display’s chairman is one of the
(“Hannstar Display”)	immediate family members of Winbond’s
	chairman
Walton Advanced Engineering Inc.	Walton’s chairman is one of the immediate family
(“Walton “)	members of Winbond’s chairman
United Industrial Gases Co., Ltd. (“UIGC”)	Winbond is one of UIGC’s directors
Hannstar Electronics Corporation (“Hannstar	Hannstar Elec.’s chairman is one of the immediate
Elec.”)	family members of Winbond’s chairman
Cheertek Incorporation (“Cheertek”)	The Company holds a 28.98% ownership interest
Walsin Technology Corporation (“WTC”)	WTC’s chairman is one of the immediate family
	members of Winbond’s chairman

Major transactions with related parties were summarized below:

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Sales

Sales to related parties for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Hannstar Display Cheertek Others	2003 $ 802,276 74,083 68,107 $ 944,466	2004 $ 919,819 26,767 35,699 $ 982,285	2005 $ 726,001 8,602 18,966
			$ 753,569

The Company’s management has determined that such sales transactions were conducted at arm’s length basis.

Processing Costs

Processing costs paid to related parties for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Walton UIGC	2003 $ 1,934,013 126,950 $2,060,963	2004 $ 1,572,621 158,191 $1,730,812	2005 $ 700,998 141,702
			$ 842,700

Selling, General and Administrative Expenses

Selling, general and administrative expenses paid to related party for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

		2003		2004		2005
Walsin	$	12,425	$	11,628	$	10,658

Other Operating Revenues

Other operating revenues from related parties for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Cheertek Others	2003 $ 61,977 681 $ 62,658	2004 $ 41,610 368 $ 41,978	2005 $ 40,814 320
			$ 41,134

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Service Revenues

Service revenues from related parties for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Hannstar Display Hannstar Elec. Cheertek Others	2003 $ 16,402 - 3,855 - $ 20,257	2004 $ 17,892 8,305 2,457 - $ 28,654	2005 $ 7,952 6,240 2,687 9,945
			$ 26,824

Receivables / Payables

Related party receivables and payables as of December 31, 2003, 2004 and 2005 were summarized as follows:

Notes and Accounts Receivable

2003 Hannstar Display $ 377,658 Cheertek 5,066 Others 9,958 $392,682 *Other Financial Assets, Current and Other Current Assets* 2003 Cheertek $ 16,838 Others - $ 16,838 *Notes and Accounts Payable* 2003 Walton $ 500,895 Others 7,465 $508,360 *Accrued Expenses and Other Payables* 2003 UIGC $ 16,980 Others 1,883 $ 18,863	2004 $ 130,557 2,306 9,855 $142,718 2004 $ 11,731 85 $ 11,816 2004 $ 339,061 7,572 $346,633 2004 $ 24,098 7,612 $ 31,710	2005 $ 324,027 4,569 1,207
		$329,803
		2005 $ 11,502 -
		$ 11,502
		2005 $ 66,647 7,737
		$ 74,384
		2005 $ 16,513 1,039
		$ 17,552

Other Financial Assets, Current and Other Current Assets

Notes and Accounts Payable

Accrued Expenses and Other Payables

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Guarantee Deposits Received

Hannstar Display WTC Cheertek Hannstar Elec. Others	2003 $ 3,911 - 217 - - $ 4,128	2004 $ 3,910 - 217 1,729 - $ 5,856	2005 $ 1,304 1,304 217 38 1,304
			$ 4,167

The related-party transaction was conducted under normal terms.

22. PLEDGED AND COLLATERALIZED ASSET

Please refer to Note 4, Note 9 and Note 14.

23. COMMITMENTS AND CONTINGENCIES

Letters of Credit

Winbond’s outstanding letters of credit as of December 31, 2005 were approximately US$133,018 thousand, JP¥4,706,416 thousand and EUR2,628 thousand.

Agreements

In May 2002, Winbond entered into an agreement with Walsin Lihwa Corporation and other non-related parties, the stockholders of Walsin Advanced Electronics Ltd. and Walton Advanced Electronics Ltd., in order to make the merger of these two companies smoothly. According to the agreement, Winbond has to buy shares of Walton Advanced Engineering, Inc., the new name of the surviving company, at par value or net assets value from other non-related parties if certain circumstances were achieved. The highest amount to be paid is estimated at $650,000 thousand.

In May 2002, Winbond entered into an agreement with a non-related party to license advanced DRAM manufacturing technology. Winbond had paid all of the technical transfer fee. Additionally, Winbond has agreed to make royalty payment until the end of 2006 based on the net sales of the related products at the rates specified in the agreement.

In August 2004, Winbond entered into an agreement with a non-related party to license 90nm DRAM manufacturing technology. Winbond has to pay the technical transfer fee. Additionally, Winbond has agreed to provide some capacity for infineon and make royalty payment until the end of 2009 based on the net sales of the related products at the rates specified in the agreement.

24. SIGNIFICANT SUBSEQUENT EVENT

In order to focus on the core products, the Company’s Board of Directors resolved to sell intangible assets and fixed assets of the Flat Panel Display business to Cheertek for around $400,000 thousand.

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25. OTHER INFORMATION

Derivative Instrument

Derivative instrument transactions in effect as of December 31, 2005 are summarized as follows:

Nominal Amount and Credit Risk

	Nominal
Type	Amount	Credit Risk	Date of Maturity
	(In Thousands)	(In Thousands)
Forward exchange contracts, net,	NT$ 1,289,045	-	January 12, 2006 to
non-trading purposes			March 23, 2006

Credit risk represents the economic loss the Company would suffer if the counterparty fails to meet its financial obligations under the contract. The counterparties of the contracts referred above are all commercial or investment banks with highly rated credit standing and thus, the credit risks are considered insignificant.

Market Risk

As of December 31, 2005, for the contracts designated as hedging instruments, the gain or loss on the contracts derived from the fluctuation of interest rate or exchange rate is offset by the loss or gain on the hedged item and thus, the market risk is insignificant.

Liquidity Risk, Cash Flow Risk and Forecasted Cash Outflows

As of December 31, 2005, unexpired forward exchange contracts will result in receiving US$36,000 thousand, JP¥200,000 thousand and EUR€1,000 thousand, and paying $1,289,045 thousand during January 2006 to March 2006.

Foreign exchange rates embedded in the derivative contracts are fixed at the inception and thus, cash flow risks are insignificant.

Type, Management Objective and Strategy for Derivative Instruments

Type

Objective

Strategy

Forward exchange contract

To hedge foreign currency The Company uses derivative exposure of recognized contracts having negative liabilities and assets correlation to fair value of the hedged items as hedging instruments and periodically evaluates the effectiveness.

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Fair Value of Financial Instruments

Carrying value and fair value of financial instruments as of December 31, 2005 were summarized as follows:

		Carrying		Fair
Non-Derivative Financial Instruments		Value		Value
Assets
Cash and cash equivalents	$	10,666,206	$	10,666,206
Short-term investments		410,722		415,794
Notes and accounts receivable, net		3,831,788		3,831,788
Notes and accounts receivable, related parties		329,803		329,803
Other financial assets, current		397,234		397,234
Long-term investments in equity securities and bonds		7,585,968		8,370,699
Other financial assets, noncurrent		368,737		368,737
Liabilities
Short-term bank borrowings		2,090,740		2,090,740
Commercial paper payable		417,739		417,739
Notes and accounts payable		2,985,488		2,985,488
Accrued expenses and other payables		8,432,163		8,432,163
Other current liabilities derived from financial instruments		108,745		108,745
Bonds payable		8,231		8,231
Long-term debt		11,899,500		11,899,500
Other liabilities derived from financial instruments		46,395		46,395
Derivative Financial Instruments
Forward exchange contracts, net	$	(17,648)	$	(18,021)

Methods and assumptions employed in assessing the fair values of financial instruments were summarized as follows:

(a) Current assets and liabilities - The fair value of cash and cash equivalents, notes and accounts receivable, other current financial assets, short-term bank borrowings, commercial paper payable, notes and accounts payable, accrued expenses and other payables and other current liabilities, approximates their carrying value due to the short-term maturities of these financial instruments.
(b) Short-term investments and long-term investments in equity securities - The fair value of investments is determined by market prices, if available. If a market price is not available, the fair value is estimated based on available financial and non-financial information.
(c) Refundable and guarantee deposits - The fair value of the refundable and guarantee deposits is estimated based on the net present value of expected cash flows.
(d) Long-term liabilities - The fair value of long-term liabilities is stated at the present value of the forecasted cash flows discounted at interest rates for similar long-term debts.
(e) Derivative financial instruments - The fair value of derivative financial instruments is estimated based on the amount the Company would receive or pay to settle the contracts at the balance sheet date and including unrealized gains or losses of unsettled contracts. Quotations from banks are used as reference for the fair value of all derivative financial instruments.

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26. FOREIGN SALES AND MAJOR CUSTOMERS

Foreign sales for the years ended December 31, 2003, 2004 and 2005 were summarized as follows:

Hong Kong Europe Japan and Korea United States Others Percentage to total sales	2003 $ 4,522,070 2,915,812 4,249,178 614,440 1,422,741 $13,724,241 46%	2004 $ 4,927,378 1,981,403 11,968,787 513,847 2,176,949 $21,568,364 68%	2005 $ 5,634,958 3,611,717 7,763,289 931,773 2,000,348
			$19,942,085
			70%

The major customers whose sales amounts were in excess of 10% of the Company’s annual sales were as follows:

Customer A Customer B Customer C	2003 Amount Percentage to Sales $ 1,924,401 6 1,067,945 4 1,033,863 3 $4,026,209 13	2004 Amount Percentage to Sales $ 883,346 3 2,340,066 7 4,381,832 14 $7,605,244 24	2005
			Amount Percentage to Sales $ 3,446,625 12 3,164,172 11 1,244,415 4 $7,855,212 27

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INDEPENDENT ACCOUNTANTS ’ REVIEW REPORT

The Board of Directors and Stockholders Winbond Electronics Corporation

We have reviewed the accompanying balance sheets of Winbond Electronics Corporation (the “Company”) as of March 31, 2006 and 2005, and the related statements of income, changes in stockholders’ equity, and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report based on our reviews.

We conducted our reviews in accordance with the Statement of Auditing Standards No. 36, “Review of Financial Statements” of the Republic of China. A review consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, 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 on these financial statements.

Based on our reviews, 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 the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

As stated in Note 3 to the financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 34, “Accounting for Financial Instruments,” No. 36, “Disclosure and Presentation of Financial Instruments,” and other related accounting standards which were amended to be in agreement with the new accounting standards.

April 10, 2006

Notice to Readers

The accompanying financial statements are intended only to present the financial position, 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.

For the convenience of readers, the independent accountants ’ review report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants ’ review report and financial statements shall prevail. Also, as stated in Note 2 to the financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

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BALANCE SHEETS MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss, current (Notes 2 and 5) Notes receivable, net (Notes 2 and 6) Accounts receivable, net (Notes 2 and 6) Accounts receivable from related parties, net (Notes 6 and 19) Other financial assets, current (Note 19) Inventories (Notes 2 and 7) Deferred income tax assets, current (Notes 2 and 17) Other current assets (Note 19) Total current assets FUND AND INVESTMENTS Long-term equity investments at equity method (Notes 2 and 8) Other long-term investments Available-for-sale financial assets, noncurrent (Notes 2 and 9) Financial assets carried at cost, noncurrent (Notes 2 and 10) Total fund and investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 19) Cost Land Buildings Machinery and equipment Other equipment Accumulated depreciation Construction in progress and prepayments on purchase of equipment Property, plant and equipment, net OTHER ASSETS Refundable deposits Deferred income tax assets, noncurrent (Notes 2 and 17) Others (Notes 2 and 12) Total other assets TOTAL		2006 Amount % $ 5,104,925 6 370,597 1 25,728 - 3,092,261 4 896,470 1 326,235 - 4,676,551 6 333,000 - 186,033 - 15,011,800 18 4,207,712 5 - - 4,207,712 5 3,419,549 4 1,059,829 2 8,687,090 11 871,810 1 32,484,110 40 87,702,063 107 1,918,671 2 122,976,654 150 (73,639,046) (90) 898,025 1 50,235,633 61 296,308 - 3,687,000 5 3,786,930 5 7,770,238 10 $ 81,704,761 100		2005
				Amount % $ 14,999,274 23 350,000 1 28,480 - 1,787,864 3 863,083 1 424,539 1 4,729,706 7 509,000 1 306,479 - 23,998,425 37 3,777,429 6 57,141 - 3,834,570 6 5,822,161 9 1,123,911 2 10,780,642 17 917,923 1 22,941,436 35 63,308,603 97 522,929 1 87,690,891 134 (67,763,740) (104) 5,087,285 8 25,014,436 38 312,153 1 3,511,000 5 1,594,177 2 5,417,330 8 $ 65,210,833 100

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BALANCE SHEETS MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

LIABILITIES AND STOCKHOLDERS’EQUITY CURRENT LIABILITIES Financial liabilities at fair value through profit or loss, current (Notes 2 and 5) Notes payable (Note 19) Accounts payable (Note 19) Payable on equipment Accrued expenses and other payables (Note 19) Current portion of long-term liabilities (Note 13) Other current liabilities Total current liabilities LONG-TERM LIABILITIES Bonds payable (Notes 2 and 13) Long-term debt (Note 14) Total long-term liabilities OTHER LIABILITIES Accrued pension liabilities (Note 2) Guarantee deposit received (Note 19) Other liabilities - other (Note 19) Total other liabilities Total liabilities STOCKHOLDERS’ EQUITY Common stock (Note 15) Capital collected in advance (Note 15) Additional paid-in capital Paid-in capital in excess of par - common stock Additional paid-in capital - treasury stock transaction Additional paid-in capital from investee under equity method Retained earnings Accumulated deficit Equity adjustments Cumulative translation adjustments (Note 2) Unrealized loss on financial assets (Note 2) Treasury stock (Notes 2 and 15) Total stockholders’ equity TOTAL		2006 Amount % $ - - 742,222 1 1,988,068 2 5,330,705 7 2,259,850 3 - - 96,440 - 10,417,285 13 8,072 - 15,872,200 19 15,880,272 19 536,380 1 16,522 - 151,855 - 704,757 1 27,002,314 33 41,557,152 51 - - 19,768,777 24 283,647 - 177,593 - (2,102,733) (3) 461,784 1 (2,599,100) (3) (2,844,673 ) (3 ) 54,702,447 67 $ 81,704,761 100		2005
				Amount % $ 41,120 - 759,306 1 1,568,002 3 1,538,123 2 1,458,692 2 600,000 1 77,026 - 6,042,269 9 8,718 - - - 8,718 - 465,883 1 20,390 - 92,620 - 578,893 1 6,629,880 10 43,260,052 66 121 - 20,586,693 32 - - 163,366 - (2,444,778) (4) 433,642 1 (84,952) - (3,333,191 ) (5 ) 58,580,953 90 $ 65,210,833 100

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

(With Deloitte & Touche review report dated April 10, 2006)

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STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share) (Reviewed, Not Audited)

NET SALES (Note 19) COST OF SALES (Note 19) ADD REALIZED INTERCOMPANY PROFIT GROSS PROFIT OPERATING EXPENSES (Note 19) Selling expenses General and administrative expenses Research and development expenses Total operating expenses INCOME (LOSS) FROM OPERATIONS NON-OPERATING INCOME Interest income Investment income recognized under equity method (Note 8) Investment income, net Gain on sale of property, plant and equipment (Note 2) Gain on disposal of investments Gain on valuation of financial instruments (Note 5) Other (Note 19) Total non-operating income NON-OPERATING EXPENSES Interest expense Investment loss recognized under equity method (Note 8) Loss on disposal of property, plant and equipment (Note 2) Foreign exchange loss, net (Note 2) Loss on decline in market value and obsolescence of inventories Other Total non-operating expenses		2006 Amount % $ 6,205,731 100 4,680,537 76 1,503 - 1,526,697 24 146,049 2 240,199 4 1,044,056 17 1,430,304 23 96,393 1 22,159 - - - - - 18 - 944 - 30,601 1 309,543 5 363,265 6 22,159 - 222,894 4 2,158 - 20,396 - 62,978 1 8,864 - 339,449 5		2005
				Amount % $ 5,508,629 100 4,990,464 91 7,076 - 525,241 9 115,873 2 224,462 4 1,778,478 32 2,118,813 38 (1,593,572 ) (29 ) 31,510 1 9,112 - 2 - 2,301 - 506,294 9 10,576 - 89,097 2 648,892 12 8,026 - - - 12,365 - 16,812 1 662,419 12 8,524 - 708,146 13

(Continued)

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STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share) (Reviewed, Not Audited)

		2006					2005	2005
		Amount	%			Amount			%
INCOME (LOSS) BEFORE INCOME TAX	$	120,209		2		$ (1,652,826)			(30	)
CREDIT FOR INCOME TAX (Notes 2 and 17)		-		-				-	-
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLE		120,209		2		(1,652,826)			(30	)
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLE (Note 3)		4,081		-				-	-
NET INCOME (LOSS)	$	124,290		2		$ (1,652,826 )			(30	)
		2006					2005
	Before		After			Before			After
	Income Tax Income Tax				Income Tax			Income Tax
EARNINGS (LOSS) PER SHARE (Notes 2 and 18)
Basic earnings (loss) per share Diluted earnings(loss) per share	$ $	0.03 $ 0.03 $	0.03 0.03		$ $	(0.40 ) (0.40 )		$ $	(0.40 ) (0.40 )

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

(With Deloitte & Touche review report dated April 10, 2006) (Concluded)

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STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation Amortization Recovery from bad debt Loss on decline in market value and obsolescence of inventories Loss on abandonment of inventories Gain on disposal of investments Investment loss (gain) recognized under equity method Net loss on disposal of property, plant and equipment (Recovery) loss on obsolescence of equipment Foreign exchange adjustment on long-term debt Net changes in operating assets and liabilities Financial assets at fair value through profit or loss, current Notes receivable Accounts receivable Accounts receivable from related parties Other financial assets, current Inventories Other current assets Other assets Notes payable Accounts payable Financial liabilities at fair value through profit or loss, current Accrued expenses and other payables Other current liabilities Other liabilities Reserve for redemption of bonds Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment Payments for long-term equity investments at equity method Proceeds from disposal of long-term equity investments at equity method Proceeds from disposal of available-for-sale financial assets Proceeds from disposal of financial assets carried at cost Proceeds from disposal of property, plant and equipment Payment for deferred technical fee Net cash used in investing activities	2006 $ 124,290 1,378,925 196,571 (10,000) 40,109 22,869 (944) 222,894 79,903 (3,305) (27,300) (20,597) (8,615) 115,790 (52,928) 40,550 (802,320) 35,799 17,075 89,159 (328,612) (17,648) (500,651) 29,842 131,748 (159 ) 752,445 (6,665,051) (630,875) - - 753 5,734 - (7,289,439 )	2005 $ (1,652,826) 1,880,739 944,139 (13,000) 591,000 71,419 (509,398) (9,112) 16,340 1,418 - 63,255 (2,206) 478,509 (211,037) 539,947 (12,099) 27,877 2,915 (49,009) 102,167 41,120 (144,532) 29,317 42,216 (172 ) 2,228,987 (2,492,020) (92,580) 95,762 765,456 107,508 81,992 (139,166 ) (1,673,048 )

(Continued)

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STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term bank borrowings Decrease in commercial paper payable Increase in long-term debt Execution of employee stock warrants Increase in treasury stock Net cash provided by financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Cumulative translation adjustments Unrealized loss on financial assets Additional paid-in capital from investee under equity method Adjustment to capital surplus due to disposal of long-term investment CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Purchase of property, plant and equipment Add payable for property, plant and equipment, beginning of period Less payable for property, plant and equipment, end of period Cash payment for acquisitions of property, plant and equipment	2006 $ (1,400,000) (417,739) 4,000,000 1,181 (215,647 ) 1,967,795 (4,569,199) 9,674,124 $ 5,104,925 $ 91,962 $ (23,240 ) $ (388,691 ) $ 2,483 $ - $ 6,542,098 5,453,658 (5,330,705 ) $ 6,665,051	2005 $ - - - 7,757 - 7,757 563,696 14,435,578 $ 14,999,274 $ 76 $ (14,357 ) $ (47,997 ) $ 7,650 $ 2,585 $ 3,590,288 439,855 (1,538,123 ) $ 2,492,020

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

(With Deloitte & Touche review report dated April 10, 2006) (Concluded)

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NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

1. GENERAL

Winbond Electronics Corporation (the “Company”) was incorporated in the Republic of China (ROC) on September 29, 1987 and is engaged in the design, development, manufacture and marketing of Very Large Scale Integration (“VLSI”) integrated circuits (“ICs”) used in a variety of microelectronic applications. In addition to its own products, the Company offers a foundry service for other Taiwanese and foreign IC producers and designers. A public offering of the Company’s common stocks was made on October 18, 1995, and the stocks are traded on the Taiwan Stock Exchange.

There are 4,540 and 4,070 employees in the Company as of March 31, 2006 and 2005, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements were prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the ROC. In preparing financial statements in conformity with these guidelines and principles, the Company is required to make some estimates and assumptions that could affect the amounts of allowance for doubtful accounts, allowance for inventory devaluation, property depreciation, asset impairment and pension liabilities. Actual results could differ from these estimates.

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. However, the accompanying financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes.

The significant accounting principles are summarized as follows:

Current/Noncurrent Assets and Liabilities

Assets expected to be converted into cash, sold, or consumed within one year from the balance sheet date are recorded as current assets. Property, plant and equipment, intangible assets and other assets not being recorded as current assets are recorded as noncurrent assets. Liabilities expected to be liquidated within one year from the balance sheet date are recorded as current liabilities. Liabilities not being recorded as current liabilities are recorded as noncurrent liabilities.

Cash and Cash Equivalents

Cash includes unrestricted cash on hand and cash in bank. Government bonds under repurchase agreements and notes acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

Financial Instrument at Fair Value through Profit or Loss

Financial instruments at fair value through profit or loss include financial assets and financial liabilities held for trading purpose or upon initial recognition designated by the entity as at fair value through profit or loss. Upon initial recognition, they are recognized at the fair values plus transaction costs. After initial recognition, they are measured at fair values and the changes in the fair values are recognized as the profits or losses. Cash dividends received are recorded as dividends revenue, including the dividends received in the year of acquisition. All purchases and sales of investments are recorded on the trade date basis.

F - 45

Derivatives that are not subject to measurement under hedge accounting are classified as financial assets or financial liabilities at fair value through profit or loss. The positive fair values of derivatives are recognized as financial assets; negative fair values are recognized as financial liabilities.

The fair value of open-end mutual fund is the published fair value per unit at the balance sheet date. Marketable securities are stated at the closing price at the balance sheet date.

Allowance for Doubtful Accounts

Revenue Recognition

Sales are recognized when titles of products and risks of ownerships are transferred to customers.

Inventories

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition or issuance of the financial assets. After initial recognition, they are measured at fair value and the changes in fair value of available-for-sale financial assets are recorded as an adjustment of stockholders’ equity. When the financial assets are disposed of, the related accumulated fair value changes are taken out of stockholders’ equity and recognized in the profit and loss. All purchases and sales of investments are recorded on the trade date basis.

Cash dividends are accounted for as reductions of the carrying amount of the investment if they are received in the year of acquisition; thereafter, they are recognized as dividend revenue. Stock dividends are recorded as an increase in the number of shares and do not affect investment income or the carrying amount of the investment.

An impairment loss is recorded when the carrying amount of an available-for-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Long-Term Equity Investments Accounted for by Equity Method

Investments in corporations in which the Company’s ownership interest is over 20% or the Company exercises influence on the operating and financial policy decision are accounted for by the equity method.

When equity investments are made, the difference, if any, between the Company’s share of investee’s net equity and the cost of the investment, is amortized on a straight-line basis over 5 years. Effective January 1, 2006, according to the newly amended accounting principles generally accepted in the ROC, the excess of the purchase cost over the fair value of net assets

F - 46

representing goodwill will not be amortized, but will be tested for impairment periodically, or more frequently, if events or changes in circumstances indicate that such carrying value may not be recoverable.

When the Company subscribes for additional investee shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee will differ from the amount of the Company’s share of the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. If the balance of the capital surplus account relating to a long-term equity investment is not sufficient to absorb such an adjustment, any excess is charged against retained earnings.

An impairment loss is recognized if the carrying value of the investment is not recoverable and exceeds its fair value. However, for the investee that the Company can only exercise significant influence but have no power of control, the Company bases on the investee’s carrying value to evaluate.

If the investor’s equity interest in the investee is reduced to zero, additional losses are recognized and presented as liability if the investor has legal or constructive obligations or made payments on behalf of the investee. Otherwise, recognition of share in losses of the investee is discontinued. If the investee subsequently reports profits, the investor resumes recognizing its share of those profits only after the losses not previously recognized have been recovered.

Financial Assets Carried at Cost

Equity instruments, including unlisted stocks, are measured by the original cost since their fair value can’t be reliably measured. Accounting policies for dividends received are similar to those in available-for-sale financial assets.

An impairment loss is recognized if there is objective evidence of impairment and the impairment loss can not be recovered.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures that would increase the value or extend the useful lives of property, plant and equipment are capitalized.

Interest is capitalized during the construction period of property, plant and equipment until a qualifying asset is substantially completed and ready for its intended use.

Depreciation is provided on the straight-line method over the following estimated useful lives of the related assets, plus one additional year for salvage:

Buildings	5 to 20 years
Machinery and equipment	5 years
Other equipment	3 to 5 years

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Deferred Technical Fee

Deferred technical fee is stated at acquisition cost less accumulated amortization and included in other assets. Such deferred assets are amortized over three to five years from the commencement of production using the straight-line method. If the assets’ future benefits are impaired, the Company will write off the assets’ value immediately.

Bonds Payable

The convertible bonds which were issued before January 1, 2006 are issued at par value, and the issuing costs are amortized using the straight-line method over the period from the date of issuance to the date of maturity. When the holder exercises the conversion right, the net written-off amount of the unamortized issuing costs, and par value of convertible bonds will be the cost basis of common stock. The difference of the net written-off carrying amount of the convertible bonds over the par value of the common stock should be recognized as additional paid-in capital.

Benefit Pension Plan

For employees under defined contribution plans, pension costs are recorded based on the actual contributions made to employee’s personal pension accounts. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Transaction in Foreign Currencies and Translation of Foreign Currency Financial Statements

Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the balance sheet date, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.

Foreign non-currency assets and liabilities (e.g., equity instrument) which are measured at fair value shall be revalued at the balance sheet date exchange rates. The related translation adjustment on available-for-sale financial assets is included in stockholders’ equity; and the translation adjustment on financial instrument at fair value through profit or loss is recorded in current year’s profit or loss. Financial assets carried at cost are measured at historical rate on the transaction dates.

Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustments are reported as an adjustment of stockholders’ equity.

The aforesaid balance sheet date exchange rates are based on the middle prices of the major transaction banks.

Income Tax

The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effect of temporary differences, operating loss carry forwards and investment tax credits. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Income tax credits, such as for purchase of machinery, research and development expenses and training expenses, are recognized as reduction of current income tax expense.

Under the Income Tax Law of ROC, unappropriated earnings of the Company from 1998 onward

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are subject to 10% additional income tax which will be shown as income tax expense in the following year when the decision to retain the earnings is made by the stockholders in their meeting.

Earnings (Loss) per Share

Treasury Stock

The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 30, “Accounting for Treasury Stock” to account for reacquisition of its outstanding shares. Under the provisions of SFAS No. 30, the cost of shares purchased or fair value of shares donated by outside parties is charged to the treasury stock account. If numerous acquisition of blocks of treasury shares are made at different prices, the weighted-average method is used to identify the cost of the treasury shares at the date of reissuance.

Upon reissuance, the discrepancy between the cost of the treasury shares and the price received is reflected in stockholders’ equity accounts.

Effective from 2002, the Company’s stock held by subsidiaries is also treated as treasury stock.

Reclassifications

Certain accounts in the financial statements as of and for the three months ended March 31, 2005 have been reclassified to conform to the financial statements as of and for the three months ended March 31, 2006.

3. CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 2006, the Company adopted the newly released SFAS No. 34 “Accounting for Financial Instruments,” No. 36, “Disclosure and Presentation of Financial Instruments,” and other related accounting standards which were amended to be in agreement with the new standards.

Effect of the Adoption of the Newly Released and Revised SFAS

The Company properly categorized the financial assets and liabilities (including derivative financial instruments) at the initial adoption of the newly released and amended SFAS. The adjustments to the original carrying amount of financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss are included in the cumulative effect of change in accounting principle in the income statement; on the other hand, the adjustments to the original carrying amount of available-for-sale financial assets are recognized as adjustments to stockholders’ equity.

The effect of the aforesaid change in accounting principle is summarized as follows:

	Recorded As
	Cumulative Effect	Recorded As
	of Change in	Adjustment of
	Accounting	Stockholders’
	Principle	Equity
	(After Tax)	(After Tax)
Financial assets at fair value through profit or loss	$ 4,454	$ -
Available-for-sale financial assets	-	351,411
Financial liabilities at fair value through profit or loss	(373)	-
	$ 4,081	$ 351,411

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The change in accounting principle above increased the income before change in accounting principle by $4,081 thousand and increased earnings per share after tax by $0.001 dollar for the three months ended March 31, 2006.

Reclassifications that Resulted from Adoption of Newly Released and Revised SFAS

According to the explanation of the Accounting Research and Development Foundation, at the initial adoption of SFAS No. 34, certain accounts in the financial statements for the three months ended March 31, 2005 should be reclassified to conform with the financial statement presentation for the three months ended March 31, 2006. The financial statements shall not be retroactively adjusted.

Significant accounting policies prior to adoption of newly released and amended SFAS are summarized as follows:

Short-Term Investments

Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with the investees were carried at the lower of cost or market value at the balance sheet date, with any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the period.

Long-Term Investments in Equity Securities

Investments in unlisted companies in which the Company owns less than 20% equity interest and the Company is unable to exercise significant influence are accounted for by the cost method. Investments in less than 20% owned listed companies are stated at the lower of cost or market value. Unrealized losses of these investments, if any, are reported as a separate component of stockholders’ equity.

Derivative Financial Instruments

Receivables and payables on forward exchange contract are netted out on the balance sheet date, and the net amount is presented as an asset or a liability.

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In the adoption of newly released and amended SFAS, certain accounts in the financial statements as of and for the three months ended March 31, 2005 have been reclassified to conform to the financial statements as of and for the three months ended March 31, 2006. The reclassifications are summarized as follows:

4.

	March 31, 2005	March 31, 2005	March 31, 2005	March 31, 2005
		(After		(Before
	Reclassification)		Reclassification)
Balance sheet
Short-term investment	$	-	$	350,000
Long-term investment - cost method		-		6,946,072
Financial assets at fair value through profit or loss, current		350,000		-
Available-for-sale financial assets, noncurrent		5,822,161		-
Financial assets carried at cost, noncurrent		1,123,911		-
Financial liabilities at fair value through profit or loss, noncurrent		41,120		-
Other current liabilities		77,026		118,146
Income statement
Exchange loss	$	16,812	$	6,236
Gain on valuation of financial instruments		10,576		-
CASH AND CASH EQUIVALENTS
		March	31
		2006		2005
Cash on hand	$	260	$	260
Checking account		7,220		234,635
Demand deposit		272,667		467,024
Time certificates of deposit		2,312,148		13,059,870
Short-term bills		2,512,630		1,237,485
	$	5,104,925	$	14,999,274

Time certificates of deposit in the amounts of $293,050 thousand and $294,550 thousand as of March 31, 2006 and 2005, respectively, were pledged to secure purchase orders of materials and customs tariff obligations and are included in refundable deposits.

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Held for trading financial assets Open-end mutual fund Forward exchange contracts Held for trading financial liabilities Forward exchange contracts	March 31
	2006 $ 355,589 15,008 $ 370,597 $ -	2005 $ 350,000 -
		$ 350,000
		$ 41,120

For the three months ended March 31, 2006 and 2005, the Company’s strategy for forward exchange contracts is to hedge its exposures to fluctuations of foreign exchange rate. The Company’s financial risk management objective is to hedge most of the market price risk and cash flow risk.

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Outstanding forward exchange contracts as of March 31, 2006 and 2005 are summarized as follows:

		Contract	Contract Amount
	Currencies	Expiration Date	(In Thousands)
March 31, 2006
Buy forward exchange	JPY to NTD	2006.04.14~2006.04.21	JP¥2,800,000/NT$772,770
contracts
Buy forward exchange	EUR to NTD	2006.04.06~2006.04.13	EUR€25,000/NT$968,760
contracts
Buy forward exchange	USD to NTD	2006.04.13~2006.06.29	US$34,000/NT$1,098,998
contracts
March 31, 2005
Buy forward exchange	JPY to NTD	2005.05.06~2005.06.09	JP¥4,500,000/NT$1,365,835
contracts
Buy forward exchange	USD to NTD	2005.05.26	US$10,000/NT$309,535
contracts
Buy forward exchange	EUR to NTD	2005.05.05~2005.05.26	EUR€18,000/NT$739,275
contracts
Buy forward exchange	EUR to USD	2005.05.05	EUR€3,000/US$3,878
contracts
Buy forward exchange	NTD to USD	2005.04.07~2005.05.19	NT$941,128/US$30,000
contracts

For the three months ended March 31, 2006 and 2005, gain on held for trading financial instruments amounted to $30,601 thousand and $10,576 thousand.

6. NOTES AND ACCOUNTS RECEIVABLE

Notes receivable Less allowance for doubtful notes Accounts receivable Less allowance for doubtful accounts Accounts receivable from related parties	March 31	2005 $ 29,480 (1,000) $ 28,480 $ 1,922,864 (135,000) $1,787,864 $ 863,083
	2006 $ 26,728 (1,000) $ 25,728 $ 3,287,261 (195,000) $ 3,092,261 $ 896,470

7. INVENTORIES

Finished goods Work-in-process Raw materials and supplies Inventories in transit Less valuation allowance	March 31	2005 $ 1,811,780 4,448,785 386,654 487 6,647,706 (1,918,000) $4,729,706
	2006 $ 1,222,918 4,032,207 604,115 11,155 5,870,395 (1,193,844) $4,676,551

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8. LONG-TERM EQUITY INVESTMENTS AT EQUITY METHOD

Winbond Int’l Corporation (“WIC”) Marketplace Management Ltd. (“MML”) Win Investment Corporation (“Win”) Pigeon Creek Holding Co., Ltd. (“PCH”) Newfound Asian Corp. (“NAC”) WEC Investment Holding Ltd. (“WIH”) Landmark Group Holdings Ltd. (“Landmark”) Winbond Electronics (HK) Limited (“WEHK”) Cheertek Incorporation (“Cheertek”) Mobile Magic Design Corporation (“MMD”)		March 31
		2006 Carrying Ownership Value Percentage $ 1,409,154 100 121,625 100 1,345,598 100 1 100 520,729 100 237,693 100 108,201 100 112,077 100 346,161 28 6,473 100 $4,207,712	2005
	Original Investment Cost $ 2,869,057 1,132,330 790,118 796,153 589,785 842,315 278,572 256,182 166,177 50,000 $7,770,689		Carrying Ownership Value Percentage $ 1,169,687 100 201,723 100 1,674,572 100 1 100 469,213 100 - - - - 1 100 237,707 34 24,525 100 $3,777,429

Equity in gains (losses) of equity method investees based on reviewed financial statements is summarized as follows:

WIC MML Win PCH NAC WIH Landmark WEHK Cheertek MMD	Three Months Ended March 31 2006 2005 $ 24,771 $ 34,149 (29,932) (65,074) 4,206 (358) (248) (580) 13,708 (7,005) (169,837) - (69,775) - 10,526 30,031 (12,436) 21,650 6,123 (3,701) $ (222,894) $ 9,112
	2006 $ 24,771 (29,932) 4,206 (248) 13,708 (169,837) (69,775) 10,526 (12,436) 6,123 $ (222,894)

WIC was incorporated in the British Virgin Islands. WIC’s principal activity is to invest in various businesses.

MMD was incorporated in July 2003. MMD’s principal activities are to research, develop, design, manufacture and market Pseudo Static Random Access Memory (“Pseudo SRAM”) and low power synchronous dynamic random access memory (“LP SDRAM”). As of March 31, 2006, the capital of MMD amounted to $50,000 thousand and the Company’s ownership interest was 100%.

WIH was incorporated in the British Virgin Islands in 2005. WIH’s principal activity is to invest in

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various businesses. The Company invested in Winbond Israel Ltd. indirectly through WIH. As of March 31, 2006, the capital of WIH amounted to US$26,000 thousand and the Company’s ownership interest was 100%.

Landmark was incorporated in the British Virgin Islands in 2005. Landmark’s principal activity is to invest in various businesses. In 2005, the Company restructured its investment structure and sold all shares of Winbond Electronics Corporation Japan, which was originally 100% owned by Goldbond LLC, to Landmark by its book value. As of March 31, 2006, the capital of Landmark amounted to US$8,500 thousand and the Company’s ownership interest was 100%.

The Company’s unrealized valuation loss on financial assets accounted for by the equity method totaled $393,248 thousand as of March 31, 2006 was recorded as an adjustment to stockholders’ equity.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Shares of listed/OTC companies Hannstar Display Corporation (“Hannstar Display”) Walsin Lihwa Corporation (“Walsin”) Walsin Technology Corporation (“WTC”) Taiwan Semiconductor Manufacturing Co., Ltd. (“TSMC”) Myson Century Inc. (“Myson”) AVID Electronics Corp. (“AVID”)	March 31	March 31
	2006 Amount Ownership Percentage $ 2,353,164 7 854,803 2 211,582 1 - - - - - - $3,419,549	2005
		Amount Ownership Percentage $ 4,552,934 7 946,777 2 100,513 1 209,136 - 10,099 1 2,702 - $5,822,161

10. FINANCIAL ASSETS CARRIED AT COST

Walton Advanced Engineering, Inc. (“Walton”) United Industrial Gases Co., Ltd. (“UIGC”) Others	March 31	March 31
	2006 Amount Ownership Percentage $ 747,935 14 154,867 8 157,027 - $1,059,829	2005
		Amount Ownership Percentage $ 747,935 14 154,867 8 221,109 - $1,123,911

The Company’s financial assets carried at cost do not have a quoted market price in an active market, and the fair value cannot be reliably measured.

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11. PROPERTY, PLANT AND EQUIPMENT

Accumulated depreciation of property, plant and equipment consist of the following:

Buildings and improvements Machinery and equipment Others	March 31	March 31
	2006 $ 16,716,397 56,675,037 247,612 $73,639,046	2005 $ 15,083,693 52,458,807 221,240
		$67,763,740

Information on the status of the construction of the Company’s 12-inch Fab manufacturing facilities as of March 31, 2006 is as follows:

Manufacturing Plant 12-inch Fab	Estimated Cost $49,000,000	Accumulated Expenditures Expected Date of Commencing Operation $28,633,766 Second quarter of 2006

As of March 31, 2006, the Company’s contracts for the construction of factories amounted to $40,438,967 thousand, of which $28,633,766 thousand has been paid.

Capitalized interest for the three months ended March 31, 2006 amounted to $74,533 thousand and the interest rate was 2.64%. There was no capitalized interest for the three months ended March 31, 2005.

As of March 31, 2006, the carrying value of $19,515,118 thousand of 12-inch Fab manufacturing facilities was pledged to secure long-term debt. Please refer to Note 14.

12. OTHER ASSETS - OTHER

Deferred technical fee, net Other	March 31
	2006 $ 3,185,937 600,993 $3,786,930	2005 $ 976,812 617,365
		$1,594,177

13. BONDS PAYABLE

Domestic convertible bonds (II) Reserve for redemption of convertible bonds Domestic guaranteed bonds Less current portion of bonds payable	March 31
	2006 $ 6,900 1,172 - 8,072 - $ 8,072	2005 $ 6,900 1,818 600,000
		608,718 (600,000)
		$ 8,718

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Domestic Convertible Bonds (II)

(a) Date of issuance: April 15, 1998
(b) Par value: $100 thousand
(c) Location of issuance: Taiwan
(d) Price of issuance: 100%
(e) Total amount: $6,000,000 thousand
(f) Interest rate: 0%
(g) Date of maturity: April 15, 2008
(h) Provision of request to redeem the bonds:

A bondholder may request the Company to redeem the bonds on April 15, 2003 at 146.93% of par value.

(i) Conversion price:
(i) $52.83 dollars per share at the issue date.
(ii) $29.06 dollars per share on March 31, 2006.
(j) Restriction:
(i) Cash dividend not to exceed 15% of the Company’s capital.
(ii) Effective dividend rate of preferred stock issued after April 15, 1998 not to exceed 200% of the stated interest rate of the latest issued convertible bonds.

Domestic Guaranteed Bonds (IV)

(a) Date of issuance: June 22, 2000
(b) Par value: $1,000 thousand
(c) Location of issuance: Taiwan
(d) Price of issuance: 100%
(e) Guarantor: Industrial Bank of Taiwan and Taipei Bank
(f) Total amount: $2,100,000 thousand with “A1,” “A2,” “A3,” “B1,” “B2,” “C1,” and “C2” bills of $300,000 thousand each
(g) Interest rate: “A1,” “A2,” “A3,” “B1,” “B2,” “C1,” and “C2” at 5.29%, 5.2218%, 5.1882%, 5.39%, 5.3193%, 5.49% and 5.41665% per annum, respectively
(h) Date of maturity: “A,” “B” and “C” bills on June 22, 2003, June 22, 2004 and June 22, 2005, respectively. All bonds had been settled as of March 31, 2006.
(i) Provisions of request to redeem the bonds: none

14. LONG-TERM DEBT

March 31	March 31
2006	Amount $ 6,600,000 2,272,200 7,000,000 $15,872,200	2005
Period Interest Rate % 2005.06.23~ 2010.06.23 2.54~2.72 2005.07.29~ 2009.06.30 4.61~5.56 2005.12.29~ 2010.12.29 2.63~2.67		Amount $ - - -
		$ -

Loan Collateralized by 12-inch Fab Equipments in Central Taiwan Science Park

(a) In January 2005, the Company entered into a syndication agreement, amounting to $8 billion, with a group of financial institutions to procure equipments for 12-inch Fab.

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(b) The principal will be paid every six months from December 23, 2007 until maturity.
(c) Please refer to Note 11 for collateral on bank borrowing.

Chinatrust Commercial Bank Syndication Agreement

(a) In June 2005, the Company entered into a US$70 million syndication agreement with 11 Taiwanese banks. The purpose of the agreement was to finance the purchase of assets of the Advanced PC (APC) Division of National Semiconductor Corporation.
(b) The long-term debt is unsecured and the principal will be paid every six months from June 30, 2007 until maturity.

Loan Collateralized by 12-inch Fab and Equipment in Central Taiwan Science Park

(a) On October 24, 2005, the Company entered into a syndication agreement, amounting to $15 billion, with a group of financial institutions to build plant factory and procure equipments for 12-inch Fab.
(b) The principal will be paid every six months from June 29, 2008 until maturity.
(c) Please refer to Note 11 for collateral on bank borrowing.

The Company is required to maintain the following financial covenants during the tenors of the loans.

(a) Current ratio (current assets/current liabilities)≧ 100%
(b) Debt ratio (total liabilities/Tangible net equity)≦ 100%
(c) Principal and interest coverage ratio [(income before (after) income tax + interest expense + depreciation + amortization)/(current portion of long-term loans and interest expense)]≧ 100%
(d) Tangible net equity (total assets - total liabilities - intangible assets + deferred technical fee) not less than $40 billion.

15. STOCKHOLDERS ’ EQUITY

Common Stock

Authorized capital Shares (in thousand shares) Par value (in dollars) Capital Outstanding capital Shares (in thousand shares) Par value (in dollars) Capital	March 31	March 31
	2006 6,700,000 $ 10 $67,000,000 4,155,715 $ 10 $41,557,152	2005 6,700,000
		$ 10
		$67,000,000
		4,326,005
		$ 10
		$43,260,052

At December 31, 2004, the Company’s capital received was $43,252,472 thousand. According to the articles of the Company’s employee warrants issuance and execution, authorized employees executed the rights at $10.10 dollars per share that totaled 756,000 shares for the three months ended March 31, 2005. After the issuing of 2,000 shares, amounting to $20 thousand, which were recorded under “capital collected in advance” as of December 31, 2004, the balance of the Company’s capital account amounted to $43,260,052 thousand, divided into 4,326,005,193 shares at par $10.00 dollars per share.

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In May 2005, November 2005 and December 2005, the Company reduced its capital by retirement of its treasury stocks of 171,955,000 shares. According to the aforesaid articles, authorized employees executed the rights at $10.10 dollars per share that totaled 1,665,000 shares from April 2005 to March 2006. As of March 31, 2006, the balance of the Company’s capital account amounted to $41,557,152 thousand, divided into 4,155,715,193 shares at par $10.00 dollars per share. Walsin Lihwa is a major shareholder of the Company and held approximately 20.65% ownership interest in the Company as of March 31, 2006.

According to the Company Law of the ROC and the Company’s Articles of Incorporation, the Company’s annual net income (after income tax) should first be appropriated in the following order:

(a) offset any accumulated deficit;
(b) appropriate 10% of the remainder thereafter as a legal reserve until such reserve equals to the amount of common stock; and
(c) appropriate necessary special reserve as regulated by laws or domestic authorities.

Unappropriated earnings could be retained for operating needs, if necessary. The priority and the percentage of distribution as stipulated by the Company’s Articles of Incorporation are as follows:

(a) 2% as remuneration to directors and supervisors;
(b) 11% as bonuses to employees;
(c) the remainder, thereafter, as dividends and bonuses to stockholders.

The total amount of dividends and bonuses could be appropriated, in part or in whole, as general special reserve and then, be distributed.

The Company did not appropriate bonuses and remuneration due to offsetting accumulated deficit and net loss in 2004 and 2005, respectively. Therefore, there was no information for disclosure.

Treasury Stock

Treasury stock transactions for the three months ended March 31, 2006 were summarized as follows:

Purchase Reason Treasury Stock Held as of January 1, 2006 Treasury stock for granting to the employees 206,972,000 Common shares held by subsidiaries 10,618,364 217,590,364	Increase During the Period 20,000,000 - 20,000,000	Decrease During the Period Treasury Stock Held as of March 31, 2006 - 226,972,000 - 10,618,364 - 237,590,364

Treasury stock transactions for the three months ended March 31, 2005 were summarized as follows:

Purchase Reason Treasury Stock Held as of January 1, 2005 Treasury stock for granting to the employees 217,927,000 Common shares held by subsidiaries 10,618,364 228,545,364	Increase During the Period - - -	Decrease During the Period Treasury Stock Held as of March 31, 2005 - 217,927,000 - 10,618,364 - 228,545,364

Securities and Exchange Law Article 28.2 stipulates that the number of treasury stock held by the Company shall not exceed 10% of the outstanding shares and the amount shall be no more than

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the total of retained earnings and realized capital surplus, such as additional paid-in capital. As of March 31, 2006, the number of shares and cost of treasury stock were 226,972,000 shares and $2,694,420 thousand.

The possession of treasury stock does not give the Company the right to vote, to receive dividends, to exercise other rights as a stockholder and treasury stock should not be pledged.

As of March 31, 2006, the Company’s subsidiary - BHL held 10,618,364 shares of the Company’s common stock which amounted to $150,253 thousand. The shares held by BHL were treated as treasury stocks.

At July 31, 2001 meeting, the Board of Directors of the Company resolved to issue employee stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 60,000,000 units. Each individual employee stock warrant is granted the right to purchase the Company’s new issued one common share. The exercise price is the closing price of the Company’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. In September 2001 and March 2002, the Company has issued 53,619,000 and 6,381,000 units of the employee stock warrants to the employees with an exercise price of $10.10 dollars and $26.70 dollars per unit, respectively. The warrants holders executed 19,461,000 warrants till March 31, 2006.

At February 4, 2002 meeting, the Board of Directors of the Company resolved to issue employee stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 70,000,000 units. Each individual employee stock warrant is granted the right to purchase the Company’s new issued one common share. The exercise price is the closing price of the Company’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. At the granted date, the warrants entitled deputy chief technical director, chief technical director, assistant manager, assistant general manager, executive assistant general manager, chief auditor, and general manager to exercise the right within six years. The warrants holders can exercise the right up to one-third of the granted warrants units no earlier than two years from the granted date. After three years from the granted date the holders can exercise the right up to two-third of the granted warrants units. After four years from the granted date, the warrants holders are eligible to exercise all the warrants owned. The warrants holders without the titles mentioned above should exercise the right within five years. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. At April 8, 2002, the Company has issued 69,900,000 units of the employee stock warrants to the employees with an exercise price of $24.60 dollars per unit.

At April 23, 2002 meeting, the Board of Directors of the Company resolved to issue additional employee stock warrants in accordance with Securities and Exchange Law Article 28.3 within the quantity of 200,000,000 units. Each individual employee stock warrant is granted the right to purchase the Company’s new issued one common share. The exercise price is the closing price of the Company’s common shares on the employee stock warrants’ issuance date or the share’s par value, whichever is higher. The warrants holders should exercise the right within five years. The warrants holders can exercise the right up to fifty percent of the granted warrants units no earlier than two years from the granted date. After three years from the granted date, the warrants holders are eligible to exercise all the warrants owned. At July 2, 2002 and November 13, 2002, the Company has issued 190,000,000 and 3,830,000 units of the employee stock warrants to the employees with an exercise price of $17.50 dollars and $16.90 dollars per unit respectively. At February 14, April 8 and May 8, 2003, the Company has issued 1,056,000 units, 2,603,000 units and 375,000 units with an exercise price of $13.00 dollars, $14.40 dollars and $12.55 dollars per unit.

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16. PERSONNEL EXPENSE, DEPRECIATION, AND AMORTIZATION

Three Months Ended March 31, 2006	Three Months Ended March 31, 2006	Three Months Ended March 31, 2006	Three Months Ended March 31, 2006
Operation Cost Operation Expense Non- Operation Expense Total $ 391,887 $ 293,146 $ - $ 685,033 32,282 17,649 - 49,931 30,501 23,817 - 54,318 108,944 97,878 - 206,822 $ 563,614 $ 432,490 $ - $ 996,104 $1,325,379 $ 53,069 $ 477 $1,378,925 $ - $ 192,740 $ 3,831 $ 196,571 Three Months Ended March 31, 2005			Total $ 685,033 49,931 54,318 206,822
			$ 996,104
			$1,378,925
			$ 196,571
Operation Cost $ 371,231 31,064 24,005 159,507 $ 585,807 $1,821,344 $ -	Operation Expense $ 260,726 16,174 23,227 110,681 $ 410,808 $ 58,948 $ 943,244	Non- Operation Expense $ - - - - $ - $ 447 $ 895	Total $ 631,957 47,238 47,232 270,188
			$ 996,615
			$1,880,739
			$ 944,139

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17. INCOME TAX

Components of income tax expense for the three months ended March 31, 2006 were summarized as follows:

Current income tax expense Deferred income tax assets and valuation allowance adjustment Provision for income tax Components of deferred income tax assets as of March 31, 2006 are as follows: Deferred tax assets Deferred technical assets Allowance for inventory devaluation losses Allowance for doubtful accounts Unrealized profit on intercompany sales Unrealized investment loss Deferred income Investment tax credits Net operating loss carryforwards Deferred income tax assets Less valuation allowance Deferred tax liabilities Unrealized foreign currency exchange gain Unrealized gain on financial instruments Deferred income tax assets Deferred income tax assets, noncurrent Deferred income tax assets, current	$	$ (33,000) 33,000 $ - 420,000 298,000 38,000 3,000 990,000 29,000 8,164,000 2,323,000 12,265,000 (8,239,000) 4,026,000 (2,000) (4,000) (6,000) 4,020,000 (3,687,000) 333,000





	$

Reconciliation of income tax expense and income tax payable at statutory rate for the three months ended March 31, 2006 is as follows:

Income tax expense at statutory rate Increase (decrease) in tax resulting from Tax-exempt income Others Current income tax expense Provision for deferred tax assets Current income tax payable Less operating loss carryforward Income tax payable as of March 31, 2006	$ 30,000 (2,000) 5,000 33,000 (8,000) 25,000 (25,000) $ -

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The Company’s investment tax credits and operating loss carryforwards as of March 31, 2006 were as follows:

Expiry Year 2007 2008 2009 2010	Investment Tax Credit Operating Loss Carryforwards $ 2,133,000 $ 574,000 1,652,000 1,026,000 3,339,000 - 1,040,000 723,000 $ 8,164,000 $ 2,323,000

At March 31, 2006, the Company’s accumulated deficits from 1998 onward was $2,102,733 thousand. The Imputation Credit Account as of March 31, 2006 amounted to $120,500 thousand. The Company’s income tax returns through 2002 have been examined and approved by the tax authority.

The Company has been granted an exemption from income taxes on income attributable to the Fabs. Fab II (part IV) and Fab IV (part III) have been granted tax exemption status, which commenced from January 1, 2003 for four consecutive years.

Income tax refund receivable of $38,274 thousand as of March 31, 2006 is the balance of withholdings at sources and is recorded under other assets - others.

18. EARNINGS (LOSS) PER SHARE

Three Months Ended March 31	Three Months Ended March 31	Three Months Ended March 31
2006 Before Tax After Tax $ 0.03 $ 0.03 - - $ 0.03 $ 0.03 $ 0.03 $ 0.03 - - $ 0.03 $ 0.03	2005
Before Tax $ 0.03 - $ 0.03 $ 0.03 - $ 0.03	Before Tax $ (0.40) - $ (0.40)	After Tax $ (0.40) -
		$ (0.40)

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Calculation of earnings per share is disclosed as follows:

Basic earnings per share Net income Effect of dilutive common stock Convertible bonds payable Diluted earnings per share Net income plus dilutive effect Basic loss per share Net loss	Three Months Ended March 31, 2006 Amount Earnings Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ 124,290 $ 124,290 3,918,123 $ 0.03 $ 0.03 (159) (159) 237 $ 124,131 $ 124,131 3,918,360 $0.03 $0.03 Three Months Ended March 31, 2005 Amount Loss Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ (1,652,826) $ (1,652,826) 4,097,212 $ (0.40) $ (0.40)	Three Months Ended March 31, 2006 Amount Earnings Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ 124,290 $ 124,290 3,918,123 $ 0.03 $ 0.03 (159) (159) 237 $ 124,131 $ 124,131 3,918,360 $0.03 $0.03 Three Months Ended March 31, 2005 Amount Loss Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ (1,652,826) $ (1,652,826) 4,097,212 $ (0.40) $ (0.40)	Three Months Ended March 31, 2006 Amount Earnings Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ 124,290 $ 124,290 3,918,123 $ 0.03 $ 0.03 (159) (159) 237 $ 124,131 $ 124,131 3,918,360 $0.03 $0.03 Three Months Ended March 31, 2005 Amount Loss Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ (1,652,826) $ (1,652,826) 4,097,212 $ (0.40) $ (0.40)	Three Months Ended March 31, 2006 Amount Earnings Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ 124,290 $ 124,290 3,918,123 $ 0.03 $ 0.03 (159) (159) 237 $ 124,131 $ 124,131 3,918,360 $0.03 $0.03 Three Months Ended March 31, 2005 Amount Loss Per Share (In Dollar) Before Tax After Tax Shares (In Thousands) Before Tax After Tax $ (1,652,826) $ (1,652,826) 4,097,212 $ (0.40) $ (0.40)
	Amount Before Tax After Tax $ (1,652,826) $ (1,652,826)	Shares (In Thousands) 4,097,212
	Before Tax $ (1,652,826)			Before Tax $ (0.40)

19. RELATED PARTY TRANSACTIONS

The names and relationship of related parties are as follows:

Relationship with the Company

Related Party

Walsin Lihwa Corporation (“Walsin”) Walsin’s chairman is one of the immediate family members of the Company’s chairman and Walsin holds a 20.65% ownership in the Company as of March 31, 2006 Winbond Electronics (HK) Limited (“WEHK”) The Company holds a 100% ownership interest directly Mobile Magic Design Corporation (“MMD”) The Company holds a 100% ownership interest directly Win Investment Corporation (“Win”) The Company holds a 100% ownership interest directly CFP Service Ltd. (“CFP Service”) The Company holds a 55.20% ownership interest indirectly Cheertek Incorporation (“Cheertek”) The Company holds a 27.84% ownership interest directly and 0.94% ownership interest indirectly Winbond Electronics Corporation America The Company holds a 100% ownership interest (“WECA”) indirectly Winbond Electronics Corporation Japan (“WECJ”) The Company holds a 100% ownership interest indirectly NexFlash Technology Inc. (“NexFlash”) The Company holds a 100% ownership interest indirectly Walton Advanced Engineering Ltd. (“Walton”) Walton’s chairman is one of the immediate family members of the Company’s chairman Hannstar Display Corporation (“Hannstar Hannstar Display’s chairman is one of the Display”) immediate family members of the Company’s chairman

Hannstar Display Corporation (“Hannstar Display”) Hannstar Electronics Corporation (“Hannstar Elec.”) Walsin Technology Corporation (“WTC”)

Hannstar Elec.’s chairman is one of the immediate family members of the Company’s chairman

WTC’s chairman is one of the immediate family members of the Company’s chairman

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Major transactions with related parties were summarized below:

Sales

	Three Months Ended March 31	Three Months Ended March 31	Three Months Ended March 31
$	2006 860,687 $ 221,975 218,862 146,453 5,934 1,453,911 $ Three Months Ended	$	2005 634,010 399,747 189,071 227,000 33,172
$		$	1,483,000
			March 31
	2006 $ 107,062 1,597 $108,659 Three Months Ended		2005 $ 307,434 -
			$307,434
			March 31
	2006 $ 6,151 1,363 $ 7,514 Three Months Ended		2005 $ 4,391 -
			$ 4,391
			March 31
	2006 $ 2,410 Three Months Ended		2005 $ 2,406
			March 31
	2006 $ 163,945 18,281 $182,226		2005 $ 134,992 1,559
			$136,551

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Service Revenue

Service Revenue
WTC Hannstar Display Cheertek Hannstar Elec. Others Other Operating Revenue Cheertek Others Notes and Accounts Receivable WEHK Hannstar Display WECJ WECA NexFlash Others	Three Months Ended	March 31
	2006 $ 1,499 1,491 436 - 1,491 $ 4,917 Three Months Ended	2005 $ - 3,479 654 2,022 497
		$ 6,652
		March 31
	2006 $ 5,298 - $ 5,298 March 31	2005 $ 9,757 225
		$ 9,982

	2006 $ 367,363 263,789 172,958 86,517 - 5,843 $896,470	2005 $ 370,989 149,641 282,091 35,196 21,141 4,025
		$863,083

Other Financial Assets, Current and Other Current Assets

Cheertek MMD NexFlash Others Notes and Accounts Payable Walton	March 31
	2006 $ 4,979 801 - 46 $ 5,826 March 31	2005 $ 8,427 14,031 13,438 1,093
		$ 36,989

	2006 $108,408	2005 $405,920

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Accrued Expenses and Other Payables

WECA WECJ Walton Others Deposits Received Hannstar Display WTC Hannstar Elec. Others	March 31
	2006 $ 187,089 10,176 937 4,400 $202,602 March 31	2005 $ 101,579 4,541 8,082 3,126
		$117,328

	2006 $ 1,304 1,304 - 1,521 $ 4,129	2005 $ 3,910 - 1,729 1,521
		$ 7,160

The related party transactions were conducted under normal terms.

Property Transactions

In 2005, the Company sold all shares of equity investment in Hannstar Color and Vxis to Win, resulting in a gain of $13,956 thousand which had been deferred and recorded in other liabilities - other.

The Company’s sales of LCD Driver IC department to Cheertek for the three months ended March 31, 2006 were summarized as follows:

Related Party Sales Items Cheertek Machinery and equipment Probe card Intangible asset	Selling Price Carrying Value Disposal Income $ 5,716 $ 5,716 $ - 6,250 6,250 - 407,720 - 407,720 $ 419,686 $ 11,966 $ 407,720

The gain on disposal of LCD Driver IC department amounted to $407,720 thousand. Since the aforesaid transaction was made with equity method investee, the unrealized profit of $117,324 thousand was eliminated and recognized under the amortization of investee. The realized profit of $290,396 thousand was recorded in non-operating income - other for the three months ended March 31, 2006.

Guarantee

Please refer to Note 21.

20. PLEDGED AND COLLATERALIZED ASSET

Please refer to Note 4, Note 11 and Note 14.

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21. COMMITMENTS AND CONTINGENCIES

Letters of Credit

Amounts available under unused letters of credit as of March 31, 2006 were approximately US$72,144 thousand, JP¥4,486,536 thousand and EUR€4,777 thousand.

Guarantee

As of March 31, 2006, the Company guaranteed US$7,900 thousand and $119,000 thousand for its related parties, WIC and Win, respectively.

Agreements

In May 2002, the Company entered into an agreement with Walsin Lihwa Corporation (“Walsin”) and other non-related parties, the stockholders of Walsin Advanced Electronics Ltd. and Walton Advanced Electronics Ltd. in order to make the merger of the two companies smoothly. According to the agreement, the Company has to buy shares of Walton Advanced Engineering Inc., the surviving company with the new name, at par value or net assets value from other non-related parties if certain circumstances were achieved. The highest amount to be paid is estimated at $570,000 thousand.

In May 2002, the Company entered into an agreement with a non-related party to license advanced DRAM manufacturing technology. The Company has paid all of the technical transfer fees. Additionally, the Company has agreed to make royalty payment until the end of 2006 based on the net sales of the related products at the rates specified in the agreement.

In August 2004, the Company entered into an agreement with a non-related party to license 90nm DRAM manufacturing technology. The Company has to pay the technical transfer fee. Additionally, the Company has agreed to provide some capacity and make royalty payments until the end of 2009 based on the net sales of the related products at the rates specified in the agreement.

22. DISCLOSURES FOR FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

Carrying value and fair value of financial instruments as of March 31, 2006 were summarized as follows:

		Carrying		Fair
Nonderivative Financial Instruments		Value		Value
Assets
Cash and cash equivalents	$	5,104,925	$	5,104,925
Financial assets at fair value through profit or loss, current		355,589		355,589
Notes and accounts receivable, net		3,117,989		3,117,989
Notes and accounts receivable from related parties		896,470		896,470
Other financial assets, current		326,235		326,235
Available-for-sale financial assets, noncurrent		3,419,549		3,419,549
Financial assets carried at cost, noncurrent		1,059,829		-
Refundable deposits		296,308		296,308
Liabilities
Notes and accounts payable		2,730,290		2,730,290
Accrued expenses and other payables		7,590,555		7,590,555
Bonds payable		8,072		6,501
Long-term debt		15,872,200		15,872,200
Guarantee deposit received		16,522		16,522
Derivative Financial Instruments
Forward exchange contracts		15,008		15,008

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The Company adopted newly released SFAS No. 34, “Accounting for Financial Instruments,” effective January 1, 2006. Please see Note 3 to the financial statements for the cumulative effect of changes in accounting principle and adjustment to stockholders’ equity.

Methods and assumptions employed in assessing the fair values of financial instruments were summarized as follows:

(a) The fair value of cash and cash equivalents, notes and accounts receivable, notes and accounts payable, and other payables, approximates their carrying value due to the short-term maturities of these financial instruments.
(b) The fair value of financial instruments at fair value through profit or loss and available-for-sale financial assets are quoted by market price. The fair value of derivative financial instruments is measured, according to its specific contract’s settlement rate, by the middle exchange rate and the discount rate quoted by Reuters.
(c) The fair value of long-term debt and bond payables is estimated based on the net present value of expected cash flows.

The fair value of financial instruments that used the quoted market price in active market or other method of valuation is summarized as follows:

	Quoted Market	Quoted Market		Other
	Price in Active		Method of
		Market		Valuation		Total
Assets
Financial assets at fair value through profit or loss,
current	$	355,589	$	15,008	$	370,597
Available-for-sale financial assets, noncurrent		3,419,549		-		3,419,549

Net gain on changes of the fair value determined using valuation techniques is $15,008 thousand for the three months ended March 31, 2006.

As of March 31, 2006, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $511,419 thousand and $15,872,200 thousand, respectively. Financial assets exposure to fair value risk that resulted from interest rate changes amounted to $4,606,409 thousand as of March 31, 2006.

Adjustment of stockholders’ equity due to the fair value changes of available-for-sale financial assets amounted to $2,205,852 thousand as of March 31, 2006.

Financial Risk Information

Market Risk

All the derivative financial instruments the Company entered into are forward exchange contracts in order to hedge changes in fair value of foreign-currency assets and liabilities. The fair value of forward exchange contracts will fluctuate because of changes in foreign exchange rates. If the exchange rate rises by 1%, the fair value of forward exchange contracts will decrease by $28,688 thousand.

The Company is exposed to the price risk that comes from fluctuation of market price for the investment in listed companies. If return in the market decreases by 1%, the fair value of the investments will decrease by $57,913 thousand.

Credit Risk

The Company is exposed to the credit risk that counter-parties or third-parties may breach the contracts. The risk results from the concentrations of credit risk, elements, contract price, and

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accounts receivable. The Company requested its major transaction parties to provide collaterals or other rights to reduce such risk.

Liquidity Risk

The Company has sufficient operating capital to meet the cash demand for the contracts. Thus, the fund-raising and cash flow risks are not material.

The Company’s available-for-sale financial assets have an active trading market. As of March 31, 2006, unexpired forward exchange contracts will result in receiving US$34,000 thousand, JP¥2,800,000 thousand, EUR€25,000 thousand, and paying NT$2,840,528 thousand during April 2006 to June 2006. Foreign exchange rates embedded in the derivative contracts are fixed at the inception and thus, cash flow risks are insignificant.

Cash Flow Risk on Interest Rate

The Company’s long-term debt is with floating interest rate. Effective rate and future cash flow of the Company will fluctuate as a result of changes in market interest rate. If the market interest rate increases by 1%, the cash outflow will increase by $158,722 thousand per year.

23. FOREIGN SALES AND MAJOR CUSTOMERS

Japan and Korea Hong Kong Europe United States Others Percentage to total sales	Three Months Ended March 31	Three Months Ended March 31
	2006 $ 1,967,981 1,077,341 551,807 224,261 595,384 $ 4,416,774 71%	2005 $ 1,029,270 819,174 712,309 221,484 277,869
		$ 3,060,106
		56%

The major customers that accounted for 10% or more of the Company’s sales were as follows:

WEHK Customer B Customer A	Three Months Ended March 31	Three Months Ended March 31
	2006 Amount Percentage to Sales $ 860,687 14 830,239 13 547,898 9 $ 2,238,824 36	2005
		Amount Percentage to Sales $ 634,010 11 265,113 5 646,365 12 $ 1,545,488 28

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APPENDIX A

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

Foreign Investment and Exchange Controls in the ROC

The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by the Company, the Manager or any of their respective affiliates or advisors in connection with this Offering. The Company only accepts responsibility for correctly reproducing such information.

General

Historically, the ROC government has generally restricted foreign investment in the ROC securities market. Since 1983, however, the ROC government has from time to time enacted legislation and adopted regulations to permit foreign investment in the ROC securities market.

Under the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals (the “Regulations”), foreign investors are classified as either “onshore foreign investors” or “offshore foreign investors” according to their respective geographical location. Both onshore and offshore foreign investors are allowed to invest in ROC securities after registration with the TSE. The Regulations further classifies foreign investors as “foreign institutional investors” and “foreign individual investors.” “Foreign institutional investors” are investors incorporated and registered in accordance with foreign laws outside of the ROC ( i.e. , offshore foreign institutional investors) or their branches set up and recognized within the ROC ( i.e. , onshore foreign institutional investors). Offshore overseas Chinese and foreign individual investors are subject to a maximum investment ceiling that is determined by the ROC FSC after consultation with the Central Bank of China (the “CBC”). Foreign institutional investors are not subject to any ceiling on investments in the ROC securities market.

Foreign Ownership Limitations

Except for certain limits imposed by specific laws and regulations, there are generally no limits on the foreign ownership of the issued share capital in a TSE listed company or a Gre Tai Securities Market traded company.

Foreign Investment Approval

Besides the Regulations described above, and investors in overseas convertible bonds and depositary receipts, foreign investors (both institutions and individuals) who wish to make direct investments in the shares of ROC companies (as opposed to foreign investors investing in overseas convertible bonds and depositary receipts) may submit a “foreign investment approval” application to the Investment Commission of the ROC Ministry of Economic Affairs or other applicable governmental authority. Foreign investors who obtain such an approval will be subject to the ROC Law Governing Investments by Foreigners. The Investment Commission or such other applicable governmental authority reviews each foreign investment approval application and approves or disapproves the application after consultation with other governmental agencies (such as the CBC and the ROC FSC). Any non-ROC person possessing a foreign investment approval may remit capital to the approved investment and is entitled to repatriate annual net profits, interests and cash dividends attributable to such approved investment. Stock dividends, investment capital and capital gains attributable to the investment may be repatriated after approvals of the Investment Commission or other applicable authorities have been obtained.

In addition to the general restrictions against direct investment by non-ROC persons in ROC companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC which are listed under the Negative List, as amended. The prohibition on direct foreign investment in the prohibited industries in the Negative List is absolute and provides no specific exemption from its application. Under the Negative List, certain industries are restricted so that non-ROC persons may directly invest only up to a specified level and with the specific approval of the relevant governmental authority. The Company is not in a restricted industry under the Negative List.

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Depositary Receipts

In April 1992, the ROC SFC began allowing Taiwan companies listed on the TSE to sponsor the issuance and sale of depositary receipts evidencing depositary shares. In December 1994, MOF began allowing companies whose shares are traded on the Gre Tai Securities Market also to sponsor the issuance and sale of depositary receipts evidencing depositary shares. Approvals for these issuances are still required.

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

stock dividends;
free distributions of shares;
due to the exercise by depositary receipt holders of their pre-emptive rights in the event of capital increases for cash; or
if permitted in the deposit agreement and the custody agreement, due to the purchase by depositary receipt holders, directly or through the depositary, of shares on the TSE or the Gre Tai Securities Market or the delivery of shares held by such depositary receipt holders for deposit in the depositary receipt facility. In this event, the total number of depositary receipts outstanding after an issuance cannot exceed the aggregate number of:
(1) the number of issued depositary receipts previously approved by the ROC FSC; and
(2) the number of depositary shares created from stock dividends, free distributions of shares and rights offerings.

These issuances of depositary receipts under the fourth bullet point above may only be made to the extent that previously issued depositary receipts have been cancelled.

For depositary shares that represent new shares issued for cash or previously existing shares, immediately after the issuance of depositary receipts, a holder may request the depositary to cause the underlying shares to be sold in Taiwan or to withdraw the shares and deliver the shares to the holder.

Under current ROC laws, a non-ROC holder of depositary receipts, when withdrawing a depositary receipt in order to take control of the underlying shares, is required to register with the TSE, as such a conversion constitutes an investment in the ROC securities market. When converting depositary receipts into common shares, non-ROC holder is required to appoint a local agent (such agent to have the qualifications set forth by the Regulations) for the purposes of opening a general securities trading account with a local securities brokerage firm, opening bank accounts, paying ROC taxes, remitting funds, exercising rights relating to the securities and performing such other matters as may be designated by such holder of the depositary receipt on behalf of and as an agent for such holder of depositary receipts. If a holder of depositary receipt is already a registered foreign investor, the common shares held in the special securities trading account that the holder of depositary receipts has already opened for the purpose of withdrawing the underlying shares represented by the depositary receipts can be transferred into the general securities trading account after filing an application with the appropriate government agency. Any such holder of a depositary receipt is also required to appoint a custodian bank to hold the securities and any cash proceeds for safekeeping, to make confirmations, to settle trades and to report all relevant information. The withdrawing holder is also required to appoint a tax guarantor for filing tax returns and making tax payments. Withdrawing holders who do not take such actions in compliance with the Regulations will not be permitted to hold or sell the shares withdrawn from a depositary receipt facility on the TSE or to sell the withdrawn shares in any other manner. A citizen of the PRC or an entity organized under the laws of the PRC is not permitted to withdraw and hold the Common Shares.

A depositary may, without obtaining further approvals from the Central Bank of China or any other governmental authority or agency of Taiwan, convert NT dollars into other currencies, including

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U.S. dollars, in respect of the following: (1) the proceeds of the sale of shares represented by depositary receipts; (2) the proceeds of the sale of shares received as stock dividends on the shares and deposited into the depositary receipt facility; or (3) any cash dividends or cash distributions received in respect of the shares represented by depository receipts. In addition, a depositary may convert into NT dollars inward remittances of payments for purchases of underlying shares for deposit in the depositary facility against the creation of depositary shares. A depositary must obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies from the proceeds from the sale of subscription rights for new shares if such proceeds exceed US$100,000 per remittance. It is expected that the Central Bank of China will grant this approval as a routine matter. A depositary receipt holder may, after becoming a holder of shares, convert NT dollars into other currencies from proceeds from the sale of any underlying shares withdrawn from the depositary receipt facility. Proceeds from the sale of the underlying shares withdrawn from the depositary receipt facility may be used for reinvestment in securities listed on the TSE or traded on the Gre Tai Securities Market.

Overseas Corporate Bonds

Since 1989, the ROC SFB has approved a series of overseas corporate bond issues (“OCBs”) by ROC companies listed on the TSE in offerings directed at foreign investors. Since December 1994, the SFB has also permitted ROC companies whose shares are traded on the GTSM to issue and offer OCBs. Under the current ROC laws and policies, OCBs may be converted by bondholders into shares of ROC companies or (subject to ROC FSC approval) may be converted into depositary receipts issued under sponsorship of the same ROC company or under the sponsorship of the issuing company of the exchanged shares, in the case of exchangeable bonds.

Under current ROC law, a converting bondholder, when exercising its right to convert a bond into a share in an ROC company, is required to register with the TSE (as such a conversion constitutes an investment in the ROC securities market) and to appoint a local agent (such agent to have the qualifications set forth by the ROC FSC) for the purposes of opening a securities trading account with a local brokerage firm, opening bank accounts, paying ROC taxes, remitting funds, exercising shareholder’s rights and performing such other matters as may be designated by such converting bondholder. Any such converting bondholder is also required to appoint a custodian bank to hold the securities and any cash proceeds for safekeeping, to make confirmations, to settle trades and to report all relevant information required by applicable authorities. In addition, such converting bondholder is required to appoint a tax guarantor for filing tax returns and making tax payments.

In addition, a converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert NT dollars into foreign currencies of net proceeds realized from the sale of the converted shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such shares, as well as for inward remittances of subscription payments in connection with a rights offering.

Under current ROC law, the issuer of an OCB may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT dollars to other currencies in respect of the proceeds of the redemption of the bonds or the repayment of principal upon maturity of the bonds.

Exchange Controls

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

Aside from trade-related foreign exchange transactions, ROC companies and residents may, without foreign exchange approval, remit to and from Taiwan foreign currencies of up to U.S.$50 million, or its equivalent, and U.S.$5 million, or its equivalent, respectively, each calendar year. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of the ROC by the company or individual within its annual quota and will not use up its annual inward remittance quota to the event of such offset. These limits apply to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies. In

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addition, all private enterprises are required to register all medium and long-term foreign debt with the Central Bank of China.

In addition, a foreign person may, subject to certain requirements but without foreign exchange approval, remit to and from Taiwan foreign currencies of up to U.S.$100,000 (or its equivalent) per remittance if the required documentation is provided to the ROC authorities. This limit applies only to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.

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APPENDIX B

THE SECURITIES MARKET IN ROC

The information presented in this section has been extracted from publicly available documents have not been prepared or independently verified by the Company, the Manager or any of their respective affiliates or advisors in connection with this Offering. The Company only accepts responsibility for correctly reproducing such information.

The Taiwan Stock Exchange

In 1961, the ROC Securities and Futures Commission, predecessor of Securities and Futures Bureau (“ROC SFB”), established the TSE to provide a marketplace for securities trading. The TSE is a corporation owned by government controlled and private banks and enterprises. The TSE is independent of entities transacting business through it, each of which pays a user’s fee. Generally, all transactions in listed securities by brokers, traders and integrated securities firms must be made through the Taiwan Stock Exchange.

The TSE commenced operations in 1962. During the early 1980s, the ROC SFB actively encouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 691 as of December 31, 2005. As of December 31, 2005, the market capitalization of companies listed on the TSE was approximately NT$15.6 trillion.

Historically, ROC companies have listed only shares and bonds on the TSE. However, the ROC SFB has encouraged companies to list other types of securities. In 1988, the ROC SFB permitted the issuance of Taiwan’s first exchangeable bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed end investment funds and bonds issued by supra-national financial institutions are also listed on the TSE or traded on the Gre Tai Securities Market. The ROC SFB also has regulations which permit foreign issuers to list their equity securities directly on the TSE or through the use of depositary receipts. To date, five foreign issuers have listed their equity securities on the TSE through the use of depositary receipts in accordance with these regulations.

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

the number and distribution of shareholders, including the diversification of such shareholders;
length of time in business;
amount of paid-in capital; and
profitability.

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

The ROC Gre Tai Securities Market

To complement the TSE, the Gre Tai Securities Market was established in September 1982 on the initiative of the ROC SFB to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of December 31, 2005, 503 companies had listed equity securities on the Gre Tai Securities Market and the total market capitalization of those companies was approximately NT$643.2 billion.

Taiwan Weighted Stock Index

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

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value for the index shares. The Taiwan Weighted Stock Index is the oldest and most widely quoted market index in Taiwan.

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

The following table sets forth, for the periods indicated, information relating to the Taiwan Weighted Stock Index.

Period Ended December 31, 1990 ................................................................... 1991 ................................................................... 1992 ................................................................... 1993 ................................................................... 1994 ................................................................... 1995 ................................................................... 1996 ................................................................... 1997 ................................................................... 1998 ................................................................... 1999 ................................................................... 2000 ................................................................... 2001 ................................................................... 2002 ................................................................... 2003 ................................................................... 2004 .................................................................... 2005 .................................................................... 2006 (up to April 28, 2006) .................................	Number of Listed Companies at the Period End Stock Values 199 NT$ (in billions) 2,681.9 221 3,184.0 256 2,545.5 285 5,145.4 313 6,504.4 347 5,108.4 382 7,528.9 404 9,696.1 437 8,392.6 462 11,803.5 531 8,191.5 584 10,247.6 638 9,094.9 669 12,869.1 697 13,989.1 691 15,627.3 693 17,482.9	Trading Index at Index High Index Low Period End 12,495.34 2,560.47 4,530.16 6,305.22 3,316.26 4,600.67 5,391.63 3,327.67 3,377.06 6,070.56 3,135.56 6,070.56 7,183.75 5,194.63 7,124.66 7,051.49 4,503.37 5,173.73 6,982.81 4,690.22 6,933.94 10,116.84 6,820.35 8,187.27 9,277.09 6,251.38 6,418.43 8,608.91 5,474.79 8,448.84 10,202.20 4,614.63 4,739.09 6,104.24 3,446.26 5,551.24 6,462.3 3,850.04 4,452.45 6,142.32 4,139.5 5,890.69 7,034.1 5,316.87 6,139.69 6,575.53 5,632.97 6,548.34 7,171.77 6,660.76 7,171.77

Source: Taiwan Stock Exchange.

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

Price Limits, Commissions, Transaction Tax and Other Matters

The TSE has placed limits on the range of daily price movements of shares listed on the TSE. Fluctuations in the price of securities traded on the TSE is restricted to 7% above and below the previous day’s closing price in the case of equity securities, and 5% in the case of debt securities. The price limit for movements below the previous day’s closing price has been modified from time to time by ROC FSC based on market conditions.

Effective July 1, 2000, brokerage commission can be set at any rate not exceeding 0.1425% of the transaction price subject to reporting to the TSE.

A securities transaction tax of 0.3% of the transaction price is payable by the seller of equity securities and a securities transaction tax of 0.1% of the transaction price is payable by the seller of debt

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securities other than government bonds. These securities transaction taxes are withheld at the time of the transaction. According to the amended ROC Statute of Upgrading Industries, which became effective on February 1, 2002, no securities transaction tax will be imposed on the transfer of corporate bonds and financial debentures until December 31, 2009.

Sales of shares of listed companies on the TSE are generally sold in “round lots” of 1,000 shares. Investors who desire to sell less than 1,000 shares of a listed company occasionally experience delays in making these sales. Transactions of a single securities that involve 500 trading lots (500,000 shares) or more must be registered and executed in accordance with TSE guidelines. Transactions of a basket of stocks that involve at least five TSE-listed stocks with a total value of at least NT$15 million must also be registered and executed in accordance with TSE guidelines.

Regulation and Supervision

The ROC SFB has extensive regulatory authority over public companies. Public companies are generally required to register with, the ROC SFB for all securities offerings. The ROC SFB requires periodic reporting of financial and operating information by all public companies. In addition, the ROC SFB establishes standards for financial reporting and carries out licensing and supervision of participants in the Taiwan securities market.

The ROC SFB has responsibility for implementing the ROC Securities and Exchange Law and for overall administration of governmental policies in the Taiwan securities market. It has extensive regulatory authority over the offering, issuance and trading of securities. In addition, the ROC Securities and Exchange Law specifically empowers the ROC SFB to promulgate necessary rules. The ROC Securities and Exchange Law prohibits market manipulation. For example, it permits an issuer to recover short-term trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors, as well as the spouses, minor children and nominees of these parties, and shareholders who (together with their spouses, minor children and nominees) hold 10% or more of the shares of the issuer. The ROC Securities and Exchange Law prohibits trading by “insiders” based on information that materially affects share price movement prior to publication of such information and within 12 hours after publication of such information. “Insiders” include:

(i) directors, supervisors, managers, as well as the spouses, minor children and nominees of these parties, shareholders (together with their spouses, minor children and nominees) who hold 10% or more of the issuing company’s shares and, in the event that a government agency or a legal entity, being shareholders of the issuing company, is elected director or supervisor, individuals designated by such government agency or legal entity to exercise the duties of director or supervisor;
(ii) any person who has learned such material information due to an occupational or controlling relationship with the issuing company;
(iii) any person discharged from the status or position in above (i) and (ii) for not more than six months; and
(iv) any person who has learned such material information from any of the above.

Sanctions for market manipulation and insider trading include imprisonment. In addition, damages may be awarded to persons injured by the transaction..

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

In addition, the ROC Securities and Exchange Law provides for civil liability for material misstatements or omissions made by issuers.

The ROC SFB does not have criminal or civil enforcement powers under the ROC Securities and Exchange Law. Criminal actions may be pursued only by the government prosecutors. Civil actions may

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only be brought by plaintiffs who assert that they have suffered damages. The ROC SFB is empowered to curb abuses and violations of laws and regulations only through administrative measures including:

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

In addition to providing a market for securities trading, the TSE reviews applications by Taiwan issuers to list securities on the TSE. If issuers of listed securities violate laws and regulations or encounter extended or severe negative results of operations, the TSE may, with the approval of the ROC SFB, delist securities of these issuers.

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EXECUTIVE OFFICES OF THE COMPANY

Winbond Electronics Corporation

No.4, Creation Road 3, Science-Based Industrial Park Hsinchu 300 Taiwan, Republic of China

INDEPENDENT ACCOUNTANTS OF THE COMPANY

Deloitte & Touche

12[th] Floor, Hung Tai Plaza 156 Min Sheng East Road, Section 3 Taipei 105 Taiwan, Republic of China

TRUSTEE The Bank of New York, London Branch One Canada Square 48[th] Floor London E1 5AL England

REGISTRAR The Bank of New York 101 Barclay Street Floor 21W New York, N.Y. 10286 United States

PRINCIPAL, PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York, London Branch One Canada Square 48[th] Floor London E1 5AL England LEGAL ADVISERS To the Company as to ROC law Lee and Li 7[th] Floor, 201 Tun Hua North Road Taipei 105 Taiwan, Republic of China

To the Manager

as to U.S. and English law as to ROC law

Herbert Smith Tsar & Tsai 23[rd] Floor, Gloucester Tower 8[th] Floor, 245 Tun Hwa South Road, Section 3 11 Pedder Street, Central Taipei 106 Hong Kong Taiwan, Republic of China

To the Trustee

Lovells Lee and Lee 80 Raffles Place #54-01 UOB Place 1 Singapore 048624

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Offering Circular. You must not rely on any unauthorized information or representations. This Offering Circular is an offer to sell only the Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Offering Circular is current only as of its date.

U.S.$100,000,000

Winbond Electronics Corporation

Zero Coupon Convertible Notes Due 2011

Page

Enforceability of Foreign Judgments in the ROC ................4 Forward-Looking Statements ..............................................4 Certain Defined Terms, Conventions and Currency............5 Glossary of Technical Terms...............................................7 Summary...........................................................................10 Risk Factors ......................................................................18 Use of Proceeds................................................................27 Market Price Information ...................................................28 Dividends ..........................................................................29 Exchange Rates................................................................30 Capitalization.....................................................................31 The Company....................................................................32 Recent Developments and Outlook...................................36 Business............................................................................42 Board of Directors and Management.................................52 Principal Shareholders ......................................................55 Related Party Transactions...............................................56 Description of the Common Shares...................................57 Changes in Issued Share Capital......................................61 Terms and Conditions of the Notes...................................62 The Global Certificate........................................................92 Taxation ............................................................................98 Underwriting ....................................................................100 Legal Matters ..................................................................106 Independent Auditors ......................................................106 General Information.........................................................107 Summary of Certain Material Differences between ROC GAAP and U.S. GAAP..........................................108 Index to Financial Statements ......................................... F-1 Appendix A – Foreign Investment and Exchange Controls in the ROC ......................................................A-1 Appendix B – The Securities Market in the ROC ............B-1

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AI assistant

WEC — Capital/Financing Update 2017

52017_rns_2017-10-24_de482c90-0d8a-49e9-8046-73344a25d8ba.pdf

U.S.$100,000,000

Winbond Electronics Corporation

Zero Coupon Convertible Notes Due 2011

Offering Price: 100%

Goldman Sachs International

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

FORWARD-LOOKING STATEMENTS

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY

GLOSSARY OF TECHNICAL TERMS

SUMMARY

The Company

Corporate and Other Information

The Offering

Selected Financial Information

Recent Developments

Summary Interim Unaudited Unconsolidated Financial Information

Repurchase of Common Shares

RISK FACTORS

Risks Related to the Company and Its Business

Dependence on Global Information Technology and Telecommunications Industries

Impact of Worldwide DRAM Production and Demand for DRAM on Average Selling Prices

We may have difficulty in ramping up production, which could cause delays in product deliveries and loss of customers and adversely affect our business and operating results.

Product Cycle, New Products and Technological Changes

Competition

Reliance on Technology Sharing Arrangements

Relationship with Infineon

Any significant decrease in sales to one or more of our major customers may decrease our revenue and profits

Exchange Rate Risks

Control by Principal Shareholders

Production Risks

Disruptions in the Supply of Raw Materials

Dependence on Qualified Personnel

Intellectual Property Protection

Litigation

Allegation of Anticompetitive Conduct

Environmental Regulation

The Company Engages in Transactions with Related Parties

The Use of Joint Ventures may have an Adverse Effect on the Company ’ s Business

Risks Relating to the ROC

Political Risks Associated with Doing Business in Taiwan

Natural or Man-made Disasters

Outbreaks of Contagious Diseases

ROC Securities Market

Financial Reporting and Accounting Standards in the ROC

Foreign Exchange Control

Risks Related to the Notes and the Common Shares

Considerations Related to Conversion

Potential Liquidity of Notes and Common Shares

Disclosure Obligations

Fluctuations in Share Price

Fluctuations in Exchange Rate

USE OF PROCEEDS

MARKET PRICE INFORMATION

DIVIDENDS

EXCHANGE RATES

CAPITALIZATION

____

THE COMPANY

Overview of the Company

Organization of the Company

RECENT DEVELOPMENTS AND OUTLOOK

Critical Accounting Policies

Revenue Recognition

Allowance for Doubtful Accounts

Inventories

Allowances for deferred income tax assets

Impairment of long-lived assets

Investments

Results of Non-Consolidated Operations for The Three Months Ended March 31, 2005 and 2006

Results of Consolidated Operations for Years Ended December 31, 2004 and 2005

Results of Consolidated Operations for Years Ended December 31, 2004 and 2003

Liquidity and Capital Resources

Subsequent Events

Recent Accounting Pronouncements

Financial Instrument Transactions

Financial Instruments: disclosure and presentation

BUSINESS

WEC Capital/Financing Update 2017